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5G and cloud: Telcos fight for the future

As telecom networks become more like cloud providers, business models are converging.

It may be hard to fathom, but 15 years ago, the smart phone didn't exist. AT&T had rebranded itself from Cingular just a year earlier, and T-Mobile was a new name on the scene. Consumers spent an average of just 23 hours online per month, thanks to home broadband speed averaging a blazing 5 Mbps.

Today's telecommunications companies may seem utterly irreplaceable to the billions of customers who rely on them for broadband and wireless communications, but the industry has some big changes headed its way as carriers become increasingly commoditized and—more important—as competition arrives from unexpected quarters.

In five years, we will celebrate the 150th birthday of the telephone, or more specifically, of Bell's patent on it. What will these next several years bring to the business of telecom? We spoke to several experts to take a peek into the industry's future.

The rise of the private mobile network

Why pay AT&T or Verizon for cellular service when you can run a mini-telco of your own? Private mobile networks are changing the way larger enterprises manage their cellular services, letting them muscle in on what was once the exclusive domain of wireless carriers. Private mobile networks work much like the public cellular network, built on LTE and soon 5G—but they aren't run by wireless service providers. "A private mobile network is an LTE or 5G network that is owned and operated by a single organization and geographically bound by that company's property, such as a smart factory, campus, or shipyard," says Jay Nichols of Nichols Communications.

Please read: The latest on 5G: What you need to know

These networks have only recently become possible thanks to the Federal Communications Commission's opening of the Citizens Broadband Radio Service (CBRS) "innovation band" spectrum, which runs between 3.55 GHz and 3.7 GHz and was formally released in 2020. The auction of priority licenses raised $4.6 billion in August.

Now, companies are rolling ahead with private mobile networks, with companies like Celona offering the infrastructure needed to make it happen. The upshot is that these private networks are poised to cut into traditional telecommunications businesses, letting enterprises manage cellular service the same way they would manage a Wi-Fi network.

"The enterprise market is where the promise of 5G is likely to deliver the greatest returns," says Zeus Kerravala, principal analyst at ZK Research. Aruba, a Hewlett Packard Enterprise company, resells Celona products.

Telcos feel pressure from the cloud

Telecommunications companies have an additional emerging threat in the form of hyperscalers, big cloud service operators like Amazon Web Services and Microsoft Azure that are disrupting the way telcos do business. "Software developers are putting their applications on AWS and other cloud platforms," says Phil Mottram, senior vice president of the Communications Technology Group at HPE. "With 5G and edge technology, what they're likely to do next is deploy some of their applications close to the edge to improve latency. That actually puts them in conflict with the telcos."

Please read: How edge computing has become part of daily life

What will shape up over the next five years is a shakeout where hyperscalers begin providing some of the services telcos once offered, while telcos begin offering some of the computing services that were once the domain of hyperscalers. "In reality, the two may be in some form of partnership," says Mottram. "But if the telco loses its position, it can be difficult to maintain a competitive advantage." The jury's out on who currently has the advantage as the battle begins to heat up, but as analyst Roz Roseboro recently wrote, "When the name of the game is scale, it's hard to out-Amazon Amazon."

The irreversible decline of the wireline industry

The wired telecommunications business has been in free fall for at least a decade. What was a $122 billion industry in 2011 in the U.S. was less than half that size in 2020, and the industry continues to contract at about 7 percent per year. Naturally, the flip side of this contraction has been the unbridled growth of wireless. Globally, the industry was worth $75 billion in 2019 and is forecast to reach $162 billion by 2025, reflecting a growth rate of more than 21 percent.

The long, slow death of wired networks is nothing new, but wired telecommunications systems have managed to maintain a hold on a sizable chunk of the market because they offer a few things wireless networks can't: namely, speed and reliability. If you want to connect an office of a few hundred people to the Internet, the fastest and most effective solution has long been to install wired broadband.

But that's changing as 5G services roll out, offering reliability and speed that is competitive with wired solutions while freeing users from having to remain close to an access point. As users become increasingly mobile, it's inevitable that the wireline business will continue to decay—and probably faster than ever. "5G will fundamentally allow employees to perform almost any aspect of their job from anywhere," says Jeff Edlund, CTO of HPE Communications and Media Solutions.

A potential wired savior: Fiber

Back in the 1990s, high-speed fiber-optic cable began being laid in earnest in anticipation of a day when we'd all have a fiber line directly to our homes. Turns out these fiber-optic networks aren't going away, and in fact, in some parts of the world, they're on the rise.

Please read: The telecom network is modernizing with containers, cloud-native

As evidence of this, Mottram points to Australia's recent launch of a $3.5 billion plan that by 2023 will give a total of 8 million households the option to request a fiber-optic connection directly to their home, bringing gigabit speeds to the country's long-gestating, open-access National Broadband Network. Alas, not everyone around the world is following suit. The Google Fiber project, which launched with great fanfare in 2010 with the goal of bringing high-speed fiber connections directly to the home, has been on hold since 2016. Why? The company has been refocusing its efforts on wireless. Verizon largely halted expansion of its FiOS network in 2010.

Adapting to a new regulatory world

A new U.S. governmental administration and a renewed fight against monopoly abuses in the high-tech world—driven by the continued struggle against conspiracy-driven "fake news" and foreign interference in domestic affairs—are poised to usher the tech industry into a world of regulation the likes of which it has never seen. As telcos push to offer computing and content services in a bid to hold on to their kingdoms, they will find themselves increasingly subject to the regulations that are already confounding the rest of the industry, including GDPR and CCPA.

Of special consideration going forward is Section 230 of the 1996 Communications Decency Act, which protects online platforms from liability for content that users post. President Trump worked to roll back Section 230 protections in 2020, and President Biden has also called for the immediate revocation of Section 230. As the lines among telcos, hyperscalers, and content providers continue to blur—think Comcast and Verizon—the industry will have to quickly adapt to a world of regulation that could become daunting, fast.

Lessons for leaders

  • Telecom and cloud networking are converging. The providers of each will often be competing for your business.
  • Wireline Internet service is still expanding here and there, but the growth has mostly shifted to wireless service.
  • In many enterprise environments, particularly industrial ones, a private 5G network will make sense.

This article/content was written by the individual writer identified and does not necessarily reflect the view of Hewlett Packard Enterprise Company.