Amazon lives on the edge, telecoms should tremble

5G networks will allow vast gobs of data to be transmitted at great speeds. And more data usually means more money for mobile carriers like Deutsche Telekom AG and AT&T Inc. But there’s a hitch. Cloud giants such as Amazon.com Inc., Alphabet Inc. and Microsoft Corp. are lurking.
The new tech enables ever more computational decision-making to be carried out by powerful processors sitting in the cloud. But when even a few milliseconds of lag can be a problem – as might be the case with high-frequency trading or connected factories – it’s worth trying to slash the time it takes to reach a cloud server.
That’s why the cloud giants are pushing what’s known as edge computing: where cloud functions run on servers that are physically closer to the end user, thereby cutting the distance to a computer making a given decision. They’re at the “edge” of the network. It’s a feature of the distributed cloud, where different functions are distributed across different parts of a network.
For telecoms firms that could be a problem. They’re terrified of spending hundreds of billions of dollars on upgrading their networks, only to become the providers of dumb pipes exploited by technology behemoths, and miss the most profitable opportunities the investments could generate. They don’t want a repeat of WhatsApp, whose free messaging platform gobbled up carriers’ SMS revenues.
The main cloud providers – Amazon Web Services, Microsoft Azure, Google Cloud and Alibaba Group Holding Ltd. – have a headstart when it comes to exploiting these opportunities. They have huge customer bases and developer ecosystems, in addition to their existing hordes of servers. In short, they have scale.
There are different ways carriers can try to control them. Just this month, Spain’s Telefonica SA announced it would sell Google Cloud solutions globally. Alone, that’s unlikely to generate much profit. But by inserting themselves into the transaction, they hope to be in prime position to offer additional lucrative services that run on a third party’s cloud. And when it comes to small- and medium-sized enterprises, network firms’ extensive local teams can offer comprehensive solutions. It’s less scalable than what the cloud operators do, but it’s still an opportunity.
The likes of Amazon and Google are proactive in creating demand for their products. Their customers then turn to their telecom providers and request the cloud giants’ services. That all but forces them to play along.
The race to the edge really does risk turning the network operators into providers of dumb pipes: enterprise customers’ data enter the network via AWS Outpost at one end, and travel to and from centralized servers without being exposed to the public internet, remaining on a private network. It raises carriers’ risk of disintermediation – that they get all but shut out of the most lucrative parts of the cloud business.
—Bloomberg

Alex Webb is a Bloomberg Opinion columnist covering Europe’s technology, media and communications industries