There have been some long-term shifts in market dynamics in the telecom industry. Network traffic growth rates have accelerated; new business models emerged; and cloud services matured and spread to new verticals, applications and customer sizes. Networks are more important than ever. Revenue growth rates and profitability in the three segments – telecom, webscale, and carrier-neutral – have been stronger in recent quarters than anticipated.
Looking ahead, networks will increasingly revolve around data centres, which will continue to proliferate both at the core and edge.
Data centre innovation will be rapid, as webscalers push the envelope on network design and function, and telecom operators seek cheaper ways of running their networks. The telecom operator’s need for cost efficiency will increase as overhyped 5G-based opportunities fail to materialise in any big way. Carrier-neutral operators (CNNOs) will benefit from an ongoing wave of new capital which will help them transform to more integrated providers of “digital infrastructure” assets.
Read on to find out about
- The interdependence of network operators
- The growth potential of the telecom, webscale, and CNNO markets
- How webscalers such as Facebook and Alibaba are leveraging scale
- Acquisition and deals in the CNNO market such as the American Tower-CoreSite acquisition and the Digital Realty deal with Ciena.
- The growth of environmental consciousness in the telecom industry
Click here to download The Future of Telecom: Industry Outlook for 2022 and Beyond slides as a PDF.
Earlier this month, I had the privilege of attending Oracle’s Executive Leadership Forum, to mark the launch of the Oracle Cloud Singapore Region. Oracle now has 34 cloud regions worldwide across 17 countries and intends to expand their footprint further to 44 regions by the end of 2022. They are clearly aiming for rapid expansion across the globe, leveraging their customers’ need to migrate to the cloud. The new Singapore region aims to support the growing demand for enterprise cloud services in Southeast Asia, as organisations continue to focus on business and digital transformation for recovery and future success.
Here are my key takeaways from the session:
#1 Enabling the Digital Futures
The theme for the session revolved around Digital Futures. Ecosystm research shows that 77% of enterprises in Southeast Asia are looking at technology to pivot, shift, change and adapt for the Digital Futures. Organisations are re-evaluating and accelerating the use of digital technology for back-end and customer workloads, as well as product development and innovation. Real-time data access lies at the backbone of these technologies. This means that Digital & IT Teams must build the right and scalable infrastructure to empower a digital, data-driven organisation. However, being truly data-driven requires seamless data access, irrespective of where they are generated or stored, to unlock the full value of the data and deliver the insights needed. Oracle Cloud is focused on empowering this data-led economy through data sovereignty, lower latency, and resiliency.
The Oracle Cloud Singapore Region brings to Southeast Asia an integrated suite of applications and the Oracle Cloud Infrastructure (OCI) platform that aims to help run native applications, migrate, and modernise them onto cloud. There has been a growing interest in hybrid cloud in the region, especially in large enterprises. Oracle’s offering will give companies the flexibility to run their workloads on their cloud and/or on premises. With the disruption that the pandemic has caused, it is likely that Oracle customers will increasingly use the local region for backup and recovery of their on-premises workloads.
#2 Partnering for Success
Oracle has a strong partner ecosystem of collaboration platforms, consulting and advisory firms and co-location providers, that will help them consolidate their global position. To begin with they rely on third-party co-location providers such as Equinix and Digital Realty for many of their data centres. While Oracle will clearly benefit from these partnerships, the benefit that they can bring to their partners is their ability to build a data fabric – the architecture and services. Organisations are looking to build a digital core and layer data and AI solutions on top of the core; Oracle’s ability to handle complex data structures will be important to their tech partners and their route to market.
#3 Customers Benefiting from Oracle’s Core Strengths
The session included some customer engagement stories, that highlight Oracle’s unique strengths in the enterprise market. One of Oracle’s key clients in the region, Beyonics – a precision manufacturing company for the Healthcare, Automotive and Technology sectors – spoke about how Oracle supported them in their migration and expansion of ERP platform from 7 to 22 modules onto the cloud. Hakan Yaren, CIO, APL Logistics says, “We have been hosting our data lake initiative on OCI and the data lake has helped us consolidate all these complex data points into one source of truth where we can further analyse it”.
In both cases what was highlighted was that Oracle provided the platform with the right capacity and capabilities for their business growth. This demonstrates the strength of Oracle’s enterprise capabilities. They are perhaps the only tech vendor that can support enterprises equally for their database, workloads, and hardware requirements. As organisations look to transform and innovate, they will benefit from the strength of these enterprise-wide capabilities that can address multiple pain points of their digital journeys.
#4 Getting Front and Centre of the Start-up Ecosystem
One of the most exciting announcements for me was Oracle’s focus on the start-up ecosystem. They make a start with a commitment to offer 100 start-ups in Singapore USD 30,000 each, in Oracle Cloud credits over the next two years. This is good news for the country’s strong start-up community. It will be good to see Oracle build further on this support so that start-ups can also benefit from Oracles’ enterprise offerings. This will be a win-win for Oracle. The companies they support could be “soonicorns” – the unicorns of tomorrow; and Oracle will get the opportunity to grow their accounts as these companies grow. Given the momentum of the data economy, these start-ups can benefit tremendously from the core differentiators that OCI can bring to their data fabric design. While this is a good start, Oracle should continue to engage with the start-up community – not just in Singapore but across Southeast Asia.
#5 Commitment to Sustainability at the Core of the Digital Futures
Another area where Oracle is aligning themselves to the future is in their commitment to sustainability. Earlier this year they pledged to power their global operations with 100% renewable energy by 2025, with goals set for clean cloud, hardware recycling, waste reduction and responsible sourcing. As Jacqueline Poh, Managing Director, EDB Singapore pointed out, sustainability can no longer be an afterthought and must form part of the core growth strategy. Oracle has aligned themselves to the SG Green Plan that aims to achieve sustainability targets under the UN’s 2030 Sustainable Development Agenda.
Cloud infrastructure is going to be pivotal in shaping the future of the Digital Economy; but the ability to keep sustainability at its core will become a key differentiator. To quote Sir David Attenborough from his speech at COP26, “In my lifetime, I’ve witnessed a terrible decline. In yours, you could and should witness a wonderful recovery”
Conclusion
Oracle operates in a hyper competitive world – AWS, Microsoft and Google have emerged as the major hyperscalers over the last few years. With their global expansion plans and targeted offerings to help enterprises achieve their transformation goals, Oracle is positioned well to claim a larger share of the cloud market. Their strength lies in the enterprise market, and their cloud offerings should see them firmly entrenched in that segment. I hope however, that they will keep an equal focus on their commitment to the start-up ecosystem. Most of today’s hyperscalers have been successful in building scale by deeply entrenching themselves in the core innovation ecosystem – building on the ‘possibilities’ of the future rather than just on the ‘financial returns’ today.
The emergence of COVID-19 last year caused a rapid shift towards work and study from home, and a pickup in eCommerce and social media usage. Tech companies running large data centre-based “webscale” networks have eagerly exploited these changes. Already flush with cash, the webscalers invested aggressively in expanding their networks, in an effort to blanket the globe with rapid, responsive connectivity. Capital investments have soared. For the webscale sector, spending on data centres and related network technology accounts for over 40% of the total CapEx.
Here are the 3 key emerging trends in the data centre market:
#1 Top cloud providers drive webscale investment but are not alone
The webscale sector’s big cloud providers have accounted for much of the recent CapEx surge. AWS, Google, and Microsoft have been building larger facilities, expanding existing campuses and clusters, and broadening their cloud region footprint into smaller markets. These three account for just under 60% of global webscale tech CapEx over the last four quarters. Alibaba and Tencent have been reinforcing their footprints in China and expanding overseas, usually with partners. Numerous smaller cloud providers – notably Oracle and IBM – are also expanding their cloud services offerings and coverage.
Facebook and Apple, while they don’t provide cloud services, also continue to invest aggressively in networks to support large volumes of customer traffic. If we look at Facebook, the reason becomes clear: as of early 2021, they needed to support 65 billion WhatsApp messages per day, over 2 billion minutes of voice and video calls per day, and on a monthly basis their Messenger platform carries 81 billion messages.
The facilities these webscale players are building can be immense. For instance, Microsoft was scheduled to start construction this month on two new data centres in Des Moines Iowa, each of which costs over USD 1 billion and measures over 167 thousand square metres. And Microsoft is not alone in building these large facilities.
#2 Building it all alone is not an option for even the biggest players
The largest webscalers – Google, AWS, Facebook and Microsoft – clearly prefer to design and operate their own facilities. Each of them spends heavily on both external procurement and internal design for the technology that goes into their data centres. Custom silicon and the highest speed, most advanced optical interconnect solutions are key. As utility costs are a huge element of running a data centre, webscalers also seek out the lowest cost (and, increasingly, greenest) power solutions, often investing in new power sources directly. Webscalers aim to deploy facilities that are on the bleeding edge of technology. Nonetheless, in order to reach the far corners of the earth, they have to also rely on other providers’ network infrastructure. Most importantly, this means renting out space in data centres owned by carrier-neutral network operators (CNNOs) in which to install their gear.
The Big 4 webscalers do this as little as possible. For many smaller webscalers though, piggybacking on other networks is the norm. Of course, they want some of their own data centres – usually the largest ones closest to their main concentrations of customers and traffic generators. But leasing space – and functionalities like cloud on-ramps – in third-party facilities helps enormously with time to market.
Oracle is a case in point. They have expanded their cloud services business dramatically in the last few years and attracted some marquee names to their client list, including Zoom, FedEx and Cisco. To ramp up, Oracle reported a rise in CapEx, growing to USD 2.1 billion in the 12 months ended June 2021, which represents a 31% increase from the previous year. However, when compared to Microsoft’s spending this appears modest. Microsoft reported having spent USD 20.6 billion in the 12 months ended June 2021 – a 33% increase over the previous year – to help drive the growth of their Azure cloud service.
One reason behind Oracle’s more modest spending is how heavily the company has relied on colocation partners for their cloud buildouts. Oracle partners with Equinix, Digital Realty, and other providers of neutral data centre space to speed their cloud time to market. Oracle rents space in 29 Digital Realty locations, for instance, and while Equinix doesn’t quantify its partnership with Oracle, Oracle’s cloud regions across the globe access the Oracle Cloud Infrastructure (OCI) via the Equinix Cloud Exchange Fabric. Oracle also works with telecom providers; their Dubai cloud region, launched in October 2020, is hosted out of an Etisalat owned data centre.
#3 Carrier-neutral data centre investment is surging in concert with webscale/cloud growth
As the webscale sector has raced to expand over the last 2 years, companies that specialise in carrier-neutral data centres have benefited. Industry sources estimate that as much as 50% or more of the cloud sector’s total data centre footprint is actually in these third-party data centres. That is unlikely to change, especially as some CNNOs are explicitly aiming to build out their networks in areas where webscalers have less incentive to devote resources. It’s not just about the webscalers’ need for space; the need for highly responsive, low latency networks is also key, and interconnection closer to the end-user is a driver.
Looking at the biggest publicly traded carrier-neutral providers in the data centre sector shows that their capacity has expanded significantly in the last few years (Figure 1)
By my estimation, for the first 6 months of 2021, CapEx reported publicly for these CNNOs increased 18% against 1H20, to an estimated USD 4.1 Billion. Beyond the big public names, private equity investment is blossoming in the data centre market, in part aimed at capturing some of the demand growth generated by webscalers. Examples include Blackstone’s acquisition of QTS Realty Trust, Goldman Sachs setting up a data centre-focused venture called Global Compute Infrastructure; and Macquarie Capital’s strategic partnership with Prime Data Centers.
Some of this new investment target core facilities in the usual high-traffic clusters, but some also target smaller country markets (e.g. STT’s new Bangkok-based data centre), and the network edge (e.g. EdgeConneX, a portfolio company of private equity fund EQT Infrastructure).
EdgeConneX is a good example of the flexibility required by the market. They build smaller size facilities and deploy infrastructure closer to the edge of the network, including a PoP in Boston’s Prudential Tower. The company offers data centre solutions “ranging from 40kW to 40MW or more.” They have built over 40 data centres in recent years, including both edge data centres and a number of regional and hyperscale facilities across North America, Europe, and South America. Notably, EdgeConneX recently created a joint venture with India’s property group Adani – AdaniConneX – which looks to leverage India’s status of being the current hotspot for carrier-neutral data centre investment.
As enterprises across many vertical markets continue to adopt cloud services, and their requirements grow more stringent, the investment climate for new data centre capacity is likely to remain strong. Webscale providers will provide much of this capacity, but carrier-neutral specialists have an important role to play.
