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Infinite, unlimited, and approaching zero

cloud
(Image credit: Shutterstock / issaro prakalung)

AWS’ big cloud conference, Re:Invent 2020, was held in December and I managed to catch a really great session presented by US bank Capital One’s Chris Nims, Senior Vice President of Cloud and Productivity Engineering.

Why would a telco girl like me want to go catch a session with a Fortune 500 bank? Because I had seen their recent announcement that Capital One was going all in on the public cloud. They aren’t the first bank to make this announcement; last year Jamie Dimon was on stage with Andy Jassy at AWS Re:Invent 2019 declaring JP Morgan Chase was all in on public cloud.

However, when you look to the telecommunications industry, these kinds of announcements are few and far between. Telcos are still wondering if they should build a private cloud or if the hyperscalers are more of a threat than a partner. Seriously?

I love to use banking as a proxy for telco because of the industry similarities. Both are highly regulated; both have coveted customer data that governments, bad actors, and hyperscalers would love to get their hands on; they are filled with old, legacy IT applications; and both are global industries. Excluding the huge network investment that telcos make on the reg (which admittedly, is not a small insignificant thing) - these two huge industries are a lot alike.

So why then is telco so far behind the eight ball when it comes to cloud transformation?

After talking with hundreds of telco executives over the past three years about moving to the public cloud, there are a lot of reasons why they say they can’t do it. Let’s go through the list of issues I’ve heard, in no particular order:

  • It’s not secure enough;
  • We can’t because of country regulations;
  • [Insert hyperscaler name] is a competitor and wants to use our data for their business, like ads;
  • We already invested in building our data centers;
  • We looked at it and it’s more expensive;
  • We don’t want to be locked in with a public cloud vendor;
  • Geopolitical reasons;
  • And my new favorite...Hyperscalers are the enemy coming to take our business.

Thing is...back in the day, banking had the same objections. About 10 years ago, Bank of America (BofA) and JP Morgan Chase both decided to build their own private clouds. Both eventually figured out it was the wrong approach; JP Morgan Chase decided to pivot to the public cloud, but BofA did not. BofA decided to move to...wait for it...IBM’s hybrid cloud. I’ll tell you right now: one of these guys is right, and one of these guys is very, very wrong.

What banking has realized (and what telco is just waking up to), is the fact that the public cloud is an unstoppable megatrend. It’s not a matter of if public cloud will come to telco, it’s a matter of when.

Telcos that use these excuses to stick their heads in the sand and hope the public cloud just goes away (à la NFV) will not survive the tsunami of change that is coming. Be on the lookout for the ones that embrace it - like CapitalOne and JP Morgan Chase - and reap all the benefits and survive.

So let’s talk about a telco that’s getting it right and going all in: Deutsche Telekom (DT), based in Germany. DT is a tier one communications service provider (CSP) with over 200M subscribers across all the major lines of business (fixed, mobile, broadband) who embarked on a bold maneuver: move as much of their IT footprint to the public cloud.

It’s hard to find data on this project - there’s this lone blog posting on their website; this announcement that they are partnering with AWS and more recently, Azure; and this article by Iain Morris that appeared in Light Reading this month. To share the TelcoDR version of what they are doing, here’s a little summary about their cloud project:

It is meaty...

...they plan to move 60 percent of IT applications.

It is bold...

...they plan to reduce the number of data centers from 89 to 13.

It is big...

...they will complete 5,200 migration projects consisting of 23,600 servers without disrupting customer operations.

It is saving money...

...they will achieve annual triple-digit million euro savings.

They are getting more capacity for less...

...despite fewer data centers, they will increase the compute and storage capacity by ~25 percent.

While they help the environment...

...with 56 percent lower CO2 emissions for computer center operations.

Doing it with less people...

...headcount fell by nearly 15,000 between 2015 and 2019.

It’s good for the business...

...by seeing per-employee revenues improving from about €307,000 ($372,000) to more than €383,000 ($464,000) between 2015 and 2019.

And for shareholders...

...improving their earnings margin by seven points to 35.5 percent for the first nine months of this year, up from 28.7 percent for the same part of 2015.

This is why telcos should move. All of them could see these benefits like DT is seeing by moving a majority of their IT applications to the public cloud. I think DT could move more than 60 percent of their applications; I believe the number could be closer to 80 percent. I’m sure things like legacy IT applications, getting talent in-house to do the work, and competing projects make it hard to migrate the rest of the applications. But I leave readers with my favorite quote from Chris Nims’ CapitalOne session that I think says it all:

“Capital One is an entirely different company than we were eight years ago. We can’t wait for what’s possible next on the [public] cloud. It’s an incredible platform that offers nearly infinite computing power in real time and nearly unlimited storage at a cost approaching zero.”

Emphasis mine, of course. But if you are a telco exec wondering how you’re going to survive the coming tidal wave of public cloud, how you’re going to pivot and improve your operations, manage the margin pressure from the cost of 5G networks that you are struggling to monetize with a team that continues to fight to keep their on-premise data centers, I hope you remember Chris’ words of how good it could be for your organization.

Danielle Royston, Founder and CEO, TelcoDR