11 Jun Google heads into Telefonica’s edge: Alliance or landgrab? | Light Reading
The web giants continue their invasion of the telecom sector. Just a few weeks after Microsoft swallowed Affirmed Networks and Metaswitch, two network software developers, Google has marched into the network of Spain’s Telefnica. The “alliance,” which comes months after a similar move with Telecom Italia, is plotting new “edge” services based on the new 5G standard. But it poses all sorts of questions about the shifting balance of power between cloud and telco titans.
Each company has something the other one needs. For Google, it’s Telefnica’s last-mile infrastructure, potentially including its many thousands of central offices dotted about the country. Applications are traditionally hosted in large data centers that can be hundreds or even thousands of miles from end users, resulting in a lag on the network (called “latency” in the industry). This wasn’t a problem in the 4G days, but it might be with new 5G applications. To solve it, central offices and other telecom infrastructure can be repurposed as mini data facilities at the network’s “edge.” In parts of Spain, Telefnica is already at work on this transformation.
Telefnica, for its part, needs Google’s hyperscale chops and IT expertise. Operators have never been good at application development or had much cloud-computing knowhow, and that is unlikely to change with the arrival of 5G. A Google partnership gives Telefnica access to the web giant’s mobile edge platform and other important cloud and software goodies. At the very least, these will include the standard set of platform products that Google Cloud offers.
Not much else is promised initially, though. The headline details are that Google Cloud will set up camp in the Madrid area, using infrastructure provided by Telefnica. At first, this means companies there will be able to use Google Cloud products with reduced latency and better network performance, says Telefnica in a statement. Those worried about data security far from home will also be able to store applications in local public cloud servers. But when it comes to new types of 5G application for companies and consumers, no examples are provided.
The announcement also begs many other questions, to which Telefnica had not responded at the time of publication. Does the use of Google’s mobile edge computing platform rule out the use of other “middleware” providers, such as MobiledgeX, a software company backed by Deutsche Telekom that Telefnica was previously assessing? Where, exactly, does Google’s platform get deployed? Another uncertainty is what this deal means, if anything, for Telefnica’s strategic alliance with Amazon Web Services, announced in May 2018. While 5G and the edge were not mentioned in that case, Telefnica had previously been in talks about Greengrass, Amazon’s own edge-computing platform.
The news may also trouble those perennially worried operators are ceding ground to Internet companies. How revenues from new 5G applications are shared, and who takes the lead in customer relationships, are further unanswered questions, but alarmists will see this as another sign operators are being driven into the connectivity backwoods of the 5G business.
Some operators, clearly, have been much warier of tie-ups with Internet firms. “I won’t mention names, but we’ve already had exclusive deals offered where they want to provide infrastructure and for us to provide only connectivity,” said Channa Seneviratne, a network engineering director for Australia’s Telstra, at a conference in June last year. Earlier in 2019, Howard Watson, the chief technology officer of the UK’s BT, declined to answer a question about his willingness to let Google and Amazon into BT’s edge. “I think that’s something we spend quite a lot of time thinking about and isn’t something we’re going to comment on at this stage.”
Notwithstanding those concerns, the alliance with Google is one of the first outings for Telefnica Tech, the new business unit the Spanish operator set up as part of its latest big restructuring in late 2019. Uniting smaller units targeting big data, the cloud, the Internet of Things and security, this overarching group is aiming for 2 billion (US$2.3 billion) in additional annual sales by 2022. That implies a near doubling in revenues over the next three years and would require Telefnica to sustain an annual growth rate of 21%.
On the plus side, revenues were up 26% last year, said Telefnica, and a more joined-up strategy should aid their prospects. But gains in 2019 were from a smaller base, and Telefnica didn’t have to contend with a pandemic back then. Telefnica’s digital track record is questionable, too. In 2011, it set up a business called Telefnica Digital, with similar transformational objectives to the new Telefnica Tech. Three years later that fell victim to a round of cutbacks and restructuring. As interesting as the Google tie-up looks, the Spanish operator will have to do more to show that Telefnica Tech can thrive.
Iain Morris, International Editor, Light Reading