Telia Carrier’s Perspective of What’s Next —
The digitalization of business and its increasing use of public cloud services are dramatically transforming the network landscape. Instead of using dedicated MPLS services to connect offices with self-hosted data center applications, enterprises can now use a hybrid of public and private clouds. A technology called SD-WAN delivers the proven quality of service (QoS) and security required to reliably support business-critical application performance, enabling enterprises to connect to public and private clouds at lower costs using the public Internet instead. This is up-ending the telecom landscape, making wholesale carriers more relevant to enterprises, and minimizing many of the industries’ decade-long efforts to shift from backbone to enterprise services in search of higher margins.
From 2013 to 2017, price wars among cloud titans dramatically lowered the cost of cloud services and significantly increased public cloud adoption among enterprises. By the middle of 2017, AWS had issued its 62nd price reduction and Microsoft had cut prices of some of its offerings by up to 51%. Today, public cloud price wars rage on as the industry giants continue to try and differentiate themselves in subtle ways by offering lower cost storage, compute and cloud connect network services, or vertically targeted enterprise packages, to gain market share in this rapidly expanding sector.
Unlike America’s cola and burger wars, most enterprises were not using public cloud services before this but lower prices coupled with the cloud’s flexible pay-as-you-grow and outsourced best-of-breed tech support model made public cloud services irresistible to business. However, there were a few wrinkles in the new public cloud scenario, namely recognition of the growing importance of hybrid cloud, and the need for the network transformation required to support it.
Supporting Hybrid Cloud via SD-WAN and Public Internet
Despite the attractiveness of public cloud offerings, many enterprises still see a need to host some applications in-house, leading to growth and confirmation of the importance of hybrid cloud strategies to support a variety of business requirements. Reasons to maintain private data centers vary from regulatory compliance, data privacy and security, or the fact that enterprises may have customized applications that are impractical or otherwise difficult to move to, or support in, a public cloud environment. According to a Gartner report published in September 2018, Market Insights: Making Lots of Money in the New World of Hybrid Cloud and Multi-cloud, "…by 2020, 75% of organizations will have deployed a multi-cloud or hybrid cloud model."
Previously, dedicated WAN services such as MPLS were required to provide the security and performance needed to directly connect an enterprise office to its own self-hosted data center applications. Promoted to be reliable and secure, these connections often involved costly, multi-year contracts, and provided little flexibility if a firm needed to add new sites or upgrade its services.
The public cloud, on the other hand, is typically accessed via public Internet network services. Traditional WAN services such as MPLS were not designed for directly connecting an enterprise office to public-cloud-powered SaaS applications such as Office 365 or Salesforce.com that live at the edge. How can businesses create a network that delivers mission-critical performance across both environments while managing costs and without increasing complexity?
SD-WAN to the Rescue
Software-defined wide area networking (SD-WAN) which combines SDN and NFV, enables an optimized combination of MPLS, VPN, and public Internet functionality, while delivering reduced CapEx, OpEx, and complexity for carriers, enterprises, and their customers. It solved problems such as end-to-end QoS capabilities as well as encryption and other data security measures, and is also capable of self-healing, thus transforming the public Internet into the ideal way to connect both hybrid private and public clouds.
According to a recent Enterprise Management Associates’ (EMA) research report, Wide-Area Network Transformation: How Enterprises Succeed with Software-Defined WAN, 87% of distributed enterprises are increasing their use of the Internet as a primary WAN connectivity option; 97% of them are engaged with SD-WAN.
In addition to transforming the public Internet into the new backbone of everything, SD-WAN delivers many other benefits for telecom providers and enterprises alike. SD-WAN brings the telecom industry much closer to the reality of self-service and bandwidth on-demand applications, mirroring the flexible dial-up of compute and storage with elastic network services and the pay-as-you-grow business model of the cloud. Once a business is physically connected, it potentially enables service providers to rapidly dial-up, customize or add more broadband services remotely, without the need for additional truck rolls.
Perhaps one of the best features of SD-WAN is that similar tools are available to enterprises. Capabilities such as VXLAN and network slicing, a key element built into 5G architecture and new data center fabrics, coupled with innovations among vendors, enable enterprises to flexibly and rapidly customize their own networks. Enterprises can slice up networks and allocate resources according to their needs to meet seasonal or other business demands on the fly.
By taking advantage of a variety of virtual network functions, carriers and enterprises alike gain greater network visibility and can rapidly offer new, differentiated services. Improved visibility also enables better planning by offering predictive analytics to avoid future bottlenecks or downtime.
All of this is transforming both the telecom and enterprise networking landscapes. Wholesale carriers have
long been squeezed between the demand for ever-increasing bandwidth and customers’ desire to always have more at lower costs. Over the past decade, these pressures led many carriers to target enterprises in search of higher margins and more contracts, experimenting with new service offerings ranging from cloud, data center colocation, and a variety of managed hosting services. While this delivered more customers and slightly higher margins in the short term, it did not work out well in the long term.
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AWS-led public cloud price wars had a significant impact on how businesses consume broadband, cloud, data center colocation, and managed services. The result has been a massive sell-off of data centers and managed hosting assets by former wholesale carriers. For US carriers alone, more than 100 data centers and a managed hosting business have been sold since 2015, spanning a variety of Tier 1 international properties, and the trend continues to this day with at least 2 dozen facilities still up for grabs from a European carrier.
As many previous wholesale carriers attempted to crack the enterprise market, the result was the loss of wholesale market share and millions of dollars in the process, while attempting to offer enterprise services that were eventually made irrelevant by the cloud price wars. Since our founding in 1993, Telia Carrier has never strayed from its wholesale carrier focus, and currently operates the world’s Number One network (according to Dyn Research) accounting for more than 55% of global Internet routes. While we’ve spent our entire existence focusing on the wholesale backbone services market and trying to avoid cannibalizing our business by targeting enterprises, we now find that enterprises are reaching out to us.
Global enterprises are restructuring their networks around large colocation hubs where they can take advantage of competitively-priced, high-performance transport services and on-ramps to the cloud. Now, the question of Why are carriers interested in enterprise? isn’t as interesting as Why should enterprises care about carriers? and Who will be successful this time around?