Industry Mulling Impact of AT&T-Microsoft Core Deal

John Byrne, Service Director

Summary Bullets:

  • AT&T announced it will transfer its mobile network to the Microsoft Azure cloud, beginning with the 5G core.
  • Other operators are likely to make a similar transition, though many will take much longer to do so than AT&T.

AT&T certainly grabbed the headlines – and stole some of the already dim MWC Barcelona spotlight – with its announcement June 30 that it will move its 5G network to Microsoft’s Azure for Operators cloud, beginning with its 5G core.

The announcement should not have been entirely unexpected: AT&T has been on a journey to the public cloud for several years; in point of fact, all of the U.S. operators have abandoned their public cloud strategies over the past several years in recognition that this opportunity had already passed them by in favor of AWS, Microsoft, and Google Cloud Platform. What was perhaps unexpected was the degree of commitment that AT&T has made to Microsoft, including its plans to transfer some of its network employees as part of the deal.

A few points we think are worth noting:

1) It is significant that AT&T has aligned with Microsoft Azure among the various cloud options it had. This is a clear sign of success for Microsoft’s acquisitions of Affirmed Networks and Metaswitch in 2020 that gave it a much stronger value proposition with regard to operators, particularly in (but not limited to) the network core.

2) This is a unique deal in that AT&T will be transferring employees to Microsoft. More than most operators, AT&T has invested heavily in the past six years to aggressively virtualize across its network, with the goal of virtualizing 75% of its network functions by September 2020 – a goal it says it reached. This is reflected in the investment in personnel focused on virtualization that will now largely be transferred to Microsoft.

3) While AT&T focused on virtualization, it appears that the move to cloud-native, Kubernetes, containerization, and the like may be the point at which it realized that it would never be able to keep pace with the innovation and ecosystem focus required to innovate on public cloud. As a result, AT&T concluded that now was the right time to hand over the reins to Azure to do the innovation here.

4) AT&T arguably finds itself in a weaker position on 5G than its rivals, particularly on 5G monetization. Reducing its costs on R&D and engineering related to 5G core infrastructure should help it focus on innovation in building 5G uses for consumers and particularly in the enterprise.

5) AT&T and Microsoft have made clear that core is the first place they will focus, but it would seem inevitable that radio/open RAN might be the next place they turn.

6) Other operators – particularly Verizon in the U.S. market – are likely watching this deal and may now be under pressure to make similar movements starting with 5G core. They are not on the same journey as AT&T, but many of the dynamics that motivated AT&T’s decision apply to other operators, domestically and internationally as well.

7) Microsoft appears well-positioned to offer 5G core capabilities to other smaller operators that may lack the appetite for investing in the cloud-native credentials required to operate the networks of tomorrow. Microsoft, leveraging its Metaswitch and Affirmed acquisitions and now the direct operator experience and core networking technology being brought over by transferred AT&T engineers, offers a compelling value proposition.

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