Making Sense of the Telco Cloud

In recent years the cloudification of communication networks, or “telco cloud” has become a byword for telecom modernisation. This Telecoms.com Intelligence Monthly Briefing aims to analyse what telcos’ transition to cloud means to the stakeholders in the telecom and cloud ecosystems. Before exploring the nooks and crannies of telco cloud, however, it is worthwhile first taking an elevated view of cloud native in general. On one hand, telco cloud is a subset of the overall cloud native landscape, on the other, telco cloud almost sounds an oxymoron. Telecom operator’s monolithic networks and cloud architecture are often seen as two different species, but such impressions are wrong.

(Here we are sharing the opening section of this Telecoms.com Intelligence special briefing to look into how telco cloud has changing both the industry landscape and operator strategies.

The full version of the report is available for free to download here.)

What cloud native is, and why we need it

“Cloud native” have been buzz words for a couple of years though often, like with many other buzz words, different people mean many different things when they use the same term. As the authors of a recently published Microsoft ebook quipped, ask ten colleagues to define cloud native, and there’s good chance you’ll get eight different answers. (Rob Vettor, Steve “ardalis” Smith: Architecting Cloud Native .NET Applications for Azure, preview edition, April 2020)

Here are a couple of “cloud native” definitions that more or less agree with each other, though with different stresses.

The Cloud Native Computing Foundation (CNCF), an industry organisation with over 500 member organisations from different sectors of the industry, defines cloud native as “computing (that) uses an open source software stack to deploy applications as microservices, packaging each part into its own container, and dynamically orchestrating those containers to optimize resource utilization.”

Gabriel Brown, an analyst from Heavy Reading, has a largely similar definition for cloud native, though he puts it more succinctly. For him, cloud native means “containerized micro-services deployed on bare metal and managed by Kubernetes”, the de facto standard of container management.

Although cloud native has a strong inclination towards containers, or containerised services, it is not just about containers. An important element of cloud native computing is in its deployment mode using DevOps. This is duly stressed by Omdia, a research firm, which prescribes cloud native as “the first foundation is to use agile methodologies in development, building on this with DevOps adoption across IT and, ideally, in the organization as well, and using microservices software architecture, with deployment on the cloud (wherever it is, on-premises or public).”

Some would argue the continuous nature of DevOps is as important to cloud native as the infrastructure and containerised services. Red Hat, an IBM subsidiary and one of the leading cloud native vendors and champions for DevOps practices, sees cloud native in a number of common themes including “heavily virtualized, software-defined, highly resilient infrastructure, allowing telcos to add services more quickly and centrally manage their resources.”

These themes are aligned with the understanding of cloud native by Telecoms.com Intelligence, and this report will discuss cloud native and telco cloud along this line. (A full Q&A with Azhar Sayeed, Chief Architect, Service Provider at Red Hat can be found at the end of this report).

The main benefits of cloud native computing are speed, agility, and scalability. As CNCF spells it out, “cloud native technologies empower organizations to build and run scalable applications in modern, dynamic environments such as public, private, and hybrid clouds. Containers, service meshes, microservices, immutable infrastructure, and declarative APIs exemplify this approach. These techniques enable loosely coupled systems that are resilient, manageable, and observable. Combined with robust automation, they allow engineers to make high-impact changes frequently and predictably with minimal toil.”

To adapt such thinking to the telecom industry, the gains from migrating to cloud native are primarily a reflection of, and driven by, the increasing convergence between network and IT domains. The first candidate domain that cloud technology can vastly improve on, and to a certain degree replace the heavy infrastructure, is the support for the telcos’ own IT systems, including the network facing Operational Support Systems and customer facing Business Support System (OSS and BSS).

But IT cloud alone is far from what telcos can benefit from the migration to cloud native. The rest of this report will discuss how telcos can and do embark on the journey to cloud native, as a means to deliver true business benefits through improved speed, agility, and scalability to their own networks and their customers.

The rest of the report include these sections:

  • The many stratifications of telco cloud
  • Clouds gathering on telcos
  • What we can expect to see on the telco cloud skyline
  • Telco cloud openness leads to agility and savings — Q&A with Azhar Sayeed, Chief Architect, Service Provider, Red Hat
  • Additional Resources

The full version of the report is available for free to download here.

Google looking at Vodafone Idea investment – report

Google is rumoured to be considering an investment in struggling Indian telco Vodafone Idea as Facebook positions itself for an assault on the market.

India has long been held in high regard for the potential of its economy, but this promise has often failed to translate into profits. Hope has been renewed with Reliance Jio democratising connectivity across the country, and it seems to be getting US investors excited.

According to reports in the Financial Times, Google is looking at an investment in the struggling Vodafone Idea, as much as 5%, as a pathway to Indian riches.

Some have suggested Google’s parent company was considering an investment in Reliance Jio, though these rumours are highly unlikely to progress any further with Facebook’s investment in the disruptive telco. That said, an investment in Vodafone Idea would be a very interesting transaction.

Firstly, Google would like to enter the Indian market. Reliance Jio has forced rivals to re-evaluate tariffs, opening-up connectivity to the masses. Democratised connectivity is a remarkable opportunity for Silicon Valley, one which is not being ignored by anyone else. Google has numerous business units which would benefit; balloons to offer connectivity in rural environments, a cloud computing unit and mobile-native applications from search to video and payments.

Secondly, Vodafone Idea needs input, both financially and operationally. It is facing a considerable spectrum bill from the Government and parent company Vodafone has said it would not be contributing anymore funds. Operationally, something has to change if it is to compete with Reliance Jio and bringing in one of the worlds’ most innovative companies would certainly be a step forward.

This could be a cut-price opportunity for Google to get a solid foot through India’s front door at a time where the market potential is looking very attractive.


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Indian telco association pushes for ‘floor tariffs’ on data pricing

In an open letter to India’s telecoms regulator, the Cellular Operators Association of India (COAI) has pressed for quicker decision making on pricing restriction rules.

The COAI is in a very interesting position currently. As an association representing the telecoms industry, it is tasked with responsibilities to lobby government authorities for favourable rules. But the question is what are favourable rules?

The association has three core members; Bharti Airtel, Vodafone Idea and Reliance Jio. Two of these members would like more stringent rules on pricing to protect their interests from the disruptive pricing strategies of the third, Reliance Jio.

Jio entered the market at the end of 2015 with data plans to undermine the traditional telcos and free phone calls for new customers. Bharti Airtel and Vodafone Idea suffered because of it and have been calling for more stringent rules to prevent the disruptive Jio from causing even more chaos and continuing to erode profits.

This is a painful position for a telco-neutral association to be in, though it is in favour of floor pricing.

“We expected an early decision by the Authority, on having the Floor Tariffs for the Data services,” Rajan Mathews, Director General of the COAI said in the letter to the Telecom Regulatory Authority of India (TRAI).

“While, we acknowledge that the recent situation on account of COVID-19 might have caused some constraints, however the Authority has started conducting the OHD through online process on various other topics. Accordingly, we request the Authority to kindly hold an OHD on this issue at the earliest.

“The industry is looking forward to an early conclusion on this important matter with great interest and we therefore request the Authority for an early decision on the same.”

The longer this consultation from the TRAI continues, uncertainty prevails. Uncertainty is the enemy of progress and investment in the telecoms industry. A speedy decision would be the biggest net gain for the industry, though it is questionable whether anything can be done quickly in the telecoms industry.


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Vodafone and TIM both flog a bunch of INWIT shares to pay off debt

Less than a month after completing the merger of their towers businesses, Vodafone and TIM have sold an equal chunk of it each to raise some cash.

The merger was finalised late last month, giving Vodafone and TIM 37.5% of INWIT (Infrastrutture Wireless Italiane) each. They have now both placed 41.7 million shares, which equates to 4.3% of the total, at €9.60 per share. This will raise around €400 million for each telco group, which they are both saying will be used to ‘reduce leverage’ – i.e. pay down some debt.

Each operator group now owns 33.2% of INWIT and the two of them issued almost identical announcements, showing how tightly coordinated this move was. The fact that it comes so soon after the merger itself strongly implies the share placement was all part of the grand plan. Furthermore, at these prices, the tow of them have room to raise a few hundred million more euros if they still feel strapped for cash.

While TIM is still reeling from the cost of the last Italian spectrum auction, the nature of the Indian market means it maybe Vodafone that feels in need of fresh funds the soonest. The company announced yesterday that it has channelled $200 million into Vodafone Idea, despite the amount not being due until September.

“Vodafone Group has accelerated this payment to provide Vodafone Idea with liquidity to manage its operations, and to support the approximately 300 million Indian citizens who are Vodafone Idea customers as well as the thousands of Vodafone Idea employees during this phase of emergency health measures, taken as a result of the COVID-19 pandemic,” said the announcement.

Vodafone Idea owes the Indian government a ton of cash and it remains unclear whether it will be able to pay. In the meantime, thanks to the recent dominance of Reliance Jio, the cashflow situation at Vodafone Idea remains dicey, so Vodafone Group is presumably grateful for any extra cash injections.

Vodafone Idea starts to lobby for minimum pricing

Vodafone Idea has written a letter to the Indian Government which suggests it is pushing for minimum pricing to ensure a healthy and sustainable telco industry.

As it stands, the competition conundrum in India heading towards a perilous conclusion. With Vodafone threatening to abandon its pursuit of digital riches in the country, a defacto market duopoly is increasingly becoming a realistic outcome. This would be far from a perfect position.

According to The Economic Times, Vodafone Idea has demanded the introduction of a minimum cost for data tariffs in the country. The proposed plan would see prices set at a minimum of 35 Indian Rupees (c.$0.48) which would be more than double the average cost per GB in the country as it stands. Vodafone Idea is also asking for free phone calls to be banned.

While Indian consumers might be disturbed by the prospect of a price hike, especially considering there was already one three months ago, it is perhaps a necessary step to ensure competition is preserved in the country.

The introduction of Reliance Jio in 2016 was seemingly an effort to stimulate progress in a lethargic telco industry, hence the Government assistance which was offered to the firm. But it arguably went too far, taking prices far below want would be deemed sustainable for the competition which have to deal with legacy networks, products and business processes.

Looking at the concept of competition, it is generally accepted that 3-4 telcos are required to ensure the consumer is protected through suitable competition. This unofficial rule has resulted in many acquisitions being denied in Europe, or at least there being major concessions being offered to create a replacement. The same scenario is currently being played out in the US with T-Mobile and Sprint merging, but with Dish emerging as a replace fourth player.

However, India as a country is a different case. With a population of 1.3 billion, many of whom will live in areas where the digital divide is incomprehensible to those in more developed digital markets, perhaps Indian authorities should be doing more to encourage more investment and competition. Three MNOs does not look to be a sustainable position right now, and the prospect of dropping to two would worry many.

Vodafone has threatened to pull out of its joint venture with Idea Cellular due to the $7 billion spectrum licence bill it is facing, though it does seem to be searching for ways to make the situation work. The proposal to introduce a minimum price for data could add more security for the firm which is desperately attempting to avoid bankrupting itself in search of the rainbow’s end.

Indian government strives to save its dwindling telco industry

Government officials have reportedly been having meetings to figure out how the prospects for Vodafone Idea can be improved and three-way competition can be preserved.

Rumours have been circling the Indian telco space over recent weeks as it appears the industry is sleep-walking towards the death of Vodafone Idea and the creation of a defacto duopoly. One potential outcome in the immediate future would be invoking banking guarantees, a precursor to termination of telecom licences, according to the Economic Times, though this would be a worrying move.

With finance and telecoms ministers meeting in private, the objective could be to preserve a level of competition which is deemed adequate. Three private telcos should be considered the absolute minimum, though this is arguably too few for a nation the size of India. If the status quo is to continue concessions will have to be made.

What is actually being discussed behind closed doors remains to be seen, though reports are suggesting the Indian Government is seeking remedies to the precarious situation. This may well mean deferred or staggered repayments for the €7 billion spectrum bill being faced by both Vodafone Idea and Bharti Airtel.

The seriousness of the situation in India should not be taken lightly, though whether the Indian Government has the foresight to appreciate the damage which could be done in pursuing immediate repayment remains to be seen.

Vodafone Group CEO Nick Reid has repeatedly stated he would not be prepared to invest more capital in the market, or at least the vast sums which are being discussed today. It does appear Vodafone is prepared to wrap-up the joint venture between itself and Idea Cellular. Reid is perhaps looking at the big picture.

Vodafone is under pressure in several markets across the world. In the UK, it is spending significantly to bolster its current market share, while both Spain and Italy are presenting challenging environments thanks to heightened competition. India offers great potential, but $7 billion is a significant investment to remain in the hunt. At some point, executives will have to question when the end is nigh.

The ‘Chase Theory’ is usually associated with compulsive gambling, but it is also applicable here. As one of the simplest forms of gambling, the punter doubles down to recoup losses in pursuit of a theoretical gain. India is a market which offers great rewards due to a massive population and rapid digitisation, but it is proving to be a very costly pursuit. The last thing Reid will want to do is bankrupt his business chasing the hypothetical pot of gold at the end of the rainbow.

If the Indian Government does not introduce some flexibility into its mindset in dealing with the telcos, the market will soon devolve into a defacto duopoly. Admittedly, there are two state-owned telcos still in the fray, but these are providing next to no genuine competition. For a sustainable and healthy telecoms industry in India, the existence of Vodafone Idea should be considered priority number one.

The trickiest aspect of this discussion will be how to maintain credibility as an authority; the Indian Government needs to help Vodafone Idea, but it cannot be held to ransom by divas in the telecoms space.

Indian Supreme Court takes another step towards telco duopoly

The Indian Supreme Court has rejected a plea from Vodafone Idea and Bharti Airtel to defer disputed spectrum licence fee payments, making the collapse of Vodafone Idea a realistic outcome.

While the dispute has been on-going for more than a decade, it has intensified considerably over the last few months. Vodafone Idea and Bharti Airtel are liable for roughly $7 billion each in payments, thanks to penalty fees and interests, and have been attempting to negotiate better terms.

The plea to the India Supreme Court, where the telcos asked for interest fees to be dropped and the sum to be payable over a ten-year period, has now been officially rejected. Vodafone Idea and Bharti Airtel now have until March 13 to make the payments to the Indian Government in full.

The question which now remains is whether the death of the Vodafone Idea business is anything more than a matter of time.

The dispute in question concerns license fees which the telcos are liable for. As part of the licence, the India Government is entitled to a slice of the profits, though what this percentage is and what it is a percentage of is the centre of the argument. As this disagreement has been on-going for more than a decade, the penalty and interest fees have been adding up to an eye-watering amount.

Despite pleas to ease the financial burden of these penalties, the Indian Government and regulator have remained stubbornly resolute. Now it appears in might be a case of ‘cutting off the nose to spite the face’.

The Indian Government has always looked quite self-serving when it comes to working alongside the telecommunications industry. It has seemingly looked at the market as a short-term money-tree, as opposed to a long-term stimulant to the greater economy. Spectrum auctions are another example of this, with the valuable, scarce and limited resource often going unsold at auctions as the telcos complain of the financial commitments.

Now the greediness of the Indian Government is seemingly coming back to haunt it as the threat of competition being dwindled to a duopoly, a very dangerous position to be in, becomes much more realistic.

At the time of writing, shares in Vodafone Idea were down 22%. Vodafone Group CEO Nick Reid has already suggested the business would not be prepared to invest anymore capital in India without assistance from the Government, with the latest ruling adding another nail in the coffin. The financial liabilities being placed on Vodafone Idea could very realistically cause the firm to shut up shop in the near future.

For the Indian telecommunications industry, this would be a disaster.

Telco Market share
Reliance Jio 32%
Vodafone Idea 29%
Bharti Airtel 28%
BSNL 10%
MBNL 0.2%

BSNL and MBNL are effectively being propped up by the Government currently, meaning the market has in-effect three mobile players. There of course used to be much more competition, but thanks to the Reliance Jio pricing disruption, Telenor, Tata and Reliance Communications exited the market, while Vodafone and Idea Cellular merged into a single entity in 2018. Competition is at a very weak point, and it now looks like it will become even more feeble.

If Vodafone was to cash in its chips, Idea Cellular will unlikely be able to revive its business. The merger was driven by survival after all, meaning the collapse of the third major MNO. A market duopoly is not healthy, especially when one of the competitors is already battered and bruised and facing the same monstrous fine as Vodafone Idea.

Bharti Airtel has suffered as much as any other telco since the arrival of Reliance Jio. As India is the domestic market of the telco, it is highly unlikely doors will close, but the Supreme Court decision will also hold Bharti Airtel to payments of roughly $7 billion. As the market heads towards an informal duopoly, the former-market leader could be weaker than ever.

On the other hand, as Reliance Jio only entered the market in 2016 its own spectrum fee bill is considerably less. It is still an uncomfortable amount, though the firm managed to sell off its tower assets to settle the amount. It might be a bit poorer for the saga, but it is in a considerably healthier position than any of its rivals.

The Indian authorities have done what can only be described an atrocious, amateur and absent-minded job of managing its telecommunications industry over the last few years. It seemingly favoured Reliance Jio to the long-term detriment of competition, was unable to price spectrum appropriately for decades, and in this example, is stubbornly demanding its dues. The authorities cannot be held to ransom by a diva-like demands of telcos, but the risk of a Vodafone Idea collapse is very high.

Vodafone Idea looks to be at breaking point, Bharti Airtel doesn’t have two rupees to rub together and Reliance Jio is laughing. The Indian Government is proving to be incompetent at managing a healthy and sustainable telco market.

The death of Vodafone Idea starting to become a real prospect

Vodafone Group CEO Nick Read has reiterated his vow that no fresh funds would be injected into the Indian joint venture with Idea Cellular, painting a dreary picture for competition in the market.

As it stands, Vodafone Idea owes the Indian Government roughly $7.4 billion in spectrum fees, overdue payments and fines. Bharti Airtel is in a similar position, with both telcos pressing the authorities for relief. To date, the authorities are not budging, potentially undermining any commercial objectives for Vodafone in the region.

According to The Economic Times, Read has demanded the Government waive the penalties and interest payments, while also allowing Vodafone Idea to repay the principle sum over a period of ten years. Only if these demands are met, will Vodafone commit to continue the joint venture with Idea Cellular and push additional funds into the market.

This is a very stern statement from Read and one the Indian authorities should take very seriously. Numerous telcos have already left the market, and while it cannot be held to ransom by another, the competition landscape is looking suspect already.

The main issue here is a dispute over licence fees paid on spectrum assets. The telcos and the Government have different opinions on how much should be paid. This argument has been on-going for more than a decade, hence the ridiculous sums which Vodafone Idea and Bharti Airtel are being asked to pay. As Reliance Jio only came into existence in 2016, its own bill is much more palatable.

With extraordinary pressures already being placed on the spreadsheets thanks to the Reliance Jio disruption by undercutting existing pricing models, as well as a drive towards modernising infrastructure, this bill is the last thing the telcos need.

For Vodafone, you can see the predicament. There is a fortune to be made in India, but how much pain and expense can the business go through to realise it. The firm is facing difficulties in several other markets also; how many headaches can Nick Read tolerate at once? India might prove to be one migraine too far.

Indian government backpedals over operator fees

Indian officials have reportedly been told not to take ‘coercive action’ if Vodafone Idea and Bharti Airtel don’t pay their massive bills by today’s deadline.

The news comes courtesy of the Financial Express, which reports that the department of telecoms has decided not to do anything when the two operator groups fail to pay up. And it knows they won’t because they have told it as much, apparently. Last week the Indian Supreme Court refused to review its decision demanding the payment of historical license fees plus fines sand interest.

Reliance Jio, which owes far less because it hasn’t been around for long and is owned by India’s richest man, has paid-up, we’re told. It looks like the pretext for this fresh concession from the government is a fresh round of appeals from the two operators, but the real reason seems to be that they’re increasingly calling the government’s bluff over this cash.

Vodafone has previously indicated it might just pull out of the country entirely if the bill is not at least reduced and the Indian telecoms market has undergone dramatic change and consolidation in the past few year, with Jio emerging as a dominant force. The government has put itself in the position of effectively destroying its telecoms industry with a series of missteps and the incumbent operators seem to be betting it lacks the will to robustly chase the debt. This decision indicates they may well have a point.