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Operators want, but fear, to work with the cloud giants

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European telecommunications operators are interested in the technology giants managing much of the network services they provide to their business customers in their information clouds but, at the same time, they fear losing a high proportion of the added value of their business and, ultimately, its benefits. The basic problem for operators is that the deployment of a 5G network with powerful business services requires very high financial resources, which they lack due to the low margins of their rates, and that the Big Tech in the United States have more than enough. It is the classic dilemma of “bread for today and hunger for tomorrow”, with serious implications for the privacy of personal and business data and the sovereignty of European countries.

The unstoppable trend to have more information in data centers hosted in the cloud, with information treatment and management software included, is completely changing the traditional rules of the game in the telecommunications industry. The rise of the cloud, together with the emerging deployment of 5G networks, represents a total paradigm shift: operators stop controlling their telecommunications networks, as they become virtualized and unbundled.

With the fixed networks of yesteryear and the 4G and previous generation mobile networks, operators managed most of the voice and data services they provided. His was the basic telecommunications infrastructure (access, transport and trunk networks), supplied by the equipment and cable manufacturers and paid for and maintained by the operators. In addition, they maintained a certain monopoly by having the license and the spectrum to supply the telecommunications service.

The network infrastructure has lost the importance of yesteryear; real power resides in cloud data centers, providing value-added services that customers demand and gladly pay for

With fixed and 5G networks managed by software thanks to SDN (Software Defined Network) technology, which allows them to be managed over long distances and remotely with ultra-fast communications, the data centers of the operators have become be fundamental. Not only because the data centers serve the requested information, but also because they can process and cook it to suit the customer, without the latter having to worry about the complexity and difficulties involved in their request.

With this paradigm shift, the network infrastructure has lost the importance of yesteryear; it is still a jumble of fiber optic cables and fixed and radio link networks. The real power resides in the data centers, from where true value-added services are provided. Some services that customers, mainly companies, demand with pleasure and are willing to pay what they ask because they solve the problems they had when they had to deal with information and telecommunications technologies.

AWS, Azure and Google Cloud arrive

The big American technology companies, essentially Amazon with AWS, Microsoft with Azure and Google with Google Cloud, already saw some time ago the immense business that was hidden behind the services provided from the cloud, and that is now immeasurable thanks to 5G and supported by the edge, the data centers that are physically closest to customers. With a good data center infrastructure hosted in the cloud and the appropriate technology, any information service, however sophisticated and complex, of great added value can be offered.

At present, these three companies control 60% of cloud services (AWS a third of the total, Azure 19% and Google Cloud approximately 7%) to which should be added Alibaba with 6% and IBM with 5 %, according to the consulting firm Canalys. An estimated five other companies split another 9%, with ten companies now monopolizing 80% of the cloud-based business services business. And according to IBM, only 20% of the value that the cloud can provide is now being extracted, leaving the road ahead immense.

The pandemic has accelerated the adoption of the cloud by companies and public administrations and the growth prospects for industry leaders are even better. In the third quarter, AWS ‘turnover was $ 11.6 billion, 12% of Amazon’s total, with a growth of 29% compared to the third quarter of the previous year. Azure’s billing grew even more in the same third quarter, 48%, and that of Google Cloud 45%. Consulting firm Synergy estimates that the cloud sector increased globally by 33% in the third quarter of this year compared to the previous year and that both AWS and Azure have consolidated their dominance in recent months.

Agreements between operators, network equipment manufacturers and cloud service providers take place in Europe, due to the investments that very few operators can afford alone

The market capitalization at the beginning of November of GAFAM (Google, Apple, Facebook, Amazon and Microsoft) was 7.3 trillion dollars, similar to the set of all European companies listed on the stock market and 20% of those that do so. they do in America. Shares of Amazon and Microsoft are each worth more than $ 1.6 trillion and Google’s 1.2 trillion. Much of the stock market euphoria in recent months is due precisely to the cloud.

With these figures, it is clear that these companies have everything to face to impose their dominance: it is a business that requires investing billions of dollars each quarter to continue installing data centers and creating new applications and services, mainly business. A fortune that current leaders can afford without problems, because it is also a highly profitable activity.

Europe and China on high alert

This insulting dominance by a few US companies has put European and Chinese authorities on high alert. The Chinese Communist Party has cut its losses and aborted at the last minute last week the placement on the Shanghai and Hong Kong exchanges of ANT Group shares, the highest in history with a forecast of at least 37,000 million dollars , to create an electronic banking with the authorization of payments and simple credits through the mobile.

Jack Ma, co-creator of Alibaba and with 50.5% of the voting rights of ANT, thought that he could surpass the world’s largest traditional banks and create an alternative economic and financial system in China, but he did not gauge well the affront that it entailed. its fintech initiative and has failed miserably. The Chinese authorities have also sent a clear message to those who intended to emulate Jack Ma and have imposed clear limits on the growing branch of financial services of Alibaba, which is the most valued company in China, with a capitalization stock market that supposes the 800,000 million dollars. China has its own Internet and is prohibited from accessing the services, among others, of Amazon and Google. Probably the entire cloud and data access business in China, naturally by Chinese companies, will now be much more regulated.

In the United States, controlling the entire business of cloud services and data privacy is less of a problem. First, because the companies that dominate the business are from the United States and, second, because the three major national telecommunications operators are much more powerful than those in Europe and their business is much more profitable, so the agreements between operators and Big Tech are easier to negotiate. Even so, in recent weeks the top GAFAM officials have been seen testifying before the US Senate and there are plans to dismember these tech giants, yet to be specified.

In Europe, the situation is much more complex. From the outset, the financial strength of the telecommunications operators that provide services on the European continent, even the largest, has nothing to do with their counterparts in the United States and China. They are under much higher competitive pressure, triggering a tariff war, and their respective heavily regulated national markets are much smaller. While the United States and China each have three large national operators, in Europe there are more than a hundred.

Until now, European operators managed thanks to a strong presence in their networks of Huawei’s network equipment and cloud services, which offered good quality products and competitive prices and service, but pressure from the United States A veto of Huawei in Europe, hiding behind an alleged espionage by the Chinese Communist Party through Huawei (which Trump took for granted), together with the preeminence of the cloud, has placed European operators with little room for negotiation against the services offered mainly by AWS, Azure and Google Cloud, both their own and through the networks of European operators.

The two large manufacturers of telecom network equipment, Ericsson and Nokia, based in the Nordic countries and traditional suppliers to European operators, are also struggling with the sudden paradigm shift and are moving part of their infrastructure to the cloud, with help from the American giants. The succession of agreements between operators, network equipment manufacturers and large providers of cloud services is frantic, due to the unstoppable advancement of cloud-based telecommunications services and requiring gigantic investments that very few operators can afford alone .

The European Commission wants to put this situation in order and foresees that the Digital Services Act and the Digital Market Act will be presented on December 2 to reinforce digital sovereignty in Europe. On the subject of data privacy we want to be very strict throughout the European Union and demand that data centers be located on community land and cannot have data transfer to other continents through telecommunications networks. In recent days, the European Commission has opened a new sanctioning process against both Amazon and Google for its handling of the private data of its customers.

Biden, an unknown

The situation in Europe is highly complex, precisely because of the multiple agreements that are taking place between operators and providers of cloud services, which will intensify in the coming months as the deployment of 5G increases. Meanwhile, specialists are trying to glimpse the plans in technology policy that President-elect Joe Biden has when he effectively assumes the presidency as of next January 20 and if he will try to channel or soften, as far as possible, the measures approved by the Administration of Donald Trump.

Joe Biden has been vague about his future plans during the presidential campaign. For this reason, analysts have carefully reviewed an article that the then candidate published in Foreign Affairs magazine last March, with the title “Why America Must Lead Again.” The article makes clear his position that “the United States needs to be tough on China”, because if China continues down the same path, “it will continue to steal technology and intellectual property from the United States and from American companies.” And he adds that China “will maintain subsidies to its state-owned companies to achieve an unfair advantage and advance in the domain of the technologies and industries of the future.”

Little change is therefore expected from Trump’s China technology policy except perhaps in the ways in which it is applied. But it is likely that the United States wants to reach a global agreement with Biden on the climate, which would mean understanding with China on this crucial aspect, and that he would return to be part of the international organizations that Trump decided to leave.

“Trump did the right thing about China. The completely wrong thing was to move away from the Europeans, “Biden points out in the article, and points out that the best way to confront China is to form” a united front “with the allies. The specific position that the United States will adopt in the coming months with respect to the European Union on trade issues and, specifically, on the sovereignty and privacy of data, as well as the influence that it may exercise with the large technology companies in its country, it will determine, in part, the future situation and competitiveness of European telecommunications networks.