Over the years, telecom operators have been opting for software solutions to reduce costs. As operators look to provide more value added services on their existing architecture, they opt for virtualization. That’s what VMware, now a part of Dell Technologies does among other things. Shekar Ayyar, Corporate Senior Vice President, Strategy and Corporate Development, VMware spoke to Anup Jayaram on how virtualization is changing the telecom sector.
Q: How have things changed for VMware in recent times?
A: In the last two years we noticed a growing emphasis in telcos on efficiency and agility improvement on the IT side translating to similar transformation on the network side of the architecture. Every telco is under cost and competitive pressure. With internet of things (IoT), they’re also asking questions on how to provide more value added services on top of their existing architecture. So, the journey that we have seen over the past couple of decades in IT is now trying to repeat itself in the telco network side. VMware has gone on the network side to about 80 plus production deployments globally across 45 carriers. We have also accumulated 200-250 million mobile subscribers on VMware architecture.
You can use that to deploy not just one virtual network function but multiple functions in the same architecture. Because this is done on software you can decide to launch a new service tonight and deployment time is anything from hours to maybe weeks.
Q: What all comes under virtualization?
A: You can split it network wise into two groups. One is VCPE (Virtual Customer Premises equipment) applications, while the other are closer to the cloud and are clubbed under (VEPC Virtual Evolved Packet Core) applications. It allows a telco to go to an enterprise and offer them cheaper connectivity because they can intelligently manage traffic on IP and non-IP networks dedicated networks as they have virtualized their infrastructure. Another service they can deploy is owning a set top box. Then there are mobile consumer and enterprise services that can get deployed of which voice over LTE is a classic example.
Q: How many telcos are doing it?
A: Globally it is between 400-500 carriers. Some are complicated because they have many companies, but assume there are 400 individual companies. Of those, about a third are actively talking about or planning on doing something today. The others are on the education cycle of understanding what is happening. This time last year I would have said Indian telcos were lagards. The advent of Jio has caused ripples. One of the things Jio has done is prompted other telcos to get to 4G and LTE like environment quickly.
Q: Is this primarily due to Jio?
A: This is the Jio effect. We feel the initial move might be defensive, either because a competitor has done it or because there is a cost pressure. But the ability to deploy a new service followed by others to eventually becoming a marketplace where you could imagine that one or more of the Indian telcos could become the local hub for all services that a consumer or an enterprise who want to consume through the global network.
Q: What kind of services can you expect?
A: The base level includes better voice and more secure exchange of information. Then there will be innovative services like connected cars or mobile medical applications. It’s going to make the competitive environment increasingly complex. Today it is between Reliance, Bharti, Idea and Vodafone competing for services. But once you extend that to payments, retail gateways and IoT services you’re going to expand that competitive domain to Amazon, Google and others. It’s no longer going to be just this narrow slice of competition.
Q: How do you see Google and Amazon coming into play and how do they compete?
A: Today they compete globally with telcos because they are the de-facto OTT marketplaces. Even though the backbone and core network is provided by carriers, the actual Android marketplace is dominated by Google and the Apple marketplace by Apple. Amazon has its own marketplace and these are not in any way dependent explicitly on carriers.
In a new world, carriers can effectively create, deploy and provide services comparable to Google and Amazon. When that happens, your carrier might actually be the host marketplace for all services you consume. Search from Google might become one application that you consume on your carrier smartphones and retail Amazon might become one of those as opposed to going to Amazon and making that your home base. At the OTT level there is an IP backbone that couples with the mobile network so that if you want Android services, it is delivered on an Android marketplace that uses everything underneath this as plumbing.
Q: They don’t have to go to Google to search…
A: Yeah, exactly. That means they would offer that service through their portal. It’s a reversal of what is happening today and the reason they are not able to do it today is because networks are not flexible enough to allow them to become developer oriented portals.
Q: Has it happened in the US?
A: It’s starting. You got carriers starting to provide a certain set of services. Google and Amazon would look to become more of your communications provider where today they are a service provider on top of your communication network. But at some point you can imagine that you’ll get your mobile service from Google or Amazon.
Q: So the divide that we had as application provider and network provider is going?
A: Historically you had landline, mobile telephony, cloud. Now, they’re all starting to get blurred because some advanced customers are asking us for architectures that are common across IT, cloud and network. That brings together a common platform for them to deploy and develop services. You can then treat Google as your mobile platform and your mobile carrier as the portal provider for everything. So, that’s how this will evolve. I think boundaries that are there will no longer be maintained.
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Q: How will that change things for VMware?
A: We are a pure play software infrastructure vendor and to that extent there will always be an opportunity for that. But we will always remain a plumbing provider to somebody that takes our component and then makes something out of it.
Q: 5G will be more of M2M than faster data…
A: 5G will be more M2M. But, India is so vast, the population large and economic disparity huge. So there is as much an emphasis on optimizing and extracting value on older technologies as about adoption of technologies. Reliance has pushed the envelope on 4G by becoming a pioneer in that. I don’t know if anybody will do something similar on 5G. If they do, maybe India will be a forerunner in that, but outside of that India has demonstrated the ability to leapfrog.
India will not be at the leading edge of technology but probably a year behind. The Indian market volume is high, but expectations in terms of price is calibrated to the economic environment. For vendors like us, it’s a bit of a dilemma because you’ve got the ability to deploy large volumes but margin profile is not the same as the rest of world.
Q: How well is VMWare doing?
A: There is the $100 billion capex market that global communication service providers deploy. We see the move to software taking a portion of that spend and converting that to addressable market for a VMware. Somewhere between $2 billion to $8-10 billion in that window will be directly addressable by us between 2018-2020. If you take the conservative end of that spectrum and we are 50%, a billion dollars of that could accrue. If you are a 10% shareholder, then there’s $200 million.