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Monica Paolini

Who Will Build & Pay for the Edge

By Postcards from the Edge

 

 

By Monica Paolini — Principal at Senza Fili

Senza Fili is an analyst and consulting firm that provides advisory support on wireless technologies and services.

This much is clear: the days of a highly centralized, monolithic networks are over, and pervasive connectivity requires a distributed topology where more and more functionality and content is pushed at the edge. To meet our connectivity expectations and requirements, networks need to have lower latency, better security, higher reliability and local awareness – in other words, they need to move to the edge.

We have the technology to support edge computing and build distributed networks. And new technologies (such as 5G, virtualization and network slicing) do not require anything to happen at the edge, they crucially benefit from it.

There is broad industry consensus on the need and value of the edge, but it is still uncertain how the move to distributed networks will unfold, especially in the enterprise, alongside the rise of IoT and private networks. Who will build and pay for the edge infrastructure? Who will enable the services that will run on it and integrate them with the rest of the network? And who will run the edge infrastructure?

In centralized networks, service providers meet the connectivity needs of the enterprise and typically own the infrastructure. This makes sense because the business model is predicated on the reach, ability and expertise of the service provider to serve a large number of enterprises that could not independently own or operate the network.

In distributed networks such as Wi-Fi networks, the opposite happens. Because these networks are built to serve the specific needs of an enterprise or real estate owners, they are most commonly funded, deployed and operated by the enterprise or venue owner, either directly or through a third party that works directly on behalf of the enterprise or venue owner.

By introducing edge infrastructure, hybrid network models emerge that combine centralized and distributed elements, and are tightly integrated and yet functionally separated. This creates the opportunity – and, I would argue, also the need – for new ownership and operational models to take off, and for a wider range of relationships between service providers and enterprises.

At one end, service providers may deploy the edge infrastructure on their dime as part of an organic network evolution towards a distributed architecture, in line with what they are doing to serve their retail subscribers. The problem with this approach is that it requires a level of investment and involvement with individual enterprises that service provider are not able to shoulder across their footprint. They will invest in some enterprises and venues, but, especially as they move beyond the top enterprises, most desirable locations, their involvement will quickly fade out.

At the other end, the enterprise may choose to follow in the path of the Wi-Fi model and build their own private networks that are designed to meet their requirements and connect them to WANs through neutral hosts or other parties. This approach gives the enterprise full control and visibility into their network and the ability to roll out the services and IoT applications they choose.

In the US, CBRS-based OnGo will encourage the enterprise to build these types of networks. In other countries the enterprise may not have spectrum that is well suited to deploy a stand-alone network, but this is changing and we are seeing new spectrum allocations that are more friendly to enterprise users. enterprises see the value of on-prem connectivity and the services it supports, and they are increasingly willing to pay for it because it gives them the control on the network that they need for critical services and IoT applications.

The downside of this approach is that enterprises have to take a more intensive role in managing the network that they wish or that have the capabilities to take on, and that they may not be able to fully benefit from the add-on functionality and expertise of service providers.

But there is a middle ground, where most of the potential for growth, innovation and disruption lies. It is also where most of the challenges come from because this is a largely uncharted territory, where established and new players have to build new types of partnerships and financial relationships. The difficult part is to establish a balanced ecosystem that is beneficial to all involved – i.e., the players can’t be too greedy, have inflated expectations on their role or capabilities, or have unrealistic requirements – in an environment where the contribution and value that each party brings to the table is still being negotiated.

The new business models that set a solid foundation for the deployment of the edge infrastructure and the services it enables harness the ability of the enterprise to fund and take a more active role in planning and managing on-prem networks, and the expertise of service providers in operating large networks. In many markets and verticals, neutral hosts and other intermediaries are going to play a significant role in connecting enterprises and service providers. Service providers have also started to develop closer relationships with each other, e.g., network operators and cloud service providers, or network operators and IoT players.

It is unlikely that a single business model will prevail globally, or even within a market, but there are some dynamics that will shape the edge and private network ecosystem across geographies and verticals:

  • The enterprise needs to have control and complete visibility over edge infrastructure, especially if running mission-critical or low-latency IoT applications. Service providers have to be willing to give up some of the control they have on the public network or risk to be sidelined.
  • The enterprise is better placed to decide what network meets its requirements and to pay for it. The service provider plays a crucial role in integrating the local infrastructure with the rest of the network, and support wide-area functionality and services.
  • Service providers have the experience the enterprise needs to deploy and manage the edge infrastructure, but neutral hosts have it too and allow enterprise networks to be integrated with multiple network operators.
  • Large, medium and small enterprises have different needs, and so do enterprises in different verticals. We need a diverse set of business models and ecosystems to scale and adapt to these contexts and the players have to recognize how their role changes across them.

The balance between centralized and distributed elements that serve the enterprise is another crucial factor that will shape the edge financial and operations models. For instance, applications or verticals that have tight low latency requirements, specific security requirements, or high levels of location-based data or processing, need a more distributed topology in which the edge elements are closest to the access network. In this type of networks, the enterprise will be more involved than in networks that rely more on a centralized cloud typically managed by a service provider.

Both the enterprise and service providers may try to position themselves to dominate the edge infrastructure, but it is more likely, more efficient and cost effective for them to share the helm of the edge and build new and deeper working and financial relationships than they have been able to do until now.