Microsoft Gets Serious About Telco Cloud With Metaswitch Acquisition

Hot on the heels of its acquisition of Affirmed Networks in April, Microsoft last week announced that it was buying UK-based Metaswitch Networks. Metaswitch is a network functions virtualisation (NFV) pioneer founded in 1981 and provides networking software stacks to Tier-1 operators and system vendors around the world. The terms of the deal were not announced.

Trend to Cloud-Native and Network Convergence

Telcom companies are transitioning from running network functions on specialist dedicated hardware to software-based network functions running as virtual machines in the cloud. At the same, mobile and fixed networks are converging, driven by legacy Tier-1 operators who want to leverage the same cloud native infrastructure for both their mobile and fixed assets.

Interestingly for Microsoft, Metaswitch serves both mobile and fixed operators and so the company will be able to benefit from the trend to cloud native as well as the convergence of mobile and fixed networks. However, a potential downside is that operators may choose to sweat out their assets, particularly in the current uncertain economic climate, and upgrade in small increments as operational expenditures still represent a big investment and cost. For some operators there is also concern that Microsoft may soon stop supporting Metaswitch’s non-cloud products.

Cloud Migrating to the Edge

Another important trend is the that the cloud is migrating to the edge and Microsoft is also participating very actively in this trend. A few weeks ago, the company launched its Azure Edge Zones which connects directly with 5G networks and Azure Private Edge Zones, designed to connect to LTE/5G private networks with on-premises Azure Stack edge.

It has also been collaborating with MNOs to integrate its edge computing capabilities and Azure cloud services with 5G networks with AT&T being the prime example of this. Microsoft is working on a Proof of Concept platform with AT&T that it hopes will provide it with new low-latency connectivity capabilities that will enable new services such as online gaming, video conferencing for remote meetings and a number of IoT uses cases in healthcare, retail, public safety and manufacturing.

Other operator partners include Etisalat, NTT Communications, Proximus, Rogers, SK Telecom, Telefonica, Telstra and Vodafone. In addition, it has numerous private company partnerships, particularly in manufacturing which will allow companies building their own private cellular networks to set-up their own private Azure data centres (Exhibit 1).

Rather than being located in a few large central data centres, Microsoft intends to deploy standalone Azure Edge Zones into a large number of smaller, local data centres starting in New York, Los Angeles and Miami.

Needless to say, Microsoft is not alone in this space and its biggest rivals are also engaged in extending the cloud to the edge. Amazon announced its Wavelength edge computing platform last year and Google has announced its Global Mobile Edge Cloud and Anthos for Telecom platforms.

Exhibit 1. Microsoft Private Edge Zone Ecosystem (Source: Microsoft)

Targeting the telco cloud

The big Internet giants such as Amazon, Google, Microsoft and others see the telco cloud as a major opportunity and are looking at ways of leveraging their existing cloud infrastructure to build a presence at the edge.

For Microsoft, the acquisition of Metaswitch dramatically increases its telecoms know-how at a stroke. The company already has some of the best cloud infrastructure in the world and this acquisition signals that it is serious about being a big player in this space. The acquisition also provides it with many big-name telcos as customers as Metaswitch has a long history of working with many of the biggest telecom companies in the world. Although Microsoft intends to work with its telco partners to offer its services to enterprises, its ability to offer its edge cloud directly to private networks operators, i.e. non-telco companies such as manufacturing and industrial companies, utilities, etc. means that telecom operators could potentially be by-passed completely.

With more than $140 billion cash on its balance sheet, expect more telco-related acquisitions to follow!