The Relationship Between Telecommunications and Hyperscalers

Telcos and hyperscalers share a kaleidoscopic relationship – it is complex, colourful and constantly changing. The relationship could be that of a competitor, complementor, supplier, customer and partner. It could be all or a few of them simultaneously or at different points in time, depending on the domain, shares Vincenzo Basile, a Partner at Arthur D. Little. Here, he offers the following examples by domain (not comprehensive by any means), which explain this relationship across the full spectrum.

The evolving roles of telco and hyperscalers

In the data centre topic, telcos and hyperscalers play a complementary role, with hyperscalers being present in key cities with large data centres, while telcos have a role to play as regional data centres with more reach and capillarity in their respective markets. 

“In cloud services, telcos and hyperscalers complement and compete with each other, as both target large corporations and governments with their cloud services,” Vincenzo explains. “In mature markets, telcos also act as channel partners to hyperscalers, along with offering associated services such as cloud migration and system integration.”

The submarine cable space is profound in capturing the different roles hyperscalers and telcos take. In this zone, telcos and hyperscalers have had a role reversal over time. 

“Hyperscalers (including content providers) were the largest customers of cables owned by telco consortiums, contributing nearly 80% of the traffic,” he continues. “However, they are increasingly becoming cable owners themselves, having invested in nearly 60 cables by 2024.”

Telcos are partnering with hyperscalers to extend these cables, monetise them and to leverage them for their own use. 

“Telcos and hyperscalers are also re-imagining together the way telecom networks are built, as software functions in cloud-native environment. Hyperscalers not only provide cloud hosting infrastructure, but also provide new functions and capabilities such as network automation,” says Vincenzo. 

Given the novelty of the solutions, telcos and hyperscalers have to work in tandem to realise the network successfully. On the other hand, telcos have been moving or periodically evaluating moving their IT operations to the public cloud (e.g. M1 and Verizon).

Telcos and hyperscalers are driving digital transformation 

Hyperscalers also act as suppliers to telcos, for solutions that they build and offer based on their cloud, including GenAI services, private network solutions, IoT platforms and so on. 

“Similarly, telcos act as suppliers to hyperscaler for traditional connectivity services such as A2P SMS and fibre connectivity,” he says. “More recently, telcos are developing APIs that could enable them to open up their networks for solution developers.”

While both telcos and hyperscalers cross paths in several domains, the fundamental reasons for doing so are very different. 

“Hyperscalers are driven by their digital business and seek ways to enhance their services in all possible ways. This has led them to enter into the telecom domains, with their deep pockets and the capability to innovate. At the same time, they do not want to get into legal and regulatory complexities in the markets they enter,” adds Vincenzo.

Further, they are quick to exit a business if it does not meet their core objectives. Telcos on the other hand, have been stuck in a cycle of high investments and low returns in the core connectivity business and therefore expand into adjacent businesses. They are supported by their strong local presence, understanding of the local market, well developed channels and regulatory protection.

“While telcos and hyperscalers jostle for space in different domains, they have both accelerated the transformation of the digital landscape,” he finishes. “In the long run, some patterns will become clearer while others grow intricate and multifaceted in this kaleidoscopic relationship, based on the objectives, priorities and strengths of the hyperscalers and telcos.”

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