What the Microsoft Azure Telco Recent Layoffs Mean for the Broader Industry

By Dimitris Mavrakis | 3Q 2024 | IN-7448

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Microsoft Azure had built up significant expertise and capabilities for the telco vertical, which included several key acquisitions: Affirmed Networks and Metaswitch in 2020, which provided 4G core network and IP Multimedia Subsystem (IMS) capabilities. At the time, Microsoft's strategy was to become a cloud infrastructure contender, as well as an application/network element provider to mobile operators rolling out 5G. A testament to this strategy was the acquisition of AT&T's Cloud Core team that also included a migration of AT&T's mobile core network to the Microsoft cloud, a contract that took place during 2021. Since then, Microsoft has not announced any major new wins for its Azure for Operators product line or presented a comprehensive strategy to monetize these strategic investments. At the same time, many operators have reached a balance between public and private cloud deployments for their core networks, somewhat tempering hyperscaler aspirations for the telco vertical. Azure, with the most aggressive telco strategy among Amazon Web Services (AWS) and Google Cloud, has been the most exposed hyperscaler in a deteriorating market.

Azure announced major layoffs for its Azure for Operators department, as high as 1,500 employees in June 2024. The technology, expertise, and talent acquired through Affirmed, Metaswitch, and AT&T's Cloud Core department will likely be decommissioned or sold off to a third party, but Microsoft has not yet announced its plans for these assets.

AWS and Google Cloud have been more moderate in their acquisitions and investments in the telco vertical, and both have been addressing the telco vertical through an infrastructure or platform play. As Azure may have learned since its acquisitions, design, deployment, and integration of 5G core networks is a complex domain where existing operator-vendor relationships are very deep rooted and unlikely to be reversed. 5G core network functions or applications make this even more complex, when advanced concepts like Application Programming Interface (API) exposure, network analytics, and network slicing are now being considered for commercialization.

Nevertheless, AWS and Google Cloud are shielded against this type of challenge, as their strategies are diversified and go to market through multiple channels (e.g., Nokia and Google Cloud collaborating on telco APIs, Ericsson and AWS partnering for cloud Business Support Systems (BSS)). Contrary to Azure, which aimed to attract business for infrastructure, platforms, and applications, other hyperscalers are not as exposed and follow a more conventional and moderate strategy. Moreover, apart from AT&T, the Azure for Operators product line has not achieved any large contracts, meaning that its termination will not create any market ripples. In a turn of fortune, Nokia, Ericsson, Samsung, and other infrastructure vendors now appear as the dominant forces in this market, highlighting that hyperscalers will likely meet major challenges in 5G and 6G networks.

Many mobile operators are now deploying 5G Standalone (SA) and gradually migrating their subscribers to the new platform, aiming to commercialize network slicing, APIs, and the new services 5G promised. Most brownfield operators are doing so in their private telco cloud, rather than deploying core network elements in the public cloud, and will likely continue to do in the foreseeable future. The tight integration, need for carrier-grade functionality, lack of hybrid cloud orchestration tools, and many more challenges will likely translate to telco cloud dominance in the next few years. This is good news for infrastructure vendors that had previously been threatened by hyperscalers in the 5G core network market.

ABI Research does not expect major migrations to public cloud infrastructure for core and telco edge network elements in the future, even for 6G. Advanced services and tight network integration require specialist capabilities that only a handful of global vendors can provide, and geopolitics have balkanized the world between East and West. A potential disruption to this may be sovereign cloud products by hyperscalers, but these are also in their infancy and will take many years to deploy. In the meantime, Ericsson, Huawei, Nokia, Samsung, and ZTE must work harder to help their clients monetize their existing 5G networks.