Follow The Money: Telco, Infrastructure and Cloud Industry Growth Trends

Follow The Money: Telco, Infrastructure and Cloud Industry Growth Trends

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Abstract

I'm currently employed by a large UK based Telco, and have been doing a lot of work on "what the future looks like". I thought it might be interesting to review the share price performance of some of the significant players in the sector, and see if I could learn anything.

I'm doing a lot of consensus building internally at the moment, evangelizing my Architecture Vision (I'll post about this soon...) and trying to gain support from the product areas of the business. A key component of this vision is the our SD-WAN capability our partner was recently announced; so the question is where should this lead us.

Who To Compare?

There are some key themes that influence the Telco/Service Provider industry, and I think are going to be increasingly influential in their transformation throughout 2018 and beyond:

  • Innovation
  • Cloud (Public/Private)
  • Software Defined Networks (SDN)

The first point is a catch all for a number of key areas of interest from a customers perspective; how a service provider can enable them to be more agile and perhaps be more creative. Customers want get their products to market quicker, and should be able ultimately to focus more on their specific business rather than the technology that enables it.

The following 2 points in the list broadly attempt to offer customers an answer to the innovation requirement. The concern for Telcos as I see it is that Cloud and SDN offer this capability in part by removing them from the equation! As with all change though there is significant opportunity, if this change is embraced.

Chart

I wondered if this sentiment was borne out with some facts I could use to underline it. Businesses will tend to vote with their wallets, as the saying goes, so I started to do a bit of speculative research on share prices.

The Yahoo Finance Chart below shows a 2 year share price trend of companies that I consider significant. It's by no means exhaustive, but think it's a fair representation.

growth

Whilst still fairly spread, the distribution seemed to me to fall into 3 reasonably distinct groups; you'll have to trust me when I say that this wasn't contrived in any way!

Underperformers

The bottom group ranges from -44% to +19%, and is made up of (in reverse order):

  • BT
  • Century Link
  • Nokia
  • AT&T
  • Vodafone
  • Liberty Global
  • Ciena

That's a full house on the Telcos, plus a couple of what would be considered traditional Telco infrastructure players.

Steady Growth

The middle group ranges from +61% to +88%, and is made up of (in reverse order):

  • Equinix
  • Google
  • Cisco
  • Microsoft

I think this is broadly what I expected. Cisco are rapidly reinventing themselves, but ultimately are still the go to firm for a significant proportion of commercial-grade networking hardware. Whilst businesses are trying to spend less on their networks, it's still as important as ever (arguably more so) to have a high quality enterprise network.

Equinix have an interesting position in the market, where they are used as an exchange point between corporate networks, partners and (importantly) the cloud, as well as providing traditional Co-Lo type services. In effect, they are what I like to call "hybrid cloud enablers".

Overperformers

The top group ranges from +180% to +190%, and is made up of (in reverse order):

  • VMware
  • Amazon

No surprises that Amazon are at the top - whilst that doesn't directly reflect the AWS component, there is no doubt they are the dominant force in public cloud.

VMware are the de facto disruptor in some respects, having brought virtualization to the masses 20 years or so ago. For me it speaks to the strength of the hybrid proposition, with the success of NSX, recent acquistion of VeloCloud, and vSphere in the cloud solution on AWS.

Conclusion

This research is just a small factor in the wider piece of work I mentioned at the start. It resonates well in areas of the business the really matter (where the budget is!) so from that perspective it's potentially very persuasive.

I think it tells us more or less what we already know; customers are moving away from traditional WANs as they move to the cloud, and Telcos are becoming less relevant in the process. With that said if the technology is compelling and relevant, as in the case of VMware, there is a place in the market and perhaps a gap.

Hybrid Cloud architectures are necessary in the short to medium term as businesses transition to the cloud at the very least, and by my estimations for a long time to come. In my view the gap exists here, to provide the "cloud networking" overlay capability that enables easy transition to the hybrid cloud/multi cloud architectures, and value added services in that overlay.

If as part of this proposition Telcos can get closer to the end user, and the applications, then there is an opportunity to increase relevance and buck the industry trend.

TL;DR

Telcos are broadly all struggling for growth. They should look for opportunities to offer their customers agility and capabilities in migrating to the cloud, and support for hybrid cloud architectures.