Summary Bullets:
• Vodafone has partnered Microsoft for generative AI (GenAI) and to scale its soon-to-be standalone IoT business with the goal of targeting over 300 million business and consumer customers.
• Telcos need to make difficult decisions over what they need to keep in-house as market differentiators and where they need to partner for best-of-breed solutions.
On January 16, 2024, Vodafone and Microsoft announced a 10-year strategic partnership “to bring generative AI, digital services, and the cloud to more than 300 million businesses and consumers” across Vodafone’s footprint in Europe and Africa. Vodafone is to invest $1.5 billion over that period in cloud and customer-focused AI services in conjunction with Microsoft, with Microsoft returning the favor by using Vodafone’s fixed and mobile connectivity services. Microsoft also intends to invest in Vodafone’s managed IoT connectivity platform as it becomes a standalone business by April 2024 (for more details, please see: Vodafone’s Microsoft AI and IoT Partnership is Bold but Raises Vendor-Neutrality Questions, January 16, 2024).
At face value, the partnership makes sense as Vodafone is a global leader in IoT with over 175 million connected devices and, like all telecoms companies, it is scrambling to make the most of AI opportunities, despite the sector already being a leader in this area in technology exploitation, if not in terms of hype.
The deal is interesting as part of the wider hyperscaler market grab, with the likes of Microsoft, Amazon Web Services, and Google looking to cement their place in the potentially useful, if not always lucrative, telecoms market globally. Essentially, they are dividing a range of vertical markets between themselves for ongoing dominance, even as regulators try to dela with the complexity and dynamism of market reality.
From the perspective of telecoms service providers, they continue to face the dilemma of significant investment requirements in rolling out fiber and 5G, with little margin to show for it – particularly in the highly fragmented European market. Any help they can get is welcome as the broader value chain evolves and they are often caught spinning too many plates to cope with.
As a result, the concept of partnering with the big shiny tech behemoths looks good as they have money, cloud infrastructure, and market sex appeal. Cloud is also going to be at the heart of the delivery of consumer and business services. Most telecoms service providers have long realized they can’t compete other than in peripheral cloud areas (e.g., cloud connectivity) – so partnerships with hyperscalers are the obvious answer.
What is of concern is where partnerships go beyond a simple infrastructure optimization strategy and start to sell ‘the family silver.’ Broadly speaking, connectivity is commoditizing, so value is to be found in expertise in areas like security and management of communications networks, with the most value residing in niche core competencies like IoT, remote worker solutions, and security as well as tailoring particular packages and bundles to meet the needs of various customer segment groups. Lose that and what do you have left?
With telecoms stocks underperforming and pressure on ever more frequently changing management, financial engineering often seems to be overtaking network engineering. At the highest level, telecoms service providers need to decide on their destiny – can they endure and succeed beyond the provision of connectivity?