AT&T Picks Azure for 5G Cloud

AT&T (NYSE: T) is shifting its entire 5G core network to Microsoft's (Nasdaq: MSFT) Azure cloud, in a landmark move for both carrier and hyperscaler.

In addition, AT&T is selling Microsoft the open-source Network Cloud software-defined networking (SDN) technology it developed circa 2018 to run its mobile core services — staffers and all. Microsoft plans to incorporate the technology into its Azure for Operators platform, which is on offer to telcos worldwide.

Terms of the deal were not disclosed, but AT&T’s Network Cloud platform is sizeable. In 2019, Fierce Wireless reported that it spanned over 100 data centers. It’s impossible to say how many employees are involved in the transfer, but the press release refers to “design, development and engineering experts” — surely more than a handful of people who will be offered jobs at Microsoft.

AT&T Sharpens Focus on 5G Build-out

AT&T’s latest deal is part of an ongoing refocusing by the carrier on its basic strategy to build out fiber and physical 5G infrastructure. Just weeks ago, the telco spun off its WarnerMedia business to Discovery Inc. in an effort to streamline its effectiveness in broadband and 5G. Now it seems ready to relinquish its role as SDN developer.

This may also illustrate a next step in the rush of 5G providers to the cloud. While moving services cloudward gives carriers choice and streamlines the processes of creating, setting up, and delivering mobile services, it also adds layers of complexity to the cycle. And just having purchased 80 MHz of spectrum from the FCC for $27.4 billion, AT&T needs to focus on PoPs and fiber, not cloud virtualization.

Microsoft In the Driver’s Seat

This contract is a big win for Microsoft. The hyperscaler already had a $2 billion-plus deal with AT&T that included 5G research, but AT&T had similar arrangements with IBM, Google Cloud. and AWS, among others. But clearly, Microsoft has shouldered aside its chief competitors to grab the lion’s share of AT&T’s cloud-based 5G services.

The deal is also a hefty vote of confidence for Microsoft’s Azure for Operators platform, which enables telcos to move their systems to the cloud. This is the product that benefited from Microsoft’s purchase of Affirmed Networks and Metaswitch in 2020.

The Crowded Stage of 5G Cloud Players

Azure for Operators is a standout on a crowded stage. As noted, the movement among hyperscalers and cloud software providers to address the specific cloud requirements of telcos has been underway for many months.

AWS has done a hefty business in this area. And as 5G’s potential unfolds, vendors such as Hewlett Packard Enterprise (NYSE: HPE), IBM (NYSE: IBM), and VMware (NYSE: VMW) have focused enormous effort on telcos. There are also many startups with solutions in this space.

The trend is widely evident. The AT&T/Microsoft deal comes just days after IBM (NYSE: IBM) announced that Verizon (NYSE: VZ) will deploy Red Hat technology in its 5G core. IBM also announced IBM Cloud Pak for Network Automation, an addition to the vendor's sizeable telco cloud stable that provides orchestration and management for telco services, including 5G.

All of these efforts, including AT&T’s latest deal with Microsoft, point to a fabric of relationships building around 5G. But this week’s news demonstrates that the morphing ecosystems have their limits. No single vendor can do it all, but neither can all do it together.

It will be interesting to see whether other telecom providers follow AT&T’s lead in jettisoning some of the cloud heavy lifting in order to focus on specific aspects of their 5G efforts. How many will also pick Microsoft remains to be seen.

After hours on Wednesday, AT&T shares were trading at $28.78 (+0.11, 0.38%). Microsoft shares were $270.90 (−0.50, 0.18%).