While there may be confusion in the wake of CenturyLink’s decision to first acquire Level3 Communications for $34 billion and then sell its data centers for $2.3 billion to a consortium of private equity firms to help fund the deal, one thing that is clear is that data center real estate might not be as valuable as it once was.
For anyone counting, $2.3 billion is less than 5 percent of $34 billion. Naturally, Level3 Communications has its own data centers, but many of those data centers will most likely be up for sale as well once the larger deal is consummated. The entity that emerges in the wake of the acquisition will be the second largest provider of voice and data services after AT&T.
Managed service providers (MSPs) should be paying attention to what’s happening behind the telecommunications scene that’s fueling multi-billion dollar mergers and acquisitions. AT&T has been signaling for several years now that it is shifting its infrastructure to open source software running on commodity processers. It’s less clear to what degree every other carrier will follow suit. Building, deploying, and managing open source software running on commodity processors requires massive amounts of engineering expertise. AT&T clearly has that, but the rest of the telecommunications industry might not take the same approach. There’s an argument to be made for relying more on a mix of open source and commercial software that over time provides a more cost-effective approach to delivering advanced networking services sooner than later. AT&T is not expected to deliver advanced 5G networking services until 2020.
What 5G networking means for MSPs
The thing MSPs should take note of is how software-defined networks (SDNs) will be employed to support a wide variety of network function virtualization (NFV) software to enable the delivery of 5G data and networking services via the cloud. Basically, if it requires a physical appliance to deliver today it will very soon manifest itself as a piece of Virtual Network Function (VNF) software running on either a lightweight virtual machine or within a container such as Docker that can be hosted anywhere. But given the amount of compute horsepower required, most of that next-generation networking software is going to be simpler and less expensive to deploy on a public cloud service than in a data center owned and operated by most carriers. As the saying now goes, friends don’t let friends build data centers anymore unless, of course, they’re the size of Apple, Amazon Web Services (AWS), Google, or Microsoft.
The good news is that cost of managing the overall IT environment should drop substantially. The bad news is that acquiring the skills and technologies needed to drive those SDNs is not cheap. Beyond building the core SDN, the average MSP will need to rethink everything from service level agreements to security. Given the razor-thin margins many MSPs operate under, this transition might accelerate a similar wave of mergers and acquisitions that’s already occurring in parallel to what’s happening in the carrier industry.
MSPs that start making the transition to 5G networking technologies now will more than likely gain market share enabled by operational efficiencies. Those that don’t make the transition simply might not be around to care anymore one way or the other.