Overlay technology changes network ownership dynamics for telecoms service providers, says GlobalData

In an astonishingly short period of time, overlay networking (i.e., SD-WAN) has become, the de facto WAN technology in the enterprise telecoms market. Overlay technology uses a combination of tunneling technology and orchestration and control software to create the appearance of a single, unified network regardless of the physical transport medium over which it is running. However, this logical separation between the physical network assets and the controlling technology has created a potentially existential threat to network owning telecoms service providers (SPs), says GlobalData, a leading data and analytics company.

Gary Barton, Principal Analyst at GlobalData, comments: “Overlay technology was initially thought to be a threat to traditional network-owning telecoms services providers because it was felt that the easy-to-use nature of the technology, combined with advanced self-service portals, would lead to more businesses adopting a self-serve approach. In addition, MPLS would be stripped out in favor of internet and, therefore, also damaging SP’s data revenues.

“The reality has proven to be somewhat different. MPLS is being replaced by the internet, a process accelerated by COVID-19, but overall bandwidth growth (primarily for internet services and cloud connectivity) has helped to mitigate the damage.”

Enterprises have not adopted a ‘DIY’ approach to network services en masse. They are instead seeking help to manage increasingly complex IT estates. However, this focus on IT has led them towards systems integrators rather than SPs.

Barton adds: “Overlay networking has meant that the tried and trusted argument from SPs that owning the network means the highest quality of service has been undermined. The response of network operators has been to go ‘digital’, and, in some cases, even completely abandon their network underlay assets.”

Global network operators such as BT and Telefonica have created new ‘DigiCo’ internal divisions separating the creation of telecoms services from the network-owning and operating parts of the business. SPs have sold off network assets in favour of becoming ‘platform’ companies.

The other emerging puzzle piece is hyperscaler network services such as Microsoft’s Azure WAN proposition. These hyperscale cloud companies have built networks to connect their many data centers and are now selling global network services.

Barton concludes: “SPs need to begin to adapt a best-fit approach to provisioning network services – even when that means favoring competitor’s network infrastructure. A proprietary, ‘our network first’ approach is not in line with a growing expectation from enterprises of a best-fit approach.”

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