Hyperscalers’ Move in ASEAN – How It Will Change Domestic Telcos’ Strategy

A. Amir

Summary Bullets:

• Hyperscalers are making a move in ASEAN, expanding their footprints in key markets.

• Telcos will need to redefine their product and go-to-market strategies in the cloud, edge, and enterprise 5G.

Hyperscalers Are Making a Move in ASEAN
Leading hyperscalers are aggressively expanding their presence globally, with ASEAN being one of the key markets (for more, please see ”Hyperscalers Making a Move in ASEAN,” September 27, 2022). From Singapore, hyperscalers expanded to Indonesia and are now further expanding their footprints in the other key ASEAN countries such as Malaysia, Thailand, and the Philippines. Amazon Web Services (AWS) announced its Local Zones in the Philippines, Thailand, and Vietnam; Google Cloud is building new regions in Malaysia and Thailand; Alibaba Cloud opened new regions in the Philippines, and Thailand and has the widest presence in ASEAN; and Microsoft is planning to open new data centers in Indonesia and Malaysia. The move was driven by the growing demand for cloud services in the region accelerated by the pandemic. ”GlobalData Global IT Customer Insight 2022” shows that 75% of 166 ASEAN enterprises have increased their spending on cloud in 2022 while ”GlobalData Market Analyzer” (last viewed in September 2022) estimates that the cloud market in the region will double in the next five years from $16.3 billion in 2021 to $33.8 billion in 2026.

Disrupting the Local Cloud Competitive Landscape
The hyperscalers’ expansion will disrupt the cloud competitive landscape in the region. The cloud market has been dominated by domestic providers, including telcos, through their locally hosted services, but hyperscalers’ in-country facilities combined with their wide range of services, competitive pricing, and wide service provider partner ecosystem will make existing local cloud services less compelling. On the one hand, some local providers see this trend as an opportunity to enhance their cloud capabilities through closer collaborations with the hyperscalers. They are expanding their cloud experts through certification and accreditation programs offered by hyperscalers to strengthen their in-house professional service capabilities (in line with the market demand). These providers also see hyperscalers services as a complement to their portfolios and enable them to address the growing need for multi-cloud solutions. This also relates to the cloud brokerage trend, which has been widely discussed in the industry for many years. On the other hand, several providers – especially the telcos – see hyperscalers as a threat to their business and develop competitive strategies to retain their customers and remain relevant in the market. However, it will be increasingly difficult for these providers to keep up with the hyperscalers. Not only do they lack economies of scale, but the advancement in application modernization and multi-cloud features such as Kubernetes, microservices, and CI/CD automation will also enable enterprises to migrate their workload seamlessly to a new cloud environment. Nevertheless, private cloud services will remain relevant for highly regulated or sensitive data and mission-critical applications. It is crucial for service providers to work with partners, develop new skills, and broaden their capabilities (i.e., infrastructure, applications, and consulting) to help enterprise customers transform their business.

The Competitive Landscape Will Further Evolve with 5G and Edge
The disruption will not stop there. Hyperscalers are also extending their capabilities in private 5G and edge computing. AWS has comprehensive edge offerings through Local Zones, CloudFront, Wavelength, Outposts, and Snow Family. It also launched AWS Private 5G in the US (for more, please see ”AWS’ Private 5G Service Hits the Market with a Big Asterisk,” August 15, 2022). Similarly, Google has Google Distributed Cloud (GDC) for its edge services and launched 5G Private Cellular Network (PCN) (for more, please see ”Google Cloud Launches Private Cellular Network Portfolio,” June 16, 2022). Azure also has a wide range of edge offerings (e.g., Azure Sphere, Azure Stack, Azure Stack Edge, Azure IoT Edge) and is building its network capabilities through acquisitions of Affirmed Networks, Metaswich, and AT&T Network Cloud while Alibaba has Apsara Stack and the recently launched CloudBox. These hyperscalers have extensive collaborations with carriers, especially in mature markets (e.g., the US and Europe). They are also working directly with enterprises to co-develop new applications, leveraging their edge and private 5G capabilities. This trend has yet reached ASEAN (apart from Singapore), but it is expected to further change ASEAN telcos’ portfolio and go-to-market strategies. For example, while the private cellular network is logically within the telcos’ space, hyperscalers (as well as other providers such as network vendors and system integrators) are rather aggressive in developing their capabilities and capturing the market opportunity. Similarly with edge computing, while telcos own infrastructure across a country to offer various edge options (e.g., near or far edge), they could lose their natural network advantage. Telcos will need to redefine their partnership and go-to-market strategies in enterprise 5G and edge computing, especially with hyperscalers. For example, they could be the service provider to enterprises offering multiple vendor solutions, be just an infrastructure provider to hyperscalers, or go to the market together with their technology partners. However, the ecosystem is still shaping up even in mature markets. Some industrial engagements are telco-led while others are hyperscaler-led.

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