Amazon breaks into Europe 5G networks with Telefonica cloud deal

By Supantha Mukherjee

STOCKHOLM (Reuters) -Telefonica Germany will move one million 5G customers to Amazon Web Services (AWS) cloud later this month, company executives told Reuters, in a bold move by the U.S. online retailer to break into the global telecoms market.

While some telecom networks have moved IT and other non-core operations to the public cloud, the move by the subsidiary of Spanish group Telefonica is a global first where an existing mobile operator is switching its core network to a public cloud.

Big cloud-computing services firms such as Amazon and Microsoft have been trying to move more into the telecoms sector, lured by billions of dollars in potential revenue, but operators have been wary of the capability of public clouds in handling a mobile network.

"I want to see it working for at least one to two quarters and have a roadmap to move at least 30-40% of my customer base by 2025-2026," said Mallik Rao, Chief Technology & Information Officer at O2 Telefonica, also known as Telefonica Germany.

The company has 45 million customers in Germany.

AWS and O2 Telefonica did not disclose financial details of the deal.

The core network, which consists of high-performance servers in data centers, is the heart of a mobile network that securely routes data and calls at high speeds. A public cloud will cut costs, increase scale and allow repairs to be done without service disruption.

"As the network becomes more defined by software, traditional players need to up the ante to keep up with the threat of the big tech," said analyst Paolo Pescatore at PP Foresight. "We will hear the word 'frenemy' used a lot more."

U.S.-based Dish, which built its mobile network from scratch, became in 2021 the only telecom company to use AWS cloud for its core network.

"Dish was much easier because they had no existing systems that had to be modified to work with the cloud," AWS vice president Jan Hofmeyr said in an interview.

Nokia, which also worked with Dish, will provide the software and AWS will provide its infrastructure for Telefonica Germany.

"The cloud players continue to get better ... and building more credibility with the operators to be able to move network functions into the cloud," said Raghav Sahgal, president of cloud and network services at Nokia.

Telefonica first worked with AWS and Ericsson, and then swapped to Nokia and AWS, Rao said. "The days of trial are over. I don't want to keep on trying."

The global telecom cloud market is expected to reach $108.7 billion by 2030 from $19.7 billion in 2021, making it a growth driver for companies such as Amazon.

"We want to make it a business to run telco workloads," AWS' Hofmeyr said, adding that the company expects more deals with other operators in the next 12 months.

"I would say in most cases the discussion is about timing versus should we move into the cloud."

(Reporting by Supantha Mukherjee in Stockholm, Editing by Kenneth Li, Emelia Sithole-Matarise and Mark Potter)