Have you heard the story about the teacher, her students, and the balloons?

A teacher brings dozens of balloons to school and tells her students to write their name on one. Then, after mixing them all up together, the students are given five minutes to find the balloon with their name on it. Despite frantic searching, no one can find their own balloon.

However, when the teacher tells them to take the balloon closest to them and hand it to the person whose name was on it, everyone ends up with their own balloon in less than two minutes.  

What can Content Service Providers (CSPs) and cloud hyperscalers learn from this story? Well, teamwork makes the dream work — and not just when it comes to balloons! In other words, if both cloud hyperscalers and CSPs work together, it’s beneficial and more efficient for both — a classic win/win.

Given today’s current climate and with the acceleration of digital transformation, CSPs and hyperscalers must learn this lesson quickly. Here’s why.

Amplified by the pandemic, CSPs face enormous challenges

The COVID-19 pandemic has affected every industry and aspect of life. With the communications industry in particular, it amplified and accelerated existing challenges.

Stagnating topline revenue growth is not a new dilemma. However, challenging economic conditions as a result of the pandemic continue to place further revenue pressures on CSPs, with many operators expecting revenue underperformance of 2-5% compared to pre-pandemic plans.

Furthermore, against this revenue stagnation backdrop are increases to capital expenditures, with an expected $872 billion projected 5G network buildout costs over the next 10 years alone.

This doesn't include increasing IT operating expenditures and increased network demand. Fixed and mobile operators have experienced as much as 60% more internet traffic compared with pre-pandemic demand. Additionally, the new ways of working and collaborating will continue to proliferate and add to network demands.

Finally, customer experience is at a breaking point. In the last five years, no leading telecommunications, cable or satellite company in the Americas or Europe has sustained a Net Promotor Score (NPS) – a measure of customer loyalty – above 50, a threshold that indicates a company is "beloved" by a majority of its customers.

CSPs are at a critical stage of opportunity

In light of these challenges, CSPs are also faced with a tremendous opportunity as business and technology disruptors are changing our current models for the better.

At the center of this is digital transformation, a general term that encompasses a profound and accelerated transformation of business activities, processes, competencies and models to fully leverage the changes and opportunities of digital technologies and their impact across our industry that in turn will create a positive impact to address a number of challenges faced by their customers and our society.

While the communications industry is central to the digital transformation of industries, capturing the value from this has eluded communications service providers.

Digital transformation includes the move to cloud allowing us to expand and scale connectivity as we connect everything and everyone to bridge the digital divide, combined with AI this will create a workforce transformation with simpler repetitive tasks being done by machines, freeing up higher value, complex activities for human workers to restore productivity growth.

After this, automation of the network will change the way how services and applications are consumed, paid for, and maintained by introducing more ‘as a service’ business models.

With the growing power of analytics that are becoming more powerful, user-friendly and ubiquitous CSPs can offer higher levels of service customization that creates more value for their customers.

Hyperscalers can help struggling CSPs innovate at scale

But CSPs have several challenges to innovate and grow their revenues beyond connectivity:

• Investment - Significant investment is needed (platforms, applications and services)
• Business agility - Siloed operation translates to long time to market
• Eco system - Lack of a strong developer ecosystem
• Talent - Lack of scale and the right skill set

CSPs are increasingly also becoming much more agile themselves, driving enhancing their ability to address customer challenges. But this inherent complexity will mean a shift and more of an ecosystem centric view of the world. And figuring out how the role of operators within a B2B2X ecosystem looks like and what are the choices that have to be made and the role that CSPs want to play, and how to get there.

So what does this mean when it comes to the hyperscalers?

CSPs are trying to grow revenues beyond traditional connectivity. Although they do have the credibility and some of the capabilities and relationships within to provide value in the coordination age, we would argue that there's still a lot of work to be done, there is significant investment that is required to build the right capabilities, the skill set, and also the processes and operational models to do this.      

On top of that, the reality is operators don't have the resource or management bandwidth to serve all industries, which is beyond productivity. Strategic choices will have to be made on which are the target industries they want to focus on, and what can they do there, and also where they want to work with potential partners, such as the hyperscale cloud providers to succeed in that space.

CSP and hyperscalers partnerships: Outweighing opportunity and risk      

Obviously, critical strategic decisions include both opportunities and risks, and many CSPs leaders are trying to find the middle ground between a good partnership without exceeding value to them.

On the opportunity side, clearly there are a lot of potential benefits to partnerships, like accelerating time to market with new services. Hyperscalers have scaled capabilities and tools, which means a partnership could allow for development of software-centric use cases, access to the developer ecosystem and the community, and enhanced software skills and capabilities, particularly in the area of AI and machine learning. Plus, hyperscalers have the strength of the market and the public cloud offerings, which is quickly becoming the new standard.    

But on the risk side, CSPs want to avoid simply providing connectivity, and managed networking services while the hyper scalars develop, the more valuable software, computer-centered aspects of the services. In addition, there’s a risk of dependency on hyperscalers, which could result in vendor lock-in, particularly as CSPs are getting their own network functions over the hyperscale cloud.      

The bottom line is that, potentially, CSPs could lose control over their own distinct offerings, but also over their ability to evolve their core network functions and become even too dependent on the hyperscalers.     

For CSPs, the choice is obvious

In 1859, Charles Darwin set out his theory of evolution by natural selection as an explanation for adaptation and speciation. The concept was simple but powerful: individuals best adapted to their environments are more likely to survive and reproduce.

Darwin's principle also applies to this situation: digitalization rapidly changes technology and society and forces CSPs to adapt fast enough – or die.     

The hyperscalers see this as a significant opportunity in the telecoms industry, not seeing the CSPs just as customers but also as partners.

It's time to rethink the art of what’s possible, starting at the core, with CSPs infrastructure. Leveraging cloud innovations to realize an elastic infrastructure can help scale and reduce costs with automation.

Take advantage of cloud-native, 5G and edge innovations to reimagine business models. Grow topline by leveraging these transformative technologies and as-a-service models to bring new offers to market faster and unlock new revenue streams quicker.

And finally take all of this digital, data and workforce transformation and leverage it to rejuvenate market positioning with customers. Improve customer experiences through data-driven personalization and extend services with deeper data analytics and AI.

To learn more, join experts from Nokia, Google Cloud and leading operators for this virtual telecomTV event taking place on Tuesday 6 July, as they discuss the business imperatives around the cloudification of networks and dive into architectural and deployment best practices.