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3 June 2021

Liberty’s edge cloud play could prove more impactful than any M&A move

A nascent but potentially highly significant trend is for operators and telecom infrastructure suppliers to invest directly in edge cloud assets.

 

While most telcos have pulled back from building their own centralized telco clouds, and will rely on partnerships with cloud providers, some are interested in investing in more distributed edge clouds.

Towercos, too, are eyeing edge data centers as potential additions to their neutral host infrastructure models, and the three leading US tower providers are all actively developing this business.

And even where telcos do not want to build an edge cloud, they do not have to buy edge capacity on the open marketplace. Their central offices, switching centers and cell sites make up a dense real estate portfolio that they can contribute to strategic alliances with companies wanting to build out an edge cloud.

It is more unusual for a cableco to take an interest in this market, as operators’ edge strategies tend to be associated with the build-out of 5G RAN and core. But Liberty Global – in a partnership that may prove more impactful than the merger of its UK arm with O2 UK – has stepped into the ring, recently announcing an edge alliance called AtlasEdge with neutral host group Digital Colony, targeting European operators.

This sees Liberty unlocking value in its real estate – at current market valuations, a combination of infrastructure and property is gold as far as nervous stock exchanges are concerned, and far superior to service providers. Liberty will also gain an edge cloud that can be used by several of its subsidiaries, and a share of revenue from external customers, while Digital Colony can expand the infrastructure it can offer, extending its relationships with telcos and attracting new clients.

The edge cloud will be highly strategic to operators as they virtualize their RAN, core and transport networks, as these functions will need a high performance and distributed cloud on which to run effectively, especially to support low latency processes.

For some operators, this will drive investment in their own edge cloud, to keep full control of the performance of the 5G or converged networks. Many telcos, despite the example of Dish, are hesitant to move critical network functions, rather than just IT applications, to the public cloud. And some see the opportunity to monetize their 5G edge cloud by running enterprise or consumer services on it too.

Other operators will want to avoid the cost and risk of investing directly in edge infrastructure and will be willing to use shared or wholesale platforms, but will still need to be confident that these fully support telco network requirements, particularly the stringent demands of a 5G vRAN. This is where initiatives like AtlasEdge come into play, promising a neutral host cloud that is optimized for telco or demanding enterprise requirements.

The two companies, announcing the joint venture, said it would serve the “growing European demand for scalable data center capacity that brings applications and content closer to the edge”. Assuming the venture gains regulatory approval, it should start in business in the third quarter.

It will not only target operators, of course. Public cloud providers, which may have trouble applying their highly centralized and scaled-up model to a distributed edge, are looking for partners with edge locations, and have already allied with telcos in some areas, as seen in Amazon’s AWS Wavelengths arrangements with Verizon and others. AtlasEdge also believes it will gain business from video streaming services and enterprises – in fact, any organization that is delivering low latency, high quality services to consumers or enterprises, and requires processing, storage and connectivity close to the user.

Liberty Global will contribute digital infrastructure assets, including its technical real estate portfolios, such as data centers and cable head-ends, to the venture, “at levels consistent with European digital infrastructure valuations, highlighting the strong underlying value embedded in its businesses”. More than 100 facilities in the UK, Ireland, Switzerland and Poland will be offloaded into the new venture.

It will also provide strategic and operational support to the business. Digital Colony will contribute operating expertise, strategic direction and capital. Josh Joshi will lead AtlasEdge’s board of directors as executive chairman.

Liberty will also be the anchor tenant – an essential requirement of any shared infrastructure venture. Several of its operating companies, including Virgin Media in the UK and Ireland, Sunrise-UPC in Switzerland, and UPC in Poland, will guarantee business. They, according to their parent firm, will gain “unprecedented local reach into consumers and businesses, will provide infrastructure services to third parties at the edge with a focus on performance, low latency, scalability and quality of experience”.

One of Joshi’s targets will be to expand the business from these seed markets and into other European countries.

Marc Ganzi, CEO of Colony Capital and of Digital Colony, commented, “The proposed joint venture will unlock the growth potential of Liberty’s digital real estate holdings and capitalize on the emerging demand we are seeing for edge compute across Europe. It’s an opportunity for us to apply the entire Digital Colony value-add playbook, leveraging our operating expertise, strategic M&A capabilities, and access to institutional capital in partnership with a world-class organization like Liberty Global.”

He said Digital Colony has a portfolio of infrastructure assets worth $32 billion that can be leveraged by AtlasEdge, including towers, data centers, fiber facilities and small cells.

Much of the gold rush that is going on at the edge is related to the chance to unlock more value from certain telco and towerco assets to free up funds, although there is also a window of opportunity to build out edge clouds before the hyperscalers decide the market is moving too slowly and they need to do so themselves.