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Telcos: are you ready for the edge?

Over the last several years the telco industry has experienced dramatic change presenting a number of opportunities and challenges for providers.

On one hand, the switch from copper to fiber has readied networks for speed and scale, and the physical switch has become a software switch, shrinking the footprint needed for equipment. On the other, deregulation has opened the door to competition and is driving prices for telco and broadband service down and eroding profit margins.

Furthermore, federal subsidies for regulated telco operators are at risk and lack of access to these subsidies will make it difficult for telco operators to connect and provide service to new customers, which in turn may limit their ability to grow their business moving forward.

As a result, telcos are reevaluating business models and looking for alternative and sustainable revenue streams. One option is converting empty floor space into an edge computing data center, enabling telcos to not only expand their business, but provide better service by reducing latency and lowering transmission costs.

telco old fashioned telephone exchange

Source: Schneider Electric


Why telcos?

 There are three compelling reasons why telcos make ideal data centers:

  1. They are located at the edge.
  2. They have switched from analog to digital, with connectivity included.
  3. They have central offices with tons of free space.

When you think about it, central offices (aka “telephone exchanges”) are already a lot like data centers. Because of the inherent nature of the business, these are mission critical facilities with mission critical infrastructures, prime for adaptation to a new economy of digital capacity and availability. Being close to the user with the foundation in place to support the demand for more connectivity, capacity and speed translates into a tremendous business opportunity.

Designing a blueprint for success

Just as with traditional data centers, there is no one size fits all approach for telco facilities. To develop a customized build that will meet their unique needs, telco operators will need to address five key elements: space, power, cooling, racks and security.


What are the facility requirements needed to support the installation? For example, 1,000 square feet is ideal for a 20 – 24 rack pod deployment – can the facility support this? Smaller spaces can be home to micro data centers and pre-fabricated modular data centers can be another alternative.

IT racks: 
Racks will be needed to support the IT equipment that is installed. Rack-based deployments and pre-configured pods enable a “build-as-you-go” approach leveraging the existing infrastructure.

A rack-based deployment (or “colo-on-demand”) model helps preserve capital by providing just in time delivery of data center capacity. A rack supports the IT equipment and includes the rack, rack mount UPS and rack PDU. This deployment option assumes there is excess existing infrastructure capacity to support the IT rack power and cooling requirements.

A pre-configured pod can also take advantage of existing infrastructure, but when more capital is available, the infrastructure is upsized to support a larger deployment. A pod is a group of 5KW racks built up to provision specific load and capacity.

Power & cooling: 
It’s likely some forms of these systems already exist within the central office space. However, telcos should determine if the current systems will be sufficient or if additional infrastructure will be necessary. At the very least, they will need an uninterruptible power supply (UPS), downstream power distribution unit (PDU) and critical air conditioning within the data center space. Furthermore, in order to ensure adequate power, it may also be necessary to increase utility service, add generator capacity or install a complete AC system.

Cameras and access control systems will be necessary to regulate which employees are able to enter the data center and when.

telephone line telco

Source: Schneider Electric

ROI and the business case for investment

While the decision to undergo the transformation from a traditional telco model to one that provides a data center component isn’t to be taken lightly, the potential gains makes it worth serious consideration.

Telco operators are in the ideal position to leverage the free space within their central offices by taking advantage of edge computing to expand their service offering and diversify their sources of revenue.

Let’s take for example, a central office with enough space to construct a 24-rack environment that supports 5kW per rack, for a total load of 120kW. Assuming the need to build out infrastructure including generators, UPSs, AC, racks and security, a telco provider could expect construction costs to reach between $1-1.5 million.

A telco provider adopting a colocation data center model, in which the telco builds and provides the data center environment and rack space while individual customers are responsible for the purchase, installation and management of the IT equipment they put in, could look to rent each 5kW rack for between $1,500-2,000. In a 24-rack deployment, the telco could realize a revenue of $400-600k per year, with the entire system paying for itself in less than 36 months.

However, if there isn’t sufficient space to build out the data center there is the option to supplement with prefabricated data center components to provide power, cooling, and if desired, additional data center IT “white space”. In either case, whether it’s a traditional build within the central office or building part or all of the data center using prefabricated components, the return on investment is going to be similar.

The great thing is that there is more than one approach to building a data center. Hosted services is another data center model that provides managed or virtual services. This model would require an additional investment in IT equipment, software, and IT staff but can generate up to 20 times the revenue stream of a colocation model.

ITS Telecommunications Systems, Inc. is a winning example of how a traditional telco successfully transitioned its central office into a state-of-the-art data center to deliver more expansive IT services to better meet evolving technology and customer need. ITS provides a unique solution that includes an assortment of data center services tied to its underground end-to-end fiber network that provides customers with the opportunity to reliably adopt advanced technologies, save costs and reduce the burden on IT. Also, customers have a local data center option to manage data access and storage closer to the data source, which helps to lower data transport time and increase availability.

And as for ITS, they now have a competitive edge and new revenue source to help continue to grow their business. The ability to generate non-regulated revenue has been a boost for the company. After investing approximately $1.5 million in upgrading their systems as well as the data center itself, they are projecting their per rack monthly revenue at $40 thousand per month, with an anticipated payback period of just three years.

Telco operators are in the ideal position to leverage the free space within their central offices by taking advantage of edge computing to expand their service offering and diversify their sources of revenue. As technology, customer needs and regulations continue to shift, edge computing will enable telco operators to evolve quickly enough to stay competitive and relevant.

Mark Hurley is a data center solution architect at Schneider Electric

Readers' comments (2)

  • Interesting idea, but it has one major flaw. the Telco's are not neutral and only want to push their service. There will not be a neutral telecommunication environment. Those providers of internet services who want to use such space will be constrained by the telco to use only their services as the Telco will make it uncompetitive for their counter-parties to also enter the space. The internet service provider you will end up in a eco-system that is dominated by the incumbent Telco. Better that co-location providers provision edge data centres with the telco eco-systems. they are vendor neutral. Then the internet service providers get choice and the end user a better commercial outcome.

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  • I have had some experience with the Telco company "central offices" and I concur with Greg Goode that there may be some attempt by the Telcos to "lock in" their own telco services. However, there may be a play in a third party purchasing some of these central office "edge" sites since many of them are being shut down by the telcos due to the decline in land-line telephone service. The sites do have the advantage of being capable of having very good connectivity (both upstream and downstream) and not just from the incumbent telco company.

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