AT&T and Microsoft announced a multiyear partnership that will see AT&T move its non-network infrastructure computing needs to the Microsoft Azure cloud as it becomes a “cloud first” company. Aside from the 270K employees at AT&T that will now migrate to the Office 365 platform for office and collaboration needs, and the various apps and databases that AT&T needs to run its varied businesses that will move to Microsoft Azure, there is much more here than just Microsoft getting a lot of new O365 and Azure customers. And there is much more at stake here for AT&T as well.

From AT&T’s perspective, it’s clearly important that they move to a more modern infrastructure for internal needs. But equally, if not more importantly, is the need for AT&T to create an environment that allows it to add new services for resale to customers. 5G will be an innovative technology that will create major opportunities for network operators to not only provide faster connectivity and lower latency but also to offer network services they never could have created before. 5G is revolutionary in its ability to “slice and dice” networks to create a large number of potential services – some at a very premium price, and some at very low cost. If the network operators don’t leverage this to offer new services and revenue streams, others surely will.

All of the network operators are eyeing being able to charge not only for network connectivity but also for over the top services like specialized security services, remote monitoring and diagnostics, remote healthcare, smart cities services, autonomous vehicles, and new entertainment options like AR/VR (also important in enterprise), etc. This requires a distributed computing infrastructure that includes edge servers and distributed data networks. This has to be built on a microservices architecture on cloud enabled and distributed computing resources. This is a major advantage that cloud enables.

AT&T can build out 5G networking just fine. But they are not a cloud service provider and can really leverage Microsoft in this space. Of course, this means AT&T will offer Microsoft Azure as the preferred service, to the competitive advantage of Microsoft. But it’s unlikely AT&T will turn away clients who insist on running on top of competing clouds (e.g., AWS and Google). Still, having “preferred” status gives Microsoft a major advantage in gaining customers, or at least in gaining revenues for services AT&T offers to customers.

Aside from the above advantages, Microsoft knows that as it moves to a more distributed cloud environment, it has to create high speed and low latency data lanes to enable many of the services it hopes to offer on top of Azure. Many of these data lanes will be wireless, and 5G is the future in wireless wide area networks, especially in enterprise situations where devices — which may well be vehicles, robots, autonomous instruments, AR/VR headsets, and other IoT capabilities — will likely be untethered and/or roaming.

Microsoft is spending a great deal of time and resources building out a distributed/hybrid cloud environment and has focused on creating an edge based IoT infrastructure. Who better than a network operator like AT&T, that knows where its customers will most use 5G connectivity, to tell Microsoft where to station those edge cloud servers (potentially even collocated with AT&T equipment). Is it possible we may even see edge servers in many cell towers? Yes. And as mentioned earlier, being a preferred cloud vendor means Microsoft will have a competitive advantage against AWS, Google, and others in any cloud based services delivered or procured thorough AT&T.

This partnership offers some key benefits for both companies as outlined above. But there are also some potential downsides. First, if Microsoft is closely aligned with AT&T, what will it mean for potential partnerships with other network operators who may not want to partner so closely with a company working with the “enemy.” This may actually force other network operators to move towards an AWS or Google as a countermove. Next, from AT&T’s perspective, if they are closely tied to Azure, what does that mean, particularly for their future enterprise customers, who don’t wish to be beholden to Microsoft? I don’t expect this to be an issue with most consumer services (e.g., gaming, entertainment, autonomous vehicles) as most consumers don’t care who the underlying technology provider is.

Bottom line: We should expect to see a lot more partnering between cloud infrastructure providers and network operators as 5G becomes more available in the next 1-2 years. There are some great benefits for both in tying a high speed, low latency network to a cloud infrastructure that can bring alive a number of new and compelling services for consumers and businesses. This will be key to having network operators become more than just “dumb pipes.” But what was once a “pick a carrier based on their signal availability and price” may turn into a “pick a combination network/cloud provider,” which may make it more difficult in some situations to choose. Still, I see this as a win for both AT&T and Microsoft long term, and an example of how network operations and services will change in the future.

Jack Gold is the founder and principal analyst at J.Gold Associates, LLC., an information technology analyst firm based in Northborough, MA., covering the many aspects of business and consumer computing and emerging technologies. Follow him on Twitter @jckgld or LinkedIn at https://www.linkedin.com/in/jckgld.