The present technology is directed to a system and method for using cloud based processing to co-locate one or more tunnel end points, associated with mobile user generated traffic traversing a Core network, with the serving machine located on application provider network. The describe system/method involves early stage identification of traffic flow (i.e., at the Packet Data network Gateway device using Application Detection and Control function) and dynamically instantiating an end point for the aforementioned traffic flow at the server where the application request is being served. The traffic is then directly tunneled to the endpoint thus avoiding decapsulated mobile traffic from traversing across provider network.