Navigating the Telecom Cloud: Growth Perspectives

Navigating The Telecom Cloud

Growth Perspectives

www.informatandm.com

Introduction

Communication service providers should remember that cloud computing can – and must – defend the core. The core is broadband, whatever their aspirations to become digital media outlets or ICT service providers.

Using cloud services, CSPs have a multi-billion dollar opportunity to change the dynamics of ICT wallet share. Nevertheless, CSPs’ cloud services must fulfil a primary function of securing revenues on the network assets that make CSPs positively different from pure-play cloud service providers.

Informa has examined the cloud strategy of more than 130 CSPs across the world (see fig. 1). This underscores that CSP cloud activities and investments are accelerating (see fig. 2).

CSPs – particularly those in North America and Asia - spent almost $14 billion on cloud pursuits in 2011 (see fig. 3), according to Informa’s Telecom Cloud Monitor. Revenue growth rates comfortably exceeding 100% per annum are common. However, only a handful of CSPs currently generates more than 5% of overall revenues from cloud services.

CSPs must act now to secure long-term profits from cloud services. As demand for cloud services shifts to emerging markets and across customer segments, CSPs’ cost bases are under increasing pressure – and their competitors are increasingly diverse and sophisticated.

We hope that the following perspectives provide guidance, and we look forward to working with you on your cloud journey.

Camille MendlerPrincipal Analyst – Informa Telecoms & [email protected]@cmendler

© 2012 INFORMA UK LTD. ALL RIGHTS RESERVED. WWW.INFORMATANDM.COM

Fig. 1 – CSPs selling cloud services multiply

Fig. 2 – CSP cloud activity accelerates

SOURCE: Informa Telecoms & Media

Eastern Europe & CIS Western Europe Asia Pacific North America Middle East & Africa Latin America

1Q12

66

39

27

22

4

4

1Q11

1Q10

0

20

40

60

80

100

120

140

160

CSPs

sel

ling

clou

d se

rvic

es

2006 2007 2008 2009 2010 2011 1Q12


Services launched CSPs active in quarter


Fig. 3 – CSP spent $13.5 billion on cloud in 2011

Fig. 4 – Cloud activity shifts to emerging markets



The status quo

CSPs are muscling into the global cloud market with bulk – big-name acquisitions and big-ticket investment programs. In 2011 alone, CSPs spent $13.5 billion on cloud-related pursuits.

So far, CSPs in developed markets have called the shots. Notably, AT&T, NTT and Verizon are executing well-established plans to sell cloud services – and they have the appetite to invest globally. North American and Asian CSPs accounted for 90% of telecom cloud investments in 2011. European operators accounted for only 7%. CSPs in other regions made up the remainder (see fig. 3).

Europe’s economic weakness and uncertainties about security and privacy laws have meant more muted investment activity. Yet European CSPs continue to launch the largest number of new cloud services – and half of their cloud enablement partners are European firms. Prominent European CSPs include Deutsche Telekom, Orange, Portugal Telecom and Telefonica.

From 2012 onward, Informa believes that CSPs in other regions will become prominent in cloud services, particularly in emerging markets (see fig. 4). In Africa for example, lack of legacy ICT infrastructure may prove a positive advantage for cloud service takeup. Besides data center investments, African CSPs including MTN, Safaricom and Vodacom are now linking cloud services to m-commerce payment models, cleverly adapting to the limitations of Africa’s formal banking infrastructure.

In the Middle East, CSPs are ramping up activity and bolstering cloud skills through ICT partnerships. STC works through its ICT subsidiary Awal and with India’s Sify. Etisalat works with HCL Technologies. Mobily and Qtel work with regional ICT integrators, Smartworld and iHorizons, respectively. du is targeting SMEs through a government-supported cloud initiative in partnership with Microsoft.

In Latin America and the Caribbean, data center construction is well underway, involving CSPs such as Digicel, Entel, Telconet and Telmex. Service launches are accelerating: America Movil and Lime are rolling out cloud services across their subsidiaries. SMEs are a principal customer target for CSPs like Telefonica. But equally, CSPs like Alestra, Oi and Telmex are also targeting public sector organizations in general administration, health and education.

In each region of the world, there is much to play for, and rising pressure on CSPs to make a return on their considerable cloud investments.

NOTE: Totals may not add up to 100% due to rounding. Totals include estimated value of acquisitions and investment plans announced in 2011.

Investment by region

Number of CSP cloud service launches by country type

Top telecom cloud investors

Russia and CIS (2.7%) Europe (7.1%) Latin America (0.8%) Asia Pacific (30.8%) Middle East and Africa (0.4%) North America (58.2%)

Centurylink (18.7%) Windstream (18.6%) NTT (16.1%) Verizon (10.4%) AT&T (7.4%) Telstra (6.3%) China Unicorn (4.7%) Others (17.8%)

77%

9%

9%

5%

59%

33%

8%

1Q11

High income countries

Upper-middle income countries

Lower-middle income countries

Low income countries

Eg: Germany, Japan, UAE, United States

Eg: Brazil, China, Russia, Turkey

Eg: Egypt, India Ikraine, Vietnam

Eg: Kenya, Pakistan, Tanzania, Uganda

1Q12


Fig. 5 – Cloud services benefit everyone, and everything

Fig. 6 – CSPs prioritize IaaS



Secure the core

CSPs’ cloud services are not interchangeable with those of other cloud service providers. The services may bear the same name and functionality – IaaS, PaaS and SaaS – but they have a specific duty to perform.

Broadband, and increasingly mobile broadband, is the anchor service that CSPs must support and integrate into their cloud service propositions. CSPs must not seek to simply copy pure-play cloud service providers; they must emphasize how they positively differ.

CSPs must also suppress the urge to silo cloud services into the ‘ownership’ of a particular division: Cloud is a consumption model for digital goods which touches all customer segments – as well as CSPs’ internal processes (see fig. 5).

CSPs can act as a distribution channel for third-party cloud services. But a central role in the cloud value chain – and a bigger share of the revenue pie – is sought. Reflecting this desire is the growing focus on IaaS (see fig. 6) and data center assets. In 2011, eight out of 10 CSPs’ cloud-related investments and acquisitions involved data centers to establish positions in IaaS. CSPs are now constructing a quarter of a million square meters of data center space.

But making a land grab for physical assets in order to sell virtual goods carries risks. Once the cloud’s digital assets are fungible – standardized and completely interchangeable, irrespective of vendor – the only real differentiator becomes price.

CSPs must not re-architect the boom and bust cycle of the Enron Era. Two duties are clear: To assert service differentiation and to lower costs. In a post-PC world, CSPs must remember that their ability to secure, mobilize and democratize access to cloud services is increasingly valuable.

Recommendations •Secure core income: Cloud services must drive usage of CSPs’

broadband networks and secure customer loyalty. •Differentiate, don’t copy: CSPs must emphasize their multi-device

and multi-platform cloud service delivery and support capabilities. •Remove silos: CSPs must develop a holistic cloud strategy that

delivers both go-to-market and operational benefits across their customer bases and business processes.

NOTE: n=170 new services launched in 2011

World: CSP cloud services launched by type, 2011

IaaS (18%) Storage, back up and restore (16%) Unified communications and collaboration (15%) Business apps suite (14%) Security (9%) Other (28%)

CuSTomeRS

People Objects

SegmeNTS

Horizontal Vertical

Consumers SoHos SMEs Enterprises Government Health Finance Energy etc…

SeRVICeS

UCaaS IaaS PaaS SaaS Carrier Ethernet DSL WiFi M2M 2G/3G/4G IP VPN

ASSeTS

Spectrum Fiber Datacenters OSS / BSS Stores & Channels Security Certified Skills


Fig. 7 – Triaging services to secure differentiation

Fig. 8 – Linkages between consumer and enterprise cloud services



Promote differentiators

Many CSPs want to establish a high-volume hypermarket for cloud services. But CSP success is highly dependent on whether their service delivery and management costs are pared down and their competition is weak.

Open-source cloud stacks promise more competitive cloud economics for CSPs moving into commodity, public cloud services. But to play for keeps, CSPs must also prioritize differentiating services that underscore the importance of broadband and alter patterns of user behavior in leisure or work contexts. Differentiating services (see fig. 7) are those which: •Depend on quality of interaction: Services which rely on high-

speed connectivity, where latency impairs the quality of user experience and application functionality.

•Allow ubiquity of interaction: Services which are accessible and easily switchable between connected devices without impairment of experience, irrespective of location.

•Secure digital interaction: Services which safeguard content, the physical housing and transmission of content according to individual, corporate and governmental requirements.

•Stimulate “interstitial” consumption: Services which enable digital interaction during downtimes, typically when an individual is moving from one task or location to another. Examples may include queuing, taking a taxi or being on hold.

•Promote collaboration: Services which support multi-user interaction, content sharing and problem solving across diverse connected devices and physical locations.

In particular, CSPs need to mirror consumer and enterprise cloud services in order to create operational and behavioral synergies (see fig. 8). Only 5% of CSPs’ new cloud services targeted consumers in 2011. Consumer cloud services may not be highly profitable in their own right, but they can help build cloud experience and grassroots demand. The consumer cloud is a Trojan horse into the enterprise.

Recommendations •Applythepowerofconsumerization: Consumerization of the

enterprise is a weapon to use proactively to drive cloud service demand.

•Bewarecloudhypermarkets: Brokering apps, storage and compute services mustn’t downgrade a CSP’s differentiators in the cloud ecosystem.

•Pursueopensource:Open source cloud stacks are still maturing, but could improve CSP costs and competitiveness.

Cloud SeRVICe WHAT do THey PRomoTe IN THe TeleCom Cloud?Quality ubiquity Security Interstitial

consumptionCollaboration

multimedia content management Console-quality gaming medical imaging Cross-platform video conferencing Cloud telephony Virtual desktop

CONSUMER CLOUD

Multimedia content management

Gaming

Cloud telephony & second-line

Device security

ENTERPRISE CLOUD

Storage-as-a-serviceBackup & disaster recovery

Collaboration, enterprise video

Dual-persona / managed BYODUnified communications

Managed security & device management


Fig. 9 – CSPs focus on SMEs

Fig. 10 – SME verticals are worth targeting



Sell trust to Smes

Smallandmedium-sizedenterprisesarethenumber-onetarget for CSPs’ cloud services (see fig. 9). But SMEs are not a single ‘mass’ market. CSPs must execute a two-pronged strategy: They must support both general and selected industry-specific business processes.

Generic functions addressing nearly all SMEs include unified communications and collaboration, security, data storage and backup, point of sale, invoicing and billing, sales force automation, inventory management, customer care, and marketing. Addressing industry-specific processes is also relevant where demographics are favourable (see fig. 10).

Many CSPs believe that price is the only issue that really matters to SMEs. This is only partly true. An effective SME portfolio should demonstrate a balance of capabilities: •Localization: Serve local conditions and business processes. For

example, Koç.net is partnering with SaaS vendor Surado Solutions to sell a Turkish-language version of its CRM package to Turkish-speaking SMEs in Turkey and beyond.

•Democratization: Extend enterprise-class capabilities cheaply into SMEs. For example, Telecom Italia’s Fast-Start per SAP Business All-in-One service includes an online configurator where SMEs select and pay only for required processes.

•Specialization: Target sizeable SME sub-segments. For example, NTT Data’s Recec service for the Japan Dental Association is a SaaS service for dentists which manages their medical insurance reimbursement claims, bundled with a secure VPN connection.

•Mobilization: Deliver mobility that positively boosts an SME’s business efficiency. For example, Vodafone Germany’s Vodafone Locate service helps SMEs working in logistics to track their drivers without the need to invest in specialist hardware or software.

•Trust: Stress competence to reduce business risk and boost profitability on a strategic and operational level. For example, Orange’s Le Cloud Pro is a dedicated small business portal which sells cloud services, but also integrates curated business strategy and trading advice.

Recommendations •Promote trust over cost: CSPs must find new ways to help SMEs

to do business using the cloud, not just cheaper ways. Trust is a differentiator.

•VerticalizetheSMEuniverse:CSPs should market to large sub-segments within their SME universe. Sizeable groups exist where discrete targeting is justified.

•Don’t downplay broadband: CSPs should promote services that offer fundamentally new ways for SMEs to do business using assets that CSPs control.

NOTE: n=170 new services launched in 2011

World: Segments targeted in CSP services, 2011

SMEs (44%) Enterprises (41%) Vertical industries (10%) Consumers (5%)

SME VERTICALSShop owners

Hotel / restaurant / bar ownersAccountants

Doctors, dentistsSmall manufacturers

LawyersPlumbers / electricians

1000+

500

Empl

oyee

s pe

r Com

pany 100

20

5

1

0


Fig. 11 – Money flows are complex

Fig. 12 – Cloud enablement is multi-sided



Triage cloud enablers

The average CSP works with 16 cloud enablement partners, according to Informa’s Telecom Cloud Monitor. Many relationships simply involve SaaS resale (see fig. 11), but more complex relationships are also common.

Informa defines cloud enablement as a sub-set of telecom managed and professional services, divided into two inter-related types. Go-to-market services involve helping CSPs to sell cloud services to end customers. Operational services, meanwhile, may include the construction and operation of cloud service infrastructure, but also the migration of CSPs’ existing processes to the cloud’s operational model, such as provisioning, billing and service orchestration.

CSPs’s leading partners in 2011 illustrate the diverse, multi-faceted nature of cloud enablement. They included: •Microsoft: Twenty eight CSPs developed and launched services

(largely Office365) with Microsoft in 2011. •Cisco Systems: A leading unified communications and

collaboration (UC&C) provider, Cisco was also a global IaaS enabler with EMC and VMWare.

•CE On-Demand: The Hungarian Office365 syndication partner helped CSPs in Austria, Bulgaria, Hungary, Poland and Slovenia.

•Google: GoogleApps won support as far afield as the Maldives with Dhiraagu, but also major CSPs like Vodafone Germany.

•Dimension Data: The NTT Group subsidiary provided its onecloud IaaS platform to CSPs including BSNL, Hutchison Global, Indosat and PLDT.

•Parallels: The vendor’s cloud-service automation tools helped Charter Communications, KDDI and KT in 2011.

•NEC: Most prominent in Telefonica Espana, NEC’s SaaS enablement services extended to Latin America, and CSPs like MTS Belarus.

Historically, go-to-market partnerships dominated enablement activity, but needs are evolving.

Today, the transition to cloud-based operations ranks among CSPs’ top three operational investments for 2012, according to a recent Informa survey. Ultimately, telecom cloud market dynamics (see fig. 12) will favor enablers that can provide a lifecycle of services – and shared reward.

Recommendations •Demand gain sharing: Favor partners willing to share risk and

reward. •Evaluate wider partnership benefits: If a partner’s proposed

financial terms are unfavorable, consider if the cloud service can act as a loss leader to secure broadband subscriptions before walking away.

•Streamline partnerships: Look to lifecycle partners that can simplify partner onboarding and management burden.

SaaS vendor

Indirect channel

Cloud aggregator

Indirect channel

Indirect channelCSP

CSP

SME / Enterprise

CLO

UD

EN

ABL

ER

PROPOSITION ENGAGEMENT

Sell to

Go-to-market servicesHelp sell the cloud

One-offConsult, design, plan, build,deploy, integrate, migrate

Operational servicesHelp deploy the cloud

Sell with

Sellthrough

COMPENSATION

CSPAnnuityManage, operate,

optimize, licence, white label

FIXED PRICEUnits, over term, license

fee

VARIABLEPerformance, deferred

CAPEX, pay-as-you-grow, shared risk/reward

Retail payment

Payment types may include:

Pass-through payment

Referral commission, revenue-share payment

The Informa Telecom Cloud monitor

This analysis is derived from the Informa Telecom Cloud Monitor, an analytical tool tracking the cloud-related activities of more than 130 operators worldwide. Content sources include Informa operator, vendor and enterprise interviews, company financial statements, press releases and other publicly-available data. Activities tracked include acquisitions, investments, customer wins, service launches, trials and partnerships with more than 250 cloud-related equipment, software and services vendors, with a historical archive beginning in 2005.

Related researchSell the cloud to protect the core: Action plan for 2012Cloud TV: A future necessity for operators The SME cloud opportunity: A market overviewIs SaaS a loss leader in the telecom cloud?

Working with Informa

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Our clients represent all parts of the value chain, from telecom CSPs to pay-TV providers, from content providers to device manufacturers. Our syndicated research and comprehensive databases provide vital data and analysis focusing on the global telecoms and media markets, and are widely used and valued by industry professionals and thought leaders. We also provide a range of consultancy and bespoke research

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Navigating the Telecom Cloud: Growth Perspectives

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