Operators Deploying Cloud Services, But Confusion Over the Choice of Business Models

Most of us view telcos as primarily communication vendors and many service providers have been making a good living for more than ten years now by offering an assortment of hosting services ranging from simple collocation to more sophisticated managed servers. Yet, these hosting services have made very little impact on telcos' business results, because these companies are still more dependent on their traditional voice and data services from a revenue or margin standpoint.

However, there are many reports in the market showing positive signs of adoption of cloud services in the wholesale market. According to Ovum, increasing demand for cloud based services is driving a boom in the wholesale telecom market. In a new report, an independent telecom analyst claims that wholesale telecom service providers are set to benefit from the growing consumer and business demands for cloud based services provided by a new breed of enterprises.

Paris Burstyn, report author and Ovum analyst says, “A growing number of companies that serve businesses and consumers feed the demand for the cloud. They purchase telecom services on a scale of small-to-medium from wholesale telecom carriers. This means wholesalers are poised to experience a boom because as these intermediary companies experience an increasing demand for their products and services, wholesale telecom suppliers have the opportunity to grow with them.”

According to researchers, Indian cloud computing services market is estimated to grow to $1 bn by 2015. The $110 mn market for cloud computing in India is expected to reach about $1.08 bn by 2015.

No doubt, telcos want to leverage the latest cloud computing innovations to streamline their internal operations and improve their competitiveness in an increasingly unforgiving marketplace. But at the same time, practice of such services are still at a very initial stage and only few wholesale players like BT and AT&T are practicing it.

“The adoption of cloud services in the ILD sector is still at a nascent stage. This is because operators have been laying more focus on designing cloud solutions for enterprises. There is still a lack of clarity among telcos on how cloud services can be leveraged for wholesale customers; though there is a general consensus that opportunities exist especially around platform-as-a service (PaaS) and infrastructure-as-a-service (IaaS),” says Santosh Sathanur, senior analyst, Ovum.

The success of SaaS has opened the door to a wider set of cloud based services. The platform-as-a-service (PaaS) model now enables organizations to develop their own applications via on-demand, online resources. And, infrastructure-as-a-service (IaaS) offerings fulfill this promise of the utility computing idea, which was popularized almost a decade ago, by permitting users to acquire compute power by the MIP.

“BT provides seamless global connectivity and networked IT services to multi-national corporations and public sector customers in our target markets. Cloud is the logical result of convergence-the coming together of networking and IT. As such, it is another step on the journey which organizations have been making for some time. Like previous steps, different organizations will take it in at different times and in different ways,” says Sudhir Narang, MD, BT India.

Now many telecom firms such as AT&T and Verizon Communications want to be key players in the burgeoning cloud computing industry in two primary ways:

• As developers of their own cloud computing services
• As a channel to market for various third-party cloud computing services

Certainly there are many more opportunities available for telcos to capitalize upon in the cloud that will become more visible in the coming months and years. Let us not forget that cloud computing is still in its infancy and a lot may still change before cloud computing becomes a mainstream and the primary IT provisioning and service delivery channel for businesses.

Narang says, “Companies are quickly looking towards cloud based services as a way to create a better level of service while reducing costs. Organizations need to be able to adapt if they want to survive. The telecom sector too is part of this transformation, hence, they also need to keep growing and innovating if they're going to compete. Telcos globally and especially in India have embraced cloud services as they need flexibility to scale and manage costs with no drop in the quality of service and above all to operate in a secure environment with resilient network architecture.”

Due to the global recessionary and competitive pressures, integrated operators are confronted with the challenge of constructing a path to convergence services while providing quality of services to retain and grow the customer base. Operators are also under considerable pressure to deliver more profits, reduce TCO, and create greater efficiency and manageability in the business processes and management of networks.

Sathanur explains, “In the post—recession landscape, companies are increasingly looking to opt for models which offer them features like usage based billing. Focus of companies on cost optimization and adoption of a lean operations approach are also leading to an increased adoption of cloud computing services especially among SMEs. Hence, there is a huge interest of small and large players in various 'as-a-service' offerings. With their existing billing relationships, wholesale players are uniquely positioned to meet this growing demand. However, wholesale players should lay more importance on shared telecom infrastructure in order to achieve cost efficiencies which can later be passed on to their customers, thereby, driving further penetration of cloud based services.”

“Cloud computing offers much more than cost reduction. It enables innovation and new business models where customers can focus on their core business and partner with Tata Communications to obtain instant IT and network services to support it. Emerging market companies, in particular, can leapfrog to world-class technology capabilities by adopting cloud computing models,” says Vinod Kumar, president and COO, Tata Communications.

“There are more advantages than challenges. In the Indian telecom space, the 'outsourcing model' has been embraced in a large way as this also extends to telecom infrastructure and networks. Telcos prefer operational expenditure to capital investments; they value speed of response and flexibility of deployment. Telcos are also looking for an alternative way to provide standard applications-business productivity tools, contact center solutions, communication services and so on. The entire cloud portfolio of cloud such as infrastructure-as-a-service (IaaS), communication-as-a-service (CaaS), and software-as-a-service (SaaS) can be rolled out for a telco,” says Narang.

As many traditional small and medium business (SMBs) channel partners make a transition to the cloud services model, telecommunication service providers are making a strong bid for the SMB cloud share, beyond their traditional voice and data service offerings. Facing the continuing prospect of declining average revenue per seat (ARPU) and increasing churn, telecommunication service providers see SMB cloud as an opportunity for sustained revenue growth and customer loyalty. At the same time, many SMBs are open to expanding their relationships with telecommunication service providers beyond traditional voice and data services.

Through their extensive communication services, telcos can provide value added and bundled services with third-party application providers like SaaS providers. This can include networking and phone services. Another interesting aspect is the concept of 'mash-up' services with a vast range of applications available through the cloud. Telcos can provide and integrate various services and data, including identity management, location information and billing capabilities with other applications and thereby, provide cloud services with added value to their customers.

Telecommunication companies' billing systems and customer care centers also constitute valuable strengths. They allow telecom providers to operate in a scalable manner and are highly professional and process controlled, giving them the ability to expand and diversify very effectively.

Knowledge of cloud computing architectures and protocols is a plus, and many telecommunication providers gained essential experience when transforming old proprietary networks into a powerful next generation network (NGN). The NGN is already entirely based on an all-IP protocol, relying on modern service delivery platforms (SDPs).

Sathanur says, “Globally, wholesale communication services are increasingly becoming major enablers for cloud based computing services. In India, the uptake of cloud based services is still at a growing stage. But, with an increasing focus of enterprises on cost optimization and adoption of a lean operations approach, there is a huge potential for the growth of cloud computing services especially in the SME segment. However, the takeup of cloud based services will depend on an increased penetration of broadband and the rollout of cost effective access networks across the country.”

Telecommunication companies need to stick to their core competencies of telecommunication infrastructure and communications, and link them to IT services which their customers see as essential. By doing so, they can rejuvenate their revenue streams with managed IT services and simultaneously drive increased satisfaction among their target customers.

When we talk about 3-5% growth that we expect to see in the telecom sector over the next decade, it can purely be contributed in a huge way by cloud solutions or other kinds of networking data transmission. This is pretty much the only engine of growth that telcos have for the next decade.

Akanksha Singh
akankshas@cybermedia.co.in