SK Telecom: Lessons in 5G, AI, and adjacent market growth

SK Telecom’s strategy

SK Telecom is the largest mobile operator in South Korea with a 42% share of the mobile market and is also a major fixed broadband operator. It’s growth strategy is focused on 5G, AI and a small number of related business areas where it sees the potential for revenue to replace that lost from its core mobile business.

By developing applications based on 5G and AI it hopes to create additional revenue streams both for its mobile business and for new areas, as it has done in smart home and is starting to do for a variety of smart business applications. In 5G it is placing an emphasis on indoor coverage and edge computing as basis for vertical industry applications. Its AI business is centred around NUGU, a smart speaker and a platform for business applications.

Its other main areas of business focus are media, security, ecommerce and mobility, but it is also active in other fields including healthcare and gaming.

The company takes an active role internationally in standards organisations and commercially, both in its own right and through many partnerships with other industry players.

It is a subsidiary of SK Group, one of the largest chaebols in Korea, which has interests in energy and oil. Chaebols are large family-controlled conglomerates which display a high level and concentration of management power and control. The ownership structures of chaebols are often complex owing to the many crossholdings between companies owned by chaebols and by family members. SK Telecom uses its connections within SK Group to set up ‘friendly user’ trials of new services, such as edge and AI

While the largest part of the business remains in mobile telecoms, SK Telecom also owns a number of subsidiaries, mostly active in its main business areas, for example:

  • SK Broadband which provides fixed broadband (ADSL and wireless), IPTV and mobile OTT services
  • ADT Caps, a securitybusiness
  • IDQ, which specialises in quantum cryptography (security)
  • 11st, an open market platform for ecommerce
  • SK Hynixwhich manufactures memory semiconductors

Few of the subsidiaries are owned outright by SKT; it believes the presence of other shareholders can provide a useful source of further investment and, in some cases, expertise.

SKT was originally the mobile arm of KT, the national operator. It was privatised soon after establishing a cellular mobile network and subsequently acquired by SK Group, a major chaebol with interests in energy and oil, which now has a 27% shareholding. The government pension service owns a 11% share in SKT, Citibank 10%, and 9% is held by SKT itself. The chairman of SK Group has a personal holding in SK Telecom.

Following this introduction, the report comprises three main sections:

  • SK Telecom’s business strategy: range of activities, services, promotions, alliances, joint ventures, investments, which covers:
    • Mobile 5G, Edge and vertical industry applications, 6G
    • AIand applications, including NUGU and Smart Homes
    • New strategic business areas, comprising Media, Security, eCommerce, and other areas such as mobility
  • Business performance
  • Industrial and national context.

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Overview of SKT’s activities

Network coverage

SK Telecom has been one of the earliest and most active telcos to deploy a 5G network. It initially created 70 5G clusters in key commercial districts and densely populated areas to ensure a level of coverage suitable for augmented reality (AR) and virtual reality (VR) and plans to increase the number to 240 in 2020. It has paid particular attention to mobile (or multi-access) edge computing (MEC) applications for different vertical industry sectors and plans to build 5G MEC centres in 12 different locations across Korea. For its nationwide 5G Edge cloud service it is working with AWS and Microsoft.

In recognition of the constraints imposed by the spectrum used by 5G, it is also working on ensuring good indoor 5G coverage in some 2,000 buildings, including airports, department stores and large shopping malls as well as small-to-medium-sized buildings using distributed antenna systems (DAS) or its in-house developed indoor 5G repeaters. It also is working with Deutsche Telekom on trials of the repeaters in Germany. In addition, it has already initiated activities in 6G, an indication of the seriousness with which it is addressing the mobile market.

NUGU, the AI platform

It launched its own AI driven smart speaker, NUGU in 2016/7, which SKT is using to support consumer applications such as Smart Home and IPTV. There are now eight versions of NUGU for consumers and it also serves as a platform for other applications. More recently it has developed several NUGU/AI applications for businesses and civil authorities in conjunction with 5G deployments. It also has an AI based network management system named Tango.

Although NUGU initially performed well in the market, it seems likely that the subsequent launch of smart speakers by major global players such as Amazon and Google has had a strong negative impact on the product’s recent growth. The absence of published data supports this view, since the company often only reports good news, unless required by law. SK Telecom has responded by developing variants of NUGU for children and other specialist markets and making use of the NUGU AI platform for a variety of smart applications. In the absence of published information, it is not possible to form a view on the success of the NUGU variants, although the intent appears to be to attract young users and build on their brand loyalty.

It has offered smart home products and services since 2015/6. Its smart home portfolio has continually developed in conjunction with an increasing range of partners and is widely recognised as one of the two most comprehensive offerings globally. The other being Deutsche Telekom’s Qivicon. The service appears to be most successful in penetrating the new build market through the property developers.

NUGU is also an AI platform, which is used to support business applications. SK Telecom has also supported the SK Group by providing new AI/5G solutions and opening APIs to other subsidiaries including SK Hynix. Within the SK Group, SK Planet, a subsidiary of SK Telecom, is active in internet platform development and offers development of applications based on NUGU as a service.

Smart solutions for enterprises

SKT continues to experiment with and trial new applications which build on its 5G and AI applications for individuals (B2C), businesses and the public sector. During 2019 it established B2B applications, making use of 5G, on-prem edge computing, and AI, including:

  • Smart factory(real time process control and quality control)
  • Smart distribution and robot control
  • Smart office (security/access control, virtual docking, AR/VRconferencing)
  • Smart hospital (NUGUfor voice command for patients, AR-based indoor navigation, facial recognition technology for medical workers to improve security, and investigating possible use of quantum cryptography in hospital network)
  • Smart cities; e.g. an intelligent transportation system in Seoul, with links to vehicles via 5Gor SK Telecom’s T-Map navigation service for non-5G users.

It is too early to judge whether these B2B smart applications are a success, and we will continue to monitor progress.

Acquisition strategy

SK Telecom has been growing these new business areas over the past few years, both organically and by acquisition. Its entry into the security business has been entirely by acquisition, where it has bought new revenue to compensate for that lost in the core mobile business. It is too early to assess what the ongoing impact and success of these businesses will be as part of SK Telecom.

Acquisitions in general have a mixed record of success. SK Telecom’s usual approach of acquiring a controlling interest and investing in its acquisitions, but keeping them as separate businesses, is one which often, together with the right management approach from the parent, causes the least disruption to the acquired business and therefore increases the likelihood of longer-term success. It also allows for investment from other sources, reducing the cost and risk to SK Telecom as the acquiring company. Yet as a counterpoint to this, M&A in this style doesn’t help change practices in the rest of the business.

However, it has also shown willingness to change its position as and when appropriate, either by sale, or by a change in investment strategy. For example, through its subsidiary SK Planet, it acquired Shopkick, a shopping loyalty rewards business in 2014, but sold it in 2019, for the price it paid for it. It took a different approach to its activity in quantum technologies, originally set up in-house in 2011, which it rolled into IDQ following its acquisition in 2018.

SKT has also recently entered into partnerships and agreements concerning the following areas of business:

 

Table of Contents

  • Executive Summary
  • Introduction and overview
    • Overview of SKT’s activities
  • Business strategy and structure
    • Strategy and lessons
    • 5G deployment
    • Vertical industry applications
    • AI
    • SK Telecom ‘New Business’ and other areas
  • Business performance
    • Financial results
    • Competitive environment
  • Industry and national context
    • International context

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Telco M&A strategies: Global analysis

Introduction

Business beyond connectivity – this is the mantra of STL Partners’ vision of the future for telecoms operators, outlined in the recent revamp of our Telco 2.0 vision. Telcos are at a crossroads where they must determine where their businesses will fit into a world of disruptive, fast-moving technologies and uncertain futures.

This means that it is more important than ever to re-evaluate the tools available to telcos to generate growth, expand their business competencies and provide new service offerings outside the core.

Traditionally, a key telco growth strategy has been to use mergers and acquisitions, particularly of (and with) other telcos, to build scale geographically and in core communications services. However, as operators strive to become more relevant in a changing business landscape, there has been a growing volume of investment in what might be termed ‘digital’ business – business services that leverage technology to build new capabilities and deliver new customer services, experiences and relationships. We distinguish between these two kinds of telecoms M&A as follows:

  • Traditional M&A – “Operators buying operators”
    • Traditional M&A is focused around traditional telecoms M&A where operators buy other operators to expand in new markets or consolidate existing markets.
  • Digital M&A – “Operators investing outside core”
    • Digital M&A refers to non-operator M&A, or all other purchases that telcos make to expand beyond their core connectivity services. Most often this includes investments in software capabilities or industry verticals.

This report examines the landscape of digital M&A from H2 2017 to H1 2018, highlights trends across previous time periods, and outlines strategies for and case studies of digital M&A to illustrate ways that telcos can utilise it in a focused and strategic manner to create long-term value and growth. It does not cover minority venture digital investments; however, these are tracked in our database and will be the subject of future analysis.

This report is the third iteration of STL Partners’ yearly digital M&A and investment report, which began in 2016 and was updated in 2017. It draws on data from our digital M&A tracker tool, which covers 23 operators over five regions from 2012 to H1 2018. A copy of the database is available with this report.

Previous editions of the telco M&A database

Digital M&A and Investment Strategies – July 2017 update

Introduction

Digital M&A as a telco strategy

In June 2016 STL Partners published our inaugural Digital M&A and Investment Strategies report and accompanying database, focussing on key digital acquisitions and investments for 22 operators during the period 2012 – H1 2016. We have now updated this report to cover the following 12 months (H2 2016 – H1 2017), to examine new developments in telco digital M&A and a comparison with previous activities.

Communications service providers have long used M&A as a key growth strategy, with the most common approach being to acquire other operators to build scale organically. As growth in telecommunications slowed and user behaviour swung towards mobile, so M&A activity in the mobile sector has increased. However, acquisition opportunities in mature markets are becoming limited as consolidation reduces the number of telcos, whilst in Europe and North America the regulatory environment has made M&A consolidation strategies less viable.

As operators continue to build digital capabilities and strive to deliver digital services and content, M&A and investment beyond ‘traditional telecoms’ is increasing. Telcos need to move beyond a traditional, slow ‘infrastructure-only’ approach, to one focused on agility rather than stability, enablement rather than end-to-end ownership and delivery of solutions, and innovation as well as operational excellence. This report explores the drivers of digital M&A and the strategies of different operators including ‘deep-dive’ analysis of Verizon, AT&T and SoftBank. There is an accompanying database which tracks telco M&A activity for the period.

Drivers for operator M&A and majority investment

Figure 1: Drivers for operator M&A and majority investment – traditional and digital

digital M&A graphic

Source: STL Partners

Traditional/Telco 1.0 drivers: reach and scale

As illustrated in Figure 1, what we refer to as ‘traditional’ or ‘Telco 1.0’ drivers for M&A and investment are well-established:

  1. Extending geographic footprint is a common trend, as many operator groups look to:
    • Enter new markets that are adjacent geographically (e.g. DTAG’s numerous investments in CEE region operators, America Movil’s investments in LatAm),
    • Enter markets that are linked culturally or linguistically (e.g., Telefonica’s acquisitions and investments in Latin American operators),
    • Enter markets that simply offer good opportunities for expanded footprint and increased efficiencies of operation in emerging regions where demand for mobile services is still growing strongly (e.g., SingTel and Etisalat’s numerous investments in operators in Asia and Africa, respectively).
  2. Extending traditional communications offerings is currently the most significant trend, as mobile operators look to acquire fixed network assets and vice versa, to develop compelling multiplay and converged offers for their customers. The recent BT acquisition of EE in the UK is one example.
  3. Consolidation has slowed to some extent, as regulators and competitors fight against mergers or acquisitions that remove players from the market or concentrate too much market power in the hands of stronger service providers. This has been a particular issue in the European Union, where regulators have refused to approve several proposed telecoms M&A deals recently, including Telia and Telenor in Denmark in 2015, and the proposed Hutchison acquisition of Telefónica’s O2 to merge with its subsidiary 3 UK in 2016. Other deals, such as the proposed Orange-Bouygues Telecom merger in France which was abandoned in April 2016, have failed due to the parties involved failing to reach agreement. However, our research shows continued interest in operator M&A for consolidation, with recent examples including Orange’s acquisition of Sun Communications in Moldova in 2016, and Vodafone’s merger with Indian rival Idea in 2017.
  4. The acquisition of service partners – primarily channel partners, or partner companies providing systems integration and consultancy capabilities, typically for enterprise customers – has proved an important driver of M&A for many (mainly converged) operators.
  5. Finally, operator M&A is also being driven by the enthusiasm of sellers. Many operators are looking to sell off assets outside of their home markets, pulling back from markets that have proven too competitive, too small or simply too complicated, as part of a strategy to pay down debt and/or free up assets for investment in other higher-growth areas:
    • Telia’s pullback from its non-core markets has seen it sell off its majority stakes in Spanish operator Yoigo to Masmovil and in Kazakhstan’s Kcell to Turkcell in 2016
    • Telefonica’s attempt to sell its O2 UK mobile unit to CK Hutchison having failed, the Spanish operator is now looking to other ways of raising capital both to pay down its debt, including a planned IPO of O2 UK.

Contents:

  • Executive Summary
  • Evaluating operator digital investment strategies
  • Key findings
  • Recommendations
  • Introduction
  • Drivers for operator M&A and majority investment
  • Evaluating operator digital investment strategies
  • 22 players across 5 regions: US shows the most aggressive M&A activity
  • Comparison with previous period (H1 2012 – H1 2016)
  • European telcos remain largely focussed on Telco 1.0 M&A
  • Which sectors are attracting the most interest?
  • Telco M&A investment is falling behind other verticals
  • What are the cultural challenges to digital M&A in the boardroom?
  • Operator M&A Strategies in detail: Consolidation, content and technology
  • M&A as a telco growth strategy
  • Adapting telco culture to ensure digital M&A success
  • Recommendations

Figures:

  • Figure 1: Drivers for operator M&A and majority investment – traditional and digital
  • Figure 2: Number of operator digital acquisitions and majority investments, H2 2016-H1 2017
  • Figure 3: Largest 7 telco digital M&A and majority investments, H2 2016-H1 2017
  • Figure 4: Number of operator digital acquisitions and majority investments, H1 2012 – H1 2016
  • Figure 5: Operator digital acquisitions and majority investments, H1 2012-H1 2017
  • Figure 6: Largest 10 telco digital M&A and majority investments, H1 2012 – H1 2016
  • Figure 7: Mapping of operator digital M&A strategies
  • Figure 8: Number of digital M&A and majority investments by sector/category, H2 2016-H1 2017
  • Figure 9: Comparison of investment in digital M&A as a percentage of service revenues, 2012-H1 2017

B2B growth: How can telcos win in ICT?

Introduction

The telecom industry’s growth profile over the last few years is a sobering sight. As we have shown in our recent report Which operator growth strategies will remain viable in 2017 and beyond?, yearly revenue growth rates have been clearly slowing down globally since 2009 (see Figure 1). In three major regions (North America, Europe, Middle East) compound annual growth rates have even been behind GDP growth.

 

Figure 1: Telcos’ growth performance is flattening out (Sample of sixty-eight operators)

Source: Company accounts; STL Partners analysis

To break out of this decline telcos are constantly searching for new sources of revenue, for example, by expanding into adjacent, digital service areas which are largely placed within mass consumer markets (e.g. content, advertising, commerce).

However, in our ongoing conversations with telecoms operators, we increasingly come across the notion that a large part of future growth potential might actually lie in B2B (business-to-business) markets and that this customer segment will have an increasing impact of overall revenue growth.

This report investigates the rationale behind this thinking in detail and tries to answer the following key questions:

  1. What is the current state of telco’s B2B business?
  2. Where are the telco growth opportunities in the wider enterprise ICT arena?
  3. What makes an enterprise ICT growth strategy difficult for telcos to execute?
  4. What are the pillars of a successful strategy for future B2B growth?

 

  • Executive Summary
  • Introduction
  • Telcos may have different B2B strategies, but suffer similar problems
  • Finding growth opportunities within the wider enterprise ICT arena could help
  • Three complications for revenue growth in enterprise ICT
  • Complication 1: Despite their potential, telcos struggle to marshal their capabilities effectively
  • Complication 2: Telcos are not alone in targeting enterprise ICT for growth
  • Complication 3: Telcos’ core services are being disrupted by OTT players – this time in B2B
  • STL Partners’ recommendations: strategic pillars for future B2B growth
  • Conclusion

 

  • Figure 1: Telcos’ growth performance is flattening out (Sample of sixty-eight operators)
  • Figure 2: Telcos’ B2B businesses vary significantly by scale and performance (selected operators)
  • Figure 3: High-level structure of the telecom industry’s revenue pool (2015) – the consumer segment dominates
  • Figure 4: Orange aims to expand the share of “IT & integration services” in OBS’s revenue mix
  • Figure 5: Global enterprise ICT expenditures are projected to growth 7% p.a.
  • Figure 6: Telcos and Microsoft are moving in opposite directions
  • Figure 7: SD-WAN value chain
  • Figure 8: Within AT&T Business Solutions’ revenue mix, growth in fixed strategic services cannot yet offset the decline in legacy services

MWC 2016 Overview: 5G, the Cloud, and the Internet of Things

This 8 page Telco 2.0 report gives an overview of MWC 2016 and what we took away from it, including…

  • Executive Summary
  • 5G: The Pace Picks Up
  • Networks are Software
  • The Internet of Many Fewer Things Than Expected is Here
  • Conclusion

Members of the Executive Briefing Service can also access the following additional MWC 2016 reports:

Telcos’ Last Chance in Cloud? New $18bn Sovereign Cloud Opportunity

Preface

As we predicted in our 2012 report Cloud 2.0: Telco Strategies in the Cloud, operators have struggled to provide generically competitive cloud services, with those looking to provide infrastructure-as-a-service (IaaS) losing out to the larger hyperscale players (e.g. Amazon Web Services, Microsoft Azure). The majority of telcos have therefore reduced their focus and ambition within cloud (infrastructure) services over the last number of years.

However, recent legal and market developments and the emergence of new technologies are changing the cloud delivery model. The rescinding of the US-EU Safe Harbour agreement and the sovereign data trustee solution launched by Microsoft & Deutsche Telekom have put a spotlight on the need for sovereign cloud solutions that are better equipped to protect data. Operators are well-positioned to deliver and support these solutions but will need to act fast to ensure their role in the value chain.

Furthermore, new technologies (e.g. 5G, SDN/NFV) and requirements (e.g. low latency) may lead to the decentralisation of the current hyperscale data centre model, moving more computing power to the edge of the network (see How 5G is Disrupting Cloud and Network Strategy Today). This change in the architecture may lead to a long-term advantage for telcos.

In order to better understand data sovereignty requirements around the world and the potential opportunity for ‘sovereign’ cloud services, STL Partners (STL) conducted industry research. This research consisted of c.30 interviews with software-as-a-service (SaaS) providers, software companies, enterprises, public sector bodies, telecom operators and cloud service providers. This report presents and discusses the findings of this research.

The research programme was sponsored by Ericsson. This report and analysis was independently produced by STL Partners.

Introduction: The Return of Telco Cloud…

The telecoms industry has been undergoing a transformation process for much of the last decade. The threat from new players has marginalized the core communications business and operators have looked to gain traction and grow revenues through the provision of new services in adjacent areas, with one such area being cloud computing.

Cloud computing has ripped through the traditional IT infrastructure model, providing greater flexibility, enabling the pooling of resources and potentially reducing both capex and opex. This new delivery model has led to the development of new services and business models (e.g. ‘as-a-service’ models), disrupting how individuals consume services and how organisations do business.

The rise of cloud computing is a trend set to continue; indeed, STL Partners forecast that cloud IT infrastructure spending will equal spend on traditional IT infrastructure by 2020 (Figure 3).

Figure 3: Cloud IT infrastructure is rapidly gaining on traditional IT infrastructure

Source: IDC base figures; STL Partners analysis

Telcos have not remained oblivious to this industry transformation. Some (principally fixed-line) operators have a legacy providing IT outsourcing services and have looked to build on this footing, providing and managing infrastructure for cloud services, whilst others have partnered with cloud software providers to deliver new services to customers.

So far operators’ experiences offering cloud services have been mixed, with operators typically finding more success through partnerships. Rather than attempting to build their own cloud solutions operators have typically partnered with SaaS providers, such as Microsoft (e.g. Office 365) and Google (e.g. Google Apps for Work), acting as resellers of the software, potentially creating appealing bundles for enterprise customers.

On the other hand telcos attempting to provide IaaS, which one might intuitively think is more closely aligned to a telco’s core capabilities, have typically found that they have not been able to compete head-on with the larger IaaS providers (e.g. Amazon Web Services). Simply speaking, it has become a game of scale, with single operators or even telco groups unable to match the resources and investment of the hyperscale players. Indeed in our November 2014 report, Cloud: What is the role of telcos in cloud services in 2015?, we highlighted the challenge with telcos competing against the larger IaaS players:

“Pushing for pureplay IaaS solutions (Compute, Memory, Storage etc) is not going to be a sensible option for the majority of telcos. As an example of how hard it is to compete here, RackSpace came from a managed hosting/co location background and moved into IaaS, even collaborating on a virtualisation initiative that became OpenStack. But earlier in 2014, after spending less on IaaS investment than Microsoft or Google spend on infrastructure in a quarter, it announced it was going to refocus its efforts on its earlier product success with managed hosting and colocation because it was more able to differentiate itself from the other vendors who have significantly lower pricing.”

Telcos competing in infrastructure have therefore typically shifted their focus away from public cloud IaaS (competing against the larger providers) to more private cloud infrastructure and traditional managed hosting services. Despite mixed performance with IaaS services, albeit with exceptions in regions where the big IaaS players are not well established and where telcos can differentiate their offering (e.g. Telstra), there perhaps remains a still sizable opportunity, particularly as telcos begin to transform their networks.

This transformation involves the virtualisation of the network, embracing software defined-networking (SDN) and network functions virtualisation (NFV). As operators harness the power of these new technologies and associated business practices they will develop and implement the infrastructure, software and capabilities to deliver more advanced services through more efficient, automated and programmable networks. Operators in turn will be able to draw on these assets and associated skills to improve how they run and manage their cloud infrastructure.

Furthermore, as the industry develops and implements more advanced networks (i.e. 5G), there exists a potential advantage for telco infrastructure services due to the need for more localised delivery of service. The Next Generation Mobile Networks (NGMN) Alliance highlights that 5G should provide, “much greater throughput, much lower latency, ultra-high reliability, much higher connectivity density, and higher mobility range.”

STL Partners laid out a potential vision for 5G and network transformation in the report, How 5G is Disrupting Cloud and Network Strategy Today. To summarise the report, latency targets/requirements (how long it takes the network to respond to user requests) for 5G are very low; the target is 10ms end-to-end, 1ms for special use cases requiring low latency, or 50ms end-to-end for the “ultra-low cost broadband” use case. An example use case where low-latency could be very important could be communication between self-driving cars.

In order to meet these lofty requirements for latency the current delivery model may need to be rethought. Latency is limited by the time it takes to travel to the server and back at the speed of light; latency is therefore inherently linked to distance. In the 5G report, we explored the impact of these latency targets on the required distance of servers from users:

“The rule of thumb for speed-of-light delay is 4.9 microseconds for each kilometre of fibre with a refractive index of 1.47. 1ms – 1000 microseconds – equals about 204km in a straight line, assuming no routing delay. A response back is needed too, so divide that distance in half. As a result, in order to be compliant with the NGMN 5G requirements, all the network functions required to process a data call must be physically located within 100km, i.e. 1ms, of the user. And if the end-to-end requirement is taken seriously, the applications or content that they want must also be hosted within 1000km, i.e. 10ms, of the user. (In practice, there will be some delay contributed by serialisation, routing, and processing at the target server, so this would actually be somewhat more demanding.)”

To deliver these latency requirements a radical change to the architecture of the network is needed as well as a change in how compute and storage infrastructure is managed. Content and applications that are within the 100km contour will have a competitive advantage over those that don’t take account of latency. The impact of this could lead to the decentralisation of the current hyperscale data centre model, moving more computing power to the edge of the network. This change in the architecture and delivery model may lend telcos an advantage in the infrastructure marketplace.

Figure 4: Shifting the balance in favour of more localised infrastructure

Source: STL Partners

Whilst telcos will not wrestle control of the infrastructure marketplace overnight, telcos, as they embark on their transformation process, should look to make inroads towards this vision. Indeed there are current market challenges that telcos could immediately address (and are addressing) through their localised infrastructure, creating a stepped/phased approach towards the future vision of a localised cloud delivery model.

Into this rapidly evolving context steps the long-standing challenge of data sovereignty. Data sovereignty requirements are regulations that consider the implications of geographical location of data and place restrictions on the movement of certain types of data across borders. The recent ruling rescinding the US-EU Safe Harbour Agreement has put a spotlight on the issue of data privacy and data sovereignty and new approaches taken by technology players are highlighting that this is a problem that needs to and is being solved (i.e. Microsoft’s decision to create a German sovereign version of Azure). Operators are natural candidates to play a role here and should look to better understand how they can form part of the value chain in the provision of locally trusted IaaS solutions.

This report analyses data sovereignty requirements around the world and explores the potential opportunity for ‘sovereign’ cloud services as a further ‘nudge’ towards a more localised cloud delivery model.

 

  • Preface
  • Executive Summary
  • The Return of Telco Cloud…
  • Understanding Data Sovereignty
  • Which Sectors Have the Strongest Sovereignty Requirements?
  • A Range of (Cloud) Solutions can Address Sovereignty Needs
  • 75% of Interviewees were Interested in Sovereign Cloud Solutions
  • Where is Data Sovereignty Important?
  • How could this Evolve?
  • Market Sizing: Sovereign Cloud could be Worth between $7-18bn in 2020
  • Why Telcos are Well Positioned to Address the ‘Sovereign’ Opportunity
  • Conclusions

 

  • Figure 1: A shift in the cloud delivery model may be occurring
  • Figure 2: Sovereign cloud has the potential to represent over X% of the cloud infrastructure marketplace
  • Figure 3: Cloud IT infrastructure is rapidly gaining on traditional IT infrastructure
  • Figure 4: Shifting the balance in favour of more localised infrastructure
  • Figure 5: How much data does Facebook store about you?
  • Figure 6: STL Industry Research Programme – Breakdown of interviewees
  • Figure 7: The significant majority of interviewees have encountered sovereignty requirements
  • Figure 8: More-regulated sectors are more likely to encounter restrictions
  • Figure 9: Infrastructure Deployment Models
  • Figure 10: The applicability of cloud deployment models to meet sovereignty requirements
  • Figure 11: The majority of Interviewees saw demand for sovereign cloud
  • Figure 12: More strictly regulated sectors are more interested in sovereign cloud solutions
  • Figure 13: Indicative map of data sovereignty requirements across the globe
  • Figure 14: Overview of data sovereignty requirements across regions
  • Figure 15: The rise of IoT could lead to increased demand for sovereign cloud
  • Figure 16: Sovereign cloud could be worth between $7-18bn in 2020
  • Figure 17: North America represents the biggest market for sovereign cloud
  • Figure 18: Sovereign cloud in the Middle East & Africa potentially represents the greatest proportion of cloud infrastructure spending
  • Figure 19: Government represents the largest market for sovereign cloud for existing services and Healthcare for sovereign cloud incl. IoT services
  • Figure 20: Healthcare is the largest sector for sovereign cloud as a percentage of spend on IT infrastructure

NFV: Great Promises, but How to Deliver?

Introduction

What’s the fuss about NFV?

Today, it seems that suddenly everything has become virtual: there are virtual machines, virtual LANs, virtual networks, virtual network interfaces, virtual switches, virtual routers and virtual functions. The two most recent and highly visible developments in Network Virtualisation are Software Defined Networking (SDN) and Network Functions Virtualisation (NFV). They are often used in the same breath, and are related but different.

Software Defined Networking has been around as a concept since 2008, has seen initial deployments in Data Centres as a Local Area Networking technology and according to early adopters such as Google, SDNs have helped to achieve better utilisation of data centre operations and of Data Centre Wide Area Networks. Urs Hoelzle of Google can be seen discussing Google’s deployment and findings here at the OpenNet summit in early 2012 and Google claim to be able to get 60% to 70% better utilisation out of their Data Centre WAN. Given the cost of deploying and maintaining service provider networks this could represent significant cost savings if service providers can replicate these results.

NFV – Network Functions Virtualisation – is just over two years old and yet it is already being deployed in service provider networks and has had a major impact on the networking vendor landscape. Globally the telecoms and datacomms equipment market is worth over $180bn and has been dominated by 5 vendors with around 50% of the market split between them.

Innovation and competition in the networking market has been lacking with very few major innovations in the last 12 years, the industry has focussed on capacity and speed rather than anything radically new, and start-ups that do come up with something interesting get quickly swallowed up by the established vendors. NFV has started to rock the steady ship by bringing the same technologies that revolutionised the IT computing markets, namely cloud computing, low cost off the shelf hardware, open source and virtualisation to the networking market.

Software Defined Networking (SDN)

Conventionally, networks have been built using devices that make autonomous decisions about how the network operates and how traffic flows. SDN offers new, more flexible and efficient ways to design, test, build and operate IP networks by separating the intelligence from the networking device and placing it in a single controller with a perspective of the entire network. Taking the ‘intelligence’ out of many individual components also means that it is possible to build and buy those components for less, thus reducing some costs in the network. Building on ‘Open’ standards should make it possible to select best in class vendors for different components in the network introducing innovation and competiveness.

SDN started out as a data centre technology aimed at making life easier for operators and designers to build and operate large scale data centre operations. However, it has moved into the Wide Area Network and as we shall see, it is already being deployed by telcos and service providers.

Network Functions Virtualisation (NFV)

Like SDN, NFV splits the control functions from the data forwarding functions, however while SDN does this for an entire network of things, NFV focusses specifically on network functions like routing, firewalls, load balancing, CPE etc. and looks to leverage developments in Common Off The Shelf (COTS) hardware such as generic server platforms utilising multi core CPUs.

The performance of a device like a router is critical to the overall performance of a network. Historically the only way to get this performance was to develop custom Integrated Circuits (ICs) such as Application Specific Integrated Circuits (ASICs) and build these into a device along with some intelligence to handle things like route acquisition, human interfaces and management. While off the shelf processors were good enough to handle the control plane of a device (route acquisition, human interface etc.), they typically did not have the ability to process data packets fast enough to build a viable device.

But things have moved on rapidly. Vendors like Intel have put specific focus on improving the data plane performance of COTS based devices and the performance of the devices has risen exponentially. Figure 1 clearly demonstrates that in just 3 years (2010 – 2013) a tenfold increase in packet processing or data plane performance has been achieved. Generally, CPU performance has been tracking Moore’s law which originally stated that the number of components in an integrated circuit would double very two years. If the number of components are related to performance, the same can be said about CPU performance. For example Intel will ship its latest processor family in the second half of 2015 which could have up to 72 individual CPU cores compared to the four or 6 used in 2010/2013.

Figure 1 – Intel Hardware performance

Source: ETSI & Telefonica

NFV was started by the telco industry to leverage the capability of COTS based devices to reduce the cost or networking equipment and more importantly to introduce innovation and more competition to the networking market.

Since its inception in 2012 and running as a special interest group within ETSI (European Telecommunications Standards Institute), NFV has proven to be a valuable initiative, not just from a cost perspective, but more importantly with what it means to telcos and service providers in being able to develop, test and launch new services quickly and efficiently.

ETSI set up a number of work streams to tackle the issues of performance, management & orchestration, proof of concept, reference architecture etc. and externally organisations like OPNFV (Open Platform for NFV) have brought together a number of vendors and interested parties.

Why do we need NFV? What we already have works!

NFV came into being to solve a number of problems. Dedicated appliances from the big networking vendors typically do one thing and do that thing very well, switching or routing packets, acting as a network firewall etc. But as each is dedicated to a particular task and has its own user interface, things can get a little complicated when there are hundreds of different devices to manage and staff to keep trained and updated. Devices also tend to be used for one specific application and reuse is sometimes difficult resulting in expensive obsolescence. By running network functions on a COTS based platform most of these issues go away resulting in:

  • Lower operating costs (some claim up to 80% less)
  • Faster time to market
  • Better integration between network functions
  • The ability to rapidly develop, test, deploy and iterate a new product
  • Lower risk associated with new product development
  • The ability to rapidly respond to market changes leading to greater agility
  • Less complex operations and better customer relations

And the real benefits are not just in the area of cost savings, they are all about time to market, being able to respond quickly to market demands and in essence becoming more agile.

The real benefits

If the real benefits of NFV are not just about cost savings and are about agility, how is this delivered? Agility comes from a number of different aspects, for example the ability to orchestrate a number of VNFs and the network to deliver a suite or chain of network functions for an individual user or application. This has been the focus of the ETSI Management and Orchestration (MANO) workstream.

MANO will be crucial to the long term success of NFV. MANO provides automation and provisioning and will interface with existing provisioning and billing platforms such as existing OSS/BSS. MANO will allow the use and reuse of VNFs, networking objects, chains of services and via external APIs allow applications to request and control the creation of specific services.

Figure 2 – Orchestration of Virtual Network Functions

Source: STL Partners

Figure 2 shows a hypothetical service chain created for a residential user accessing a network server. The service chain is made up of a number of VNFs that are used as required and then discarded when not needed as part of the service. For example the Broadband Remote Access Server becomes a VNF running on a common platform rather than a dedicated hardware appliance. As the users STB connects to the network, the authentication component checks that the user is valid and has a current account, but drops out of the chain once this function has been performed. The firewall is used for the duration of the connection and other components are used as required for example Deep Packet Inspection and load balancing. Equally as the user accesses other services such as media, Internet and voice services different VNFs can be brought into play such as SBC and Network Storage.

Sounds great, but is it real, is anyone doing anything useful?

The short answer is yes, there are live deployments of NFV in many service provider networks and NFV is having a real impact on costs and time to market detailed in this report. For example:

  • Vodafone Spain’s Lowi MVNO
  • Telefonica’s vCPE trial
  • AT&T Domain 2.0 (see pages 22 – 23 for more on these examples)

 

  • Executive Summary
  • Introduction
  • WTF – what’s the fuss about NFV?
  • Software Defined Networking (SDN)
  • Network Functions Virtualisation (NFV)
  • Why do we need NFV? What we already have works!
  • The real benefits
  • Sounds great, but is it real, is anyone doing anything useful?
  • The Industry Landscape of NFV
  • Where did NFV come from?
  • Any drawbacks?
  • Open Platform for NFV – OPNFV
  • Proprietary NFV platforms
  • NFV market size
  • SDN and NFV – what’s the difference?
  • Management and Orchestration (MANO)
  • What are the leading players doing?
  • NFV – Telco examples
  • NFV Vendors Overview
  • Analysis: the key challenges
  • Does it really work well enough?
  • Open Platforms vs. Walled Gardens
  • How to transition?
  • It’s not if, but when
  • Conclusions and recommendations
  • Appendices – NFV Reference architecture

 

  • Figure 1 – Intel Hardware performance
  • Figure 2 – Orchestration of Virtual Network Functions
  • Figure 3 – ETSI’s vision for Network Functions Virtualisation
  • Figure 4 – Typical Network device showing control and data planes
  • Figure 5 – Metaswitch SBC performance running on 8 x CPU Cores
  • Figure 6 – OPNFV Membership
  • Figure 7 – Intel OPNFV reference stack and platform
  • Figure 8 – Telecom equipment vendor market shares
  • Figure 9 – Autonomy Routing
  • Figure 10 – SDN Control of network topology
  • Figure 11 – ETSI reference architecture shown overlaid with functional layers
  • Figure 12 – Virtual switch conceptualised

 

Cloud 2.0: Telco Strategies in the Cloud

Will Telcos be left behind?

Introduction

Cloud services are emerging as a key strategic imperative for Telcos as revenues from traditional services such as voice, messaging and data come under attack from Over The Top Players, regulators and other Telcos. A majority of these new products are delivered from the Cloud on a “pay for consumption” basis and many business customers are increasingly looking to migrate from traditional in house IT systems to Cloud-based or virtualized services to reduce costs, increase agility and decrease deployment times. Gartner recently estimated that the Cloud services market would be worth over $200 billion by 2016, roughly double the value of 2012 and with a CAGR of around 17% whereas traditional IT products and services will see just 3% growth.

It is clear that some Telcos have gained a greater understanding of the Cloud market, and are acting on that understanding, offering increasingly rich Cloud-based products and services, paving the way for Cloud 2.0. But for most Telcos, Cloud services remain secondary to their core business of voice and data delivery. Telcos are wrestling with issues of reduced margin on Cloud and how to stay relevant to their business customers.

This report looks at the development of the Cloud market providing clarity around the different types of cloud products and the impact that they have on business users. Cloud value propositions are examined along with criticisms of cloud products and services. We show that the current risks for Cloud customers represent an opportunity for Telcos and Cloud vendors because….

The report also looks at the development of Cloud 2.0 – a second generation or a more ‘intelligent’ evolution of Cloud products and services. Cloud 2.0 offers key additional benefits/capabilities to consumers, vendors, businesses and Telco/Service providers. These can be typified by cost reductions in the delivery and consumption of cloud services through working with scale players to provide basic compute services, ease of acquisition and most importantly the ability to deliver “mash-up” products and services by using API’s to provide integration between cloud services and products and Telco/service provider products such as Bandwidth, Voice, Management, Support and Billing. Cloud 2.0 is gaining rapid momentum and we show how there is still time for Telcos to play a key role in Cloud 2.0.

Who should read this report?

The report is a ‘must-have’ for all strategy decision makers, Cloud specialists and influencers across the TMT (Telecoms, Media and Technology) sector; in particular, CxOs, strategists, technologists, marketers, product managers, and legal and regulatory leaders in telecoms operators, vendors, consultants, and analyst companies. It will also be invaluable to those managing or considering medium to long-term investment specifically in Telco Cloud services, but also more broadly those involved within telecoms and adjacent industries, and to regulators and legislators.

Contents

Executive Summary

Introduction

  • What is Cloud?
  • What is the Cloud Value Proposition?
  • Types of Cloud
  • Key criticisms of the Cloud
  • What is ‘Cloud 2.0’ and why does it matter?
    • Enterprise vs Consumer cloud, Fit with Telco 2.0 strategies

Market Structure & Opportunity

  • What is the shape and size of the market (revenues and profit)?
    • Total size, definitions of SaaS, PaaS, IaaS, VPC + forecasts
    • Advantages and limitations of XaaS definitions
  • What are the key customer segments and their needs?
    • SMBs vs Enterprise
    • Early adopters vs mass adopters
  • What is the opportunity for Telcos (market size and revenues)?
    • Share forecasts / ranges for Telcos
  • What are the most relevant cloud services for Telcos?
  • What are the key barriers?
    • Overall and by segment
  • Future Scenarios
  • What is the competitive landscape and who are the key players in Cloud Services?
    • Detailed competitor analysis, groupings by type and strategy Strategy review: Analysis of 6-10 key players, covering
      • Objectives, strategy, areas addressed, target customers, proposition strategy, routes to market, operational approach, buy / build partner approach
    • Key strategies of other players
    • Role of the network / operators to Vendor/partner strategies

Telco Strategies

  • Which strategies are Telcos adopting and what else could they do
    • Review of Telco attitudes and approaches based on following analysis
    • Grouping of Telcos by approach (if valid)
  • Which are the leading Telcos and what are they doing?
    • Case studies on 6-10 leading Telcos, covering:
      • Objectives, strategy, areas addressed, target customers, proposition strategy, routes to market, operational approach, buy / build partner approach
  • Outlines of 10 additional Telco strategies
  • What relationships should Telcos establish with other ecosystem players?

Conclusions and recommendations

 

Cloud 2.0: Telstra, Singtel, China Mobile Strategies

Summary: In this extract from our forthcoming report ‘Cloud 2.0: Telco Strategies in the Cloud’ we outline the key components of Telstra, Singtel and China Mobile’s cloud strategies, and how they compare to the major ‘Big Technology’ players (such as Microsoft, VMWare, IBM, HP, etc.) and ‘Web Giants’ such as Google and Amazon. (November 2012, Executive Briefing Service, Cloud & Enterprise ICT Stream.)

Vodafone results Nov 2012

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Below is an extract from this 14 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and the Cloud and Enterprise ICT Stream here. Non-members can subscribe here or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

We’ll also be discussing our findings at the New Digital Economics Brainstorms in Singapore (3-5 December, 2012).

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Introduction

This is an edited extract of Cloud 2.0: Telco Strategies in the Cloud, a new Telco 2.0 Strategy Report to be published next week. The report examines the evolution of cloud services; the current opportunities for vendors and Telcos in the Cloud market, plus a penetrating analysis on the positioning Telcos need to adopt in order to take advantage of the global $200Bn Cloud services market opportunity.

The report shows how CSP’s can create sustainable differentiated positions in Enterprise Cloud. It contains a concise and comprehensive analysis of key vendor and telco strategies, market forecasts (including our own for both the market and telcos), and key technologies.

Led by Robert Brace (formerly Global Head of Cloud Services for Vodafone), it leverages the knowledge and experience of Telco 2.0 analyst team, senior global brainstorm participants, and targeted industry research and interviews. Robert will also be presenting at Digital Asia, 4-5 Dec, Singapore 2012.

Methodology

In the full report, we reviewed both telcos and technology companies using a list of 30 criteria organised in six groups (Market, Vision, Finance, Proposition, Value Network, and Technology). We aimed to cover their objectives, strategy, market areas addressed, target customers, proposition strategy, routes to market, operational approach, buy / build partner approach, and technology choices.

We based our analysis on a combination of desk research, expert interviews, and output from our Executive Brainstorms.

Among the leading cloud technology companies we identify two groups, which we characterise as “Big Tech” and the “Web Giants”. The first of these are the traditional enterprise IT vendors, while the second are the players originating in the consumer web 2.0 space (hence the name).

  • Big Tech: Microsoft (Azure), Google (Dev & Enterprise), VMWare, Parallels, Rackspace, HP, IBM.
  • Web Giants: Microsoft (Office 365), Amazon, Google (Apps & Consumer), Salesforce, Akamai.

In the report and our analyses below, we use averages for each of these groups to give a key comparator for telco strategies. The full strategy report contains individual analyses for each of these companies and the following telcos: AT&T, Orange, Telefonica, Deutsche Telekom, Vodafone, Verizon, China Telecom, SFR, Belgacom, Elisa, Telenor, Telstra, BT, Cable and Wireless.

Summary

The ‘heatmap’ table below shows the summary results of a 4-box scoring against our key criteria for the four APAC telcos enterprise cloud product intentions (i.e. what they intend to do in the market), where 1 (light blue) is weakest, 4 (bright red) stronger.

Figure 1: Cloud ‘heatmap’ for selected APAC telcos
Cloud APAC Heatmap
Source: STL Partners / Telco 2.0

In the full report are similar tables and comparisons for capabilities and used these results to compare telco to vendor strategies and telco to telco strategies where they compete in the same markets.

In this briefing we summarise results for Telstra, Singtel, China Mobile, and China Telecom.

Telstra – building regional leadership

 

Operating in the somewhat special circumstances of Australia, Telstra is pursuing both an SMB SaaS strategy (typical of mobile operators) and an enterprise IaaS strategy (see Figure 2). Under the first, it resells a suite of business applications centred on Microsoft Office 365, for which it has exclusivity in Australia.

Under the second, it is trying to develop a cloud computing business out of its managed hosting business. VMWare is the main technology provider, with some Microsoft Hyper-V. Unlike many telcos, Telstra benefits from the fact that the major IaaS players are only just beginning to develop data centres in Australia, and therefore cloud applications hosted with Amazon etc. are subject to a considerable latency penalty.

Figure 2: Telstra: A local leader

Cloud Telstra Radar Map

Source: STL Partners / Telco 2.0

However, data sovereignty concerns in Australia will force other cloud providers to develop at least some presence if they wish to address a variety of important markets (finance, government, and perhaps even mining), and this will eventually bring greater competition.

So far, Telstra has a web portal for the reseller SaaS products, and relies on a mixture of its direct sales force and a partnership with Accenture as a channel for IaaS.

Figure 3: Telstra benefits from geography

Telstra Cloud Radar Map 2

Source: STL Partners / Telco 2.0

To read the note in full, including the following analysis…

  • Introduction
  • Methodology
  • Summary
  • Telstra – building regional leadership
  • SingTel – aiming to be a regional hub
  • China Mobile – the Great Cloud?
  • China Telecom – making a start
  • Conclusions
  • Next steps

…and the following figures…

  • Figure 1: Cloud ‘heatmap’ for selected APAC telcos
  • Figure 2: Telstra: A local leader
  • Figure 3: Telstra benefits from geography
  • Figure 4: SingTel’s strategy is typical, but well executed
  • Figure 5: China Mobile: A less average telco
  • Figure 6: China Mobile has a distinctly different technology strategy
  • Figure 7: China Mobile has some key differentiators (“spikes”) versus its rivals
  • Figure 8: Comparing the APAC Giants
  • Figure 9: Cluster analysis: Telco operators

Members of the Telco 2.0 Executive Briefing Subscription Service and the Cloud and Enterprise ICT Stream can download the full 14 page report in PDF format hereNon-Members, please subscribe here or email contact@telco2.net / call +44 (0) 207 247 5003.

 

Technologies and industry terms referenced: strategy, cloud, business model, APAC, Singtel, Telstra, China Mobile, China Telecom, VMWare, Amazon, Google, IBM, HP.

 

The Cloud 2.0 Programme

This research report is a part of the ‘Cloud 2.0’ programme. The report was independently commissioned, written, edited and produced by STL Partners. 

The Cloud 2.0 programme is a new initiative that brings together STL Partners’ research and senior thought-leaders and decision makers in the fast evolving Cloud ecosystem to develop new propositions and new partnerships. We’d like to thank the sponsors of the programme listed below for their support. To find out more or to join the Cloud 2.0 programme, please email contact@telco2.net or call +44 (0) 207 247 5003.

Stratus Partners:

Cordys Logo

 

Cloud 2.0: the fight for the next wave of customers

Summary: The fight for the Cloud Services market is about to move into new segments and territories. In the build up to the launch of our new strategy report, ‘Telco strategies in the Cloud’, we review perspectives on this shared at the 2012 EMEA and Silicon Valley Executive Brainstorms by strategists from major telcos and tech players, including: Orange, Telefonica, Verizon, Vodafone, Amazon, Bain, Cisco, and Ericsson (September 2012, , Executive Briefing Service, Cloud & Enterprise ICT Stream).

Cloud Growth Groups September 2012

  Read in Full (Members only)   To Subscribe click here

Below is an extract from this 33 page Telco 2.0 Briefing Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and the Cloud and Enterprise ICT Stream here. Non-members can subscribe here and for this and other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Introduction

As part of the New Digital Economics Executive Brainstorm series, future strategies in Cloud Services were explored at the New Digital Economics Silicon Valley event at the Marriott Hotel, San Francisco, on the 27th March, 2012, and the second EMEA Cloud 2.0 event at the Grange St. Pauls Hotel on the 13th June 2012.

At the events, over 200 specially-invited senior executives from across the communications, media, retail, finance and technology sectors looked at how to make money from cloud services and the role and strategies of telcos in this industry, using a widely acclaimed interactive format called ‘Mindshare’.

This briefing summarises key points, participant votes, and our high-level take-outs from across the events, and focuses on the common theme that the cloud market is evolving to address new customers, and the consequence of this change on strategy and implementation. We are also publishing a comprehensive report on Cloud 2.0: Telco Strategies in the Cloud.

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Executive Summary

The end of the beginning

The first phase of enterprise cloud services has been dominated by the ‘big tech’ and web players like Amazon, Google, and Microsoft, who have developed highly sophisticated cloud operations at enormous scale. The customers in this first round are the classic ‘early adopters’ of enterprise ICT – players with a high proportion of IT genes in their corporate DNA such as Netflix, NASA, Silicon Valley start ups, some of the world’s largest industrial and marketing companies, and the IT industry itself. There is little doubt that these leading customers and major suppliers will retain their leading edge status in the market.

The next phase of cloud market development is the move into new segments in the broader market. Participants at the EMEA brainstorm thought that a combination of new customers and new propositions would drive the most growth in the next 3 years.

UK Services Revenues: Actual and Forecast (index)

 

These new segments comprise both industries and companies outside the early adopters in developed markets, and companies in new territories in emerging and developing markets. These customers are typically less technology oriented, more focused on business requirements, and need a combination of de-mystification of cloud and support to develop and run such systems.

Closer to the customer

There are opportunities for telcos in this evolving landscape. While the major players’ scale will be hard to beat, there are opportunities in the new segments in being ‘closer to the customer’. This involves telcos leveraging potential advantages of:

  • existing customer relationships, existing enterprise IT assets, and channels to markets (where they exist); 
  • geographical proximity, where telcos can build, locate and connect more directly to overcome data sovereignty and latency issues.

Offering unique, differentiated services

Telcos should also be able to leverage existing assets and capabilities through APIs in the cloud to create distinctive offerings to enterprise and SME customers:

  • Network assets will enable better management of cloud services by allowing greater control of the network components;
  • Data assets will enable a wider range of potential applications for cloud services that use telco data (such as identification services);
  • And communications assets (such as APIs to voice and messaging) will allow communications services to be built in to cloud applications.

Next steps for telcos

  • Telcos need to move fast to leverage their existing relationships with customers both large and small and optimise their cloud offerings in line with new trends in the enterprise ICT market, such as bring-your-own-device (BYOD).
  • Customers are increasingly looking to outsource business processes to cut costs, and telcos are well-placed to take advantage of this opportunity.
  • Telcos need to continue to partner with independent software vendors, in order to build new products and services. Telcos should also focus on tight integration between their core services and cloud services or cloud service providers (either delivered by themselves or by third parties.) During the events, we saw examples from Vodafone, Verizon and Orange amongst others.
  • Telcos should also look at the opportunity to act as cloud service brokers. For example, delivering a mash up of Google Apps, Workday and other services that are tightly integrated with telco products, such as billing, support, voice and data services. The telco could ensure that the applications work well together and deliver a fully supported, managed and billed suite of products.
  • Identity management and security also came through as strong themes and there is a natural role for telcos to play here. Telcos already have a trusted billing relationship and hold personal customer information. Extending this capability to offer pre-population of forms, acting as an authentication broker on behalf of other services and integrating information about location and context through APIs would represent additional business and revenue generating opportunities. 
  • Most telcos are already exploring opportunities to exploit APIs, which will enable them to start offering network-as-a-service, voice-as-a-service, device management, billing integration and other services. Depending on platform and network capability, there are literally hundreds of APIs that telcos could offer to external developers. These APIs could be used to develop applications that are integrated with telcos’ network product or service, which in turn makes the telco more relevant to their customers.

We will be exploring these strategies in depth in Cloud 2.0: Telco Strategies in the Cloud and at the invitation only New Digital Economics Executive Brainstorms in Digital Arabia in Dubai, 6-7 November, and Digital Asia in Singapore, 3-5 December, 2012.

Key questions explored at the brainstorms and in this briefing:

  • How will the Cloud Services market evolve?
  • Which customer and service segments are growing fastest (Iaas, PaaS, SaaS)?
  • What are the critical success factors to market adoption?
  • Who will be the leading players, and how will it impact different sectors?
  • What are the telcos’ strengths and who are the most advanced telcos today?
  • Which aspects of the cloud services market should they pursue first?
  • Where should telcos compete with IT companies and where should they cooperate?
  • What must telcos do to secure their share of the cloud and how much time do they have?

Stimulus Speakers/Panelists

Telcos

  • Peter Martin, Head of Strategy, Cloud Computing, Orange Group
  • Moisés Navarro Marín, Director, Strategy Global Cloud Services, Telefonica Digital
  • Alex Jinivizian, Head of Enterprise Strategy, Verizon Enterprise Solutions
  • Robert Brace, Head of Cloud Services, Vodafone Group

Technology Companies

  • Mohan Sadashiva, VP & GM, Cloud Services, Aepona
  • Gustavo Reyna, Solutions Marketing Manager, Aepona
  • Iain Gavin, Head of EMEA Web Services, Amazon
  • Pat Adamiak, Senior Director, Cloud Solutions, Cisco 
  • Charles J. Meyers, President, Equinix Americas
  • Arun Bhikshesvaran, CMO, Ericsson
  • John Zanni, VP of Service Provider Marketing & Alliances, Parallels

Consulting & Industry Analysis

  • Chris Brahm, Partner, Head of Americas Technology Practices, Bain
  • Andrew Collinson, Research Director, STL Partners

With thanks to our Silicon Valley 2012 event sponsors and partners:

Silicon Valley 2012 Event Sponsors

And our EMEA 2012 event sponsors:

EMEA 2012 Event Sponsors

To read the note in full, including the following sections detailing support for the analysis…

  • Round 2 of the Cloud Fight
  • Selling to new customers
  • What channels are needed?
  • How will telcos perform in cloud?
  • With which services will telcos succeed?
  • How can telcos differentiate?
  • Comments on telcos’ role, objectives and opportunities
  • Four telcos’ perspectives
  • Telefonica Digital – focusing on business requirements
  • Verizon – Cloud as a key Platform
  • Orange Business Services – communications related cloud
  • Vodafone – future cloud vision
  • Techco’s Perspectives
  • Amazon – A history of Amazon Web Services (AWS)
  • Cisco – a world of many clouds
  • Ericsson – the networked society and telco cloud
  • Aepona – Cloud Brokerage & ‘Network as a Service’ (NaaS)
  • The Telco 2.0™ Initiative

…and the following figures…

  • Figure 1 – Bain forecasts for business cloud market size
  • Figure 2 – Key barriers to cloud adoption
  • Figure 3 – Identifying the cloud growth markets
  • Figure 4 – Requirements for success
  • Figure 5 – New customers to drive cloud growth
  • Figure 6 – How to increase revenues from cloud services
  • Figure 7 – How to move cloud services forward
  • Figure 8 – Enterprise cloud channels
  • Figure 9 – Small businesses cloud channels
  • Figure 10 – Vote on Telco Cloud Market Share
  • Figure 11 – Telcos’ top differentiators in the cloud
  • Figure 12 – The global reach of Orange Business
  • Figure 13 – The telco as an intermediary
  • Figure 14 – Vodafone’s vision of the cloud
  • Figure 15 – Amazon Web Services’ cloud infrastructure
  • Figure 16 – Cisco’s world of many clouds
  • Figure 17 – Cloud traffic in the data centre
  • Figure 18 – Ericsson’s vision for telco cloud
  • Figure 19 – Summary of Ericsson cloud functions
  • Figure 20 – Aepona Cloud Services Broker
  • Figure 21 – How to deliver network-enhanced cloud services

Members of the Telco 2.0 Executive Briefing Subscription Service and the Cloud and Enterprise ICT Stream can download the full 33 page report in PDF format hereNon-Members, please subscribe here. For this or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Companies and technologies covered: Telefonica, Vodafone, Verizon, Orange, Cloud, Amazon, Google, Ericsson, Cisco, Aepona, Equinix, Parallels, Bain, Telco 2.0, IaaS, PaaS, SaaS, private cloud, public cloud, telecom, strategy, innovation, ICT, enterprise.

Cloud 2.0: Report and analysis of the event

Cloud 2.0: Event Summary Analysis. A summary of the findings of the Cloud 2.0 Executive Brainstorm, 10th November 2011, held in the Gouman Tower Hotel, London. The Brainstorm explored telcos’ strategic options to grow in the fast changing digital economy. It also considered how telcos can defend their core voice and messaging business, while also examining the steps they can take to improve the customer experience. (November 2012, Executive Briefing Service, Cloud & Enterprise ICT Stream)

Cloud 2.0: Event Summary Analysis Presentation

Part of the New Digital Economics Executive Brainstorm series, the Cloud 2.0 event took place at the Guoman Hotel, London on the 10th November and looked at telcos’ strategic options, the future of the core communications products telcos rely on for much of their revenue and how they can improve the customer experience both to reduce churn and attract new customers.

Using a widely acclaimed interactive format called ‘Mindshare’ the event enabled 80 specially-invited senior executives from across the communications, media, banking and technology sectors to.

This note summarises some of the high-level findings and includes the verbatim output of the brainstorm.

More information: email contact@stlpartners.com, or phone: +44 (0) 207 247 5003.

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Cloud 2.0: Event Summary Analysis Presentation

Customer Experience 2.0: Back to the Future of Voice (BT Presentation)

Customer Experience: Back to the Future of Voice. Colin Lees of BT on the future of the UK voice service and the transformation of BT’s service platform. Presentation from EMEA Brainstorm, November 2011. (November 2011, Executive Briefing Service, Cloud & Enterprise ICT Stream)

Download presentation here.

Links here for more on New Digital Economics brainstorms and Transformation, Strategy, and Technology, or call +44 (0) 207 247 5003.

Customer Experience 2.0: Hosted Unicomms for Business – a major opportunity (Cisco Presentation)

Customer Experience 2.0: Hosted Unicomms for Business, Presentation by Fabio Gori, Head, SP Marketing, EMEA, Cisco Systems. Sizing the opportunity of business communications in the cloud. Presented at EMEA Brainstorm, November 2011. (November 2011, Executive Briefing Service, Cloud & Enterprise ICT Stream) Understanding SMBs and enterprises' needs

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Links here for more on New Digital Economics brainstorms and Cloud 2.0 research, or call +44 (0) 207 247 5003.

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Understanding SMBs and enterprises' needs

Cloud Services 2.0: Clearing Fog, Sunshine Forecast, say Telco 2.0 Delegates

Summary: the early stage of development of the market means there is some confusion on the telco Cloud opportunity, yet clarity is starting to emerge, and the concept of ‘Network-as-a-Service’ found particular favour with Telco 2.0 delegates at our October 2010 Americas and November 2010 EMEA Telco 2.0 Executive Brainstorms. (December 2010, Executive Briefing Service, Cloud & Enterprise ICT Streamm)

The full 15 page PDF report is available for members of the Executive Briefing Service and Cloud and Enterprise ICT Stream here. For membership details please see here, or to join, email contact@telco2.net or call +44 (0) 44 207 247 5003. Cloud Services will also feature at Best Practice Live!, Feb 2-3 2011, and the 2011 Telco 2.0 Executive Brainstorms.

Executive Summary

Clearing Fog

Cloud concepts can sometimes seem as baffling, and as nebulous as their namesakes. However, in the recent Telco 2.0 Executive Brainstorms, (Americas in October 2010 and EMEA November 2010), stimulus presentations by IBM, Oracle, FT-Orange Group, Deutsche Telekom, Intel, Salesforce.com, Cisco, BT-Ribbit, and delegate discussions really brought the Cloud Services opportunities to life.

While it was generally agreed that the precise definitions delineating the many possible varieties of the service are not always useful, it does matter how operators can make money from the services, and there was at least consensus on this.

Sunshine Forecast: A Significant Opportunity…

IBM identified an $88.5Bn opportunity in the Cloud over the next 5 years, the majority of which is applicable to telcos, although the share that will end up in the telco industry might be as much as 70% or as little as 30%, depending on how operators go about it (video here).

According to Cisco, there is a $44Bn telco opportunity in Cloud Services by 2014, supported by the evidence of 30%+ enterprise IT cost savings and productivity gains that resulted from Cisco’s own comprehensive internal adoption of cloud services (video here). We see this estimate as reasonably consistent with IBM’s.

Oracle also brought the range of opportunities to life with seven contrasting real-life case studies (video here).

Ribbit, AT&T, and Salesforce.com also supported the viability of Cloud Cervices, arguing that concerns over trust and privacy are gradually being allayed. Intel argued that Network as a Service (NaaS) is emerging as a cloud opportunity alongside Enterprise and Public Clouds, and that by combining NaaS with the telco influence over devices and device computing power, telcos can be a major player in a new ‘Pervasive Computing’ environment. EMEA delegates also viewed Network-as-a-Service as the most attractive opportunity.

Fig 1 – Delegates Favoured ‘Network-as-a-Service’ of the Cloud Opportunities

Telco 2.0 Delegates Cloud Vote, Nov 2010

Source: Telco 2.0 Delegate Vote, 11th Brainstorm, EMEA , Nov 2010.

Telco 2.0 Next Steps

Objectives:

  • To continue to analyse and refine the role of telcos in Cloud Services, and how to monetise them;
  • To find and communicate new case studies and use cases in this field.

Deliverables:

Cloud 2.0: What Should Telcos do? IBM’s View

Summary: IBM say that telcos are well positioned to provide cloud services, and forecast an $89Bn opportunity over 5 years globally. Video presentation and slides (members only) including forecast, case studies, and lessons for future competitiveness.

Cloud Services will also feature at Best Practice Live!, Feb 2-3 2011, and the 2011 Telco 2.0 Executive Brainstorms.

At the 11th EMEA Telco 2.0 Brainstorm, November 2010, Craig Wilson, VP, IBM Global Telecoms Industry, said that:

  • Cloud Services represent an $89Bn opportunity in 5 years;
  • Telcos / Service Providers are “well positioned” to compete in Cloud Services;
  • Security remains the CIO’s biggest question mark, but one that telcos can help with;
  • and outlined two APAC telco Cloud case studies.

Members of the Telco 2.0 Executive Briefing Service and the Cloud and Enterprise ICT Stream can also download Craig’s presentation here (for membership details please see here, or to join, email contact@telco2.net or call +44 (0) 44 207 247 5003).

See also videos by Oracle describing a range of cloud case studies, Cisco on the market opportunity and their own case study of Cloud benefits, and Telco 2.0’s Analyst Note on the Cloud Opportunity.

Telco 2.0 Next Steps

Objectives:

  • To continue to analyse and refine the role of telcos in Cloud Services, and how to monetise them;
  • To find and communicate new case studies and use cases in this field.

Deliverables: