Edge computing: Five viable telco business models

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This report has been produced independently by STL Partners, in co-operation with Hewlett Packard Enterprise and Intel.

Introduction

The idea behind Multi-Access Edge Computing (MEC) is to make compute and storage capabilities available to customers at the edge of communications networks. This will mean that workloads and applications are closer to customers, potentially enhancing experiences and enabling new services and offers. As we have discussed in our recent report, there is much excitement within telcos around this concept:

  • MEC promises to enable a plethora of vertical and horizontal use cases (e.g. leveraging lowlatency) implying significant commercial opportunities. This is critical as the whole industry is trying to uncover new sources of revenue, ideally where operators may be able to build a sustainable advantage.
  • MEC should also theoretically fit with telcos’ 5G and SDN/NFV deployments, which will run certain virtualised network functions in a distributed way, including at the edge of networks. In turn, MEC potentially benefits from the capabilities of a virtualised network to extract the full potential of distributed computing.

Figure 1: Defining MEC

Source: STL Partners

However, despite the excitement around the potentially transformative impact of MEC on telcos,viable commercial models that leverage MEC are still unclear and undefined. As an added complication, a diverse ecosystem around edge computing is emerging – of which telcos’ MEC is only one part.

From this, the following key questions emerge:

  • Which business models will allow telcos to realise the various potential MEC use cases in a commercially viable way?
  • What are the right MEC business models for which telco?
  • What is needed for success? What are the challenges?

Contents:

  • Preface
  • Introduction
  • The emerging edge computing ecosystem
  • Telcos’ MEC opportunity
  • Hyperscale cloud providers are an added complication for telcos
  • How should telcos position themselves?
  • 5 telco business models for MEC
  • Business model 1: Dedicated edge hosting
  • Business model 2: Edge IaaS/PaaS/NaaS
  • Business model 3: Systems integration
  • Business model 4: B2B2X solutions
  • Business model 5: End-to-end consumer retail applications
  • Mapping use cases to business models
  • Some business models will require a long-term view on the investment
  • Which business models are right for which operator and which operator division?
  • Conclusion

Figures:

  • Figure 1: Defining MEC
  • Figure 2: MEC potential benefits
  • Figure 3: Microsoft’s new mantra – “Intelligent Cloud, Intelligent Edge”
  • Figure 4: STL Partners has identified 5 telco business models for MEC
  • Figure 5: The dedicated edge hosting value
  • Figure 6: Quantified example – Dedicated edge hosting
  • Figure 7: The Edge IaaS/PaaS/NaaS value chain
  • Figure 8: Quantified example – Edge IaaS/PaaS/NaaS
  • Figure 9: The SI value chain
  • Figure 10: Quantified example – Systems integration
  • Figure 11: The B2B2X solutions value chain
  • Figure 12: Quantified example – B2B2x solutions
  • Figure 13: Graphical representation of the end-to-end consumer retail applications business model
  • Figure 14: Quantified example – End-to-end consumer retail applications
  • Figure 15: Mapping MEC business models to possible use cases
  • Figure 16: High IRR correlates with low terminal value
  • Figure 17: Telcos need patience for edge-enabled consumer applications to become profitable (breakeven only in year 5)
  • Figure 18: The characteristics and skills required of the MEC operator depend on the business models

Cloud: What is the role of telcos in cloud services in 2015?

Introduction

A big hole to fill

Globally, Communication Service Providers (CSPs) or telcos are suffering significant declines in traditional service revenues such as Voice, Messaging and Data. We have covered these aspects extensively in some of our earlier reports such as ‘The Future Value of Voice and Messaging’, and the ‘Telco 2.0 Transformation Index’. These revenue declines are real and on a scale much larger than had previously been expected by much of the industry as evidenced by many of the recent earnings results.

These declines are due to technology, competition and socio economic changes that have forced changes in user behaviour. In our ‘Future of Voice and Messaging’ strategy report we forecast a potential decline of $172bn to 2018 across 9 markets we analysed.

Figure 2: Telco revenue declines from core services

 Figure 2 Telco Revenue Declines From Core Services

Source: STL Partners ‘The Future Value of Voice and Messaging

Data Services are not filling the gap fast enough as can be seen for example in Vodafone’s results from 2013 in Figure 3.

Figure 3: Vodafone Service revenue breakdown 2013Vodafone Service Revenue FY 11/12 vs. FY 12/13

Source: Vodafone

With voice and messaging revenues in decline (or approaching that stage) and data revenue unlikely to back-fill the enormous gap, telcos are looking for:

  • new sources of revenue
  • new drivers for existing services
  • new sources of customer loyalty

Could the Cloud be part of the answer?

The Cloud market is a growth market and in our ‘Telco Strategies in the Cloud’ report from 2013 we estimated that all aspects of the cloud market globally (excluding advertising) would be worth close to a trillion dollars by 2027. The market continues to transform, expand and reshape, but estimates from a variety of analysts suggest that overall, the cloud market continues to grow at around 30% CAGR. We thought that telcos could garner around 18% of the market by launching a variety of services and by partnering with leading cloud providers, and we estimate that current telco share is just below this level if you include a variety of services that can be described as cloud such as managed hosting and other similar services.

So, if you are a telco and looking for new markets and new opportunities, cloud services should in theory at least look like a strong contender. Cloud generally has a charging model very similar to existing telco business where services are charged for on an ‘as used’ basis. For example existing telco services are billed by things like the number of dialled minutes, number of SMS, and amount of data sent/received. Cloud is typically billed by the amount of disk space used, the CPU used, the number of users of a service etc. Both kinds of services are pay by use and both typically have a term or contract applied such as a 12 month or 24 month contract.

Service providers also have billing relationships with enterprise customers and many have strong channels that sell into the enterprise market. Another factor worth considering is that many CSPs have spare capacity in their data/networking hubs brought about by advances in networking technology requiring less rackspace, power and cooling. Cloud would seem to be a perfect solution for CSPs to help address declining revenues from elsewhere.

Cloud Evolution and Service Provider fit

By 2015 the Cloud market will be roughly 9 years old and in the world of the Internet a relatively mature technology. From a strategic perspective it has been possible for at least 6 years to see where the clouds’ early successes would be, develop a strategy, launch products and take a share of the cloud market.

Today’s Tech and Web Giants like Google, Amazon, Microsoft and Apple have been heavily investing in Cloud since 2007 in order to build a presence in a variety of cloud services and to address a number of different business and consumer segments.

The combination of the market activity described above, the growth in cloud, and decline in core telco revenues might lead you to think that we would have seen some significant or innovative introductions from the telco community to take advantage of cloud services. After all, it is close to their existing business models, a growth industry and synergistic with existing service provider connectivity and voice services. This isn’t generally the case, although there are exceptions where some telcos have decided that Cloud should be part of their strategic future, and with the support of the leadership teams defined a long term strategy, established market entry and have launched or acquired cloud products and services. Some have even moved into the market, seen the goliaths enter their region and have diversified into unique and value add services that the global players cannot match.

So why aren’t we seeing lots more action from telcos? Logically everything seems to fit well together: bandwidth required for cloud access, spare capacity in the data centre, technical expertise in running large scale voice platforms, billing systems, able marketing and strategy teams along with significant budget capability.

Cloud stratification

Generically, cloud is commonly referred to by 3 segments, Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS) and Infrastructure-as-a-Service (IaaS). We will not go into depth on the constituent components of each of the segments as we have covered this in our earlier reports. Below we take a look at each segment and the peculiarities of each segment along with service provider fit.

Software-as-a Service (SaaS)

SaaS is a diverse market addressing different needs. From a customer segmentation perspective SaaS can provide services for consumers, students or enterprise users. For example Google Apps for Work is used by banks and large enterprises as well as small enterprises and consumers. And from a functionality point of view, SaaS can provide simple and economic access to CRM, ERP, Productivity (Collaboration, desktop suites etc.) and a growing number of products and services.

Specifically enterprise SaaS is a relatively high growth market and started around 1999 with vendors like Salesforce.com setting early market direction and building a dominant market share. Salesforce was followed by products like Google Mail and Google Docs. Microsoft then moved its office suite (BPOS and Office 365) to the cloud and many smaller vendors like Adobe followed suit with its Creative Cloud suite aimed at high end creative teams. There are a few smaller vendors like CRM.com and open source software like Open Office and ZoHo, but the SaaS market is generally dominated by the big global players who can leverage channel and a global presence to attract large volumes of customers. Microsoft and Google dominate with Google claiming over 5 million users and Microsoft recently announcing  it had over 7 million users.

SaaS products like desktop productivity suites are very specialised, with highly competitive markets, and not an area where we would expect telcos to be natural leaders. To be successful a company needs a brand focussed on the function or product, strong local and global markets, relevant channels to market, global support with a commitment to the long term growth. Looking at today’s major SaaS players, they have all of these things; global presence, global channels to market and have been leaders in their segment for some time or have a laser like focus on dominating the sector.

Many telcos are reselling SaaS products from the major vendors and combine or bundle their existing telco products with them. One clear example of synergy between SaaS and core telco offerings is a bundle of Office 365 from Microsoft with telco voice and connectivity. The type of solutions combine desktop productivity and ubiquitous connectivity as well as Unified communications combining fixed/mobile/desktop voice with Instant Messaging, presence (on a call or in a meeting for example), video and collaboration. Each employee has access to all functionality wherever they are and have an effective solution that can form the backbone of an enterprise mobility solution.

Telcos role in Software-as-a-Service

Telcos can be an excellent channel to the enterprise customer and can present a single billing/support point for all services. As far as telcos are concerned margins on SaaS products are generally lower than equivalent telco products as vendors such as Google and Microsoft generally offer 20% discount off of list price and then spice up the deal by offering a variety of incentives such as marketing support or bundles of products relevant to enterprise such lower cost Windows Mobile devices etc.

Bundling and Integration are two very good opportunities for telcos in this segment, by bundling or integrating with leading SaaS products, some telcos have seen up to 50% reduction in churn and over a 100% increase in ARPU from business users.

Telcos that have led this move are represented by organisations like Telstra, Verizon, Vodafone, AT&T, Elisa and others. It has been reported that Telstra is or was Microsoft’s largest global reseller of Office 365, with Vodafone close behind.

Platform as-a Service (PaaS)

Platform as a Service is not as clearly defined or as well understood as the other two well-known cloud services, SaaS and IaaS. PaaS was originally aimed at developers who needed a development environment, perhaps a database and an application server plus the servers and networking hardware needed to make all this work, so to a certain extent, both a complete development environment and some IaaS. But over time, PaaS platforms have expanded to offer developers the ability to build, host and sell their applications as SaaS. Market leading implementations are services such as Microsoft Azure, Google App Engine Amazon Elastic Beanstalk and Salesforce’s Heroku.

Telcos playing in Platform-as-a-Service?

Increasingly API’s to common services are being included and just like SaaS, it’s not a natural market for telcos to play in, they can contribute API’s and potentially monetise these API’s, but the general PaaS market is well outside a typical telco’s comfort zone. Specific channels and channel support mechanisms need to be developed and maintained, and while this may be possible for some that have existing ICT / SI operations, it is a complex undertaking requiring significant commitment, skills and resources.

Infrastructure as-a Service (IaaS)

Infrastructure-as-a-Service or IaaS is a very different scenario to SaaS and PaaS, it is much more familiar to a telco. The basic functionality can be seen as an extension to hosting/colocation services that some telcos have been offering to enterprise customers for quite some time, for example Orange Business Services Verizon, Colt, Cable & Wireless, BT Global Services, AT&T etc.

Colocation usually refers to the provision of rackspace for servers and includes things like cooling, power, rack space, Local Area Network connections and typically wide area bandwidth for the customer to connect to the data centre. With colocation (or colo as it is sometimes called), the customer usually provides the server hardware and software and manages this remotely. Hosting usually extends the colo capability to include the provision of the server hardware. The customer still owns the software licenses and usually manages the system, although managed hosting as a service is also available from a number of service providers.

Hosting enterprise applications and services has developed as an extension of core telco services with telcos able to bundle connectivity & voice with a variety of hosting options including functions such as Contact Centres, PBX’s and Data hosting. Low internal costs on connectivity and voice services have meant that for a telco the cost of communications has not inhibited the provision of a hosted service. If twice the bandwidth was needed to deliver the same performance from a hosted solution as a customer owned in-house solution, the marginal cost of the additional bandwidth is not an inhibitor to providing the service.

The advent of virtualisation services has meant that many telcos can lower the cost of delivering hosting as long as its customer are happy to move to a multi-tenant or a dedicated but virtualised platform.

Add to this the fact that telcos have spare data centre capacity and own much of the fibre and networking assets needed to connect data centres as well as customers and IaaS would seem to be a natural evolution for the majority of telco providers.

But like SaaS, the global market for IaaS has become dominated by a few significant players, notably, Amazon, Google and Microsoft. But why aren’t we seeing telcos as leaders in IaaS market?

While we can see that IaaS could be an extension of existing businesses or an upgrade to some existing colocation/hosting services offered by telcos, investing in pureplay IaaS requires a number of skills and assets that telcos do not necessarily possess:

  • As data centre complexity has grown, there is now a need for serious expertise in designing and running data centres. For example, companies like Google and Facebook design their own servers and networking equipment as well writing the software that drives these products.
  • The ability to keep data centre costs as low as possible, plus the financial capabilities to invest in what is essentially a capital intensive, low margin, high volume business. Scale is incredibly important in keeping costs down as is the ability to tap into low energy and cooling costs.
  • There is also a need for appropriate global/regional marketing, support and channels to market.

Contents

  • Executive Summary
  • Context: telcos need to grow new revenues
  • What does the cloud market look like today?
  • So what should telcos do?
  • Telcos: to ICT or not to ICT?
  • Telcos must ‘think different’ about Cloud and Enterprise ICT
  • Introduction (included above)
  • A big hole to fill
  • Could the Cloud be part of the answer?
  • Cloud Evolution and Service Provider fit (included above)
  • Software-as-a Service (SaaS)
  • Platform as-a Service (PaaS)
  • Infrastructure as-a Service (IaaS)
  • Capital Investment, how much bang for your IaaS buck?
  • Scale and efficiency
  • Which telcos are positioned well for the 2015 battleground?
  • So what should be the role of telcos in cloud in 2015?
  • Areas that are hard for most telcos to compete in
  • More promising areas for telcos
  • Conclusions
  • STL Partners and the Telco 2.0™ Initiative

 

  • Figure 1 – Google Infrastructure Spending
  • Figure 2 – Telco revenue declines from core services
  • Figure 3 – Vodafone Service revenue breakdown 2013
  • Figure 4 – Google Data Centre Efficiency
  • Figure 5 – Google Infrastructure Spending
  • Figure 6 – The big 3 vs Rackspace form 2005 to 2012
  • Figure 7 – Average monthly cost per GB over a number of RBC use cases
  • Figure 8 – Average monthly cost per GB over a number of RBC use cases including support costs
  • Figure 9 – Amazon EC2 Xlarge pricing over time
  • Figure 10 – Breakdown of in-house data centre costs
  • Figure 11 – On-Premise Vs. Cloud based Contact Centre TCO
  • Figure 12 – Telco 2.0™ ‘two-sided’ telecoms business model

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: 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
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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: don’t blow it, telcos

Summary: enterprise cloud computing services need great connectivity to work, but there are opportunities for telcos to participate beyond the connectivity. What are the opportunities, how are telcos approaching them, and what are the key strategies? Includes forecasts for telcos’ shares of VPC, IaaS, PaaS and SaaS. (September 2011, Executive Briefing Service, Cloud & Enterprise ICT Stream) Apps & Telco APIs Figure 1 Drivers of the App Market Telco 2.0 Sept 2011
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Below is an extract from this 28 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, buy a Single User license for this report online here for £795 (+VAT), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

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Introduction

In our previous analyses Cloud 2.0: What are the Telco Opportunities? and Cloud 2.0: Telcos to grow Revenues 900% by 2014 we’ve looked broadly at the growing cloud market opportunity for telcos. This new report takes this analysis forward, looking in detail at the service definitions, market forecasts and the industry’s confidence in them, and actual and potential strategies for telcos.

We’ll also be looking in depth at the opportunities in cloud services in the Cloud 2.0: Transforming technology, media and telecoms at the EMEA Executive Brainstorm in London on Thursday 10th November 2011.

The Cloud Market

Cloud computing represents the next wave of IT. Almost all organisations are saying that they will adopt cloud computing to a greater or lesser extent, across all segments and sizes. Consequently, we believe that there exists a large opportunity for telcos if they move quickly enough to take advantage of it.

Total market cloud forecasts – variation and uncertainty

In order to understand where the best opportunities are and how telcos can best take use their particular strengths to advantage of them, we need to examine the size of that opportunity and to understand which areas of cloud computing are most likely to offer the best returns.

Predictions for the size and growth of the cloud computing market are very diverse:

  • Merrill Lynch has previously offered the most optimistic estimate: $160 billion by the end of 2011 (The Cloud Wars: $100+ billion at stake, May 2008)
  • Gartner predicted expenditure of $150.1 billion by 2013 (Gartner forecast, March 2009)
  • IDC predicts annual cloud services revenues of $55.5 billion in by 2014 (IDC report, June 2010)
  • Cisco has estimated the cloud market at $43 billion by 2013 (STL Partners video, October 2010)
  • Bain expects spending to grow �?vefold from $30 billion in 2011 to $150 billion by 2020 (The Five Faces of the Cloud, 2011)
  • IBM’s Market Insights Cloud Phase 2 assessment of September 2011 sizes the cloud market at $88.5bn by 2015
  • Of that total, research by AMI Partners suggests that SMBs’ share of that spend will approach $100 billion by 2014 – over 60 % of the total (World Wide Cloud Services Study, December 2010)

Figure 1 – Cloud services market forecast comparisons

Cloud 2.0 Industry Forecast Comparisons Bain, Gartner, IDC, Cisco Sept 2011 Telco 2.0

Source: Bain, Cap Gemini, Cisco, Gartner, IBM, IDC, Merrill Lynch

Whichever way you look at it, the volume of spending on cloud computing is high and growing. But why are there such large variations in the estimates of that growth?

There is a clear correlation between the report dates and the market forecast sizes. Two of the forecasts – from Merrill Lynch and Gartner – are well over two years old, and are likely to have drawn conclusions from data gathered before the 2008 recession started to bite. Both are almost certainly over-optimistic as a result, and are included as an indication of the historic uncertainty in Cloud forecasts rather than criticism of the forecasters.

More generally, while each forecaster will be using different assumptions and extrapolation techniques, the variation is also likely to reflect a lack of maturity of the cloud services market: there exists little historical data from which to extrapolate the future, and little experience of what kinds of growth rates the market will experience. For example, well-known inhibitors to the adoption of cloud, such security and control, have yet to be resolved by cloud service providers to the point where enterprise customers are willing to commit a substantial volume of their IT spending.

Additionally, the larger the organisation, the slower the adoption of cloud computing is likely to be; it takes a long time for large enterprises to move to a new computing model that involves changing fundamental IT architectures and will be a process undertaken over time. It is hard to be precise about the degree to which they will inhibit the growth of cloud acceptance.

As a result, in a world where economic uncertainty seems unlikely to disappear in the short to medium term, it would be unwise to assume a high level of accuracy for market sizing predictions, although the general upward trend is very clear.

Cloud service types

Cloud computing services fall into three broad categories: infrastructure as a service (IaaS), platform as a service (PaaS) and software as a service (SaaS).

Figure 2 – Cloud service layer definitions

Cloud 2.0 Service Types vs. layers Telco 2.0 Sept 2011

Source: STL Partners/Telco 2.0

Of the forecasts available, we prefer Bain’s near term forecast because: 1) it is based on their independent Cloud ‘Center of Excellence’ work; 2) it is relatively recent, and 3) it has clear and meaningful categories and definitions.
The following figure summarises Bain’s current market forecast, split by cloud service type.

Figure 3 – Cloud services: market forecast and current players

Cloud 2.0 Forecast growth by service type Sep 2011 Telco 2.0

Currently, telcos have around a 5% share of the c.$20 billion annual cloud services revenue, with 25 % CAGR forecast to 2013.

At the May 2011 EMEA Telco 2.0 Executive Brainstorm, we used these forecasts as a base to explore market views on the various cloud markets. There were c.200 senior executives at the brainstorm from industries across Telecoms, Media and Technology (TMT) and, following detailed presentations on Cloud Services, they were asked highly structured questions to ascertain their views on the likelihood of telco success in addressing each service.

Infrastructure as a Service (IaaS)

IaaS consists of cloud-based, usually virtualised servers, networking, and storage, which the customer is free to manage as they need. Billing is typically on a utility computing model: the more of each that you use, the more you pay. The largest of the three main segments, Bain forecasts IaaS to be worth around $3.5 billion in 2011, with 45 % CAGR forecast. The market leader is Amazon with about 18 % share. Other players include IBM and Rackspace. Telcos currently have about 20 % of this market – Qwest/Savvis/Equinix, and Verizon/Terremark.

Respondents at the EMEA Telco 2.0 Brainstorm estimated that telcos could take an average share of 25% of this market. The distribution was reasonably broad, with the vast majority in the 11-40% range.

Figure 4 – IaaS – Telco market share forecasts

Cloud 2.0 IaaS Telco Forecasts Sept 2011 Telco 2.0

Source: EMEA Telco 2.0 Executive Brainstorm delegate vote, May 2011

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

  • Virtual Private Cloud (VPC)
  • Software as a Service (SaaS)
  • Platform as a Service (PaaS)
  • Hybrid Cloud
  • Cloud Service Brokerage
  • Overall telco cloud market projections by type, including forecast uncertainties
  • Challenges for telcos
  • Which areas should telcos target?
  • Telcos’ advantages
  • IaaS, PaaS, or SaaS?
  • Developing other segments
  • What needs to change?
  • How can telcos deliver?
  • Telcos’ key strengths
  • Key strategy variables
  • Next Steps

…and the following charts…

  • Figure 1 – Cloud services market forecast comparisons
  • Figure 2 – Cloud service layer definitions
  • Figure 3 – Cloud services: market forecast and current players
  • Figure 4 – IaaS – Telco market share forecasts
  • Figure 5 – VPC – Telco market share forecasts
  • Figure 6 – SaaS – Telco market share forecasts
  • Figure 7 – PaaS – Telco market share forecasts
  • Figure 8 – Total telco cloud market size and share estimates – 2014
  • Figure 9 – Uncertainty in forecast by service
  • Figure 10 – Telco cloud strengths
  • Figure 11 – Cloud services timeline vs. profitability schematic
  • Figure 12 – Telcos’ financial stability

Members of the Telco 2.0 Executive Briefing Subscription Service and the Cloud and Enterprice ICT Stream can download the full 28 page report in PDF format here. Non-Members, please subscribe here, buy a Single User license for this report online here for £795 (+VAT), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Organisations, people and products referenced: Aepona, Amazon, AMI Partners, Bain, BT, CenturyLink, CENX, Cisco, CloudStack, Deutsche Telekom, EC2, Elastic Compute Cloud (EC2), EMC, Equinix, Flexible 4 Business, Force.com, Forrester, France Telecom, Gartner, Google App Engine, Google Docs, IBM, IDC, Intuit, Java, Merrill Lynch, Microsoft, Microsoft Office 365, MySQL, Neustar, NTT, OneVoice, OpenStack, Oracle, Orange, Peartree, Qwest, Rackspace, Red Hat, Renub Research, Sage, Salesforce.com, Savvis, Telstra, Terremark, T-Systems, Verizon, VMware, Vodafone, Webex.

Technologies and industry terms referenced: Azure, Carrier Ethernet, Cloud computing, cloud service providers, Cloud Services, Communications as a Service, compliance, Connectivity, control, forecast, Global reach, Hybrid Cloud, Infrastructure as a Service (IaaS), IT, Mobile Cloud, network, online, Platform as a Service (PaaS), Reliability, resellers, security, SMB, Software as a Service (SaaS), storage, telcos, telecoms, strategy, innovation, transformation, unified communications, video, virtualisation, Virtual Private Cloud (VPC), VPN.

Cloud 2.0: Telcos to grow Revenues 900% by 2014

Summary: Telcos should grow Cloud Services revenues nine-fold and triple their overall market share in the next three years according to delegates at the May 2011 EMEA Executive Brainstorm. But which are the best opportunities and strategies? (June 2011, Executive Briefing Service, Cloud & Enterprise ICT Stream)

NB Members can download a PDF of this Analyst Note in full here. Cloud Services will also feature at the Best Practice Live! Free global virtual event on 28-29 June 2011.

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Introduction

STL Partners’ New Digital Economics Executive Brainstorm & Developer Forum EMEA took place from 11-13 May in London. The event brought together 250 execs from across the telecoms, media and technology sectors to take part in 6 co-located interactive events: the Telco 2.0, Digital Entertainment 2.0, Mobile Apps 2.0, M2M 2.0 and Personal Data 2.0 Executive Brainstorms, and an evening AppCircus developer forum.

Building on output from the last Telco 2.0 events and new analysis from the Telco 2.0 Initiative – including the new strategy report ‘The Roadmap to New Telco 2.0 Business Models’ – the Telco 2.0 Executive Brainstorm explored latest thinking and practice in growing the value of telecoms in the evolving digital economy.

This document gives an overview of the output from the Cloud session of the Telco 2.0 stream.

Companies referenced: Aepona, Amazon Web Services, Apple, AT&T, Bain, BT, Centurylink, Cisco, Dropbox, Embarq, Equinix, Flexible 4 Business, Force.com, Google Apps, HP, IBM, Intuit, Microsoft, Neustar, Orange, Qwest, Salesforce.com, SAP, Savvis, Swisscom, Terremark, T-Systems, Verizon, Webex, WMWare.

Business Models and Technologies covered: cloud services, Enterprise Private Cloud (EPC), Virtual Private Cloud (VPC), Infrastucture as a service (IaaS), Platform as a Service (PaaS), Software as a Service (SaaS).

Cloud Market Overview: 25% CAGR to 2013

Today, Telcos have around a 5% share of nearly $20Bn p.a. cloud services revenue, with 25% compound annual growth rate (CAGR) forecast to 2013. Most market forecasts are that the total cloud services market will reach c.$45-50Bn revenue by 2013 / 2014, including the Bain forecast previewed at the Americas Telco 2.0 Brainstorm in April 2011.

At the EMEA brainstorm, delegates were presented with an overview of the component cloud markets and examples of different cloud services approaches, and were then asked for their views on what share telcos could take of cloud revenues in each. In total, delegates’ views amounted to telcos taking in the region of 18% by revenue of cloud services at the end of the next three years.

Applying these views to an extrapolated ‘mid-point’ forecast view of the Cloud Market in 2014, implies that Telcos will take just under $9Bn revenue from Cloud by 2014, thus increasing today’s c$1Bn share nine-fold. [NB More detailed methodology and sources are in the full paper available to members here.]

Figure 1 – Cloud Services Market Forecast & Players

Cloud 2.0 Forecast 2014 - Telco 2.0

Source: Telco 2.0 Presentation

Although already a multi-$Bn market already, there is still a reasonable degree of uncertainty and variance in Cloud forecasts as might be expected in a still maturing market, so this market could be a lot higher – or perhaps lower, especially if the consequences of the recent Amazon AWS breakdown significantly reduce CIO’s appetites for Cloud.

The potential for c.30% IT cost savings and speed to market benefits that can be achieved by telcos implementing Cloud internally previously shown by Cisco’s case study were highlighted but not explored in depth at this session.

Which cloud markets should telcos target?

Figure 2 – Cloud Services – Telco Positioning

Cloud 2.0 Market Positioning - Telco 2.0

Source: Cisco/Orange Presentation, 13th Telco 2.0 Executive Brainstorm, London, May 2011

An interesting feature of the debate was which areas telcos would be most successful in, and the timing of market entry strategies. Orange and Cisco argued that the area of ‘Virtual Private Cloud’, although neither the largest nor predicted to be the fastest growing area, should be the first market for some telcos to address, appealing to some telcos strong ‘trust’ credentials with CIOs and building on ‘managed services’ enterprise IT sales and delivery capabilities.

Orange described its value proposition ‘Flexible 4 Business’ in partnership with Cisco, VMWare virtualisation, and EMC2 storage, and although could not at this early stage give any performance metrics described strong demand and claimed satisfaction with progress to date.

Aepona described a Platform-as-a-Service (PaaS) concept that they are launching shortly with Neustar that aggregates telco APIs to enable the rapid creation and marketing of new enterprise services.

Figure 3 – Aepona / Neustar ‘Intelligent Cloud’ PaaS Concept

C;oud 2.0 - Intelligent Cloud PaaS Concept - Telco 2.0

In this instance, the cloud component makes the service more flexible, cheaper and easier to deliver than a traditional IT structure. This type of concept is sometimes described as a ‘mobile cloud’ because many of the interesting uses relate to mobile applications, and are not reliant on continuous high-grade mobile connectivity required for e.g. IaaS: rather they can make use of bursts of connectivity to validate identities etc. via APIs ‘in the cloud’.

To read the rest of this Analyst Note, containing…

  • Forecasts of telco share of cloud by VPC, IaaS, PaaS and SaaS
  • Telco 2.0 take-outs and next steps
  • And detailed Brainstorm delegate feedback

Members of the Telco 2.0TM Executive Briefing Subscription Service and the Cloud and Enterprise ICT Stream can access and download a PDF of the full report here. Non-Members, please see here for how to subscribe. Alternatively, please email contact@telco2.net or call +44 (0) 207 247 5003 for further details.

Cloud 2.0: What are the Telco Opportunities?

Summary: Telco 2.0’s analysis of operators’ potential role and opportunity in ‘Cloud Services’, a set of new business model opportunities that are still in an early stage of development – although players such as Amazon have already blazed a substantial trail. (December 2010, , Executive Briefing Service, Cloud & Enterprise ICT Stream & Foundation 2.0)

  • Below is an extract from this Telco 2.0 Report. The report can be downloaded in full PDF format by members of the Telco 2.0 Executive Briefing service and the Cloud and Enterprise ICT Stream here.
  • Additionally, to give an introduction to the principles of Telco 2.0 and digital business model innovation, we now offer for download a small selection of free Telco 2.0 Briefing reports (including this one) and a growing collection of what we think are the best 3rd party ‘white papers’. To access these reports you will need to become a Foundation 2.0 member. To do this, use the promotional code FOUNDATION2 in the box provided on the sign-up page here. NB By signing up to this service you give consent to us passing your contact details to the owners / creators of any 3rd party reports you download. Your Foundation 2.0 member details will allow you to access the reports shown here only, and once registered, you will be able to download the report here.
  • See also the videos from IBM on what telcos need to do, and Oracle on the range of Cloud Services, and the Telco 2.0 Analyst Note describing Americas and EMEA Telco 2.0 Executive Brainstorm delegates’ views of the Cloud Services Opportunity for telcos.
  • We’ll also be discussing Cloud 2.0 at the Silicon Valley (27-28 March) and London (12-13 June) Executive Brainstorms.
  • To access reports from the full Telco 2.0 Executive Briefing service, or to submit whitepapers for review for inclusion in this service, please email contact@telco2.net or call +44 (0) 207 247 5003.

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The Cloud: What Is It?

Apart from being the leading buzzword in the enterprise half of the IT industry for the last few years, what is this thing called “Cloud”? Specifically, how does it differ from traditional server co-location, or indeed time-sharing on mainframes as we did in the 1970s? These are all variations on the theme of computing power being supplied from a remote machine shared with other users, rather than from PCs or servers deployed on-site.

Two useful definitions were voiced at the 11th Telco 2.0 EMEA Executive Brainstorm in November 2010:

  • “A standardised IT Capability delivered in a pay-per-use, self-service way.” Stephan Haddinger, Chief Architect Cloud Computing, Orange – citing a definition by Forrester.
  • “STEAM – A Self-Service, multi-Tenanted, Elastic, broad Access, and Metered IT Service.” Neil Sholay, VP Cloud and Comms, EMEA, Oracle.

The definition of Cloud has been rendered significantly more complicated by the hype around “cloud” and the resultant tendency to use it for almost anything that is network resident. For a start, it’s unhelpful to describe anything that includes a Web site as “cloud computing”. A good way to further understand ‘Cloud Services’ is to look at the classic products in the market.

The most successful of these, Amazon’s S3 and EC2, provide low-level access to computing resources – disk storage, in S3, and general-purpose CPU in EC2. This differs from an ASP (Application Service Provider) or Web 2.0 product in that what is provided isn’t any particular application, but rather something close to the services of a general purpose computer. It differs from traditional hosting in that what is provided is not access to one particular physical machine, but to a virtual machine environment running on many physical servers in a data-centre infrastructure, which is probably itself distributed over multiple locations. The cloud operator handles the administration of the actual servers, the data centres and internal networks, and the virtualisation software used to provide the virtual machines.

Varying degrees of user control over the system are available. A major marketing point, however, is that the user doesn’t need to worry about system administration – it can be abstracted out as in the cloud graphic that is used to symbolise the Internet on architecture diagrams. This tension between computing provided “like electricity” and the desire for more fine-grained control is an important theme. Nobody wants to specify how their electricity is routed through the grid, although increasing numbers of customers want to buy renewable power – but it is much more common for businesses (starting at surprisingly small scale) to have their own Internet routing policies.

So, for example, although Amazon’s cloud services are delivered from their global data centre infrastructure, it’s possible to specify where EC2 instances run to a continental scale. This provides for compliance with data protection law as well as for performance optimisation. Several major providers, notably Rackspace, BT Global Services, and IBM, offer “private cloud” services which represent a halfway house between hosting/managed service and fully virtualised cloud computing. And some explicit cloud products, such as Google’s App Engine, provide an application environment with only limited low-level access, as a rapid-prototyping tool for developers.

The Cloud: Why Is It?

Back at the November 2009 Telco 2.0 Executive Brainstorm in Orlando, Joe Weinman of AT&T presented an argument that cloud computing is “a mathematical inevitability”. His fundamental point is worth expanding on. For many cloud use cases, the decision between moving into the cloud and using a traditional fleet of hosted servers is essentially a rent-vs-buy calculus. Weinman’s point was that once you acquire servers, whether you own them and co-locate or rent them from a hosting provider, you are committed to acquiring that quantity of computing capacity whether you use it or not. Scaling up presents some problems, but it is not that difficult to co-locate more 1U racks. What is really problematic is scaling down.

Cloud computing services address this by basically providing volume pricing for general-purpose computing – you pay for what you use. It therefore has an advantage when there are compute-intensive tasks with a highly skewed traffic distribution, in a temporary deployment, or in a rapid-prototyping project. However, problems arise when there is a need for capacity on permanent standby, or serious issues of data security, business continuity, service assurance, and the like. These are also typical rent-vs-buy issues.

Another reason to move to the cloud is that providing high-availability computing is expensive and difficult. Cloud computing providers’ core business is supporting large numbers of customers’ business-critical applications – it might make sense to pass this task to a specialist. Also, their typical architecture, using virtualisation across large numbers of PC-servers to achieve high availability in the manner popularised by Google, doesn’t make sense except on a scale big enough to provide a significant margin of redundancy in the hardware and in the data centre infrastructure.

Why Not the Cloud?

The key objections to the cloud are centred around trust – one benefit of spreading computing across many servers in many locations is that this reduces the risk of hardware and/or connectivity failure. However, the problem with moving your infrastructure into a multi-tenant platform is of course that it’s another way of saying that you’ve created a new, enormous single point of commercial and/or software failure. It’s also true that the more critical and complex the functions that are moved into cloud infrastructure, and the more demanding the contractual terms that result, the more problematic it becomes to manage the relationship. (Neil Lock, IT Services Director at BT Global Services, contributed an excellent presentation on this theme at the 9th Telco 2.0 Executive Brainstorm.) At some point, the additional costs of managing the outsourcer relationship intersect with the higher costs of owning the infrastructure and internalising the contract. One option involves spending more money on engineers, the other, spending more money on lawyers.

Similar problems exist with regard to information security – a malicious actor who gains access to administrative features of the cloud solution has enormous opportunities to cause trouble, and the scaling features of the cloud mean that it is highly attractive to spammers and denial-of-service attackers. Nothing else offers them quite as much power.

Also, as many cloud systems make a virtue of the fact that the user doesn’t need to know much about the physical infrastructure, it may be very difficult to guarantee compliance with privacy and other legislation. Financial and other standards sometimes mandate specific cryptographic, electronic, and physical security measures. It is quite possible that the users of major clouds would be unable to say in which jurisdiction users’ personal data is stored. They may consider this a feature, but this is highly dependent on the nature of your business.

From a provider perspective, the chief problem with the cloud is commoditisation. At present, major clouds are the cheapest way bar none to buy computing power. However, the very nature of a multi-tenant platform demands significant capital investment to deliver the reliability and availability the customers expect. The temptation will always be there to oversubscribe the available capacity – until the first big outage. A capital intensive, very high volume, and low price business is the classic case of a commodity – many operators would argue that this is precisely what they’re trying to get away from. Expect vigorous competition, low margins, and significant CAPEX requirements.

To download a full PDF of this article, covering…

  • What’s in it for Telcos?
  • Conclusions and Recommendations

…Members of the Telco 2.0TM Executive Briefing Subscription Service and the Cloud & Enterprise ICT Stream can read the Executive Summary and download the full report in PDF format here. Non-Members, please email contact@telco2.net or call +44 (0) 207 247 5003 for further details.

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 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: