The Way To Cloud

01 Mar 2016
When it comes to providing cloud services, Telco's have a simple choice: fight against the tide, and leave the cloud market to other players, or go with the flow and see where best they can position themselves to deliver the most value. Unsurprisingly, around the globe we have overwhelmingly seen Telcos choose the latter option, with operators in Europe, the US, and across Asia establishing cloud services. Today, we are increasingly seeing Telcos across the globe are embracing the cloud.

What is driving this move? Firstly, the traditional communications services market is steadily declining as a proportion of the total ICT market. Last year, Gartner estimated the global communications services market would be worth $1.49 trillion, the largest segment of total ICT spending. However, that represented a 7.2 decline from 2014, as price erosion and competitive threats hurt revenue in most markets. Meanwhile, Garter estimates the global public cloud services market to reach $204 billion and in India is expected to have a continuous high rate of spending on cloud services through 2019 when the market is expected to reach $1.9 billion.

If market forces are making a move to the cloud inevitable for Telcos, they are well positioned to play in this space - after all they own the networks upon which cloud applications and services are delivered. They also have experience in providing the wide area network (WAN) solutions that corporate customers need, and managing large communication and hosting centers is in their corporate DNA.

Telcos have also shifted away from building out service-specific networks that need a complex, segmented infrastructure, having migrated to next-generation networks with intelligence layers capable of delivering differentiated services and premium experiences to customers on a common IP infrastructure. New technologies based on software-defined networks (SDN) and network-function virtualization (NFV), can optimize performance for individual users according to their unique needs-for example, dynamically increasing speed or bandwidth as needed. Some customers will want only low-price connectivity, but others will pay more for network service that responds and adapts to their demands.

Telcos today are seeing where best to position themselves in the value chain: at the most basic level, Telcos are becoming cloud brokers by aggregating services, allowing them to provide some quality of service on top and add margin. The next level is to become platform enablers: provide an ecosystem to leverage the Telco's assets and secure network, to deliver offerings, such as infrastructure as a service.

At the top of the value chain, Telcos can offer end-to-end integrated solutions that incorporate their network management capabilities, supported by an agile and service-oriented operating model, to carve out a differentiated and attractive offering to small and midsize businesses (SMBs) and enterprises.

However, while Telcos have clear strengths that play very well in cloud, they also face significant challenges - especially in their operating model. Delivering cloud services requires a fundamentally different business model than that established by Telcos when they pushed into the managed services space, with a focus on on premise, bespoke solutions. Cloud services require a high degree of self-service, automation, and repeatability in the end-to-end operating model.

Implementing a new operating model is a difficult task - there are organizational, process, and product management transformation that are more challenging than infrastructure changes. Building a cloud business requires developing new capabilities, such as professional services, introducing a services-oriented culture, developing KPIs that focus on customer value rather, and putting in place a service-creation process.

Telcos are looking to resolve these issues either through acquisitions, where they buy in the expertise needed, by creating affiliates that can compete more effectively, and by working with key partners, such as a key technology solution provider, whereby they not only integrate the vendor's services into their overall network, but also leverage vendors' consultancy and experience to build a viable business model.

Telcos are looking to resolve these issues either through acquisitions, where they buy in the expertise needed, by creating affiliates that can compete more effectively, and by working with key partners, such as a key technology solution provider, whereby they not only integrate the vendor's services into their overall network, but also leverage vendors' consultancy and experience to build a viable business model.

This article appeared in BUSINESSWORLD , March 01, 2016