Traditionally, telcos have sold “communication” as the application over an underlying “connectivity” capability. However, the advent of an all-IP telecom network has forced the telcos to open up their “connectivity” capability. Today, they sell both “connectivity” as well as “communication.” But, the market has been smart enough to quickly commoditize the telcos’ “connectivity” service, and today, connectivity has become the commoditized infrastructure for a buzzing marketplace camped on the Cloud (and the Internet in general).
Cloud providers are simply using telco “connectivity” as a bit-pipe. On the other hand, the telcos are competing fiercely to provide the cheapest, fastest, and fattest bit-pipe. Even so, their ARPUs aren’t increasing. While customers aren’t ready to pay extra for a faster and fatter “connectivity,” they do seem willing to tolerate the Cloud model of pay-per-use. In other words, customers are ready to shelve an extra dollar for using a smarter application on the Cloud. As a result, Communication Service Providers (CSPs) are feeling cheated.
With the pure-play Cloud industry rapidly picking up pace, CSPs don’t want to be left behind in the Cloud game. The question is, what can they do? What should be their Cloud strategy? How do they get a piece of the pie that customers are ready to spend for Cloud apps? Should they simply mimic a Cloud provider? Should they facilitate and endorse Cloud providers? Would the pure-play Cloud provider really care? Does it matter if the CSP is a multi-access-operator vis-à-vis a mobile operator? Is being a communications provider an advantage in the race to the Cloud? Should there be a different Cloud strategy for the enterprise and the consumer segments?
There are many more questions, and even more opinions and observations floating around the industry. Most of the opinions are based on the response of the big telcos to the Cloud-war. Let’s take a look at what some of the big players are doing in their “Race to the Cloud.”
The Telco’s Private Cloud
The likes of AT&T, Orange Business Services, British Telecom, and Verizon Business have demonstrated a strong commitment to a Cloud strategy. Their focus is primarily the enterprise segment. Remember, the Cloud culture’s primary focus has always been Cloud-shoring the enterprise IT. The telcos see a huge potential for migrating their business customers to a telco owned and managed Cloud. They have a heritage of providing data center managed services, and they firmly believe that embracing the Cloud opportunity means extending their hosting and offerings to enterprise Cloud offerings by adding the flavors of virtualization, parallel computing, and multi-tenancy. These telco biggies are offering a big range of Cloud offerings to the business customers—like Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS)—and they are seeing dollars in spite of the strong presence of the pure-play Cloud incumbents (the Amazons and the Googles).
Also, the telcos are capitalizing on the legacy of existing customer relationships, one-stop service sourcing, trusted security and policy management, guaranteed end-to-end QoS, compliance to regulatory requirements, and SLA-based service offering, which are otherwise perceived as inhibitors for pure-play Cloud players to penetrate the enterprise segment in a big way. This is precisely why even an IaaS offering from telcos—the lowest in the Cloud value chain—will see traction in the enterprise market. The customer has a better perception of data security, service assurance, and customer care when his applications run in the telco’s Cloud as compared to running in the public Cloud. That said, to scale in the Cloud business, it is not sufficient for the telco to provide just a virtualized, multi-tenanted infrastructure (computing resources, data storage, etc.) in raw form. This essentially translates to migration of existing applications from enterprise IT infrastructure to telco-managed infrastructure.
Although there is a cost arbitrage due to shared resources when moving to the Cloud—the benefit can be skewed when finicky customers start demanding for exclusivity of competing computing resources (a private space within the telco’s Cloud). Moreover, it will be difficult for the telcos (especially the regional ones) to sustain an infrastructure-only business as it requires a massive upfront investment for Cloud-scaling.
Furthermore, it is an architectural challenge to migrate legacy applications to a virtualized, multi-tenanted infrastructure. The IaaS offerings will, therefore, be best suited for new business customers (mainly the SMBs), who want to shy away from upfront IT investment and are happy to lease out Cloud-sourced IT infrastructure, complemented with service assurance and managed SLA, and backed by the credibility of a telco. They will choose applications that are IaaS ready.
Adding a “Cloud Platform”
IaaS may not be the offering to make existing enterprise customers shift to a Cloud strategy. Existing business customers will have to be migrated to Cloud-ready applications rather than migrating their applications to the Cloud. Here, the telcos will have to move higher up in the value chain and offer newer, better applications to their existing business customers to manage their evolving and changing business needs (not undermining the fact that the new business customers will also be equally attracted to such offering).
However, the telcos cannot compete with enterprise application vendors. It is neither their competency area nor their core line of business. Because of that they will have to open up their Cloud infrastructure to host third party Cloud-ready applications—the pure-play SaaS vendors in enterprise application space. This leads to the business case for the telco’s PaaS offerings.
The telco’s “Cloud Platform” is not only the underlying data center infrastructure (with computing resources, redundancy, virtualization, storage, and security) but it also consists of the entire network including the connectivity, the billing machinery, and the service assurance. The Cloud Platform is a Service Delivery Platform (SDP) that positions the telco as a PaaS provider for hosting third-party applications. However, to the end customer, the telco’s position is that of a SaaS broker—bringing the bouquet of the latest, smartest enterprise applications hosted on its Cloud Platform, packaged in a Cloud business model.
In the SaaS space, the telco’s USP is its core competency around communications. The telcos are Cloud labeling what they have been good at—enterprise communications and collaborations. The jargons floating in the industry are Communications/Collaboration-as-a-Service. Virtual PBX and Hosted Centrex Services have always had the National Institute of Standards and Technology (NIST) guideline attributes of being a Cloud service—multi-tenanted, measurable service offered across broad network access with on-demand self service. However, it remains to be seen how the traditional communications and collaboration applications satisfy the other Cloud attributes of resource pooling and elasticity, and provide a true Cloud experience of communications and collaborations.
While the telco biggies are championing a telco owned-and-managed “Operator Private Cloud”—competing with over-the-top SaaS players camped in the “Public Cloud,” the smaller players are not finding it easy to host a Cloud. Either they aren’t seeing a business case or they lack the required investment. Enterprise business for them has so far been restricted to providing QoS-managed, SLA-ensured connectivity across multiple customer sites, data pipe to the Internet, and hosting the customer’s voice/video communication needs. What should be their strategy? We don’t hear much of them in the news. Stay connected for the next posting.
Kushanava Laha is Assistant Vice President, Technology, Altran