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Are Telcos Still Playing Cloud Catch-Up?

Carol Wilson
2/14/2014
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Telecom companies that have invested in the cloud space -- and many have -- are now facing a new challenge: Can they deliver applications and business solutions via the cloud fast enough to compete with the likes of Amazon Web Services LLC , IBM Corp. (NYSE: IBM), Microsoft Corp. (Nasdaq: MSFT), and even relative newcomer Google (Nasdaq: GOOG)?

Industry analysts see the current generation of cloud service buyers as more interested in buying business applications and solutions, not raw compute power. And that means they are less interested in infrastructure-as-a-service (IaaS) than in applications or software, delivered via cloud.

"The first generation of cloud buyers was more tech savvy," says Jillian Mirandi, analyst with Technology Business Research Inc. (TBR) . "It has taken quite a few years to cement cloud, but it's there now, and the next wave of users doesn't want raw compute power, they want the outcome -- better sales, improved customer relationships."

That pits the telecom cloud providers against the faster-moving, more IT-focused companies, notes Heavy Reading senior analyst Caroline Chappell.

"The telcos have been very much stuck on infrastructure-as-a-service," she says. "I expect them to do more software-as-a-service and platform-as-a-service offers, but most of them haven't gotten to that point just yet."

Where telcos have delivered applications, they have mostly been Microsoft apps, she says. Chappell does reference AT&T Inc. (NYSE: T)'s cloud collaborations via its PaaS offer, and Verizon Terremark 's recent foray into business-applications-as-a-service as positive signs. And she notes that telecom cloud players do have the expertise to help businesses move into a sometimes complex cloud environment -- but they tend to offer that help as part of a custom service, not a storefront of cloud-based application options. (See AT&T Lands Another Cloud Collaborator, Verizon: Major Apps Move Cloud-ward in 2014, and Verizon Scores Oracle Cloud Breakthrough.)

The problem, says Mirandi, is that Amazon, IBM, and Microsoft, in particular, are moving much faster to address the needs of the second wave of cloud buyers with cloud-based apps, and that's a concern for the telecom players.

"They are allowing customers to work with them, or work with partners to help run their cloud for them," she notes. "And in the process, they are making it easier for customers to consume their cloud."

Telecom operators aren't the only ones working hard to keep up or catch up -- in her recent reports, Mirandi has cited Google's efforts at playing catch-up in the cloud, and noted that Rackspace (NYSE: RAX) may find itself falling behind the larger cloud operators. Mirandi is impressed by Verizon's re-architecting of its cloud offer, carried out in October 2013, but feels they are still mostly aimed at larger enterprises and those with IT expertise. (See Why Verizon Needed a Cloud Reboot.)

"Verizon is taking steps to improve their partner ecosystem and simplify their cloud," she notes. "In terms of breadth and datacenter products and brand names -- they have the infra and networking in place -- it is going to have a lot of do with messaging and building out their partner relationships."

On the positive side, telecom operators have a base of hosted services customers they can leverage, Mirandi says, if they go to market with the right value proposition and marketing that addresses the needs of the IT departments, as well as the lines-of-business folks that represent the second generation of cloud buyers.

Another possible glimmer of hope: While businesses want their cloud-based apps to work seamlessly, they also want to have a truly hybrid environment in which all apps aren't necessarily based in a single vendor's cloud, Mirandi says. That could play to the advantage of a telecom cloud player looking to be a number two provider behind Amazon, IBM or another cloud operator.

— Carol Wilson, Editor-at-Large, Light Reading

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R Clark
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R Clark,
User Rank: Blogger
2/16/2014 | 11:26:13 PM
Asia cloud
Telcos have been late to every other party, so it would be surprising if they were keeping up in cloud. But the strategies vary. From my two recent discussions with Asian players:

- Pacnet hesitates to offer any cloud services for fear of competing with partners;

- Telstra has been offering IaaS with vendors (eg, Cisco) at home and is only now rolling it out globally. Doesn't see AWS as a rival - it's focusing on corproates seeking tailored services.

 
brookseven
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brookseven,
User Rank: Light Sabre
2/16/2014 | 3:52:19 PM
Re: Opportunity and challenge
Mitch,

I actually strongly disagree with both of your assertions.

What carriers are good at is building and operating networks.  The assumption in "The Cloud" is that we have an IP connected network.  The whole idea being to eliminate any value add within the network.

The value in cloud computing beyond the commodity level is to create applications and to monetize development that can be used by other developers to simplify the development of other cloud based applications.  If I look at the former, I use Salesforce.com as the classic example.  If I look at the latter, I see Amazon through ASW as the quinitessential example.

If you see where the value is, it is in applications and infrastructure to support applications.  The carriers have essentially no people nor any skill in building and deploying these things.  

Let's put it this way - How many dollars is Salesforce spending on application software development?  How many dollars are Verizon, AT&T, Comcast, Time-Warner, and all other US telcos and MSOs spending on application development?  To give you an R&D number out of Salesforce - $500M on a revenue of $3B per year.

Not only are the carriers behind, they are falling further behind every day.  My take is that they need to target a company like Equinix as the next thing they need to go after in the Cloud space.

Carol - as a small carrier adder,

Joe Bob's Telephone company has the same Cloud competitors as Verizon and AT&T.  So, as they try to go to "The Cloud" they are not up against a bunch of yokels.  

seven

 
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
2/15/2014 | 3:01:40 PM
Opportunity and challenge
Service providers have the skills and infrastructure to compete aggressively on cloud. But they need to be a lot more agile. 
brookseven
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brookseven,
User Rank: Light Sabre
2/15/2014 | 12:48:30 PM
Re: Apps are it
Tom,

The bigger issue in the large telcos are the unions.  One of the reasons that Verizon did FiOS is that it took 4 different technicians to do a POTS installation.  FiOS is done with one through broader job categorization.  The MSOs outsource most of that, which is both good and bad.

 

seven

 
TomNolle
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TomNolle,
User Rank: Light Sabre
2/15/2014 | 7:50:20 AM
Re: Apps are it
Thanks, Seven; I'd not thought about the USF subsidy rules!
brookseven
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brookseven,
User Rank: Light Sabre
2/14/2014 | 8:34:41 PM
Re: Apps are it
Tom/Carol,

Other way around.  It is the small carriers that have the reg/non-reg issue.  They can't deploy technology through the regulated sub and have it subsidized by the USF unless by a happy coincidence (wink, wink) it can be used to create the non-regulated service (see IP Video over DSL).

That sort of structural separation is long gone the way of the dodo in the large carriers.  Both small and large carrier deliver application services out of their regulated subsidiaries (see E-mail Service).

seven
TomNolle
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TomNolle,
User Rank: Light Sabre
2/14/2014 | 4:03:14 PM
Re: Apps are it
There may be regulatory issues here too; I'd have to research the details but I'm not sure that all these higher-layer services wouldn't have to be done out of a separate subsidiary and kept at arm's length from the main telco operation.  That would make any sort of installer support of service installations impossible.  The smaller operators don't have those rules.
Carol Wilson
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Carol Wilson,
User Rank: Blogger
2/14/2014 | 3:59:08 PM
Re: Apps are it
And that's where the smaller telcos are different, both in terms of the challenges they face and their relationship to their customers. 

I'm not saying home security is a slam dunk for them either - in fact, some telcos are deliberately deploying home self-monitoring instead of actual security - but then I'm giving away all the details of the story, which won't run until Monday. 
TomNolle
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TomNolle,
User Rank: Light Sabre
2/14/2014 | 3:53:48 PM
Re: Apps are it
Most telcos don't really do channel sales, and of course you can't sell direct to SMBs or you'd need an army of sales people.  I think telcos generally don't think through a complete sales/marketing strategy for something.  Part of the reason is that they see all the media coverage of a topic like "the cloud" and think that it's an indication of buyer literacy.  Except for the enterprises, buyer literacy for the cloud is way below the level needed to sustain a natural market.  So you need agents in the form of VARs, etc. to push the stuff.  Then there's market maturity.  In my own area, for example it wouldn't help much for Verizon to have its own tech do the installation because most of the households either have alarm systems already or have rejected them.
Carol Wilson
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Carol Wilson,
User Rank: Blogger
2/14/2014 | 3:43:12 PM
Re: Apps are it
Interesting that you mention the home security service Verizon just ditched. I'm finishing up an article on how smaller telcos are making home security work as an add-on service. In their case, the installation work is done by their own broadband technicians. 

But I get your point about the problem in selling low-margin services to the masses. It's one of the many reasons the bigger telcos never captured the SMB market that they've been halfway courting for decades. 
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