Small Telcos Can Get Cloud Boost

The service provider rush to cloud services has largely focused on larger companies like Verizon Communications Inc. (NYSE: VZ) and CenturyLink Inc. (NYSE: CTL) and their cloud expertise acquisitions. But smaller telcos are also getting into the cloud services business and without making massive upfront investments.

Companies such as CHR Solutions Inc. , Parallels Inc. , NeoNova Network Services Inc. and AppDirect are developing cloud services that can be white-labeled by smaller service providers who want to bundle outsourced IT applications with data services for their business customers.

"We are seeing a lot of activity relative to cloud in that area," says Bernie Arnason, Managing Partner, Pivot Group and a consultant to Tier 2 and smaller telcos. Many of these companies don't have a large enough base of business customers to justify investing in their own data centers or the staffing required. But they do see the need among their customers, ranging from anchor institutions such as hospitals and school districts to SMBs, for outsourced IT applications, he says.

Arnason is hosting the Cloud Services Summit at our TelcoTV event in New Orleans this October.

Revenue urgently sought
There is a sense of urgency here. Smaller telcos are even more vulnerable to declining core wireline revenues because most of them can't make up the losses with wireless income, and they also see threats to other sources of funding, including Universal Service Fund money and Intercarrier Compensation. (See }doclink 210670} and Carrier Agreement May Speed USF Reform.)

"The over-arching theme driving all of this activity is revenue diversification," Arnason says.

CHR Solutions is a leading provider in this area, building on the products it has been selling the independent telco industry for 60 years. Traditionally, those included financing and help with regulatory issues, but more recently, CHR added a portfolio of Business Process Outsourcing Services that include operating a telco's network operations center and managing its IT services as well. (See Systems Integration: Realize the Full Benefits of Your Network.)

"Part of what we are doing is educating [smaller] telcos to what the outsourcing business model looks like, both internally and externally," says Kevin Kutcher, senior director of corporate marketing. "We can show them how to improve their operational efficiency, which is important in this time of declining revenues. But we can also give them the ability to brand IT services in their community and provide those to hospitals, schools, government units, under their own brand, based on our back end, housed in our five data centers around the country."

The CHR cloud services come packaged in three flavors -– consumer, SOHO/SMB and enterprise -– ready to be white-labeled and sold.

More options
Parallels isn't focused on smaller telcos, in fact it serves some of the largest carriers, such as KPM and Charter Communications, but it packages the most common business applications so that even the smallest telcos can sell them as cloud offerings, particularly targeting the SMB community. (See Parallels Finding Cash in Clouds and Charter Clouds Up For SMBs.)

"SMBs are looking for enterprise-class software, but they like the pay-as-you-go model that comes with a cloud-based IT service, and they like not having to invest heavily upfront or add staff to support these applications," says John Zanni, VP of service provider marketing and alliances for Parallels.

Buying the cloud service through the local telecom service provider also offers a level of comfort for a small business just venturing into cloud services; the service is supported by a company they trust and already deal with for other services.

AppDirect also is not exclusively small telco focused -– it sells business apps through its Business Applications Network and through companies as big as Bell Canada, where it supports a value-added services portfolio. (See AppDirect Intros Cloud Apps Platform.)

But the company also partners with any size telco, down to the smallest, to create an applications marketplace for that service provider which enables basic business apps to be delivered on a software-as-a-service basis and can be integrated into the carriers' OSS/BSS system.

Like CHR, NeoNova is primarily focused on the smaller telco market, delivering GoogleApps to those companies and their customers. (See Are Google Apps a Source of Rural Gold? and NeoNova Places Rural Bets.)

One other distinct possibility for some rural telcos is earning a piece of the cloud services pie through state or regional consortiums to which they belong, Arnason says.

"These consortiums are a channel to the very small telco," he says. "So even if they are not selling the services themselves, as a condition of their ownership in the consortium, they are participating."

— Carol Wilson, Chief Editor, Events, Light Reading