Cloud Services

Light at the End of the Pipe

2:30 PM -- The problem with investing in large, capital-intensive networks has always been the return on investment (ROI) model. Often there wasn't one that looked any good. And when it did look good on paper, it often turned out to be a miscalculation.

But now might be the time when the ROI potential on high-capacity managed networks (as opposed to the public Internet) starts to look a bit more rosy. Why? Because of cloud services.

Take pan-European network operator Interoute Communications Ltd. , for example. It struggled for years trying to build a business on the back of its massive fat pipes that run around Europe. Slowly but surely it has developed a business that makes best use of its main asset -- its network and oodles of transport capacity. (See Euronews: Interoute Boasts 20% Growth.)

And now it sees a massive opportunity in offering the type of everyday, readily available public cloud services that the likes of Amazon.com Inc. (Nasdaq: AMZN) provide to increasing numbers of diverse enterprise users, but with all the value-added attributes of a private cloud service (with service level agreements, fast provisioning and bundled network access). (See Interoute Unveils Virtual Data Center and Interoute Clouds Up Sipcom's UC Platform.)

Interoute has taken advantage of having direct control over network access, transport and data center capabilities by making every customer that's connected to its network an automatic cloud services customer. Of course, those customers might never use Interoute's cloud service offerings. But if they want to, it's all there, ready to use, without the need to request a new service or talk to a sales rep.

That's a marketing advantage opportunity that comes easily to service providers with their own network assets. It's no surprise, then, that another company that has invested in its own European pipes, Colt Technology Services Group Ltd , is also focused on the cloud services market and has been investing its corporate efforts in developing new customer-centric services models that take advantage of its existing assets. (See Euronews: Colt Creates Cloud Accord, Ethernet Europe: COLT's Service Wrap and Interview: Mark Leonard, Colt's Bridge Builder.)

And that's just the tip of the iceberg. Cloud services are very focused on the enterprise market. But as HP Inc. (NYSE: HPQ) cloud guru Joe Weinman pointed out at last week's Cloud Expo Europe event in London, the cloud service market will soon extend into the consumer realm (high-definition gaming, for example) and incorporate services such as telepresence/real-time multimedia communications that rely on the type of low-latency connectivity that the public Internet and patchwork networks with multiple interconnections can't deliver.

With that in mind, fiber access investments might look a bit more enticing for operators that can also manage their own backhaul, metro and long-haul connections to data centers and other content/application repositories. Could that be why Orange (NYSE: FTE) is now boosting its FTTH investments? (See Euronews: FT Goes Full-Tilt on FTTH.)

Of course, there has always been a compelling reason for building high-speed, fat pipe networks, and with the cloud services market still in short trousers and yet to grow up, this could be yet another false dawn for those with capacity to burn. But maybe, just maybe, this time things might be different....

— Ray Le Maistre, International Managing Editor, Light Reading

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