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Look around. Cloud services are hot and everyone is trying their best to cash in. According to Informa, in 2011, 127 telecoms operators spent $13.5 billion in capital investments on carrier cloud infrastructure, offering 170 new cloud services to enterprises and consumers. That’s up from 80 operators in 2010.
The stampede to build and operate carrier clouds is understandably sexy from afar. Large players like Amazon AWS, Google Drive, Apple iCloud, Microsoft Azure, Salesforce, Riverbed and Akamai, as well as hot start-ups like Box, Dropbox, FuzeBox, Evernote and RingCentral have all been riding fast growth from corporate and consumer cloud services. Carriers look at those players and want to use their networks to cash in on the cloud
There’s a growing realization, however, that it’s going to take longer than hoped for these big investments to pay off. It’s not easy to compete against Amazon, Apple, Google, Dropbox and Box if you’re a large regulated entity that moves at telecom speed.
Seventy percent of telco cloud services, per Informa, launched in only five verticals: infrastructure as a service; storage; unified communications; business productivity applications; and security. Each of these has a number of pure technology companies that are leading the innovation race.
To compete, carriers must marry their existing network assets and cloud investments to to gain a unique competitive advantage. Below are three ways that mobile operators can rescue their cloud strategies.
Leverage sales forces and security
Operators have a number of assets they can use to leapfrog competitive services. The largest of these is a massive sales force and hundreds of thousands of corporate relationships. No tech company, from Google to Microsoft, has 10,000 sales reps. Mobile operators can use their reach to build relationships quickly and grow any cloud-based service at a much faster pace from the start.
Operators can pick and choose top independent cloud-based services and offer them to corporate customers, pre-load them on consumer and corporate devices, or add them to their bill-on-behalf-of programs, allowing sales reps to sell the services directly.
Wireless carriers have the heritage of operating “five 9s,” high-uptime, resilient services, with higher security and redundancy. It should be noted however, that carriers are less agile than other high tech companies, it will take some time to grow to the point where their services are going to recoup profits on annual investment levels like the $13.5 billion in 2011. Inevitably, carriers will need to lean quite a bit on partnering with, or acquiring, best-of-breed cloud players.
Control quality of service
Mobile operators also have the competitive advantage of controlling the last mile of content delivery – an asset other companies do not have. They can leverage this to give priority routing and delivery to paying customers. A rule of thumb for CDNs and content acceleration services is that 60% of their revenue comes from less than 10% of Web traffic, mostly focused around high-value verticals such as retail ecommerce, health and travel services. These publishers will open their wallets if they are offered a way to reduce mobile page load times, as faster responses translate quickly to incremental revenues for them.
Controlling and leveraging what network planners call quality of service being differentiated among users, could yield material revenues. The strategy also suffers from a number of obstacles. For one, carriers have to respect net neutrality rules in countries like the United States, offering transparent rate cards to all comers, and avoiding advantaging their own commercial services over competitors. This may more viable in Asian, Latin American and some European markets. Even in those markets, the timing is years away, as guaranteeing preferential QoS requires state-of-the-art infrastructure and LTE networks – which few developing countries have.
Carriers also have to sign up publishers and brands to use their new CDNs one by one. Publishers already have their websites and media streaming running smoothly with CDNs like Akamai or Level3. Signing up one by one the 600 different mobile operators around the world will seem daunting. Operators don’t have these relationships and may end up partnering with players like Akamai.
Build out IPTV
Lastly, technology companies are getting deeper into content delivery, where the market is quickly maturing: Consumers want to be able to watch what they want when they want it, and cloud-based technology is making that a reality. Fixed-line IPTV has a large role to play transforming content delivery and anywhere-access. Set-top boxes tied to a phone via an application will let consumers watch programming from any network-connected device.
At 10% market share, telco TV is gaining on traditional cable, but will probably top out soon. Verizon recently partnered with Comcast, which shows that Verizon is not looking to go beyond high-density metro areas. Telco TV is a powerful technology, but most U.S. households are not covered by such offerings and will not be for some time to come.
So, what can carriers do to monetize the carrier cloud in the near term? They can be their own customers.
By leveraging the cloud to manage and optimize their own networks as well as create tools for their enterprise workforce, telcos can affect their bottom line directly.
For example, with emerging solutions like software-defined networks and virtualization, carriers can spin up new regional infrastructure in the cloud in minutes, or create virtual replicas of their networks for enterprise and mobile virtual network operator wholesale businesses, saving a bundle on hardware. Carriers can also detect which mobile cells are congested and where users are getting poor experiences, and implement video and media optimization using the compute power in their carrier clouds. This is an area where my company focuses, and we’ve seen savings averaging 60% on video bandwidth. At one large tier-one mobile operator, this may save greatly on expenditures. For carriers, building ancillary services revenue will take much more time, but hundreds of millions of dollars of other value can be found internally.
So take a long look in the mirror, operators. You’re staring at your best customer.
