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No business leader today can ignore cloud computing.
Many global organizations—including Citigroup, Eli Lilly and Starbucks—are already using it to analyze data, provide applications to employees and run special projects. Media giants Time Warner and Disney are using cloud computing to reengineer their processes for distributing digital content. More service providers are entering the cloud as well, as estab¬lished IT and telecom companies such as Microsoft, IBM, Accenture, Fujitsu, KDDI, China Mobile and SingTel join cloud pioneers like Google, Amazon and Salesforce.com.
For executives in the telecommunications industry, cloud computing presents a significant opportunity to become a core provider of cloud-based business and infrastructure services. Just as cloud computing is reshaping the IT industry, it is also causing disruptive change in the telecommunications sector.
Telecommunications providers are in a position to aggressively compete in the cloud computing market. They have an opportunity to leverage existing customer relationships and forge new revenue paths through the cloud. But with the opportunity comes a set of significant operational and cultural challenges that could inhibit a telecom¬munications company’s effectiveness as a cloud services provider.
Accenture has identified six key questions telecommunications decision makers should ask about this still-new phenomenon. By focusing on these questions, executives can start to identify opportunities and risks for their own organization.
1. Why is cloud computing having such a profound impact on the telecommunications industry?
Cloud computing is on a steep growth trajectory. Worldwide cloud services revenue was projected to surpass $56.3 billion in 2009, a 21.3 percent increase from 2008 revenue of $46.4 billion, according to Gartner, Inc. The market is expected to reach $150.1 billion in 2013.5 The reason for the growing popularity is clear: Cloud computing lets organizations bypass the expense and bother of buying, installing, operating, maintaining and upgrading the networks and computers found in data centers. Cloud services can be turned on and off as they are needed, providing scalability for peak periods and cost savings when usage is low. Clouds are designed so that processing power can be added simply by attaching more servers; everything is virtualized so that software can be run on any available server with excess capacity.
Cloud services have evolved steadily and now span the breadth of enterprise IT, including:
Infrastructure services, in the form of virtual data centers that provide file storage, networking, Web serving, content distribution and database management.
Application services, such as customer relationship management (CRM), e-mail and other collaboration functions.
Business processes, such as adver¬tising, e-commerce, human resources and payments processing. This segment, according to Gartner, accounted for 83 percent of the overall cloud services market in 2008 and was expected to reach $46.6 billion in revenues for 2009.
As technology converges and becomes more commoditized, the underlying network infrastructure is becoming part of an integrated solution, rather than a separate service. With increas¬ing frequency, these services are transitioning to cloud environments. With this integration comes a slew of new competitors that are scratching at the traditional turf of telecommunica¬tions companies. Cloud pioneers such as Amazon, Google and Microsoft are leveraging their massive data centers to offer a full spectrum of cloud services a development that should add a heightened sense of urgency to tele¬communications executives eyeing the cloud market.
2. What are the opportunities that cloud computing presents for telecommunications companies?
The challenge for new competitors such as Google and Amazon is this: Because of their relative inexperience with enter¬prise IT, they may have trouble meeting the multiple and varied requirements of business customers related to issues ranging from security to reliability to geography.
Business customers may be hesitant to shift major portions of their IT infra¬structure to these providers for other reasons as well. Most enterprises have made huge investments in legacy IT platforms. These infrastructures are not going away any time soon, so businesses will have to deal with the complexity of managing existing infrastructures while transitioning some services to the cloud. As a result, enterprises may feel more comfortable purchasing cloud services through their traditional technology providers.
In addition, some organizations including local, state and federal governments will require private clouds, which are ring-fenced infra-structures that use cloud technologies but restrict usage to approved organi¬zations behind robust firewalls and other enterprise-level security services. Given the specific challenges that large companies and governments face around storing and processing data in secure locations along with security and data privacy restrictions, private clouds are likely to play a key role in the evolution of cloud computing for busi¬ness and government organizations.
Telecommunications companies can leverage their expertise in building and managing complex networks to offer value-added cloud services that address these unmet needs. These may include the following features:
A managed service wrapper to provide end-to-end management of all the IT infrastructure for business and government customers, including legacy, private and public clouds.
A toolkit that provides clients with provisioning, orchestration, predictive operations/monitoring, service manage¬ment and billing/metering services.
Dynamic sourcing of server and storage capacity from the lowest cost sources, depending on specific service levels, across internal and external service providers.
3. What will business customers look for from their technology providers in the future?
Enterprise organizations understand how the technology needs of their customers and their employees are evolving. Customers are looking for more efficient collaboration, better integration, and easier access to prod¬ucts and services. Employees including a growing millennial workforce are expecting anytime, anywhere access to information and business applications.
So while business customers seek technology solutions that are easy to use, easy to deploy, and easy to access, they are equally (if not more) concerned about ensuring that this technology—wherever it resides—is secure and provides maximum protection to sen¬sitive business and customer data. Many consider this the number one challenge that technology providers must address.
A third factor in a business’s choice of technology solutions is the ability to layer in the new alongside the old. Any migration to cloud computing will take place slowly, in stages, which means that legacy systems will reside in par¬allel to new cloud-based solutions. In addition, any enterprise with a legacy infrastructure that acquires a smaller company that has been operating in the cloud will have to determine the best way to integrate those IT platforms.
These changes are having a profound impact on the types of telecommuni¬cations services that businesses will want to buy, and what their employees and customers will want to use. They also provide outstanding opportunities for forward-thinking telecommunica¬tions companies to deliver the services that business customers will want.
A global telecommunications company
A global telco company is invest¬ing heavily to build branded, cloud-based services at infra-structure, platform and software levels. Services are aimed at enterprise, ISV and small and medium sized businesses. Infra¬structure services will include preprovisioned server, storage and network capacity. It will also include a managed service to help customers to manage all their infrastructure, including legacy and cloud. Platform services will include their own proprietary software development toolkit, as well as popular cloud platforms such as force.com. Software services will again include their own software services as well as other fully hosted applications such as SAP and Oracle.
4. What existing assets can telecommunications providers leverage for cloud computing?
Telecommunications companies have several business and technology assets they can bring to bear as they enter the cloud computing space, potentially gaining a fast-follower advantage over cloud pioneers such as Amazon and Google. These assets include:
Local point of presence. Telecommu¬nications providers have established geographic footprints through which they deliver communications services, a potential advantage to delivering private cloud services, particularly to local governments. Telecommunications providers also have experience dealing with data sovereignty where citizens’ data is stored and other regulations regarding consumer privacy.
Control of the base communications pipeline. This will enable providers to potentially offer end-to-end service level agreements to large organizations that cover cloud and traditional network services.
Pre-existing relationships with enter¬prise companies. Telecommunications companies’ experience providing core business communications services to large enterprise customers gives them unique insight into key issues such as procurement processes, disaster recovery and data security.
A deep bench of engineering talent. Highly reliable communications net¬works are testament to the engineering expertise telecommunication providers possess. This talent can be applied to quickly developing cost-effective, flex¬ible, secure and reliable cloud services.
A regional telecommunications company
A regional telco is strengthening its core infrastructure offerings by bundling security certification, network managed services and existing server and storage ser¬vices. It is basing its offerings on alleviating user concerns regarding service reliability and data security, minimizing imple¬mentation costs, simplifying contracting, and eliminating early termination fees. It is focused on becoming the ”government cloud“ and the virtual CIO for enterprise clients.
5. What are the major challenges and risks that telecommunications companies face?
As noted earlier, the opportunity for telecommunications providers in cloud environments is rife with challenges. While many observers will say that offering cloud services is a no-brainer for telecommunications companies, the development and delivery of such services will be an extremely complex and expensive initiative.
First and foremost, large telecommu¬nications providers operate their own massive, legacy business processes and technology infrastructures, in which provisioning services can take days or weeks. The cloud, on the other hand, is characterized by nimbleness, in which new services can be lit up in minutes, often by end users themselves. Telecom¬munications providers will likely need to overhaul their sales and provisioning processes to enable rapid, automated deployment of services. Some may need to create entirely new business models perhaps even separate business units to address the dramatically faster cycles of cloud deployment.
Scale is another issue. Amazon and Google rely on massive data centers to provide the processing horsepower needed for high-volume cloud services. Telecommunications providers will need either to make use of these types of services or to build out their own data farms to achieve the scale of these cloud providers, and they’ll need to do so in a far more cost-effective way than they may be used to for deploying traditional communications services. The cost base for cloud providers is low—and telecommunications compa¬nies will have to adapt so they don’t price themselves out of certain services.
A third challenge is the transparency of the cloud market. When a service goes down, people blog about it. They tweet it. When a service outage left 14 percent of Google’s user base without services in 2009, the social media channels lit up with outrage—even though the outage lasted only a few hours.6 Telecommunications companies—from sales reps up to executives—will need to accept that their interactions with customers will be in real time, through social media channels. The more proactive they become in these interactions, the better they will lessen the fallout when service issues do occur.
Lastly, competitive threats are prevalent. Major new players have established themselves in the cloud as alternatives to traditional IT service providers—and they’re beginning to do the same to telcos. These companies think about the market in a different way, one in which services—including the network—are packaged seamlessly together. In many cases, the network is increasingly viewed as a commodity. Telecommu¬nications providers run the risk of being relegated to providing the pipe that carries the data and value-added services sold and managed by others.
A national telecommunications company
A national telco is providing clients with an innovative data center service without the initial CAPEX hurdle, by leveraging their investment in utility computing technologies. They are offering flexible service and commercial models to allow their customers to move from a fixed to variable cost model across infrastructure hosting and application develop¬ment, management and operations.
6. What are my next steps?
Your next steps will depend on your current readiness for cloud computing and the initiatives you may already have underway. However, our view is that you should at least be doing the following:
Clearly map out a strategy based on strengths, weaknesses, opportunities and threats. The market is moving very quickly and it is essential to have a clear strategy for capturing the oppor¬tunities that cloud computing is starting to present. Pull together a team of your most capable and visionary leaders and task them with driving out the strategy based on clear scope and objectives.
Understand the competitive environ¬ment. Don’t get caught out by new and unexpected competition. Conduct a thorough review of your market and understand where exactly you want to play and how you will win. Weave this competitive study into your cloud strategy thinking and recommendations.
Develop a plan to create offerings short, medium and long term. Use your cloud strategy to drive out comprehen¬sive, costed plans for developing new market offerings. Draw up a clear road map showing which offerings are priorities in the short, medium and long term and how you will launch accordingly.
Rethink your strategic partnerships and the required ecosystem. As part of your cloud strategy it is essential to have a clear view of where you want to build your own services and where you should partner with others. You should build on your strengths and those of your partners.
Lock in existing customers. Focus hard on serving your existing customer base. They will be hearing a lot about cloud services through many channels and may well be looking to try new approaches and new providers. Be proactive. Talk now with your clients. Understand their objectives and invest now to help them.
Use cloud computing to streamline your own operations and develop new business processes and markets. Cloud computing provides tremendous oppor¬tunities to reduce costs, improve flexibility and increase speed to market. Don’t neglect your own operations and look for opportunities to apply cloud services to streamline your own internal operations.
Cloud computing offers enormous opportunities for forward-thinking telecommunications companies. Help¬ing business customers to manage new cloud capabilities with all their existing legacy systems in a way that is seam¬less will be critical to their achieving the benefits and managing the risks and will be key to your own success.
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February 15, 2011
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