Telcos in the Cloud: A Global Status Report

www.ovum.com
© Copyright Ovum 2014. All rights reserved.
Telcos in the Cloud: A Global Status Report
Camille Mendler
Lead Analyst, Enterprise Services
Nov. 25, 2014

2
Introduction: Some myths need to be exploded
Myth 1 Telcos are transient and trivial players in the cloud market.
Myth 2 Telcos’ cloud strategy consists of copying Amazon Web Services (badly).
Myth 3 Telcos can’t innovate in cloud services.

3
Telcos are here to stay in the cloud market
0
50
100
150
200
250
300
350
400
2009
2010
2011
2012
2013
2014
CSPs
CSPs selling cloud services
Africa
Middle East
Latin America
North America
Eastern Europe & CIS
Asia Pacific
Western Europe
1H for 2014 Source: Ovum Telecoms Cloud Monitor
More than 330 communication service providers (CSPs) are active in the cloud market today. Globally, a new telco cloud service is now launched every working day of the year. On average, CSPs build or buy 46 soccer pitches of datacenter space per annum.

4
Telcos take cloud computing into emerging markets
65%
24%
9%
2%
Telco cloud service availability by country type, 2010
High income
Upper middle
Lower middle
Low income
N = 46 countries
52%
28%
15%
5%
Telco cloud service availability by country type, 2014
High income
Upper middle
Lower middle
Low income
N = 98 countries
Operators are often the largest, most visible cloud service providers in lower-income countries where global cloud players are unlikely to set up direct operations.
Availability of telco cloud services by country

5
Telco cloud revenues are still small, but growing fast
1.7%
2%
7.5%
9%
Rostelecom
Orange Business
Services
T-Systems
NTT Communications
Group
Cloud-related percentage of revenues
Estimated 2013 revenues. Note: Cloud definitions vary by CSP, notably treatment of UCaaS and professional services. Source: Ovum
Most CSPs report annual revenue growth in 25%-30% range. 2014 is tipped to be a record year for many, per our interviews. T-Systems has already reported 40% year-on-year growth in 1H14. However, cloud services often replace legacy offers, and in the short term this substitution effect may mean zero growth or decline in some telcos’ overall revenues.
116
182
764
1061
Rostelecom
Orange Business
Services
T-Systems
NTT Communications
Group
Cloud-related revenues, selected operators ($m)

6
Governments buy into operators’ cloud services
25%
14%
11%
9%
6%
5%
5%
5%
5%
5%
12%
Telco cloud customer wins by industry, 2013
Government
Manufacturing
Retail
Professional services
Financial services
Health
Insurance
Education
Media and broadcast
Transport & logistics
Other
36%
19%
13%
3%
3%
2%
2%
2%
2%
2%
16%
Telco cloud customer wins by service, 2010–14
IaaS
UCaaS
ICT services
Healthcare mgmt
Government cloud
Security
Storage
Vehicle / fleet mgmt
ERP
Content distribution
Other
Publicly announced contracts reflect only a proportion of all activity, but are indicative of market trends. Central and municipal governments are frequent buyers of operators’ cloud services. IaaS (virtual private) is a highly popular service, usually sold with professional services support.

7
CSPs have got what many enterprises want
15%
10%
11%
8%
8%
8%
49%
51%
48%
49%
40%
38%
36%
39%
41%
43%
52%
54%
0%
20%
40%
60%
80%
100%
Co-location services
App performance monitoring for cloud workloads
IT infrastructure management/outsourcing
End-to-end SLA across network and cloud
Professional services (e.g. security)
Network services (e.g. MPLS, Ethernet)
Enterprises: Additional capabilities valued in selecting a cloud infrastructure provider
Unimportant
Desirable
Very important
Enterprise cloud buyers are beginning to recognize the power of the network – and the need to orchestrate compute and connectivity. CSPs - like AT&T with its NetBond strategy – are differentiating by providing secure, flexible and increasingly on-demand cloud connectivity. Consequently, telcos are rising in the ranks as preferred cloud service providers – in a few countries they are now the top choice.
N=2,708 ICT decision makers
Source: Ovum 2014 Telecoms Customer Insights Survey - Enterprises

8
Spotlight: Tata Communications’ IZO illustrates network-centric cloud innovation
Solutions around the ‘best effort’ Internet.
Offers secure access to public and private clouds via the Internet using internally-developed deterministic routing technology.
Available in 34 countries; 100 planned within 18 months.
Claims up to 30% savings compared to static VPN connections to cloud services.
Ultimately, telcos can differentiate best by providing the widest range of options to enterprises as they match cloud type and connectivity to specific workload and budget.
•IZO Internet WAN: business-class SLAs over the public internet in partnership with 20+ service providers
•IZO Private: private connectivity to cloud service providers including AWS and Microsoft Azure
•IZO Public: prioritised content for Tata Communications’ enterprise customers

9
Telcos’ acquisitions focus on space and ICT skills
20
15
7
4
3
2
2
8
Telco cloud acquisitions by type, 2010–14
Datacenter
ICT services
Unified comms &
collaboration
Security
Application
management
IaaS
Content distribution
Other
Note: investments are allocated to the investor’s headquarters region 1H for 2014 Source: Ovum
Telcos have spent $37.5bn on cloud-related assets since 2010, with datacenters the most common type of acquisition. There is also a distinct trend of targeted smaller purchases to build competence in a specific area, such as video collaboration, security, or system integration skills.
19,933
10,535
4,368
1,707
493
320
289
Telco cloud investments by region, 2010–14 ($m)
Asia Pacific
North America
Africa
Western Europe
Eastern Europe &
CIS
Middle East
Latin America &
Caribbean

10
Spotlight: NTT Group is creating a global cloud empire
Division
Acquisition
HQ
Value
Comments
Dimension Data
NextiraOne
France
$600m*
Ex-Alcatel convergence integrator has 43,000 clients.
Teliris
US
$50m*
Video-as-a-service provider complements DiData’s UC offers.
Nexus
US
$200m*
IT consultancy boosts western US and mid-market presence.
NTT Com
Virtela
US
$525m
Network services provider Virtela has network functions virtualization skills.
Raging Wire
US
$350m
Hoster has 60,000 square meters of space in high-power datacenters.
Arkadin
France
$300m*
More than 30,000 clients globally. Several operators (including CHT, HGC, Orange, and SingTel) resell Arkadin’s UC services.
BDG
Germany
$20m*
Security consulting for medium to large firms.
Infotrust AG
Switz.
$25m*
Managed security services and consultancy.
NTT Data
Everis
Spain
$509m
Integrator and software developer has a footprint across Latin America, a region where NTT wants to grow.
Optimal Solutions Integration
US
$150m*
SAP specialist and IT consultancy with mid-market, Fortune 1000 company focus.
NTT Group
Solutionary
US
$150m*
Cloud security services provider to work across NTT Group.
NTT Group acquisitions, 2013–14
*Estimated deal value
Source: Ovum Telecoms Cloud Monitor
NTT Group is the world’s most acquisitive telco cloud provider. In the past 18 months NTT has spent an estimated $3bn across its divisions. NTT’s challenges are to ensure collaboration across often competing groups and to integrate its various sub brands.

11
Warning: A space race is on, but what’s the real asset?
Since 2010, operators have added more than 1 million square meters of datacenter space to their asset base. Ultimately, AWS, Google and Microsoft dwarf these investments. Unless there’s proven scarcity, CSPs shouldn’t be distracted by real estate and power plays.
Telco datacenter space under construction or acquired, 2010–14
North America
405,279m²
Latin America and the Caribbean
11,000m²
Africa
11,472m²
Middle East
15,800m²
Western Europe
139,000m²
Eastern Europe and CIS
17,870m²
553,152m²
Asia-Pacific
= 10,000m²
KEY

12
Large enterprises are no longer the primary cloud target
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010
2011
2012
2013
2014
Services launched
Telco cloud services by customer targeted
Large enterprises
SMEs
Consumers
Public sector
Wholesale
Note: some services target more than one customer segment. N = 339 operators 1H for 2014 Source: Ovum Telecoms Cloud Monitor
Telcos initially targeted large enterprises, but are broadening their cloud portfolios. Small businesses (including SoHos) are the emerging hope for revenue growth. However, CSPs have not solved the conundrum of how to tell sell these organizations profitably.

13
Disconnect: CSPs don’t value their best assets enough
2%
2%
4%
10%
11%
22%
46%
53%
56%
Other
Consulting / integration skills
Security expertise
Customer service
Breadth of cloud portfolio
End-to-end service mgmt
Local presence
Network ownership
Client base
What ICT vendors say
1%
12%
13%
20%
28%
32%
36%
57%
Consulting /integration skills
Customer service
Security expertise
Breadth of cloud portfolio
Client base
Local presence
End-to-end service mgmt
Network ownership
What CSPs say
Shameful: CSPs are overlooking the extraordinary value of a captive customer base. Many cloud operations are run separately – operationally and commercially - from other services.
Source: Ovum 2014 Telecoms Cloud Global Insights Survey
N=135 CSPs
N=94 ICT vendors
What are telcos’ biggest strengths in the cloud market?

14
More work needed: Clients are not all made alike
Enterprises that have bought a cloud service from an online marketplace
14%
North America
Latin America
Developed Asia
Emerging Asia
Europe
Middle East & Africa
N=2,708 ICT decision makers
Source: Ovum 2014 Telecoms Customer Insights Survey: Enterprises
33%
20%
16%
34%
23%
Key
> 30% 20% to 30%
< 20%
Willingness to buy online varies dramatically by region, by size of company and also by industry. CSPs must invest in better customer segmentation to refine sale channel choice.

15
Operators are overhauling their cloud sales channels
Operators are restructuring their sales channels to improve reach, volumes and margins. For most, only 1 in 10 cloud-related sales transactions are online. Telcos are using more staff with hybrid customer support and commercial skills to facilitate sales, and nontraditional channels such as banks are becoming part of the mix.
Service provider
Partnership type
Location
Partner(s)
Comments
Belgacom
Alliance
Europe
Numergy (SFR and Bull), KPN, PT
The Cloud Team Alliance aims to provide a superior pan- European alternative to North American and Asian cloud service providers encroaching on the European market.
Colt Technology Services
Franchise
Europe
IT resellers and integrators
Colt’s Ceano franchise program provides off-the-shelf services to service providers targeting small firms.
Eircom
Resale
Ireland
Amazon Web Services (AWS)
The Irish incumbent has successfully resold the AWS portfolio to many private and public sector enterprises.
Interoute
Two-tier distribution
Europe
Arrow ECS
Interoute’s IaaS is resold to 12,000 resellers through the distributor’s Arrowsphere cloud marketplace.
Safaricom
Joint venture
Kenya
KCB
JV with local bank provides all services small firms need to run including banking, voice, data, and cloud services.
SE Telecom
White-label brokerage
Denmark
Also Holding
The SE Cloud Factory sells exclusively to partners using IT distributor Also’s Nervogrid brokerage platform.
Selected sales partnerships
Source: Ovum

16
Cloud enablement partners have a critical role
Trusted global brands are a core element of operators’ cloud portfolios – a good example is the ubiquitous Microsoft Office 365. Global brands draw in customers, while niche local partners differentiate portfolios. Local ISVs usually offer more generous revenue shares, reflecting their reliance on telcos for exposure. CSPs need to keep a balance between partner types to achieve higher blended margin overall. Differentiation among cloud enablement vendors is based increasingly on go-to-market, not just technical, capabilities.
70%
1%
1%
1%
1%
1%
1%
1%
1%
2%
2%
4%
5%
7%
0%
10%
20%
30%
40%
50%
60%
70%
Others
Oracle
Amazon Web Services
Parallels
Citrix
Google
HP
F-Secure
SAP
IBM
EMC
VMWare
Cisco
Microsoft
Telcos’ top cloud technology partners
N = 1,473 partnerships Source: Ovum Telecoms Cloud Monitor, 1H14

17
Conclusions
CSPs are here to stay in the global cloud market.
After some false starts, CSPs are now carving out distinct market roles for their local markets and customer bases.
CSPs are steadily building credibility in hybrid cloud services.
There is less bluster about competing head-on with commodity public cloud players, and more discussion about orchestrating cloud services.
CSPs still covet earth-bound assets.
Despite fundamentally different business models, most operators maintain a co- location and hosting business while also touting various flavors of IaaS.
Customer self serve is an exploded myth – for now.
Most customers will not buy without support and encouragement, even if cloud services are free to try.

18
Recommendations to CSPs
Forget about leadership in the space race.
CSPs will never catch up with the gargantuan investments of pure-play cloud providers – Google’s planned investment in a new $770m datacenter in the Netherlands is an example of the scale on which such providers invest.
Focus on orchestrating hybrid clouds.
Competing with price discounters such as AWS is a race to the bottom, but there is sustainable value in managing workloads between public and private clouds and helping enterprises navigate national data sovereignty rules.
Do not squander the datacenter interconnect opportunity.
The popularity of hybrid clouds will also fuel demand for secure, high-performance links between enterprise, telco, and other third-party service provider clouds.
Invest in the art of selling – using humans, not platforms.
Despite the ability to automate the ordering and provisioning of some cloud services, local culture, technology knowledge, and degree of supplier trust will continue to demand human engagement in cloud sales.

www.ovum.com
Thank you!
Camille Mendler Email: Camille.Mendler@ovum.com Twitter: @cmendler

20
Copyright notice and disclaimer
The contents of this product are protected by international copyright laws, database rights and other intellectual property rights. The owner of these rights is Informa Telecoms and Media Limited, our affiliates or other third party licensors. All product and company names and logos contained within or appearing on this product are the trademarks, service marks or trading names of their respective owners, including Informa Telecoms and Media Limited. This product may not be copied, reproduced, distributed or transmitted in any form or by any means without the prior permission of Informa Telecoms and Media Limited.
Whilst reasonable efforts have been made to ensure that the information and content of this product was correct as at the date of first publication, neither Informa Telecoms and Media Limited nor any person engaged or employed by Informa Telecoms and Media Limited accepts any liability for any errors, omissions or other inaccuracies. Readers should independently verify any facts and figures as no liability can be accepted in this regard - readers assume full responsibility and risk accordingly for their use of such information and content.
Any views and/or opinions expressed in this product by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Informa Telecoms and Media Limited.

Telcos in the Cloud: A Global Status Report

Recommended

Recommended

More Related Content

Viewers also liked

Viewers also liked (7)

Recently uploaded

Recently uploaded (20)

Telcos in the Cloud: A Global Status Report