Network operators the world over are looking at the enterprise market for the next wave of revenue that could help offset the sluggish growth and low margins of their core voice and data business.
Many now supply cloud-based IT and other services on a managed basis, taking advantage of the changing enterprise mindset away from a static and planned consumption model towards something more dynamic that is based around actual need.
Those telcos that have been able, whether by acquisition or internal development, to enter the services space with an on-demand, pay-per-use model are starting to see glimmers of success. If not in profit now, they expect and hope to be so over the next couple of years.
Some early movers, like Interoute and BT, are in the black already.
But the market for the supply of ICT services is competitive and fast moving, and unforgiving to those who want to rest easy with a simple set of cloud-based office productivity tools. Enterprises, like consumers, are perpetually greedy for more, and keeping them happy is a complex proposition.
So what strategy should operators adopt if they want to sustain their foray into enterprise services?
“One thing’s for sure, we’ll see a lot more managed services from the telecoms sector,” believes Chris Buist, a director with Coleago Consulting, an independent advisory firm that works with many operators.
Their chief difficulty as they forge further and further into the services space, he says, is the competition they face both from dedicated IT service providers but also from over-the-top players who see rolling out cloud-based services as a means to extend their reach.
“The best solution for operators will be to buy managed services in at one end of the business and sell them at the other,” says Buist.
“They can buy managed services on a white label basis, for example, and rebadge them as their own brand. We’ve seen operators offer enterprise productivity by hooking into providers like Microsoft and Oracle who have platforms that they can connect to and get up and running on quickly. We’ll see more of this in 2015.”
To expand their business in the services market necessitates that operators not simply find better ways to sell but more effective ways to offer support too, he believes: “Traditional voice and data-oriented sales people have the mind-set of ‘How much of that do you want to buy?’” says Buist. “They need a new mentality, one that embraces the need for an account manager not just a sales manager. That’s a struggle for some to grasp.”
Customers and competitors
The market for services is a dynamic one. Some operators may be leaning on Microsoft, HP or IBM as services partners, but others will be in competition with those same organisations for enterprise spend, as well going head to head with cloud giants like Google and Amazon.
Some don’t wish to make any kind of enemy of the cloud giants, preferring instead to simply build bridges with them: “We’re extending our MPLS network to players like AWS and IBM,” says Tim Naramore, chief technology officer with US operator Masergy.
“Only by doing this can we get the scale we need, one that’s impossible otherwise for us or even Verizon to compete with. A starter in cloud can’t catch up now, so it’s about building on ramps into organisations that are going to be successful.”
Instead, says Naramore, Masergy is focussed on developing services in carefully chosen niche areas: “A lot of our managed service energy is focussed on security,” he explains. “You can’t have an intelligent conversation unless you’ve taken care of security. We’ve made acquisitions here.”
Operators at least havestrong infrastructure already in place, with natural synergy between the network, data centre and the hosting infrastructure, says Zhongmin Guo, vice president, network services at Colt Technology Services: “The cloud ultimately resides in a data centre and in order for it to work effectively, needs a good network infrastructure supporting it,” he says. “We’ve seen telcos start offering infrastructure-as-a-service, software-as-a-service and platform-as-a-service.
A large majority of telecoms operators are focussing on providing their customers with infrastructure-as-a service, as that is where their strength lies.”
Many have found a niche in acting as enablers for cloud services companies, he believes, adding that operators looking to extend their success in this area in 2015 will need to make best use of new virtualised technologies: “Those making large strides in SDN will be able to leverage networks for providing software services, and when combined with the compute aspect of virtualisation can provide a seamless service to customers,” he believes. “The industry, however, is still in the investment phase and some may have yet to start turning a profit from providing managed services. It’s a question of business management and a fine balance between revenue, cost and the bottom line.”
One major carrier name that has decided its future lies in the enablement of cloud-based services rather than actual service provision is Global Cloud Xchange (GCX), formerly Reliance Globalcom.
“We allow smaller IaaS companies to sell globally,” says Bill Barney, CEO of GCX. “We’re not the next Amazon – but we are the facilitator of the next Amazon. To that end we’re forming partnerships with infrastructure companies that can use our network to get to the applications.
Traffic has traditionally passed through an internet exchange, but we’re offering a new way where what you need can be switched on and off according to need.
We see ourselves as being in competition with people like Cisco and Equinix. But we can get to emerging markets first and beat them to it.”
Whether enablers or active service deliverers, operators need to examine closely where they fit in to a cloud future if their stake in the market is to be a long term one, believes Len Padilla, senior director of technology with NTT Europe:
“To be a pure cloud compute player is a big ask,” he says.
“Those coming in with a ‘me too’ play might find it too much for them. Others are finding it best as part of a cloud consortium, other than selling a white label service from a known cloud provider. I think 2015 could see a lot of telcos that got into cloud in 2014 and 2013 get out again.”
Going public
A lot of operators are making a business out of offering advice on enterprise migration to the cloud. Those enterprises that have so far only experienced private cloud may not have needed help, since such a self-contained world is easier to handle.
Public cloud solutions on the other hand necessitate unifying the enterprise, the network operator, the cloud service provider and probably a software company to add a control function on top. “We’re starting to provide consulting services around public cloud,” says Paul Savill, SVP, global core product management with Level 3 Communications.
“Enterprise customers ask us questions about which cloud provider or which type of connectivity they need. We’ve connected to a lot of cloud service providers around the world so we’ve got experience. All cloud providers are different, with different technical requirements in areas like load balancing for example. We’re not pushing one over another, just offering advice.”
Like Masergy, Level 3 is getting a lot of cloud traction out of network security services: “It’s a point of major exposure for enterprises,” he says. “What we offer, on top of the usual DDOS and IPSEC services, is consulting. We go to the customer and take a fresh outside view. We carry a lot of the world’s internet traffic so see a lot of what goes on with attacks. Security companies don’t have our broad view.”
Managing expectations in 2015
For other operators, 2015 will mean a different kind of managed service opportunity altogether. A lot of the early adopters of cloud-based ICT services have been smaller to mid-sized companies, and it is here that many operators are focussing their fire: “There is huge potential for building cloud-based solutions for SMEs, with Vodafone’s One Net already offering customers a converged fixed and mobile solution in a single cloud-based system,” says Chris Tolmie, group product marketing with Vodafone. “In 2015 we expect to see an increased demand for services which allow businesses to combine and move their essential services to the cloud, as this model allows for flexibility, scalability and comes at an affordable price point. With this in mind, operators are looking to mobilise vital business applications.”
He points out that Office 365 already allows users to communicate with colleagues in real-time from any device: “By allowing remote workers to access software packages via the cloud, SMEs will be able to streamline processes, cut costs and increase efficiency, all the while enabling employees to operate as though they were in an office environment and become more effective when travelling between customers and suppliers,” he adds.
A distinction might be drawn here between larger incumbent operators developing their own managed service offer for the medium to larger enterprise, and the smaller operator working perhaps in partnership with a cloud service provider to address the small to medium end of the market.
A lot of mobile operators and cablecos are creating services bundles for SMEs, recognising that a full service offer for the upper end of the market may be beyond them.
BCSG is one such cloud services provider, delivering cloud-based solutions to SMEs through partnerships with telecoms players.
“We provide a cloud platform, so operators can distribute cloud applications to their SME customers,” says John Davis, MD of BCSG.
“Telcos are keen to broaden the range of services they deliver to SMEs. We facilitate that, for example, for EE and its one million odd business customers in the UK. Some start out wanting to build internally, but soon find it costs more and takes longer that way. They don’t want to be managing multiple software vendors – from Microsoft to Norton – as they look to create their own web tool.”
For those operators whose core revenue is squeezed, cloud services, whether for small or large enterprises, are a way of increasing revenue per customer and making a proposition stickier as well as differentiating themselves from competitors.
With so many options for getting into the cloud space, there is no sense in waiting any longer to get involved.
