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Ahead in the cloud: how can telcos compete?

11 December 2015

Cloud services are reshaping the playing field for telecoms operators, with each looking for the next big opportunity. But with the market dominated by large vendors, can telcos truly compete? And if so, how can they incorporate cloud technology into their already well-established business model and product offering? Aamir Hussain, executive vice-president and chief technology officer for CenturyLink, tells Global Telecoms Insight how his company is breaking the mould.

Are cloud services the next big thing for the telecoms industry? Over the past few years, as traditional revenue streams have begun to dry up, the possibilities afforded by cloud computing have been a rich source of debate. For every commentator pointing out the difficulties, there is another who suggests the move to the cloud is an unavoidable next step.

The challenges facing the industry are well known. With PSTN revenue dropping steadily - along with SMS and voice revenue from the PLMN market - operators have been largely reliant on data to fill the gap. And with data expected to stall in the future too, the more progressive operators are seeking out entirely novel sources of growth.

Key to their strategy are enterprise ICT solutions, particularly cloud computing. As the lines between telcos and IT start to blur, this is seen not just as a possible source of expansion but also as a means to diversify their portfolios beyond simple connectivity.

According to Telecom Italia's 2014 annual report: "In the information technology market, the decline in revenues is driving the various players towards the cloud computing 'growth oasis', with the goal of developing and protecting their market shares in their core business. Telecommunications operators are expected to strengthen in this sector, including through partnerships."

"Telcos are readily able to exploit local assets. They can integrate networks with cloud computing, positioning themselves as single-service providers."

The attractions are not hard to see. Cloud services are on the rise, expanding at a compound annual growth rate of around 20% a year as the world becomes progressively more connected. While consumers are important cloud users, benefitting from services such as online music libraries, businesses have been the principal adopters. They are using it not just for applications outsourcing, but also for cloud-based computing platforms and infrastructure.

Because it is simple to deploy - and easily scalable in size depending on business requirements - even small enterprises are coming to realise the advantages. For many of them, the key benefits are a reduction in capital expenditure and the ability to pay only for what they use. According to a recent study by The Economist, most mature businesses are now turning to the cloud as a strategic platform for expanding their sales channels and fostering customer growth.

Accumulo nimble
As they continue to invest in the three main types of cloud - software, platform and infrastructure as a service (SaaS, PaaS and IaaS) - we are likely to see a vast array of new services that could prove an important point of focus for telecoms providers.

Aamir Hussain, executive vice-president and chief technology officer of telco CenturyLink, sees a wealth of possibilities ahead.

"All service providers - not just those in the telecoms industry - are challenged to stay at the forefront of innovation," he says. "We believe the winners in the cloud infrastructure market will be those that build a globally scalable platform that supports the primary business service objectives of the provider and is architected such that it enables outside parties to adopt it independently for their own business objectives."

As the third-largest US telco, CenturyLink is intent upon exploring this market. While its cloud and hosting business is still quite small, bringing in just $580 million in 2014 out of $18 billion overall, the company envisages further growth in this space. Over the past few years, its strategy has been geared towards IT expansion. In 2011, CenturyLink merged with Qwest, which provided massive network scale and other benefits. It also spent $3.2 billion on Savvis, an independent provider of managed hosting, collocation and cloud services. As Hussain explains, these acquisitions set the company down an important road.

"They enabled us to offer IT services coupled with network services, and started our transformation into a major player in the IP-enabled network services, cloud infrastructure and hosted IT solutions markets," he says. "Since that time, we have organically grown our cloud business, as well as supplemented it through key and targeted acquisitions."

In 2013, the company purchased AppFog, a PaaS based on CloudFoundry; and Tier 3, an IaaS and PaaS provider. The aim was to acquire not just technology but also talent, with a view to having people who would develop new cloud solutions and keep pace with a fast-moving market. Today, the former Tier 3 leadership team is heavily involved in the company's cloud-development efforts, and their cloud portal is the centrepiece of CenturyLink's platform strategy.

More recently the company has bought Cognilytics, an analytics technology provider, and DataGardens, a disaster-recovery-software company. It opened a cloud-development centre in Seattle in October 2014, and has teamed up with IBM to develop a new Applications Development and Innovations Center in Louisiana.

"In building our technology-centred foundation for the future, our CenturyLink Cloud platform remains a key priority," says Hussain. "We've proved our commitment to cloud and our customers through recent acquisitions, adding database-as-a-service analytics [Orchestrate] that help companies derive intelligence from massive datasets [Cognilytics] and disaster-recovery services [DataGardens], among other investments."

Eying up the big boys
Its push towards cloud makes CenturyLink one of the most IT-oriented telcos currently out there, with other operators still somewhat hesitant to join its ranks. Although many have begun to offer cloud services, and others have joined open-source enterprise cloud-technology projects, the real question is how they can go about carving a true niche in this space.

For a market that is still, to some degree, in its infancy, cloud is already chock-full of service providers. At the top of the hierarchy are a handful of global internet/OTT players, such as Amazon Web Services, Google, Azure and Microsoft, and beneath them, many small cloud-services vendors.

Challenging these established providers is no simple task. The internet giants benefit from supersized data-centre operations across multiple countries, along with huge sums of money to invest, while the small providers typically offer services cheaply or even for free.

Even for a large company such as CenturyLink, it simply isn't possible to compete directly with the likes of Amazon. Lacking the data-centre footprint, the budget or the manpower, a telco that positioned itself as a rival to the major players would likely be fighting a losing battle.

It seems that success in this market will be more about playing to one's strengths and seeking out new areas of opportunity. This means that telcos will need to think hard about their value proposition - what can they do well that nobody else can hope to copy?

The Swedish operator Ericsson has suggested three key ways in which telcos can move into cloud: through managing cloud connectivity, delivering cloud-based capabilities and leveraging network assets to enhance cloud offerings. Additionally, because operators have more experience providing data-centre services than they do designing or engineering software, they are expected to make stronger inroads in IaaS than they would in SaaS.

According to a report by Arthur D Little, another way that telcos can set themselves apart is by emphasising their local capabilities. For all that the internet players are geographically unconstrained, which gives them economies of scale, their very reach can be their undoing when it comes to delivering national offerings.

Telcos, on the other hand, are readily able to exploit local assets. They can integrate networks with cloud computing, positioning themselves as single-service providers. This also brings the advantage of an accessible customer base - telcos can encourage their existing customers to procure cloud services from the same place they get their connectivity.

CenturyLink is doing precisely that, offering its customers a kind of one-stop shop for all their technology infrastructure needs. Because the company boasts a large amount of fibre and Ethernet connectivity, it can supply private cloud services to those who don't want their data on the internet. It also delivers traditional IT services, tying the two together through its network.

"CenturyLink Cloud is an enterprise-grade, hybrid-enabled cloud platform that delivers high-performance, secure, reliable and scalable cloud solutions for a range of workloads," explains Hussain. "We offer so much more than just traditional IaaS - we have a truly differentiated platform that enables hybrid IT solutions that include and extend beyond just cloud."

He cites the advantages as feature innovations, ease of use and blueprints that make it easy to launch in complex environments. However, the biggest benefit is undoubtedly the ability to deliver end-to-end hybrid IT solutions. "These combine our cloud, network, data centre and other services under one umbrella," he says.

Developing developers
For other operators that may be just beginning to think about cloud, it is worthwhile considering their IT strategy as a whole - what do they offer beyond voice and data? Over the past few years, a growing number of telcos have purchased IT companies; a trend kick-started as early as 2007 by KPN's acquisition of Getronics.

As operators ramp up their acquisition strategies, they will be better able to focus on sophisticated IT solutions outside of their core business. Tactical partnerships may well come to define the cloud strategies of tomorrow.

Having already ventured down this road, CenturyLink is looking out for ways to remain ahead of the game. One means by which it differentiates itself from upcoming rivals is through its 'developers first' approach; rather than simply offering cloud computing and storage, it explicitly targets the people at the vanguard of cloud operations, meaning its entire platform is API-driven.

"We see developers, including those who work at start-ups and in enterprise IT organisations, as often being at the forefront of cloud decisions," says Hussain. "They are running dev-and- test projects, they are trying out PaaS offerings, and they are making decisions and recommendations about what services to use. As a cloud-services provider, we take a developer-centred focus internally, as evidenced by our continuous-delivery model for new cloud features and services, and our activity in the open-source community."

While its cloud offering is unlikely to pose much threat to the likes of Microsoft, CenturyLink is stepping into uncharted territory, flipping the script for what telcos can offer to their customers. Already, it has many successful case studies to its credit, with clients spanning sectors ranging from business and finance to retail. These have included First Southwest Bank, Northstar Financial Services, UBM Tech Web, Utah State University, Waldorf Astoria and Touchstone Health, among others.

"It's an exciting time for CenturyLink, as we plan to fully integrate the CenturyLink technology platform and better scale our product offerings for customers," says Hussain. "Going forward, we are ready to accelerate many aspects of our technology strategy. Our company has exceptional leadership in place - not just on the technology front but also across the board. Our sales teams are phenomenal. Our ability to enable partners and resellers is fantastic. Our teams are committed to ensuring customer satisfaction by putting our customers at the centre of what we do. We're all committed to making our vision a success."