Telcos in the Cloud: A Global Status Report

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© Copyright Ovum 2014. All rights reserved.

Telcos in the Cloud: A Global Status Report

Camille Mendler

Lead Analyst, Enterprise Services

Nov. 25, 2014

2 © Copyright Ovum 2014. All rights reserved.

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.


Telcos are here to stay in the cloud market

0

50

100

150

200

250

300

350

400

2009 2010 2011 2012 2013 2014

CS

Ps

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.


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

1H for 2014



Telco cloud revenues are still small, but growing fast

1.7%

2%

7.5%

9%

Rostelecom

Orange BusinessServices

T-Systems

NTT CommunicationsGroup

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 BusinessServices

T-Systems

NTT CommunicationsGroup

Cloud-related revenues, selected operators ($m)


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

1H for 2014


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.


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


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


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

Applicationmanagement

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


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


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.


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

1H for 2014


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


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

Se

rvic

es

la

un

ch

ed

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


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.


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?


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.


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


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


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.


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

© Copyright Ovum 2014. All rights reserved.

Thank you!

Camille Mendler Email: [email protected]

Twitter: @cmendler

mailto:[email protected]

https://twitter.com/cmendler


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Telcos in the Cloud: A Global Status Report

Technology

cloud computing

cloud definitions

telco cloud revenues

telcos cloud strategy

new telco cloud service

global cloud players

operators cloud services25

telco cloud customer