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Analyst opinion: Are public cloud services a dumb move for telcos?

21 Mar 16

Article by Camille Mendler, Ovum lead analyst

Is a “dumb” cloud as dangerous to a telco’s financial health as a dumb pipe? Ovum asked this question back in 2011 as service providers CenturyLink, Time Warner Cable, and Verizon started buying cloud computing assets in order to diversify their commoditised connectivity-centric service portfolios.

In those heady days, many telcos believed they could joust with Amazon Web Services and its peers on the same playing field. AWS’s elegant value proposition of massively scalable generic computing power delivered instantly over a public cloud sounded much like telcos’ industrialised delivery model for connectivity services.

Five years later, CenturyLink and Verizon, among others, have announced plans to restructure or shed various cloud-related assets. Over time, many telcos have found that their cloud infrastructure choices were too rigid and expensive to allow them to even join a race to the bottom in public cloud services with AWS, let alone to win it. For its part, over half a decade AWS has reduced its prices for various public cloud services at least 30 times, but it also continues to introduce new services and improvements while expanding the vast scale of its activities around the world.

Yet the dumb cloud debate has never been snuffed out, and Deutsche Telekom has fired it up again. It has now officially launched the Open Telekom Cloud with technology partner Huawei, inaugurating a major European public cloud infrastructure to rival AWS.

Technology vendors can have a role in changing market dynamics, especially if they are willing to share risks and rewards with telcos. But have other market conditions really changed? In 2011, Ovum made three key recommendations to telcos:

  • Stop aping Amazon: Ovum said that telcos should emphasise their ability to deliver and support multi-device and multi-platform cloud service delivery. Today, hybrid cloud services spanning private and public environments are a leading telco proposition.
  • Start boasting: We said that telcos should stress their enormous investment and skills in security and service-level management and market integrated, end-to-end cloud SLAs. Today, cloud outages and concern over the US Patriot Act have raised scrutiny of the security and privacy credentials held by telcos such as DT. End-to-end SLAs, meanwhile, still need work, although DT’s related Ngena alliance focusing on virtualised network services is firmly moving in this direction.
  • Support communities: We said that telcos should stop focusing on generic cloud services and instead construct unique areas of differentiation and margin stability. The jury is still out about the success of telcos and sovereign clouds – France’s Numergy and Cloudwatt initiatives illustrate the challenges. But some vertical industry propositions are now on offer (notably in health) and, importantly, telcos such as DT, Telefonica, and others have the on-the-ground capacity to consult and advise local enterprises, something that cloud natives lack. Yet they remain more successful in nurturing external communities of cloud innovators.

What’s conclusive is that for telcos to compete purely on cost is foolhardy. Selling public cloud services ain’t dumb, but for telcos it certainly isn’t easy.

Article by Camille Mendler, Ovum lead analyst

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