For some time, telcos have been warned to branch out from simply offering traditional telecommunications services and many of them have invested more into building out their business ICT services. But with global IT budgets expected to shrink, telcos will have to work extra hard to compete with specialist IT providers that have been in the game for a long time.
With the global financial climate unpredictable at best (and tipped to get worse courtesy of the fiscal fiascos in Europe), companies are tightening their belts on IT spending.
Research firm, Ovum, expects new IT spending to be hard to come by in the public and private sectors.
But Cloud computing presents an attractive proposition to businesses since payment models for those types of services lean more towards pay-as-you-go rather than require a lump sum investment. This essentially shifts business IT spending from a capital expenditure-based model to an operational expenditure-based model.
“Cloud computing and hosted solutions telcos are rolling out match better for this type of model because they can just put them inside the operation instead of having to justify large immediate investments in IT,” Ovum senior analyst, Claudio Castelli, said.
Hosted and Cloud services are a natural value-add for telcos as they run the access network crucial for the delivery of those solutions. They have datacentre capacity and have, more recently, made acquisitions as well as formed strategic partnerships to up their Cloud game.
Both Telstra and Optus have been ramping up their efforts into Cloud computing recently.
In June last year, Telstra announced an $800 million investment in its Cloud computing business and has been investing that in stages. The telco released its Cloud provisioning portal last year and began fleshing out its Cloud services.
After gaining certification from SAP in September 2011, Telstra formed an alliance with the vendor and IT services provider, Accenture, to offer SAP applications through the telco’s Cloud infrastructure. All three companies hope to leverage their reputation to attract customers to use their solution set.
Optus, last month, rebranded its Cloud product suite to take advantage of the scale offered by its parent company, SingTel. It laid out plans to move away from being just a communications provider and transform itself into a full-scale ICT business.
“We have multiple datacentres as part of Group ICT and we are talking about a federated Cloud which will allow our customers to fully host their applications closer to where their users are in the region but also provide options around things like local sovereignty of data,” Optus Business managing director, John Paitaridis, said at the time.
But how do telcos fair when compared with traditional specialist IT service providers?
Steep learning curve
Telcos are facing a steep learning curve when it comes to offering Cloud services, according to Rodney Gedda, senior analyst at telecoms strategic planning agency, Telsyte.
He warned telcos against thinking of Cloud computing as an easy way to expand their business and a cash cow as margins in standard telecommunication services tighten.
“When you start talking about Cloud and software services, there are already a lot of providers out there that are specialists – they do that as part of their core business,” he said.
“They have expertise in the area and often pride themselves on being carrier neutral, so customers don’t need to engage with any particular carrier to get the best value out of the services.
“Telcos need to make sure they can compete on the same level as non-telco providers in that space because they will face stiff competition from pure-play providers.”
Specialist IT players may be able to shrug off the pressure of telcos encroaching on their territory for now. But that may change should telcos decide to play hard-ball and heavily discount access services to complement their Cloud offerings.
Things such as unmetered content, which Telstra and iiNet have offered to consumer customers, can easily be applied to business clients as well to add value, Gedda said.
“They can offer similar deals in the business space if they feel the need to aggressively compete for business,” he said. “The pure-play providers don’t need to feel threatened in the sense they already have expertise in the business model and the client base to compete with telcos but they may find themselves competing with discounted carriage services.”
Telcos also have an advantage in a number of areas including the ability to provide an end-to-end service level agreement (SLA) to customers.
“One thing about Cloud is, if you have a company like Amazon, its SLAs are around uptime of applications – the server and apps themselves – but they cannot guarantee on the delivery side, which is how the applications are seen by the enterprise,” Castelli said. “There is the connectivity piece to go from datacentre to end-users.
“Telcos are in a better place because they can actually control the network and that is where I see the advantage.”
System integration skills
On the other hand, telcos have less system integration skills compared to specialist providers which means they are in a weaker position when it comes to consulting-based sales opportunities.
This is where forming the right alliances become increasingly important. Again, Telstra recently teamed up with Accenture to offer hosted SAP applications while Optus owns IT service provider, Alphawest.
Another area telcos should consider is public Cloud services, which is what the likes of Amazon are offering. Telcos have been pushing managed Cloud and hosted services but one thing they have yet to master is the Amazon model where a reseller or end-user business can subscribe to product online in real-time, Gedda said.
“Right now, it’s like a managed Cloud where you have to have an existing engagement with telcos to get things like infrastructure-as-a-service (IaaS) and applications,” he said.
Beyond Cloud computing, telcos have other options to diversify their product suite but still complement their carriage service offerings.
These include mobile device management, IP networking services, managed security services, and video conferencing.