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February 11, 2011

Telecom Sector Embraces the Cloud

Joshua Geist

Big telecom companies have traditionally been late to market when it comes to introduction of emerging technology, preferring to let other, smaller companies absorb the first-to-market risks associated with launching game-changing services and solutions. Historically, the “wait and see” – only moving when there is clear market acceptance approach – has worked for these mass group of telcos. 

Effective Followers

In the 90’s, for example, when small and mid-size companies rushed to market with VOIP solutions, the telcos lagged behind. It wasn’t that they didn’t see the value of VOIP – it was more that they saw the threat.

They had the ability to introduce VOIP solutions overnight, but couldn’t risk rapidly cannibalizing their existing revenues…

They had to milk their base for all they could, slowly allowing prices to drop and minimizing the pace of revenue loss until they had no choice but to enter the market….

They lost share, but preserved cash flow and profitability along the way, and bought the time they needed to enter new markets like mobility to offset revenue loss elsewhere.

And when they finally did enter the world of IP Networking, they did so with a bang…quickly dominating the market and becoming the leading providers of VOIP solutions. 

Fast Followers

The telco strategy shifted a little in the 2000’s as emerging technologies posed lesser threats to their embedded revenue base, and presented greater opportunity for new sources of revenue.  The co-lo business is a good example of this. The telecom companies weren’t first to market, but they followed in a hurry and quickly carved out a very large niche with telecom co-location data centres popping up everywhere, and rapidly being filled as customers flocked to the brands they’d trusted for years – like AT&T, Verizon and Qwest. 

Now as this millennium has its teen years in sight, the telcos haven’t quite reached the stage where they’re considered “early adopters” but there’s ample evidence that suggest they have come a long way from their “wait and see” days when it came to new service introduction.

What’s driving this? The cloud and the global race to see who will emerge as the dominate players in this multi-billion dollar market that will permanently change the computing landscape.

Really Fast Followers or Leading the Way?

The world’s giant service providers are all staking their claim in the cloud – some with what can only be described as “brochure-ware” solutions which they hope will buy them time to bring cloud services to market, and other with real offerings that are gaining market momentum.  And who’s right there with the big guys – the IBMs, HPs, Symantecs and Sungards of the world? The telcos, many of whom are making a strong statement that they are going to be in this game from day one. 

In August, 2010, I blogged about Qwest’s entry into the cloud being a signal that the telecom sector was mobilizing, and that as they did, the cloud would migrate from a computing option, into a mainstream technology and a driving business force.  Well, here we are in the first few days of February 2011 – the equivalent of about 5 cloud years later (remember Internet years?), and the telcos have not only mobilized, they are armed and ready to attack the cloud market from every corner of the planet.
 
And there is ample evidence of this from announcements made just in the last few weeks. 

  • Verizon Communications, the second-largest telecom operator in the US, disclosed plans to acquire IT infrastructure and cloud services provider Terremark, for $1.4 billion in cash.  The proposed acquisition of Terremark is the largest purchase by Verizon since it acquired MCI in 2005 for $6.8 billion, and that alone is a pretty telling statement. Companies don’t toss around this kind of coin unless they’re serious about grabbing a piece of a market that they know is critical to their overall strategic direction.
  • Time Warner Cable announced that it has acquired Navisite, a provider of enterprise-class hosting, managed application, messaging and you guessed it – cloud  services. The $230 million acquisition brings an additional 10 data centers into the Time Warner family but most importantly “provides us [Time Warner] with a successful managed services business and a new, innovative managed cloud platform representing significant growth opportunities… for small and medium sized business.” said Time Warner Cable Chairman and CEO Glenn Britt.
  • In Canada, a strong and significant build-out of pure cloud-based programs and portfolios was announced recently as MTS Allstream, Canada’s largest all-business carrier staked its claim in the market with the launch of a Cloud Data Protection Portfolio including its Cloud Replication Services.
  • Australia’s Macquarie Telecom announced its entry into the cloud services market with a managed, hosted IaaS offering, explain that its decision was fuelled by an Australian government paper that encourages agencies to adopt public cloud offerings.

And that’s just the news that’s public.  The really big stuff hasn’t even fully bubbled to the surface.  But it will, and soon.
 
Last week I had a conversation with a senior executive at a big-name global company that has a presence in every major market. My contact owns the telecom sector worldwide, and had just returned from a two-week trip to Asia where he’d met with senior telecom leaders in Korea, Japan and China.  What was on their minds? The cloud.  And what was on my contact’s mind?  How his company can layer cloud services – onto its current offerings to enrich its telecom services suite.
 
We discussed what’s developing within the telecom sector in other parts of the world, and to quote my prospective business partner, “Every telco that I handle is either at the cloud architectural planning or proof-of-concept stage.”

The cloud rush is on, and it’s no longer a one or two team race to the finish line to see who can claim the number one spot.  The traditional “big boys” have some new players to contend with, ones with deep pockets, strong, trusted brands, and massive embedded customer bases.

I can hardly wait ‘til we reach the 20’s.  Imagine…telcos as “early adopters.”