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INFORMATION TECHNOLOGY | Krisana Gallezo-Estaura, Thailand
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Why cloud is a game for telcos to lose

Guess who's making money from this $15-16bn market.

The battle for the cloud is on but while everyone keeps their eye on who will emerge to become the leader, one thing is becoming obvious. It's not a game to win for the faint-hearted telcos.

That's an argument from an analyst who believes that it will stand true moving forward, unless telcos step up to correct what they have done wrong in the last two to three years or realize what they should have done better.

Speaking during the NetEvents APAC Press & Service Provider Summit held in Phuket, Thailand last May 21-22, Ovum principal analyst for enterprise telecoms Adrian Ho said that some of the common feedback he's getting include difficulty to make money, almost impossible to scale, there's so many competitors out there, it's extraordinarily expensive to build out data centres and so on.

The good news though, he said, is that Asia Pacific is just right at the beginning of a growth trajectory in cloud.

"You saw IDC's survey yesterday, something like 60% of enterprises in this part of the world have at least two clouds, so that's an extraordinary number. I was with IDC for the longest time and that number was very, very small two or three years ago. So a lot of enterprises, there's a huge amount of enterprises out there interested in cloud and adopting cloud as well," he said.

IDC forecasts around $15b cloud investment in Asia Pac and Ovum predicts $16b. This represents about 22% growth trajectory across the region. Ho barely thinks of any country in the region that is really not experiencing anything less than double-digit growth.

Despite the huge growth trajectory for cloud services though, Ho argues that cloud is really a game for telcos to lose.

"Based on our market share for cloud services globally, the top 10 players here, there's not a single telco in the top 10 player as a cloud service provider. The closest to the top 10 for a telco is T-Systems they're ranked 12th or 13th. But technically T-Systems is an integrator rather than a cloud provider," he said.

Opportunities

According to Ho, there has been a huge amount of data centre build up recently - Companies like IBM, Google, Microsoft, Amazon and so on are building what we call onshore data centres right here in Asia serving Asian-based enterprises.
The analyst also revealed that if you look at venture capital funding in the last 12 to 24 months, the top 3 sectors attracting the largest amount are Internet or anything mobility, cloud and big data.

"New Relic, which is a start-up in Sillicon Valley, they are a big data analytical software service cloud provider. So if you have two big topics, big data, cloud, you get a lot of VC attention, they just had $100m series B funding," he said.

"Another good example is [Anaplan] basically they are a processing company challenging Excel, they got another $100m worth of funding," he added.
According to Ho, enterprise software firm Workday, is probably one of the most successful cloud IPOs in the last two or three years. They are worth something like $18b market cap at its peak and they have something like $350m worth of revenue.

Faint-hearted telcos

Ho narrated that in the last five years, every telco liked the idea of cloud, that is, they all wanted to be a cloud provider. Today however, he thinks that the reality is quite different. "Some telcos out there have thrown in the towel in cloud or they have scaled down their ambitions, that are the reality. Very few telcos will openly admit they're making tons of money in cloud, usually it's just a [sag] way to sell more stuff into their existing enterprise customers," he said.

Responding to the argument, Chris Rezentes, Verizon's Network Planning Lead for South Asia, commented that some of the changes that they probably should have made sooner would include more of a product life-cycle management.

"We had products out there that were just okay, let them go and there was nobody actually tracking the P&L and when we should be decommissioning that. And you look at the cloud players in the top 10 there they're producing new products and ideas, and solutions at 200 times the rate of a standard telco," he said.

Rezentes said that over the last two years, Verizon intended to become more product-focused.
"There's more emphasis on IDH and new solutions, and focus on the customer as well. So, the investments we see now for within Verizon are definitely focused on strategic locations and even strategic products. So if there's a product out there that we're just not seeing as adding value to our customers it's out and we ship the investment to something else," he said.

Gint Atkinson Vice President, Network Strategy & Architecture with KVH, meanwhile, believes that to keep up with the competition, telcos shouldn't play on Amazon's and Google's terms. Instead, they should keep their vision updated and figure out how to leverage their infrastructure.

"There's a place for the telcos where the telcos will do well. If the telcos only utility is the ability to do a truck roll and fix the cable, and manage a fibre cable plant, the power cable plant then the telcos is in trouble. But the telcos you're bringing into the panel and to this event are really different telcos. They are playing, they're trying to compete with Google and with Amazon but I think they have to leverage what they have in terms of capabilities, CapEx intensive infrastructure and the fact that they have the enterprise customers, the CapEx intensive part of the future cloud," he said.

Leveraging infrastructure may be a key, but telcos are still a bit skeptical in investing a lot, admitted Tawhid Rijwanur, General Manager, Service Planning PDD Technology, Grameenphone.
Rijwanur said that for most telcos, moving or jumping into a different infrastructure where the revenue is not very much guaranteed is a bit risky proposition to them," he said.

"I think the long-term vision was missing for most of the telcos and they mostly move on from day to day, revenue basis and the business model of major telcos here. The group like us, like Telenor, they have a lot of business units but the cultural differences are quite huge and most business units are still driven by [voice] based revenue. Data is also a big part of the revenue but they're mostly providing that [bit pipe]. On top of this, if you really want to play with all those cloud services which you started already, but still it's not very big from a revenue point of view," he said.


 

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