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New Business Opportunitiesfor Telecom sector offered by

Cloud Computing

Domain study IV(Telecom)- Assignment II

1/14/2012

Submitted By:

 Apoorva Srivastava

10030241144 

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  Today each and every company is toying with the idea of cloudcomputing-some of them are already there, while others are

contemplating with the idea. Nevertheless, a large majority of theenterprises are expected to hit the clouds within the next couple of years.In fact, IDC has predicted that by 2014 sales of cloud computing productsor services will generate almost $56 bn in annual revenues. IDC expects“the cloud model to propel IT market growth and expansion for the next20 years and help the industry to more rapidly develop and distribute anew generation of killer apps, and to more successfully penetrate smalland medium-sized businesses”.

 The telecom industry is very excited about the prospects of the cloud. Infact, the telecom service providers have a unique advantage as network

operators and if they combine it with innovative technologies, they will nodoubt play an extremely crucial role in the fast growing world of cloudcomputing. In addition, the IP infrastructure and componentized nature of the software used by telecom service providers is ideal for cloudcomputing. Emerging technologies like IP multimedia subsystems (IMS)and next-generation networks (NGN) service architectures will furtherstrengthen their position in the new world of computing.

 The telecom companies will definitely gain a lot in the cloud computingarena. A recent report by telecom analysis and consulting firm Ovumpointed out that the Global telecommunications majors like AT&T, BT,Orange Business Services and Verizon Business could take a large shareof the cloud computing pie, giving IT companies a run for their money. Asper Ovum “the major telcos have a long heritage in providing manageddata center services and hosting and have combined this with theirnetworking and security expertise to meet the needs of customers forcloud computing services”. The firm believes that the global and majorregional telcos will become strong players across the full spectrum of cloud computing services including Infrastructure-as-a-Service (IaaS) andSoftware-as-a-Service (SaaS).

  The Changing needs of the Telecom operators are also pushing theSoftware vendors to deliver Customer Management solutions that enable

  Telecom operators to handle the market constraints. The increasingpressure to control the Operating Cost, point towards moving from aCapEx to an OpEx mode of IT investment. Cloud Computing offers exactlythe solution for the Telecom Operators. The market scenario posesfollowing important challenges for software product design:

Flexible Operating Cost – Depending on the demands of the markets,the Telecom operators must be able to vary their cost. Hence, theoperating cost must comprise primarily of Variable cost, and very minimalfixed cost.

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Customizability  – Varying customer need means, Telecom operators

must be able to customize their solutions to cater to their business needs.

Lower Adoption/Exit Time – Customers need highly agile systems,

which can be adapted to the business needs with efficacy and provide an

option for a smooth exit when needed.

OPPORTUNITIES

 The opportunities from the clouds are immense. It has brought up newrevenue streams for telecom service providers. Clouds will greatlyincrease network traffic and utilization and hence transport revenues. Inaddition, the providers can charge end users for a given level of service

quality and also charge the cloud based providers for service quality–which is exactly a win-win situation for the providers.

 The falling ARPU levels has been a major challenge for the serviceproviders, and they have been looking at others ways to make money.Cloud computing offers a means of sharing resources like hardware,software, and data on-demand to users. With business offerings like“Infrastructure as a service” or “Pay as you go”, the providers can rakein profits. The providers are also looking at offering cloud basedservices including security, storage, computing and network managedservices for enterprises. Additionally, the providers are also lookinginward to optimize their various IT estates, and data centers comprising

different stacks to a virtualization model, thus bringing opex reductiontoo.

Another segment of telecom service which is expected to be highlyprofitable in the cloud is billing. As per IDC's Worldwide Telecom CloudBilling 2009-13 report, worldwide telecom cloud billing investments willgrow from $15 mn in 2008 to $350 mn in 2013. The report furtherrevealed an interesting finding, “the emerging telecom cloud billingplatforms are increasingly smaller and lighter investments, particularlyin comparison with legacy telecommunications billing platforms”. Thiswill be sweet music to the new as well the established telecom

companies, and will also enable cost effective solutions and services.

Another area of growth will be mobile applications in cloud. Mobileapplication developers are increasingly turning to cloud computingmainly due to the limited processing power and battery life of mobiledevices and the low-bandwidths of mobile networks. In cloudcomputing, processing happens at the server rather than the handsetso mobile applications can offer great performance speeds andfantastic level of sophistication. In addition, as cloud computing helps

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increase processing power, mobile applications can be used forcollaboration, sharing, remote access and more. ABI Research hasfurther fueled up the excitement by predicting that the number of mobile cloud computing subscribers worldwide will grow rapidly from

42.8 mn subscribers in 2008 to about 1 bn in 2014.

Industry experts have pointed out that the mobile networks will play amajor role in expanding cloud computing beyond its core enterprisemarket. In developed as well as developing markets, mobile cloudcomputing will give telecom service providers and their businesspartners more options for launching services. The point to be noted andwhich is extremely important for the industry is that with cloudcomputing, it is easier and faster to roll out services as new hardware isnot required. Many leading telecom providers have already devised

growth strategies for mobile cloud computing so as to capitalize on thisfast growing sector. By 2014, more than 130 mn enterprise customersis expected to use mobile cloud computing. Juniper Research furtheradded to the excitement by predicting that it will bring in annualrevenue of nearly $9.5 bn.

Increasing demand for cloud based services is driving a boom in thewholesale telecoms market, according to Ovum. In a new report'Wholesale telecoms: Fit for growth?', Ovum claimed that wholesaletelecoms providers are set to benefit from growing consumer andbusiness demand for cloud based services, provided by a new breed of 

enterprise.Although everything seems to be on a high note, service providers shouldbe aware of the fact that there are many expected and unexpected risksand complications associated with cloud computing.

IMPACT OF CLOUD COMPUTING ON THE TELECOMSECTOR

Cloud computing will most probably affect the telcos in three waysaccording to the available Business & technology literature:

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3way impact3

 Value chains

  Today, a number of telecom companies are differentiating themselvesfrom their rivals through their unique product offerings and bundling of services.

  The Cloud providers can provide efficient services using telcosinfrastructure, technology and procurement at a relatively reduced cost.

 The telcos can utilise the services of Cloud providers and, combined withtelcos capabilities, offer advanced value proposition to their clients. Thetelcos have the potential to develop incremental revenue streams fromthe application providers and the application consumers. Throughtechnological innovation, telcos will provide telecom services, application

services and other data services.

  Today, the telecom market is dictated by the consumers, due toincreased competition and customer’s changing requirements. Besideshaving their primary focus on customer intimacy and relationships, telcosare looking to leverage on the operational excellence; and the adoption of cloud computing technology as a strategic move could be beneficial. Thisfacilitates telcos to restructure their internal capabilities andinfrastructure, to provide a cost-efficient solution to their customers.

 Through innovation in technology, telcos have the opportunity to createnew market boundaries and create new value curve with new portfolio.

 Telcos can become core ICT providers, a network-centric business throughdata centres, or service-oriented developments. Hence, the innovation inCloud Computing can substantially affect the value chain of the telecomoperations. For e.g. AT&T, BT, Orange 

Operating Model

Cloud computing creates the need for new organizational structures and

processes, and new strategies. Telcos are excellent in tightly managingtheir procurement process and negotiating longer term contracts withvendors and suppliers.The challenge for telcos will be to internally andexternally decentralize purchasing and decision power because theessence of Cloud is agile service re-configuration and sourcing. Telcos willalso have to take a fresh look at the level of ICT innovation. Telcos willhave to align and adapt their organization by creating strong cross-functional interfaces and organization flexibility.

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 These changes have an imperative effect on the telecom operating modelin the OSS(operating support systems) like Customer service operationsand Network operations.The operational support services like order fulfilment , service configuration, resources provisioning and Invoice

Billing are becoming increasingly complex with millions of subscribersinvolved with variety of products. Hence the operational cost to handlethem is high. Further to that, the infrastructure needed to cater to theincreasing customer base, can lead to increased financial overhead.

  The implementation of Cloud computing incurs minimal capex as thisinfrastructure is owned by the cloud providers. This will lead to decreasedcapex, as these are converted into opex, thereby saving costs in thebalance sheets, resulting in lower operating profit taxes.

 The shift from a capex to an opex organization is leading to developmentof new business models. The telcos operating model has to berestructured in order to incorporate cloud computing.

  The adoption of cloud computing can have a significant effect inthe Strategy, Infrastructure and Operation by improving the cost structurethrough operational excellence and economies of scale.

STRATEGIC ALLIANCES

Implementing cloud computing technology paves way to strategicalliances between

 Telecom and IT firms. Telcos have been considering in leveraging theeconomies of scale by sharing the infrastructure, particularly the networkresources. Network sharing is gaining popularity as the drive towardscost-control intensifies and will continue to gain momentum as mobileoperators seek to reduce their capex and opex burden, but the networkitself will remain a key point of differentiation for operators.

  The growth of the cloud is providing fertile ground for new forms of collaboration between vendors. Vodafone and Decho decided to offerboth businesses and consumers cloud based backup services of allowingusers to securely store their documents externally and be able to accessthem from a web browser from any device.

 The IBM and Juniper  relationship is another evidence of growingimportance of the high performance network in the progression of datacentres towards cloud infrastructure. Both companies agree that high-performance, secure network is vital to the operations of both the datacentre (enabling service production) and the global network.

In another development in the Indian telecom sector, Tata TeleservicesLtd (TTSL) has partnered Novatium Solutions Ltd to launch what is

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said to be the country’s first cloud computing service over wirelessbroadband , ‘Nova Navigator'. The Navigator is being described as a ‘zeromaintenance' access device with features such as 3G support and plugand play printer support and multimedia support. Amit Sinha Roy, VP of 

marketing strategy at Tata Communications, told journalists and analystsat NetEvents’ Asia Pacific conference in Langkawi, Malaysia, that theconglomerate giant was betting that enough small and medium-sizedbusinesses in Asia would take up the company’s cloud offerings to make

 Tata’s investment in new datacentres profitable.

Strategic Alliance across the world (outside India)

Verizon Communications, the second-largest telecom operator in theUS, disclosed plans to acquire IT infrastructure and cloud servicesprovider Terremark, for $1.4 billion in cash. The proposed acquisition of 

 Terremark is the largest purchase by Verizon since it acquired MCI in 2005for $6.8 billion, and that alone is a pretty telling statement. Companiesdon’t toss around this kind of coin unless they’re serious about grabbing apiece of a market that they know is critical to their overall strategicdirection.

Time Warner Cable announced that it has acquired Navisite, aprovider of enterprise-class hosting, managed application, messaging andyou guessed it – cloud services. The $230 million acquisition brings anadditional 10 data centers into the Time Warner family but most

importantly “provides us [Time Warner] with a successful managedservices business and a new, innovative managed cloud platformrepresenting significant growth opportunities... for small and mediumsized business.” said Time Warner Cable Chairman and CEO Glenn Britt.

In Canada, a strong and significant build-out of pure cloud-basedprograms and portfolios was announced recently as MTS Allstream,Canada’s largest all-business carrier staked its claim in the market withthe launch of a Cloud Data Protection Portfolio including its CloudReplication Services.

Australia’s Macquarie Telecom announced its entry into the cloud servicesmarket with a managed, hosted IaaS offering, explain that its decision wasfuelled by an Australian government paper that encourages agencies toadopt public cloud offerings.

Forming strategic alliances with the cloud providers can help telcos tocollaborate, and create a win-win working model through a portfolio of managed services. This will enable telcos to meet the new demands of their customers and will help them focus on their core competencies, and

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leave the backroom operations, and other non-critical services, to thecloud service providers.

RISKS INVOLVED

Cloud computing is still at its nascent stage. The complications and issuesassociated with the cloud have not been fully investigated anddiscovered. Hence, there might be problems-some minor and somecritical. So, it is extremely important for the telecom service providers toproceed carefully and to ensure that they have the right cloud platformand the capacity and security that enterprises will demand from cloudcomputing services.

Security and data breach are among the biggest concerns of theenterprises already on the cloud or are planning to go to the cloud. Mostof the enterprises are still concerned about whether their competitors can

hack into their system and steal the business critical data if the sameservers are used to store their data. To have the appropriate securitysolution as well as to create the right mindset for the cloud is a bigchallenge for majority of the providers. Although the providers are alreadyin a secured environment but whether they will able to provide the samekind of blanket solutions to everybody is also an area of concern for many.Avoiding security and data breaches will be extremely crucial for thesuccess of their cloud computing services. Although security can never be100%, but with the right kind of security solutions and approach buildingstrong security controls to ward off any kind of breaches and attacks ispossible.

Providing the public cloud services seem to be not an extremely bigchallenge for the providers as they already have an infrastructure ready.But owing to the risks involved, many enterprises are opting for a privatecloud. This means their provider gives them their own database with itsown levels of security, which is hosted and backed-up in known locations.In fact, IDC has pointed out that 75% of data center managers will spendmore on private clouds than public cloud computing until at least 2012.Although private clouds are a safer option for the enterprises, but it canbe a major challenge for many of the providers as it would also meansmajor shift from their core business model of providing public services to

private.  The enterprises are clamouring to develop an industry-wide action toestablish good practices which can act as standards. It would be animportant step to assure the IT managers and would also encourage amuch faster rate of adoption in the industry. But even this can be a bigchallenge and risk for the telecom service providers. The telecom industryis already besotted with standards and regulation, adding a new standardwould not only mean a lot of investment but would also lead to additionalworkload.

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In the area of mobile cloud computing, connectivity and speed are theprimary areas of concern. Despite the industry's excitement andpossibilities about this sector, the fear that still looms is whether the cloudcomputing infrastructures will be able to handle the increased demand.

But this should not prove to be a damper for telecom service providers.An exponential increase in mobile cloud computing would mean highertraffic but it would also mean increased revenue for service providers;hence upgrading the mobile networks to meet such demands would notonly be a smart move but would ensure an additional flow of revenue.Supporting mobile cloud computing applications can be a big challengebut service providers can offer integrated networking, storage, andinfrastructure to ensure seamless connectivity and high bandwidth. Byoffering self-service solutions to help manage their services and devicesthe providers can address concerns over security and reliability. Inaddition, telecom service providers can make mobile cloud computingmore affordable and profitable with layered pay-as-you-go models.

CONCLUSION

Majority of the telecom service provider has a huge computinginfrastructure running different and multiple complex applications thatmanage different aspects of the service. Telecom service providers areincreasingly looking towards the cloud as transforming their infrastructureinto clouds can reduce internal computing resource needs and release theexcess for customers' use. It not only reduces internal costs but alsoincreases revenue; hence it's a profitable and no loss scenario for the

telecom service providers. The new entrants in the arena are even more excited because cloudcomputing enables them to spend less on infrastructure by making itpossible to share the resources and use more efficiently and effectively.Hence, it lowers the telecom service providers' costs and even allowsthem to offer additional pay-as-you-go computing services to theircustomers.

As virtualization and data center technologies and characteristics mature,majority of telecom applications will move into the cloud environmentwhile others will likely be delivered as Software as a Service (SaaS). This

will not only be a huge and positive step for the telecom service providers,but it will also be beneficial for the vendors offering managed servicesofferings. In fact, looking at the type of control the providers have overtheir equipments industry experts have stated that they are wellpositioned to address many of the concerns that relate to cloudcomputing, and ensure secure quality-of-service (QoS) connectivity.

 The opportunities and benefits are enticing the providers to go to thecloud, but additionally they should also be aware of the risks involved.Issues like security, availability, regulatory and compliance, performanceand excess capacity usage might prove to be a damper. To avoid such

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issues, proper planning and strategies, processes and appropriatepolicies, and great service management plans are required. It isimperative to have the processes and policies in place before going aheadwith cloud implementation as a failure of one component can collapse the

whole system.An important thing for the telecom service providers is to be aware of allthe potential revenue generating strategies for their cloud computingbusiness. Another equally important part is to be able to predict IT serviceperformance and determine optimal configurations to assure availabilityand minimize cost while meeting demand. Hence the providers will reapthe benefits by IT optimization (via both resources and capabilities) andalso exploit new business opportunities. In addition, there will be aparadigm shift in the revenue model as cloud computing customers preferpay-as-you-go services to being locked into contracted hosted services,

and the providers should be ready it.

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