Manuel Gallo heads up business development for cloud computing at Japan-based vendor NEC. With Spanish carrier Telefónica onboard as the company’s first big operator client, Gallo runs a cloud computing competence centre out of Madrid, which develops platforms for EMEA and Latin America. Here he speaks to telecoms.com about opportunities that have emerged from the cloud.

Why the sudden flurry of ‘cloud’ initiatives in the telecoms sector?

The cloud concept has been out in the market for only about two or three years. Almost all companies have embraced it somehow, maybe it’s only for marketing or maybe it’s actually a real strategy, and there are many definitions, from pay-as-you-go services to unlimited resources. Different people perceive different things about what the cloud is.

Take the consumer cloud for example, like Amazon, Google, or even Facebook. Sometimes these clouds can be used from an enterprise perspective, like people who need more processing capacity for just a weekend. There are no SLAs and these are not really an enterprise service. If they were, they would be too expensive and difficult to deploy. It’s a best effort model and may be only ‘cloud’ from a technology standpoint. Really it’s just internet services.

But there are now large organisations building data centres and private clouds -private resources and infrastructure that they can access when they need to, in a private environment.

How did you decide on a business model for cloud services? And how did you choose your partners?

What are the basic needs for large scale deployment? You need network infrastructure and bandwidth, then you need users – consumers and businesses. So we looked at who was best positioned in market to provide this and decided that for large scale, widely applicable cloud the carriers are the ones making it possible today. They have high amounts of bandwidth, both fixed and wireless, and big data centre infrastructures. They own the network and they also own the customer relationship. So we started strategically partnering with carriers for cloud business. This is the carrier cloud and within this, you can also have the other two types of cloud – public and private and address all needs.

The carrier’s priorities have a lot to do with their own basic needs to evolve their business. They’re not adopting the cloud not because of fashion but because they need it to make their business sustainable and maintain sustainable growth. They need to protect their existing customers with more than just price offers, they need to provide them with services that tie them more tightly to the carrier.

Carriers cannot keep asking customers to pay more and more each month, so how do they grow ARPU? They can do this by making new offerings or finding something extra like a value added service (VAS) which integrates with their core business. The cost of customer acquisition has gone up so you need to find an easy way to solve this problem and protect existing customers.

So how does a carrier make headway in this space?

Telefónica began offering PC like devices on a monthly basis along with a 3G subscription, so you got commitment through the offer of laptop or whatever, which boosted ARPU. But this is a very expensive model and impacted the organisation in a big way. Then it got very competitive because the carrier is competing with PC vendors in their own market. It’s expensive and difficult to manage.

So you need partners. The average time a carrier needs to implement a third party application into their system is 12-18 months. An operator might partner with NEC, not because of the technology, everyone has technology that works, but NEC already has an understanding of the carrier business and we have a business model for delivering SaaS. We will share the risk and we will share the revenue.

We create a partnership model for three parties: the carrier which owns the network bandwidth and users; NEC which performs the aggregator role and delivers SaaS; and the ISV which delivers its software products to the users. We solve not just technical, but also relationship and contractual issues. Carriers are ready to establish relations with 20–50 ISVs but we are. We do the technical integration and all the payment scheduling and billing for the ISVs.

A carrier may ask us to find new applications for the next quarter and we find those products and ISVs to partner with, and we integrate them and make them available to the carrier. Then the end users already have this existing relationship with carrier and can just add these new services on to their existing bill.

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Listen to the audio interview with Manuel Gallo, head of business development for cloud computing at NEC