Telcos face challenges in cloud space

Despite their eagerness to join the growing fleet of cloud service providers, some industry experts still believe telcos will struggle to effectively leverage commercial opportunities in the enterprise ICT market.

One expert from McKinsey who frequently consults with telcos globally told an audience of IT, telecommunications and datacentre specialists at the Enterprise Cloud Forum in Monaco on Tuesday that her firm expects telcos to reap just five to ten per cent of the overall cloud market’s potential value going forward.

That’s a tiny chunk of a market swelling at 20 per cent CAGR according to McKinsey’s research, surpassing $30bn in just a few years.

“What we’ve seen is telcos have uniformly not met the challenge of using cloud as a growth vector,” said Kara Sprague, a partner at international consulting firm McKinsey & Company.

“And when they move into ICT services, largely what’s happening is they’re spending a ton of capital and not reaping any of the benefits of that spend.”

Most telcos worldwide are looking for additional growth as their voice revenue continues to falter. But replacement of that revenue with data streams has so far not occurred on par with expected levels, causing many operators to look to the enterprise ICT market for growth.

Many have started to offer their own cloud services in addition to reselling other cloud services like Office 365, Box and Salesforce. Some have also joined open source enterprise cloud technology projects, dually in a bid to back cloud standards development as well as be seen as a credible player in the market.

Sprague explained that if telcos are likely to succeed in the cloud space it will be in the infrastructure as a service space and not as much in the software market, primarily because operators are more experienced in providing datacentre services than designing and engineering software.

She said telcos that have succeeded in the cloud space have done so either by spinning off their own digital services organisations where the necessary skills can be cultivated and leveraged, and / or by leveraging the trust of its customers as a single service provider in order to get them to pivot towards procuring cloud services directly from them.

“There’s a lot more trust in telcos in Europe than there is in North America and I think telcos can definitely leverage this,” Sprague said. “But the reality is when you need a cloud service you don’t need the middle man to get it, you can go direct to the provider. So unfortunately it’s not a very rosy outlook for telcos.”

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Some, however, aren’t so pessimistic. Jean Philippe Alfonsi, chief sales and marketing officer of Monaco Telecom, which recently partnered with datacentre operator Interxion on the creation of a carrier-neutral cloud hub said that telcos can effectively leverage partnerships with incumbent datacentre providers to help attract high-growth companies to their platforms.

“Our size doesn’t really allow us to offer every enterprise cloud service businesses are asking for,” he said. “This is why partnering with a datacentre expert that can help us leverage our network as well as interconnection, which is helping us attract high value businesses to the network and Monaco generally.”

Monaco is currently the landing for a submarine fibre cable coming from India but Alfonsi said four more will be implemented over the next 18 months, which he said will bolster the company’s ability to attract high-value, high-growth customers including SaaS providers themselves.

He said the company is seeing more and more e-commerce companies host their platforms in the datacentres of its partners, and is looking to attract software as a service providers to its infrastructure.

“Interconnectivity is really something we can leverage for startups and SaaS companies, it’s valuable to them,” he said