Cloud-enabled telco opportunities

April 2013 Table of contents

Executive summary………………………………………1

Cloud services: an opportunity and a threat………2

Where to play in the value chain?……………………5

New business requires new capabilities……………9

The telco transformation journey—steps to success………………………………………………… 13

How PwC can help…………………………………… 16

Contacts………………………………………………… 18 Executive summary

• The shifting information and operating model, could carve out a developing key performance communications technology differentiated and attractive offering indicators (KPIs) that focus on (ICT) landscape has placed to small and midsize businesses customer value rather than siloed greater revenue and profitability (SMBs) and enterprises. product revenues, and putting pressure on telecommunications in place an industrialised service operators (telcos) than ever • However, cloud delivery requires a creation process. before. Technology vendors are fundamentally different business cannibalising telco revenues with model compared with current • As cloud demand continues to grow over-the-top offerings, and forging managed services in business- rapidly, many telcos have been customer relationships with value- to-business (B2B) settings— active in mergers and acquisitions added services. More than ever characterised by a high degree (M&A) to build these capabilities, before, telcos are challenged with of self-service, automation, and supplemented by organic the need to evolve beyond network repeatability in the end-to-end investments to drive automation, connectivity and provide distinctive operating model. repeatability, and a service service offerings – into the rapidly focus. Furthermore, striking up a growing technology services market. • Telcos have traditionally been weak professional services partnership in these capabilities, suffering can help accelerate and strengthen • Fortunately, telcos are well from complex and bespoke telcos’ capabilities in this area positioned to offer a number of services that hinder their ability to compared with systems integrators. cloud services, such as becoming standardise the service proposition. cloud brokers by aggregating Furthermore, they now face • There is no easy or quick route on services, platform enablers by challenges in migrating to a fit-for- this journey, but by putting in place providing an ecosystem to leverage purpose cloud operating model, the right building blocks, telcos telco assets, enterprise enablers by due to a complex legacy of multiple have the opportunity to develop optimising secure networks, and networks, an overly fragmented a strong, differentiated cloud business enablers by providing product set, and disparate proposition that few competitors industry -ready solutions across supporting tools and processes. will be able to match. The prize the value chain. Telcos are also is to participate in the dramatic ideally positioned with their • To pursue these new opportunities, value shift that is taking place in distribution networks, retail stores, telcos will need to undertake a enterprise ICT and to gain revenue customer care relationships, billing transformation journey to build growth by taking share from other capabilities, and partnerships to the appropriate operating model. players in the eco-systems that will develop an ecosystem that simplifies A key question will be whether deliver cloud based services. The the selection, management, and they can continue to evolve their uncomfortable reality for telcos is optimisation of cloud services to existing operational model for that the risk of not participating is business customers. serving B2B customers or if building relentless commoditisation of the a cloud business might require B2B communications business. • Telcos that can create a compelling them to forge something new. end-to-end cloud proposition Changes required to implement this that integrates their network transformation include building management capabilities, supported professional services capabilities, by an agile and service-oriented instilling a services-oriented culture,

Executive summary 1 Cloud services: an opportunity and a threat

Telcos’ eroding position The telcos’ profitability was diluted over a portfolio that was too broad, There is a burning platform for telcos too deep, and over customised. playing in ICT. The percentage of Growth was achieved with insufficient worldwide ICT spending attributed discipline in portfolio management, to telecom services has been steadily reuse of solutions, and repeatable decreasing—from 48% in 2010 to 46% delivery and service management in 2012. Telecom services spending capabilities. As a result, compared will continue to trend downward and with the large IT services providers is projected to comprise only 44% of and providers that originated from overall ICT spending by 2016. Between the managed hosting sector, telcos’ 2011 and 2016, the telecom services ICT capabilities were costly and market is expected to only grow at a complex, and customer service, compound annual growth rate (CAGR) often, unpredictable. of 1.9%, compared with the overall IT 1 spending growth of 3.4%. The promise of cloud At the end of the 1990’s the pursuit According to Gartner, “global spending of ICT growth brought complexity on public cloud services is expected to telcos seeking to escape the to grow 18.6% in 2012 to $110.3B, commodity trap of a “vanilla network” achieving a CAGR of 17.7% from 2011 by providing managed or outsourced through 2016. The total market is network services and expanding into expected to grow from $76.9B in 2010 adjacent ICT segments. While some to $210B in 2016.”2 Furthermore, US telcos successfully used this strategy CIOs expect cloud-related investments to capture new revenue growth, they to increase from composing only 5% often failed to deliver acceptable of their overall ICT spending in 2012 financial performance from their to 13% in 2016.3 This market clearly B2B ICT businesses. provides an attractive potential new

1 John-David Lovelock “Forecast Alert: IT 2 “Forecast Overview: Public Cloud Services, Spending, Worldwide, 4Q12 Update” (Gartner, Worldwide, 2011-2016, 4Q12” (Gartner Research, Market Analysis and Statistics, January 2013), Update Published: 8 February 2013), http://www. http://www.gartner.com/id=2291618 gartner.com/id=2332215 3 “Cloud Investments Will Reconfigure Future IT Budgets” (Forrester Research, Inc., January 2013) http://www.forrester.com/Cloud+Investments+W ill+Reconfigure+Future+IT+Budgets/fulltext/-/E- RES83041

2 Cloud-enabled telco opportunities source of revenue for telcos to replace bespoke features and contracts have the enterprise-wide network service revenue reductions in traditional voice led to a business model that seems levels that corporate customers need. and data services. to rely on a culture that is always Telcos can be positioned to take the on the edge of being out of control. lead, given the reach of their networks As customers become more The result has been a patchwork of and their ability to manage large accustomed to consuming ICT process and systems fixes to get a new communication and hosting centres. through cloud delivery models, service launched. Identifying and delivering the right the cloud market will increasingly combination of services that creates a cannibalise legacy delivery models Once the business allows contracts that unique customer experience will be the for ICT. Telcos have faced disruptive have non-standard aspects to enter the key to their success. technologies in the past—Voice- system, then additional costs emerge over-IP (VoIP) cannibalising public to cope with the extra requirements. That may be the case, but if the switched telephone network (PSTN), Problems often then emerge during march towards cloud continues, then and standard Internet Protocol (IP) contract delivery and operation customers will increasingly look to networks cannibalising expensive because the operational model does providers that have demonstrated the legacy network technologies. Some not have the right processes, tools, capabilities to offer all of the benefits telcos have acknowledged the need and third-party agreements in place of cloud, in a manner that is simple, to sacrifice legacy service revenue to to execute the non-standard features. repeatable, and that scales with their better meet the needs of customers. Taken to the extreme, the operational needs for cloud services. Unfortunately As an example, Orange, Telefónica, function becomes a best endeavours for telcos, this is where they have fared and Deutsche Telekom all released effort where it cannot confidently less well: in their ability to modify applications (apps) in 2012 that predict what service level agreement their existing delivery flow, develop provide access to free voice calls (“SLA”) it will deliver against, leading the appropriate automation, and and short message service (SMS) to a growing volume of service credits streamline their processes and systems. through an over-the-top (OTT)-based and contract target failures. Dynamically changing operations to service across multiple networks and a more predictable, repeatable model operating systems. To transform from an old operating that is driven by profit creation and model and implement a new, more not just incremental revenue is not a If cloud is destined to become as efficient operating model is a trivial task for telcos that have a legacy ubiquitous as other disruptive changes, daunting and difficult task. There are network services business. then should telcos embrace a new organisational, process, and product business model for cloud and actively management and overall infrastructure This reality risks relegating the telcos migrate their business models towards transformation challenges that to commodity status. Owning the it, rather than follow a wait-and- eventually prohibit the delivery network may not be enough to justify see approach? of services through an agile, cost- being the cloud provider; if others effective environment. are doing a better job of realising From ICT to cloud services the benefits of cloud, customers may Cloud services, the telcos will argue, Telcos have successfully managed wide just allow the provider to buy the are nowhere near as diverse or area network (WAN) propositions, connectivity to link their service to complex as the managed networks that but the step beyond that—into deeper the customer’s infrastructure. For they have built for their customers. outsourcing or specific managed telcos to gain an advantage, they Telcos are well positioned to serve the services for customers—often should expand their current smart B2B cloud market, because they own resulted in bespoke features that network management environment the network upon which the cloud are not part of the standard models into their cloud management and applications and services are delivered. telcos can repeatedly deliver. These delivery infrastructure. They have experience in providing

Cloud services: an opportunity and a threat 3 The emergence of cloud as the Success requires change In terms of service development, mainstream model for ICT will amplify standardised services (within In the rush to capture this the need for operational excellence Infrastructure as a Service [IaaS], opportunity, many telcos are and a seamless end-to-end operating Platform as a Service [PaaS], and adopting an incremental rather model that enables a high degree of Software as a Service [SaaS]) should than a transformational approach automation, customer self-service, be created so they can be provided to delivering cloud propositions. and proactive management to limit individually but will deliver more Companies deliver new services any outages. Telcos will not be able value as part of a bundled, end-to-end through existing operating models— to rely on adding more people and proposition (the whole proposition and they are using the legacy sales, workarounds to manage their portfolio should be greater than the sum of implementation, and customer service of customer contracts. Many new, the parts). approaches without consideration of best-of-breed cloud providers—distinct the capabilities required by cloud. from the telcos—are establishing Cloud provides the business case for telcos to develop new, service- a track record in the repeatable Telcos need a new business model oriented businesses that will operationalisation of well-defined, centred around cloud and the position them well for the new era of specific services. capabilities required to deliver cloud. enterprise ICT demands. The current For the transition from legacy ICT Big questions cloud propositions from telcos are to cloud business to succeed, telcos predominantly a standalone reselling Cloud will change the way many will need to implement four key of solutions from other technology businesses operate in the coming years. organisational changes: vendors. The challenge for telcos It will redefine the role of the CTO and is to go beyond just reselling these the IT function within organisations, • P&L reporting lines and solutions and to genuinely integrate and equally it will redefine the way in performance metrics should be this new capability with their legacy which these organisations purchase redesigned to allow cloud services network, creating and cementing from their service provider. to cannibalise existing legacy services where this shift is driven the telcos’ advantage in the cloud The big question for telcos is, by customer demand. market by virtue of their network recognising the lessons from previous skill. Otherwise, telcos risk providing business ICT initiatives, how should • Key customer relationships must nothing more than a commodity they exploit this opportunity? What be managed centrally to avoid service, and customers will quickly roles should they take in the value being isolated by legacy business discern towards innovators and chain (vis-à-vis OTT providers), and units (BUs). procure networks separately. how should they reconfigure their This last point is the greatest hurdle for operating model to address it? • Key capabilities must be shared and leveraged across the cloud and telcos to overcome, but this challenge legacy businesses. For example, presents a significant opportunity to the network infrastructure will reinvent the way they deliver services. potentially be the greatest source of They have an opportunity to shift from competitive advantage for telcos to a network-oriented to a customer- deliver cloud alongside pure-play oriented organisation. providers and IT companies.

• Consulting capabilities are required to help customers make the transition to cloud.

4 Cloud-enabled telco opportunities Where to play in the value chain?

The market for B2B enterprise This perception makes evident that the solutions is still dominated by legacy legacy service providers lag behind the services residing on the premises. smaller, pure cloud players in driving However, this delivery model is cloud propositions. There are two key gradually changing, and 41 percent of reasons for this lag: companies now deploy some form of cloud services.4 • The existing business model— resistance to changing existing The developed world is rapidly moving business models and concerns about towards an anything-as-a-service cannibalising legacy products state of computing, where cloud emerges as the dominant way to • The existing operating model— provide infrastructure, applications, failings in the existing operating and solutions—characterised by model to realign and redeploy an off-premises, self-service, opex the capabilities model of delivery. Although this concept is not new, the reality is now As discussed in the previous section, a short-term rather than a long-term these problems are especially true for paradigm—the majority of workloads telcos. Their existing models centre will be ready for delivery over cloud upon the network layer and require within three years—and one that will much greater adaptation to deliver contribute significant revenues to those cloud services. service providers that can become The transition to cloud is hampered preferred suppliers. partly by supply-side obstacles—the Over 50 percent of IT Outsourcing entrenchment in existing business customers surveyed view specialist models and operating models—and private cloud vendors as the preferred partly by demand-side concerns suppliers of cloud services in three years.5

4 “The future of IT outsourcing and cloud Computing” (PwC survey based on interviews with 489 business executives, November 2011). http://www.pwc.com/gx/en/technology/cloud- computing/index.jhtml 5 “The future of IT outsourcing and cloud computing” (PwC survey based on interviews with 489 business executives, November 2011). http://www.pwc.com/gx/en/technology/cloud- computing/index.jhtml

Where to play in the value chain? 5 around the difficulty of transitioning, Current enterprise cloud service the cost, and the implications of cloud providers can be allocated to one of for access, security, and reliability. four categories:

Suitability for cloud Category Existing business model service delivery Systems integrators and • On-premises, integrated delivery IT outsourcers • Hardware focused Telcos • Bespoke service • Network focused Hosting providers • Self-service model of delivery • Data centre focused OTT providers • Standardised, mass-market offering • Delivered over the top • Software focused

The telcos’ model for legacy A review of cloud service providers by services lacks the integration and PwC and leading analyst reports (such standardisation required for cloud as Gartner) reflects that telcos are yet delivery, and telcos therefore face a to be seen as key players in any of the greater challenge than any of their cloud layers through their existing competitors in transitioning to a cloud business. Their presence as leaders in solutions delivery model. cloud infrastructure has been made possible only through acquisitions (see emboldened companies in the following table).

Service providers ranked “Strong Category “Leaders” Performers”/”Challengers” Software6 IBM, Microsoft, Salesforce.com Cisco, Citrix, Google Platform6 Salesforce.com Cordys, LongJump, Microsoft, WaveMaker Infrastructure7 Amazon, CSC, Dimension Data Bluelock, GoGrid, Joyent (acquired by NTT), Savvis (acquired by Centurylink), Terremark (acquired by Verizon)

6 “Analysis of vendor propositions and analysts opinion” (PwC 2013 US technology M&A insights, February 2013). http://www.pwc.com/us/en/transaction-services/ publications/US-technology-mergers-acquisitions-2013. jhtml 7 “Magic Quadrant for Infrastructure as a Service” (Gartner, October 2012) http://www.gartner.com/DisplayDocument? ref=clientFriendlyUrl&id=2204015

6 Cloud-enabled telco opportunities The opportunities for telcos B. Mobility solutions—Work with E. Service enabler—Complement mobility development teams to core infrastructure, software, and Before embarking on a process of create integrated solutions in platform capabilities with other transformation, telcos must identify the cloud with mobile and non- assets and processes (e.g., data the type of cloud provider they wish mobile applications. analytics and network application to be, as different roles will demand programming interfaces [APIs]) and different sets of capabilities. C. Industry-specific solutions—Work provide them to third parties so they with customers and partners to PwC has identified the following can better deliver their own services deliver industry-specific solutions opportunities for telcos in the cloud- (application development, content across the value chain (i.e., enabled world: delivery, revenue assurance through solutions for highly secure and operator billing, etc.). A. Repackage existing capabilities— regulated industries like healthcare Leverage existing hosting and and financial services, or solutions F. End-to-end integrated networking capabilities to develop for industries with high content- propositions—Connect some of and deliver cloud infrastructure streaming, etc.). Also team with the services above the network and storage services. These professional services companies layer (that is, software and business services will be required for any that can provide industry- processes) into the network so they other functionality that moves up specific expertise. are standardised and integrated the cloud stack (i.e., PaaS, SaaS, into the network, and then the D. Cloud broker or aggregator— BPaaS). Utilise existing business operator can change the definition Aggregate public cloud services services and operating functions of what the network provides. The and provide some quality of service that can be repurposed and operator can push the network (QoS) or security assurance delivered as a cloud service (e.g., boundary upwards. (network performance optimisation, billing). Position the new business data security). as a platform enabler—build horizontal and/or vertical cloud enablement platforms that can protect and monetise the network, infrastructure, product, and data assets by providing an ecosystem to leverage those assets.

Where to play in the value chain? 7 These opportunities can be viewed against the telco’s evolution from a traditional network-centric provider towards a service-centric, end-to-end cloud provider with a converged product offering.

Traditional telco End-to-end cloud player C Industry vertical F A solutions Service-centric Externalising B existing capabilities Mobility E end-to-end Software (e.g. billing, data solutions Service enabler propositions analytics) Legacy applications D 4. Integrate A Cloud broker E IaaS and converge BPaaS propositions Data provider centres A E Security PaaS Infrastructure Managed assurance C 3. Aquire new Industy hosting capabilities A expertise QoS

A IP Cloud migration 2. Develop network support existing capabilities Network-centric for cloud

Managed hosting support and integration 1. Existing Network capabilities Middleware Consulting

A Repackage existing capabilities B Mobility solutions C Industry-specific solutions D Cloud broker or aggregator E Service enabler F End-to-end integrated propositions

All of these opportunities should as-usual basis to migrate to cloud is • Customers as partners—Develop be viewed in terms of the desired probably not a realistic route to success partnerships with customers customer segment and telcos’ against the new entrant specialist to gain unique insights into the capabilities. A customer shift towards cloud service providers that don’t development of services that can cloud offers telcos the opportunity have a complex legacy to protect be industry specific and provide to transform their business model, or transform. the opportunity for shared building a new fit-for-purpose platform revenue models. that grows with increasing cloud To access new capabilities and gain the adoption and gradually replaces scale required for global cloud services, • Professional services firms as the legacy business approach. This telcos will need to consider strategic partners—Work with professional transformation opportunity includes partnerships. Depending on the type of services firms, which typically have the potential to redefine the way partnership, new avenues of revenues keen insight to telco operations telcos offer service to their corporate can be identified and implemented. and services. They can combine customers. Given that telcos have that knowledge with their ability to been wrestling with the profitability, • Technology partners—Develop access their firms’ multi-industry complexity, and lack of transparency partnerships with key technology expertise and C-level insight, in their B2B businesses for the last solution companies, and integrate and they can work with the telco 10 years, continuing on the business- their services into the overall telco to define products and services network and cloud structures. that can be jointly marketed and sold to directly address specific industry issues.

8 Cloud-enabled telco opportunities New business requires new capabilities

Based on our experience of best • Customer platform or portal for practice companies, to successfully self-service management implement and operate cloud services, a telco needs the following • Applications solutions architecture minimum capabilities: • A services management and • Secure, reliable data storage distribution environment

• Customer care or support • Professional services to support clients on their migration journey • Integrated and highly automated towards cloud order-to-cash process • Sandbox environment for • Access to quality network apps testing and integration provisioning with the ability to into a network (a sandbox guarantee a high level of availability environment can be viewed as a (for example, greater than PaaS environment) 98 percent) • Vendor and channel partnerships A further set of capabilities will become increasingly important as • Broad solutions catalogue, including companies look to transition more of third-party cloud applications their workloads to the cloud and seek a more enhanced, integrated service: • Service integration framework providing end-to-end visibility and quality of service SLAs

New business requires new capabilities 9 Cloud services Service Customer Transition & Leveraged Strategy Create demand operating model creation design implement service delivery

Integrated and highly Secure reliable To successfully implement and automated order to data storage operate cloud services, a provider cash process requires these minimum capabilities. Customer care or support

Access to quality network provisioning

Customer platform or portal for Applications solutions architecture self-service management

Service integration framework providing end-to-end visibility and quality of service (QoS) service level agreement (SLAs)

A services management and distribution environment

Professional services to support clients on their A further set of migration journey towards cloud capabilities will become increasingly Sandbox environment for apps important as companies look to Vendor and channel partnerships transition more of their workloads to testing and integration into a network the cloud and seek a more enhanced, integrated service Broad solutions catalogue

Telcos are stronger in some of these • Management services— • Scale and scope—Telcos are able areas than their tech competitors, Larger telcos currently provide to act as a single point of contact and vice versa for some of the comprehensive management for a multitude of vendor partner other capabilities. services for their hosting and products and services. other telco-related WAN services Telcos are stronger in the (e.g., managed data services) • Distribution channel—Telcos following areas: typically have more established IT • Existing partnerships—Large customer relationships and are able • Network and hosting services— carriers have teamed with to up-sell and cross-sell more easily. Telcos have the ability to guarantee technology vendors to leverage specific levels of quality through their capabilities to deliver a cloud ownership of the network. Smaller self-managed environment. carriers may need partnerships to extend the reach of these services.

10 Cloud-enabled telco opportunities Telcos need to improve in the • Legacy product constraints—The For many telcos, it will be easier to following areas: legacy of the proliferated products build a standalone system and process is strong and restricts telcos to a stack for their cloud proposition and • “Network blinkers”—Telcos tend set of processes and systems that migrate their legacy products onto to analyse all situations from an limit their progression to cloud it, rather than reengineering their infrastructure perspective. Instead, (particularly true for multinational existing systems and processes. they should treat all cloud activities corporate clients). as an enterprise architecture To rapidly gain the capabilities they exercise and consider the multiple • Lack of simplification—Products do not possess, telcos will need dimensions of a client problem. and services are convoluted and to form partnerships and conduct This enables them to deliver more unbundled, which is not appealing mergers and acquisitions to ensure than infrastructure. to the smaller and midsize B2B they can deliver a competitive set of customers. Telcos can offer out-of- cloud propositions. Telcos will need • Inability to leverage existing the-box operational capabilities to use these acquisitions to build a capabilities—Despite clear such as distribution, retail, customer coherent cloud business. However, it synergies between emerging cloud care, and billing (which most other should be noted that integrating these propositions and the services cloud providers targeting the SMB acquisitions into the core is certain to already delivered by telcos, the segment cannot offer); however, destroy them, so the telcos will need to telcos are failing to capture this telcos are currently unable to act use these acquisitions as the kernel of a opportunity due to: as cloud brokers or aggregators to new integrated business model. structure service offerings into −−Capital constraints for R&D SMB-friendly products. A selected overview of M&A activity −−Complex organisations (e.g. during the last few years shows separating IT-related initiatives • Brokering—Telcos should create how the size of the investments is from non-IT initiatives) an environment where the telco increasing. Telcos are prepared to becomes the integration point make even bigger bets as they realise −−The inability to integrate for customers requiring multiple the need to push into the IT space. complex services because interfaces, applications and network of different product and services through a single point. marketing organisations As stated earlier, the partnerships −−The inability to communicate that telcos develop combined with between internal telco business their infrastructure can position and client organisations, the telco as a hub for the trafficking which leaves potential service of services. opportunities untouched −−The inability to see the bigger, longer-term opportunity

New business requires new capabilities 11 Timeline of selected acquisitions by telecoms operators in the global ICT sector

INS Group Frontline System integration Lynx PT. e-Metrodata

Basilica Telemarketing Prague IT Diwan Groupe outsourcing SCS

INS Itelligence Alphawest Dimension Data Superclick CS Groupe Silicomp Moorehouse Consulting

Telemergencia Intelgroup Cybertrust* US-I Integralls Keane CloudSwitch

PacketVideo Software Neocies OpSource Interwise Alsy Hughes Telematics M vision acens Ja Jah Comsat Data Mobiles Infrastructure Wire One* NetmagicSolutions /hosting Terremark Savvis, inc.

GTL Network

Jun-06 Oct-06 Jan-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Jul-11 Oct-11 Feb-12 Jun-12

Acquisition date

AT&T BT CenturyLink NTT OBS Singtel Telefónica Verizon

Deal size=$100 million

Note: Dimension Data, Terremark, Keane, and Hughes Telematics are represented at 50 per cent of acquisition value to fit onto the chart Source: MergerMarket, press searches, August 2012

12 Cloud-enabled telco opportunities The telco transformation journey— steps to success

Whether a telco decides to reengineer identified eight key changes telcos the existing operating model or to should make to reposition themselves set up a separate function to provide to optimise their cloud propositions. cloud services, the traditional telco These eight changes should be model is not well suited for a cloud viewed in the context of a longer- model and therefore extensive term transformation: changes are recommended. PwC has

Step 1. Fix the basics 1. Service creation—A standardised service catalogue is a critical element of delivering services profitably. The service creation process facilitates this standardisation by defining the architecture, process, and outputs to be followed. With such a process, telcos can rapidly respond to the changing needs of the cloud market (for example, dynamically orchestrating new processes based on new cloud-based applications with a time to market in weeks—not months). Extensive participation will be required of product teams, IT and networks engineering, and service delivery. This continual process will take time to mature. The primary challenges are to set up the process and then be disciplined about ensuring all service development goes through the process.

2. Reporting tools—Reporting tools are critical to provide management with financial and operational visibility of the end-to-end service. This visibility enables them to identify service and portfolio improvements and ultimately can be productised to allow greater customer control, such as through a self-service portal.

The telco transformation journey—steps to success 13 Step 2. Build the capabilities 3. Professional services capability—Telcos will need to recruit for solution selling, demand creation, identifying and implementing a complex transformation, and maintaining CxO relationships. Offering professional services requires specific expertise that is not widely available. Therefore, both internal development and selective recruitment likely will be required. This development and recruitment will take time, and telcos will be competing against the market for these capabilities.

4. Integration of network management capabilities—Such integration will be a potential differentiator for telcos against IT and pure-play competitors. To develop cloud services that utilise and leverage telcos’ networks, core engineering capabilities must be applied in a customer-centric world. This approach will require new tools and adding new responsibilities to traditional network operations teams.

5. Strategic partnerships—Telcos need to build a broader cloud ecosystem with industry and technology partners to be able to provide end-to-end service. Telcos can position themselves as cloud brokers or trusted partners. This positioning will also be important to achieve speed to market, rather than taking an organic build approach. However, negotiating and implementing strategic partnerships will take time; therefore, telcos need to build a strong commercial and technical model covering the identification, negotiation, and management of partners.

Step 3. Transform the operating model 6. IT changes—Telcos need to improve their customer service experience by building automated self-service ordering, provisioning, reporting, and billing systems. Cloud solutions developed for customer propositions must also be tested, consumed, and optimised for in-house use. Although ICT competitors lack network integration, they already have mature capabilities in IT infrastructure and are therefore able to implement more automated and efficient system processes

7. Change management—Cultural change should be implemented as part of a broader programme to address a range of change issues: from product to service focus, from technology-out to customer-in, from selling to procurement to selling to CxOs, and from centralised to distributed (including offshore) teams. Selling services should be viewed as an end in itself, rather than just supporting the telco carriage business.

8. Single P&L—Services also need to be profitable and not just sold to support the carriage opportunities. Services and carriage should be measured through a single P&L, and services should be priced economically rather than discounted to protect carriage margins.

14 Cloud-enabled telco opportunities Lessons learnt: Telcos To seize the opportunity to play a progressing on the strategic role in this new market, transformation journey telcos will need to offer value-added capabilities on top of their network To rapidly build ‘new’ capabilities and management capabilities. Deutsche accelerate the transformation, telcos Telekom, for example, already is will likely need to acquire current delivering some videoconferencing cloud providers. For example, the services through the cloud. Telcos NTT-Dimension Data acquisition must act quickly to benefit from their brought together cloud solutions and competitive advantage in network data centre infrastructure as well as an management; otherwise, they risk IT entrepreneurial culture. The Verizon- and pure-play competitors gaining Terremark acquisition added data a stronghold amongst their existing centre capacity. customer base. To address cloud services further from core (but commoditised) IaaS offerings, strategic industry partnerships will need to be forged. Examples include the AT&T-IBM partnership for network-enabled cloud services that combine network security and private connectivity from AT&T and an enterprise cloud platform, and the OBS-SITA partnership for air transport industry cloud services.

The telco transformation journey—steps to success 15 How PwC can help

At a time when telco services and cloud We leverage our relationships technology offerings are becoming and credibility with the CXOs of commoditised, PwC believes the key to the companies we serve and have the telcos becoming relevant is to build combined those relationships with our strategic partnerships with technology existing joint business relationships. and professional services providers. The union of the two has created a culture of collaboration that generates PwC has developed a methodology a set of unique solutions for our and approach for assisting telcos customers and partners. We believe with the identification of new this partnering model will enable service opportunities by industry, telcos to develop more targeted whilst identifying the appropriate cloud solutions that offer the ability partnerships where and when for reuse. applicable. We bring to this methodology our deep understanding of all of the major industries.

Entertainment, media, Financial Retail Healthcare Federal and communications services

PwC performs Assess/uses cases assessment and feasibility

Validate business opportunity with global strategy PwC engages with Work with product realization team to validate operators and partners to develop and deliver a solution Work with business/consumer team to finalize use case across the ecosystem Work with partners to develop and deliver solution

16 Cloud-enabled telco opportunities Contacts:

Pierre-Alain Sur Soo-Kiat Loo Global Communications Sector Leader Director PwC US PwC US +1 646 471 6973 +1 703 918 3204

Rolf Meakin Joseph Tagliaferro Global Communications Advisory Director Leader PwC US PwC UK +1 908 391 0409 +44 20 7213 1707

Mike Pearl Oliver Thomas US Cloud Computing Leader Manager PwC US PwC UK +1 408 817 3801 +44 20 7804 6161

John Chan Jasmin Young Senior Manager Director PwC Australia PwC US +61 8266 2220 +1 408 221 5588

Cledwyn Jones Director PwC UK +44 20 7804 7698

Contacts 17 www.pwc.com

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