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Cloud-Enabled Telco Opportunities

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Cloud-Enabled Telco Opportunities 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
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