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Telecom's three advantages in selling Everything as a Service

Cloud computing has ushered in the era of "Everything as a Service." Network operators need to exploit three advantages as they compete with other "X as a Service" providers selling software, infrastructure, platforms and more as a service.

The momentum behind cloud computing in all its forms -- from Software as a Service (SaaS) through Infrastructure as a Service (IaaS) and Platform as a Service (PaaS) -- has grown dramatically and continues to accelerate.

Cloud computing and the Everything as a Service model could either complicate the over-the-top problem or solve it.

Tom Nolle
CIMI Corp.

But how the "Everything as a Service" (or "X as a Service") trend will affect telecom network operators is far less certain, even though their resources are the ultimate cloud-enablers. Operators worldwide are struggling to plot their roles in cloud computing, SaaS, and the content and customer experiences built with both.

All Everything as a Service offerings have developed thanks to the availability of cheap, high-quality bandwidth. The benefits of consolidating or centralizing complex technology, software and storage are limited if the delivery to the consumer is slow and unreliable.

Increases in technology complexity coupled with improvements in delivery were bound to generate a new set of X as a Service options. The whole problem of over-the-top (OTT) disintermediation -- the creation of service value as a free ride on operator bandwidth rather than as a paying passenger -- was created by the same forces. Cloud computing and the Everything as a Service model could either complicate the over-the-top problem or solve it.

Practically speaking, network operators can't limit their participation in over-the-top cloud computing in any form. Public policy support for an open Internet is virtually universal. In fact, regulatory policy seems to be shifting worldwide to support even more stringent principles of "net neutrality." Operators must therefore either accept a secondary transport role in the emerging X as a Service space -- maximizing their margins in that role by optimizing their practices -- or choose to play a more active higher-layer role. Most will elect to do both.

Three telecom strategies emerge for Everything as a Service offerings

Telecom players have three basic strategies that can be used to differentiate their own X as a Service offerings:

  • Couple these offerings more tightly to the network in order to improve Quality of Service (QoS) and availability and utilize their information about customers to maximize service benefits.

  • Exploit their credibility, which is their potential to provide superior operations and customer support that facilitate the use of their services, and ensure that users remain satisfied with performance.
  • Exploit their superior economy of scale and relatively low return on investment (ROI) expectations to be a price leader in the market.

1. Differentiating on the basis of service quality

In this case, service quality means low delay or packet loss rates and stability of jitter. This is difficult in the consumer market because of the growing interest in net neutrality. In the enterprise space, however, business network services have always been available at a higher price for higher QoS.

For example, operators can bundle cloud computing and Everything as a Service offerings with VPN services. But since VPN services are also available directly, a competitor could presumably either buy the service and bundle in its own X as a Service offering or integrate its offering into a customer-purchased VPN.

Integrating information about the customer (from an HSS database, for example) and exploiting knowledge of network conditions and trends can create a more durable differentiator. In fact, many operators are already looking to create service assets of this type through the general process of creating a new service-layer architecture for their networks. Operators see the service layer as a cloud computing platform on which they can host content, features and applications. The fact that Amazon has now offered its Elastic Computing Cloud (EC2) as a media/CDN platform is proof that cloud computing can be the basis for nearly any future service. By taking a leading role in treating services above the network layer as services of the cloud, network operators can grab an early lead in emerging services.

2. Selling network operator credibility as trusted partners

The credibility of network operators as partners in enhanced services and as reliable sources of technology support may be one of the most important yet overlooked assets that operators have in the Everything as a Service space. The overall trends in the industry toward managed services and outsourcing network operations clearly show that both enterprises and consumers need help with complex technology and are willing to pay to obtain it. They're especially willing to pay trusted partners from past relationships, and phone service is still the gold standard of service availability.

The fact that network operators need to reduce their own operations costs, or at least contain their growth, means that operators are making their support processes even more efficient. As these efficiencies develop, they present what may be the most credible and profitable of all "as a service" opportunities -- "Service as a Service." Over-the-top players, which usually lack any significant support staff, cannot compete here without incurring enormous new costs, while telcos already have significant economies of scale to exploit. By making service and support their differentiator, they take the market to a place where few competitors could ever hope to go.

3. Capitalizing on economies of scale and public utility history

Telcos' ability to offer economies of scale and their long history as public utilities combine to create the final exploitable advantage in the X as a Service market. Centralization of technology for Everything as a Service deployment is an economy-of-scale game in a financial sense, one of the purest examples of this in all of technology. Network operators who use cloud computing themselves for feature hosting and content delivery will create a significant economy of scale in software/server assets. This means that unit costs for telcos will be lower than nearly anyone else could achieve.

An even more powerful financial advantage may be hidden more deeply. Because most telcos and network operators have historically low internal rates of return (total return on invested capital), they can accept a lower ROI on projects than their competitors and still enhance their financial position. The Everything as a Service market may demand massive investments in infrastructure, and being able to accept a lower ROI can mean having pricing power. For enterprise cloud computing and X as a Service offerings, in particular, this can be a decisive asset.

Everything as a Service requires systematic approach

Telecommunications providers have compelling assets in the cloud computing and Everything as a Service market, but exploiting these assets will require a systematic approach to cloud computing as a unified service platform, a new and flexible service-layer architecture to create a service platform on that cloud, and an integrated operations strategy that can not only scale to fill internal needs but can also supply the critical support component of future services.

About the author: Tom Nolle is president of CIMI Corporation, a strategic consulting firm specializing in telecommunications and data communications since 1982. He is the publisher of Netwatcher, a journal addressing advanced telecommunications strategy issues. Check out his networking blog Uncommon Wisdom

This was last published in April 2010

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