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Why Telcos Struggle With Public Cloud Services

It seemed like such a good strategy: Take the telco industry — known for rock-solid voice services — and extend it into the public cloud market. The effort would give customers reliability, security and peace of mind as telcos built clouds that global 2000 customers could truly trust.

With that thought process in mind, CenturyLink acquired Savvis for $2.5 billion and Verizon acquired Terremark for $1.4 billion. Both deals surfaced in 2011 — fully five years ago. At the time, Amazon Web Services’ revenues were unknown to outsiders. Microsoft was still trying to gain traction with Office 365 and Azure, and IBM was still two years away from buying SoftLayer for $2 billion in 2013.

Fast forward to the present. The five-year journey didn’t go exactly as planned, and some telcos are changing course and even abandoning some cloud services. Indeed, Verizon is considering selling its cloud data centers and co-location businesses for at least $2.5 billion in an auction process, and the company is now shutting down some public cloud services. Meanwhile, CenturyLink is trying to sell its physical data centers — though the company says it plans to continue offering the managed and cloud services within those data centers.

Nobody is suggesting that CenturyLink, Verizon and other telcos have “imploded” in the cloud market. But their public cloud efforts haven’t exactly lit the world on fire. Especially compared to Amazon Web Services, Microsoft Azure and IBM Cloud/SoftLayer, each of which continue to describe revenue milestones and public cloud market share milestones on a quarterly basis.

What’s Behind the Telco Cloud Reset?

So why aren’t telcos ringing up incredible recurring revenue growth in the cloud market? The simple answer involves discipline. The fact is, telcos are too disciplined to pursue many of the wild, wild west opportunities that Amazon, Microsoft and even IBM see as big opportunities.

Telcos were built for reliability. They fully bake a service — over and over again — before they turn it on. Then they bake it some more just to be sure everything is truly reliable. Somewhere in the process, telcos check in with regulators, compliance gurus and Washington, D.C., influencers — just to make sure their efforts correctly lobby all the right folks at just the right time. And in the world of telcos, “time” is usually measured in years or decades — rather than days and months.

In some ways, telcos are like classic mainframe builders. They come from a world of closed, reliable systems that are designed to never fail. Dialtone, after all, isn’t optional.

Fresh From the Oven (And Not Fully Baked)

In stark contrast, public cloud providers were built for the just-in-time nature of the customers they serve. With each new technology wave, true public cloud providers always seem to be beta testing a new service before the potential use cases are even clear.

  • Virtualization gave way to docker and containers.
  • Storage gave way to software-defined storage.
  • SQL extended to NoSQL, Hadoop and big data.
  • Apple iOS and Android support gave way to sensors and the Internet of Things.

Who can possibly keep up with all of these waves? In many cases, the answer doesn’t involve conservative telcos. Instead, B2B and B2C startups are the ones that push public cloud providers forward. Whether it’s DevTest, DevOps or live production, the startups keep launching tomorrow’s services on Amazon Web Services, Microsoft Azure, Google Cloud Platform and IBM Cloud/SoftLayer.

Those public cloud providers, in turn, must constantly turn on and test the next disruptive service or the next open source code that looks promising — even if it blows up a few servers along the way. In addition to their continued risk taking, the big public cloud providers have grown up quite a bit — achieving compliance with various security, privacy and data protection regulations that give healthcare, government and financial CIOs peace of mind.

What’s Your Appetite for Innovation, Risk (And Setbacks?)

Of course, I’m over simplifying the debate. I realize telcos take some risks. They embrace emerging technologies like Apache Spark, Hadoop and more. But the emerging public cloud giants — Amazon and Microsoft, and perhaps Google and IBM — have an endless appetite for innovation and risk, and they’re willing to endure setbacks even as they pursue the next giant leap forward.

A case in point: Only Amazon would be crazy enough to launch the Fire smartphone after Apple iPhone and Samsung each had such a strong and deeply entrenched installed base. The Amazon Fire smartphone experiment failed miserably. But you can safely expect CEO Jeff Bezos to keep making big risk/reward bets in multiple businesses, including Amazon Web Services.

Thank you for the dialtone, telcos. And I appreciate your network services. But when it comes to dragging and dropping a workload into the public cloud, all of the smart money seems to be shifting to Seattle, Silicon Valley and perhaps even Armonk, N.Y.

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4 Comments

Comments

    Craig Deveson:

    Expect to see Phase 2 of Telco’s re-entering the cloud space by partnering with AWS and Azure. A number of deals have already been done but not public yet. There is also a significant opportunity for tier telco’s to take on the Billing as Service relationship with their customers and partnering with a MSP for technical assistance. This was forecast in a blog post we put together last year.

    http://www.cloudmgr.com/blog/can-telcos-be-a-channel-for-the-public-cloud-the-ultimate-cloud-brokers

      Joe Panettieri:

      Craig: Great, great point. Similar to how Rackspace started to manage 3rd-party clouds, telcos are now running to AWS and Azure conversations.

      Readers: Craig is one of the most active folks in my inbox. We’ve had some great “where is all this heading” conversations over email in recent weeks. ChannelE2E plans to share some of the thoughts soon.

      Best,
      -jp

    Craig Deveson:

    Further to this story is Ericsson & AWS Partnership with the first customer being Telstra.

    http://www.reuters.com/article/us-telecoms-mobileworld-ericsson-idUSKCN0VV0NM

      Joe Panettieri:

      Hey Craig: We briefly touch on the Ericsson/AWS partnership here (see item 5). We’ll do a deeper dive if we can add value to the story. Otherwise, we’ll continue the quick-hit updates. Thanks for your readership.
      -jp

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