This Industry Viewpoint was contributed by David W Wang
Starting approximately from the year of 2008, major US telcos like Verizon, CentruryLink, AT&T, Sprint all have started to embrace the cloud computing strategy so as to “move up the value chain” and re-position themselves from legacy network to IT platform service providers.
Back then, the optimistic observation from the industry was that cloud computing would make a natural fit and be the new growth engine for the major telcos, who once own both the cloud and network, as well as content and mobile services, will easily take over the market and become the next generation telecom and IT powerhouses. Their ambition has been to compete and beat against rivals like IBM’s cloud integrated solutions and Amazon’s AWS.
Along such a growth strategy, we’ve witnessed impressive phenomena for instance, Verizon bought over Terremark – a firm of cloud and data center expertise in 2010, re-launching its cloud service as Verizon Cloud globally; CenturyLink acquired dozens of IT and cloud firms to forge its new cloud edge in the enterprise market; AT&T and Sprint have launched their mega level cloud storage services. Call it buzzword or hype, the cloud business has been hailed as the new driver for all major telcos in the seven or ten years to come.
Now six or seven years have passed by. As we enter the second half of 2015, however, the new cloud strategy seemingly hasn’t scored well as expected for the major US telcos. The momentum is going flat. Recent rumor goes Verizon may even consider spinning off Terremark and its cloud infrastructure and focus itself on the mobile services. Although Verizon just quickly denied the rumor, it can hardly deny the challenging status quo of its cloud business strategy. In August, CenturyLink announced a new round of cutting about 1,000 jobs; By October, Sprint announced it will cut up to $2.5 billion in cost and lay off workers. So what has gone wrong? Some insight I’ve obtained through various sources is that in general the cloud turns out not to be a “real money maker” for the telcos, hence produces poor return to the huge front investment the telcos have made in this field.
Four major flaws or challenges have emerged facing or foiling the telco’s cloud computing strategy. First is the lack of strategic vision and execution power from the telco’s top leadership about how to integrate and transform the cloud component into the telecom business and make the synergy excel. The old telecom mentality on business expansion was when the company needs new footprint, then just buy some other operator over along the track. Hence when now feel the cloud is needed, the telcos just go ahead to acquire some cloud service providers (CSPs) over. But one huge difference is when a telco buys another telco, the blood or DNA is fundamentally the same and the technical, functional and operational mix wouldn’t be that difficult to implement post the merger. On the other hand, when a telco merges with a CSP, there’s quite some vertical gap to fill in between the different service and technical layers that either party has originally focused on. Taking hardware as an example, legacy telecom data centers, as the telcos own so many of them across their service footprint, are often at odds to scale up and integrated with the next generation cloud infrastructure. Unless a leader has the rare cross service and technical layer experiences and insight and can envision what right buttons to push, the telecom and cloud collaboration wouldn’t be easy to material or might even fail. By the end of the day, without a seamlessly integrated new portfolio of network and cloud to offer to the market, the telcos can hardly achieve solid tractions to move the new lines of business forward.
Second is the tough alignment in sales and marketing for the telco’s cloud offers. With the initial excitement of cloud merger and acquisition, the telco would start to charge their sales force to sell the cloud solutions to their incumbent telecom base, meanwhile network services to the newly acquired cloud customers, expecting the offers can be deemed complementary and well taken by the clients. Unfortunately neither the legacy telco sales nor newly joined cloud sales seem to be ready to cross-sell the “new services”. The companies might have rolled out massive training and marketing programs both internally and externally to educate the sales and customers, however taking training is the only first step for effective sales to happen, just like a new college graduate won’t make to a productive employee overnight. Even worse, some sales people, depending on their background, motivation, and skill set, may become non-trainable for taking on such new stuff as cloud computing or advanced network solutions and products. Some telcos have taken the radical approach to “change the blood”, but the tradeoff is the new hires don’t own the seasoned relationship and connections with the incumbent customer base, hence causing the new business very slow in taking off.
The third dilemma is the resistance of customer adoption of the telco’s re-positioning or re-branding in offering cloud-centric services. Over so many years, the major telcos’ brand has made name as a network or transport service provider, while IT and cloud was regarded as another sector of expertise handled by different vendors. Now when suddenly the telco sales force start to pitch cloud service to their clients, the first problem they might face is the wrong audience from the customer side, who most likely are made of their network counterpart knowing little on cloud computing. The second problem is even though the telco sales may finally get routed to the right IT department of the customer side for cloud services, the IT guys probably wouldn’t take cloud offers seriously from, in their eyes, the telco sales people, which would lead to few cloud sales eventually.
The fourth challenge is the competition from incumbent IT player like IBM, Microsoft and Amazon, and new OTT (over the top) players like Apple, Facebook, and Google, in terms of cloud and related services, is getting white hot and grabbing large chunk of market share away from the telcos. Compared to the incumbent IT firms, the telcos don’t have that in-depth expertise in handling comprehensive cloud work and projects; For instance, the AWS brand is becoming too strong for public instant cloud applications and storage for the telcos to compete with. Compared to the new OTT rivals, on the other hand, the telcos are being bypassed in the business model to serve today’s market. For example, when more people especially the young customers are using smartphone app and social media to connect each other globally, or watch more stream video over the mobile devices, that market is taking the OTT trend and leaving the telcos behind.
In summary, although a lot of new approaches and efforts have been attempted, cloud-computing service seemingly remains an “outsider” to the major US telcos. This is not to downplay the importance of cloud computing. As a matter of fact, the telcos may find the cloud and virtualization can benefit them from different angles like the network revamp for SDN (software driven network) and NFV (network function virtualization), which will increase network operation efficiency, enable better customer services, and also reduce the network costs exponentially. After all, the critical lesson learnt is that if the telcos really want to cash in on the cloud meanwhile avoid it to become a distraction, they should by all means try to embed cloud solutions into their core competence.