Telcos invest billions in cloud, but only get pennies back

21 Jul 2011

Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Pin on PinterestShare on RedditEmail this to someone

Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Pin on PinterestShare on RedditEmail this to someone

Telecoms companies have so far invested US$8bn in the Great Cloud Rush, building up their data centre asset base. However, return on investment may be some time coming.

Communication service providers (CSPs) committed almost US$8bn to cloud-related pursuits in the first six months of 2011, but recent acquisitions won’t boost cloud revenues overnight and service differentiation remains poor, according to Informa Telecoms & Media’s Telecom Cloud Monitor.

It tracked the cloud-related activities of 90 CSP groups worldwide, including their interactions with more than 240 cloud-related equipment, software and services vendors.

Informa estimates that the typical CSP generates less than 5pc of its enterprise revenues from annuity cloud services.

Telcos anxious to shed ‘dumb pipe’ image – service differentiation is key

Despite growing customer wins, some CSPs need to muster 10-fold growth to hit publicised cloud revenue targets. Of the 10 acquisitions and 21 investments announced in the first half of 2011, 80pc involved data centres, highlighting CSPs’ desire to bulk up on physical assets to sell virtual goods.

“Recent multiples paid for so-called cloud assets aren’t at Enron Era levels, but they are generous,” said Camille Mendler, principal analyst at Informa Telecoms & Media. “More worryingly, the companies acquired – although growing – generate a sixth or less of their revenues from pure cloud services.”

On current performance, Informa concludes that many CSPs are swapping their dumb-pipe problem for a dumb cloud: 70pc of the 88 cloud services launched in the first half of 2011 were generic productivity and storage applications, often involving partners claiming a major share of the takings.

“Software-as-a-service is a loss leader for most CSPs: Partners like Google, Microsoft and Salesforce offer great tools, but they want their pound of flesh,” said Mendler. “Profitable differentiation lies in securing seamless access to enterprises’ digital assets, not just SaaS resale.”

Informa warns CSPs not to squander their powerful differentiators in the cloud marketplace. They must:

  • Create high-value community clouds to serve the needs of specific vertical industries
  • Secure cloud access via any device in audited compliance with local laws
  • Mobilise the cloud to transform business processes encompassing people and embedded devices

Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com