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The Telco Cloud Opportunity
The emergence of cloud and intelligent networking are drivers of even more rapid change requirements

The cloud ecosystem for information technology today is an interesting mix of companies, products and solutions. Information Communications Technology (ICT) refers to the convergence and expansion of telecommunications with information processing and storage. In short, ICT and the cloud mean a combination of compute, storage and network, running a variety of applications.

These resources have been commonly located on premise by businesses, ranging from a few racks of equipment in a room for small businesses to football-field size facilities for large companies. Separately owned data center facilities, called Multi-tenant Data Centers (MTDC) enable organizations to augment on premise resources by placing equipment in a rented MTDC space without owning the facility.

Figure 1: The Cloud Ecosystem

The cloud business model changed these dynamics by adding a new source and business model for data center resources, available over the wide area network, on an on-demand basis. As the cloud brings added emphasis to both the access network and the inter-data center network, carriers have not only added their network expertise to the ecosystem but have also added cloud services.

The cloud Infrastructure as a Service (IaaS) market is dominated by a select number of global enterprises, with the market as a whole growing steadily since 2010. 451 Research market data shown in Figure 2 represents revenue from 53 IaaS vendors and 37 telcos, with the telcos accounting for 16 percent of the revenue ($207 million) in 2011. EMEA accounts for approximately 24 percent of the cloud market and has the same dominant cloud providers, although many local in-country cloud providers are emerging.

Figure 2: Total IaaS Market Forecast ($M)

The telco companies are clearly involved in the cloud, but are they positioned properly as the market continues to expand from IaaS and Content Delivery Networks (CDN) into software defined "everything" as a service? Given the opportunities outlined above, it's a good bet that the business strategy personnel at every carrier are hard at work exploring this question for strategies that best fit their organizations. The following strategic focal points across the organization might be useful to frame this business opportunity.

  • CEO - Grow through innovation. New on-demand services such as IaaS, Network as a Service (NaaS) and Network Function Virtualization (NFV) provide new ways to monetize and leverage physical network infrastructure. Telcos can expand the portfolio with new dynamic performance-on-demand billing options linked to applications and cloud services. Improved customer operation builds loyalty and reduces churn.
  • CFO - Monetization. The emergence of cloud forces more emphasis on developing on-demand network services. Telcos need to model this new business by including a customer and traffic forecast, capital and operation expense impact, new costs such as software licenses and a service revenue forecast. The resulting analysis needs to show a positive return on investment in a reasonable amount of time.
  • CTO/Operations - Intelligent network architecture. The cloud model means the communications infrastructure needs to change by offering better scalability, programmability and application awareness. The network, especially the access and inter-data center network, becomes an equal participant in cloud services with compute and store. Similar to how the World Wide Web browser unlocked the Internet, the service delivery network needs to be simplified to dramatically expand usability.
  • Sales/Marketing Go-to-Market - Performance-on-demand. Virtualizing the network infrastructure with software defined networking (SDN) enables efficient partitioning of resources to multiple users and accessing the right network capabilities for their applications. Application performance is now driven by policy with a network strategy enabling quick, efficient, and economical workload deployment. Cloud operations and workload orchestration can request and schedule network resources without understanding the network complexity. New solutions can be available combining cloud services and network for a premium service level agreement. New network services can drive the expansion of cloud use cases for workload mobility and fundamentally change ICT operations, which in turn will drive a broader base of service revenue.

Summary
Telcos have evolved services from fixed line telephony and business circuits to mobile, and to data and Internet services. The emergence of cloud and intelligent networking are drivers of even more rapid change requirements and offer an opportunity for telcos to take their place as an important market participant. The on-demand cloud network, SDN intelligence and the ability to virtualize network functions provide new technologies for the telcos that will mean change, yet is within their potential.

About Jim Morin
Jim Morin is a Product Line Director working in Ciena’s Industry Marketing segment. He is responsible for developing and communicating solutions and the business value for Ciena’s enterprise data center networking and cloud networking opportunities. Prior to joining Ciena in 2008 he held roles in business development and product management for several high technology storage and networking companies in Minneapolis.

Jim holds an MBA from the University of St. Thomas and a BA from the University of Notre Dame. He recently served on the Commission on the Leadership Opportunity in US Deployment of the Cloud (CLOUD2).

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