Where Are the Telcos?

Posted by Ellen Rubin on Sep 15, 2010 at 2:45 PM

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By Ellen Rubin

This week’s Verizon announcement about their new CaaS offering for SMBs highlights a strange situation in the cloud computing market. While Amazon has been growing explosively and MSP/colo providers like Rackspace, Terremark and Savvis have rushed to embrace cloud in their business models, the telcos have been slow to enter the fray.

Telcos in many ways seem like the most likely players to lead and ultimately win in the land-grab of cloud computing. They’ve got the huge scale, geographic coverage, existing enterprise relationships and experience in service delivery that would appear to give them unfair advantage. As noted in the Verizon announcement and some recent blogs, telcos have a “unique opportunity to position cloud computing as an extension of their managed networking solutions (such as MPLS-based VPNs), by offering ‘on-net’ cloud computing capabilities backed up by end-to-end service-level agreements (SLAs).” In fact, the networking infrastructure and ability to offer dedicated and secure access is one of the telcos’ greatest strengths since it addresses some of the key concerns about cloud security and bandwidth.

So it’s worth considering why the telcos aren’t yet a dominant force in the industry. To a certain extent, it’s taken a couple of years for them to perceive the threat of Amazon et al to their core businesses. The response has been primarily a defensive one, as noted by IDC’s Melanie Posey: “Right now they’re concerned with, ‘If our existing customers want cloud in addition to the traditional hosting we’re offering them, we have to have something too or they’ll take that incremental business to somebody else.’” Marketing announcements and pricing model changes have so far been the fastest and lowest-cost response to this threat. For example, some telcos are now offering per-month pricing instead of the traditional annual or multi-year structures.

In parallel, the telcos are doing the heavy lifting required to build new cloud services. A lot of the real spending so far in the cloud market is being done by these players: buying new gear from the server, storage and networking vendors; installing new software and management tools from the hypervisor and service management players; designing new architectures with the help of consulting firms; leveraging existing infrastructures from Terremark, OpSource and others, etc. This all takes significant time and money.

While this investment is taking place, there’s relatively little to see in terms of live customer deployments. But in the meantime, the first-mover cloud providers and customer early adopters are moving full-speed to test and improve their offerings and cloud footprints. They’re shaping and defining cloud requirements and best practices based on real-life customer engagements. The risk for the telcos in being late to the party is that they’re not getting the customer insights first-hand and are missing the direct experience needed for successful scale-out and service delivery. Without this, they could end up delivering too little, too late. Still, given the size and projected growth of the cloud market opportunity, there’s no doubt it would be a mistake to count the telcos out.

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