Thursday, September 8, 2011

Impact of Cloud Computing on the Telecom Sector

Cloud computing will most probably affect the telcos in three ways according to the available Business & technology litterature:
3way impact

Value chains
Today, a number of telecom companies are differentiating themselves from their rivals through their unique product offerings and bundling of services.

The Cloud providers can provide efficient services using telcos infrastructure, technology and procurement at a relatively reduced cost. The telcos can utilise the services of Cloud providers and, combined with telcos capabilities, offer advanced value proposition to their clients. The telcos have the potential to develop incremental revenue streams from the application providers and the application consumers. Through technological innovation, telcos will provide telecom services, application services and other data services.

Today, the telecom market is dictated by the consumers, due to increased competition and customer’s changing requirements. Besides having their primary focus on customer intimacy and relationships, telcos are looking to leverage on the operational excellence; and the adoption of cloud computing technology as a strategic move could be beneficial. This facilitates telcos to restructure their internal capabilities and infrastructure, to provide a cost-efficient solution to their customers.

Through innovation in technology, telcos have the opportunity to create new market boundaries and create new value curve with new portfolio. Telcos can become core ICT providers, a network-centric business through data centres, or service-oriented developments. Hence, the innovation in Cloud Computing can substantially affect the value chain of the telecom operations.
For e.g. AT&T, BT, Orange 

Operating Model

Cloud computing creates the need for new organizational structures and processes, and new strategies. Telcos are excellent in tightly managing their procurement process and negotiating longer term contracts with vendors and suppliers.The challenge for telcos will be to internally and externally decentralize purchasing and decision power because the essence of Cloud is agile service re-configuration and sourcing. Telcos will also have to take a fresh look at the level of ICT innovation. Telcos will have to align and adapt their organization by creating strong cross-functional interfaces and organization flexibility.

These changes have an imperative effect on the telecom operating model in the OSS (operating support systems) like Customer service operations and Network operations. The operational support services like order fulfilment, service configuration, resources provisioning and Invoice Billing are becoming increasingly complex with millions of subscribers involved with variety of products. Hence the operational cost to handle them is high. Further to that, the infrastructure needed to cater to the increasing customer base, can lead to increased financial overhead.

The implementation of Cloud computing incurs minimal capex as this infrastructure is owned by the cloud providers. This will lead to decreased capex, as these are converted into opex, thereby saving costs in the balance sheets, resulting in lower operating profit taxes.
The shift from a capex to an opex organization is leading to development of new business models. The telcos operating model has to be restructured in order to incorporate cloud computing.

The adoption of cloud computing can have a significant effect in the Strategy, Infrastructure and Operation by improving the cost structure through operational excellence and economies of scale.

Strategic Alliances

Implementing cloud computing technology paves way to strategic alliances between
Telecom and IT firms. Telcos have been considering in leveraging the economies of scale by sharing the infrastructure, particularly the network resources. Network sharing is gaining popularity as the drive towards cost-control intensifies and will continue to gain momentum as mobile operators seek to reduce their capex and opex burden, but the network itself will remain a key point of differentiation for operators.

The growth of the cloud is providing fertile ground for new forms of collaboration between vendors. Vodafone and Decho decided to offer both businesses and consumers cloud based backup services of allowing users to securely store their documents externally and be able to access them from a web browser from any device.

The IBM and Juniper relationship is another evidence of growing importance of the high performance network in the progression of data centres towards cloud infrastructure. Both companies agree that high-performance, secure network is vital to the operations of both the data centre (enabling service production) and the global network.

Forming strategic alliances with the cloud providers can help telcos to collaborate, and create a win-win working model through a portfolio of managed services. This will enable telcos to meet the new demands of their customers and will help them focus on their core competencies, and leave the backroom operations, and other non-critical services, to the cloud service providers.

More to come on this topic soon...

Founder & CEO


  1. Good analysis. I have done an attempt as well.
    Can you provide more detailed examples on how it will impact the value chain and what opportunities could popup?