How Communication Service Providers can be successful / or will fail

Cloud is a natural fit for CSP. It can help them increase services externally, while improving their own operations internally.

Margins in the traditional carrier business are eroding. CSP need to decide what to offer, how to deliver (compete or partner) and how to structure investments for internal and external value creation.

CSPs need to go through a development journey from product to customer centricity.

The first steps in the journey to take are about laying & optimizing the foundation and providing initial external services. It requires to reduce capital expenditure and total cost of ownership (TCO) for IT, simplify infrastructure and implement software defined networks (SDN). CSPs must address foundational IT issues including storage & compute, back office non-core and email & collaboration tools; must offer fundamental services including infrastructure, storage, mail and security.

Afterwards CSPs can establish themselves as local cloud providers providing cloud, mobility, collaboration and security services. Important are here innovation and value added offerings to differentiate themselves from commodity cloud providers. Focus should be at first on SME offerings to leverage their existing customer relationships.

CSPs should then increase their services, enter into new market segments and offer specialized services (bundling, integrated billing, etc.). CSPs should also explore business models of reselling & brokering services (including IaaS, PaaS, SaaS, XaaS and covering B2B, B2C, SME, SoHo, ISP, MLE) as well as overall ICT services.

Finally, CSP should develop into a one-stop service provider that integrates, orchestrates, offers and provides all services on a global scale through a well-functioning partnership network. Services should include BPaaS. CSPs should seek to leverage their key strengths: network, customer relationship, local presence, economies of scale. The current market share of CSPs with IaaS, PaaS and SaaS is currently only in the range around 6 percent.

Significant changes needed

Providing such external services requires CSPs to change their thinking, culture, business model and internal capabilities. Must develop into a provider of business transformation rather than… The cloud helps CSPs themselves in the process.  

The CSPs need to take a more holistic view and move from a mindset of selling communication solutions to providing business transformation to clients. Clients require consulting, organizational redesign, change management and training. CSP should strive for becoming Everything as a Service providers.

Technical challenges

While power and performance of cloud computing, mobile devices is doubling every 18 months according to Moore’s law (see my different blog on predictions of how that may change in the near feature), CSPs’ networks can only grow incrementally. While computer layer and storage systems have been already virtualized to large extents, the need remains to build cost-efficient software-defined, next-generation data centers.

The internally, legacy ridden systems put them at a considerable disadvantage compared to their relatively young OTT competitors. CSPs need to prove themselves first to be able to handle their own problems, before offering external solutions.

There are needs to make massive changes in terms of IT management, Software development life cycle, agility, Continuous Integration and Delivery, DevOps and overall agility (see my respective previous blogs).

Three main steps how CSPs can position themselves and market their services

First, take advantage of low hanging fruits, where there are already strong demands from current enterprise customers and where assets & experience are already in place: Offer industry standard office applications, hosting and storage on demand, SaaS enablement.  CSPs should take their own best-in class capabilities & solutions, bring to the cloud and market externally. For example, could offer billing as a service to utilities and other B2B customers in different verticals.

Second, increase services that do not require a change in the existing operating model: VoIP, PBX and messaging services; Unified Communication as a Service; wholesale processing capacity to enterprises and cloud service vendors leveraging IP backbone and Multi-Protocol Label Switching (MPLS); white labelled cloud based infrastructure solutions for regional CSPs; Cloud Security services, etc.

Third, offer services that requires significant change to the CSPs’ existing operating models: Billing as a Service; act as Cloud Service broker between end-users and third party cloud providers helping end users easily switch providers without operational worries; PaaS

Learning and evolving

CSPs, formerly telcos have traditionally focused on providing vertical solutions to individual company clients. While this approach worked well for legacy products like voicemail and SMS, this approach does not work in the cloud age any longer. CSPs need to adopt a vertical focus for an entire domain or industry and differentiate this offering from pure horizontal commodity offerings. 

CSPs need to provide a full, bundled and integrated ICT service, which includes communications, hardware, software, location based services, analytics and support.

CSPs need to build ecosystems able to add, replace and orchestrate different collaborators fast and effectively. APIs serve as the glue (Refer to my recent blog on APIs).

CSPs need to improve internally

The own cloud capabilities and service offerings will also help CSPs internally improve their own operations. For CSPs, the distinction of providers and consumers of cloud services will increasingly fade.

Application tools in the cloud, Testing as a Service, Big Data platform and proof of concept trial applications will also benefit internal IT operations.

CSPs are increasingly implementing a cloud enabled API layer to overcome fragmentation of IT in order to enable legacy systems to connect to the cloud.

How vendors can help telcos

Supported by vendors, telcos could offer compute and data center services, packages as IaaS. Alcatel-Lucent CloudBand for example allows telcos to stitch together dissimilar switches to create virtual private networks.

Vendors could help telcos build cloud management platforms and API families through which their enterprise customers could migrate legacy applications to mobile devices.

Outlook and more opportunities

CSPs are well positioned to take on the role of a cloud service brokers: Provide full managed service of selecting, procuring, provisioning, governing and orchestrating.

CSPs can leverage their skills of mobility and networks to become a major player in M2M on mobile handsets.

The existing customer trust and economies of scale should set CSPs in great position to offer Security as a Service. Security levels and investments should be defined by importance of the data to protect. The future security offering should offer the entire cloud spectrum from IaaS to SaaS.

There are many great opportunities and tough challenges for telcos to develop into successful CSPs of the future. The next years will be crucial and determinate for the success and failure of telcos.


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