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Pwc - Cloud-Enabled Telco Opportunities report - April 2013

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Pwc - Cloud-Enabled Telco Opportunities report - April 2013

Pwc - Cloud-Enabled Telco Opportunities report - April 2013

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  • 1. Cloud-enabledtelco opportunitiesApril 2013
  • 2. Table of contentsExecutive summary………………………………………1Cloud services: an opportunity and a threat………2Where to play in the value chain?……………………5New business requires new capabilities……………9The telco transformation journey—stepsto success………………………………………………… 13How PwC can help…………………………………… 16Contacts………………………………………………… 18
  • 3. 1Executive summaryExecutive summary• The shifting information andcommunications technology(ICT) landscape has placedgreater revenue and profitabilitypressure on telecommunicationsoperators (telcos) than everbefore. Technology vendors arecannibalising telco revenues withover-the-top offerings, and forgingcustomer relationships with value-added services. More than everbefore, telcos are challenged withthe need to evolve beyond networkconnectivity and provide distinctiveservice offerings – into the rapidlygrowing technology services market.• Fortunately, telcos are wellpositioned to offer a number ofcloud services, such as becomingcloud brokers by aggregatingservices, platform enablers byproviding an ecosystem to leveragetelco assets, enterprise enablers byoptimising secure networks, andbusiness enablers by providingindustry -ready solutions acrossthe value chain. Telcos are alsoideally positioned with theirdistribution networks, retail stores,customer care relationships, billingcapabilities, and partnerships todevelop an ecosystem that simplifiesthe selection, management, andoptimisation of cloud services tobusiness customers.• Telcos that can create a compellingend-to-end cloud propositionthat integrates their networkmanagement capabilities, supportedby an agile and service-orientedoperating model, could carve out adifferentiated and attractive offeringto small and midsize businesses(SMBs) and enterprises.• However, cloud delivery requires afundamentally different businessmodel compared with currentmanaged services in business-to-business (B2B) settings—characterised by a high degreeof self-service, automation, andrepeatability in the end-to-endoperating model.• Telcos have traditionally been weakin these capabilities, sufferingfrom complex and bespokeservices that hinder their ability tostandardise the service proposition.Furthermore, they now facechallenges in migrating to a fit-for-purpose cloud operating model,due to a complex legacy of multiplenetworks, an overly fragmentedproduct set, and disparatesupporting tools and processes.• To pursue these new opportunities,telcos will need to undertake atransformation journey to buildthe appropriate operating model.A key question will be whetherthey can continue to evolve theirexisting operational model forserving B2B customers or if buildinga cloud business might requirethem to forge something new.Changes required to implement thistransformation include buildingprofessional services capabilities,instilling a services-oriented culture,developing key performanceindicators (KPIs) that focus oncustomer value rather than siloedproduct revenues, and puttingin place an industrialised servicecreation process.• As cloud demand continues to growrapidly, many telcos have beenactive in mergers and acquisitions(M&A) to build these capabilities,supplemented by organicinvestments to drive automation,repeatability, and a servicefocus. Furthermore, striking up aprofessional services partnershipcan help accelerate and strengthentelcos’ capabilities in this areacompared with systems integrators.• There is no easy or quick route onthis journey, but by putting in placethe right building blocks, telcoshave the opportunity to developa strong, differentiated cloudproposition that few competitorswill be able to match. The prizeis to participate in the dramaticvalue shift that is taking place inenterprise ICT and to gain revenuegrowth by taking share from otherplayers in the eco-systems that willdeliver cloud based services. Theuncomfortable reality for telcos isthat the risk of not participating isrelentless commoditisation of theB2B communications business.
  • 4. 2 Cloud-enabled telco opportunitiesCloud services: an opportunityand a threatTelcos’ eroding positionThere is a burning platform for telcosplaying in ICT. The percentage ofworldwide ICT spending attributedto telecom services has been steadilydecreasing—from 48% in 2010 to 46%in 2012. Telecom services spendingwill continue to trend downward andis projected to comprise only 44% ofoverall ICT spending by 2016. Between2011 and 2016, the telecom servicesmarket is expected to only grow at acompound annual growth rate (CAGR)of 1.9%, compared with the overall ITspending growth of 3.4%.1At the end of the 1990’s the pursuitof ICT growth brought complexityto telcos seeking to escape thecommodity trap of a “vanilla network”by providing managed or outsourcednetwork services and expanding intoadjacent ICT segments. While sometelcos successfully used this strategyto capture new revenue growth, theyoften failed to deliver acceptablefinancial performance from theirB2B ICT businesses.1 John-David Lovelock “Forecast Alert: ITSpending, Worldwide, 4Q12 Update” (Gartner,Market Analysis and Statistics, January 2013),http://www.gartner.com/id=2291618The telcos’ profitability was dilutedover a portfolio that was too broad,too deep, and over customised.Growth was achieved with insufficientdiscipline in portfolio management,reuse of solutions, and repeatabledelivery and service managementcapabilities. As a result, comparedwith the large IT services providersand providers that originated fromthe managed hosting sector, telcos’ICT capabilities were costly andcomplex, and customer service,often, unpredictable.The promise of cloudAccording to Gartner, “global spendingon public cloud services is expectedto grow 18.6% in 2012 to $110.3B,achieving a CAGR of 17.7% from 2011through 2016. The total market isexpected to grow from $76.9B in 2010to $210B in 2016.”2Furthermore, USCIOs expect cloud-related investmentsto increase from composing only 5%of their overall ICT spending in 2012to 13% in 2016.3This market clearlyprovides an attractive potential new2 “Forecast Overview: Public Cloud Services,Worldwide, 2011-2016, 4Q12” (Gartner Research,Update Published: 8 February 2013), http://www.gartner.com/id=23322153 “Cloud Investments Will Reconfigure Future ITBudgets” (Forrester Research, Inc., January 2013)http://www.forrester.com/Cloud+Investments+Will+Reconfigure+Future+IT+Budgets/fulltext/-/E-RES83041
  • 5. 3Cloud services: an opportunity and a threatsource of revenue for telcos to replacerevenue reductions in traditional voiceand data services.As customers become moreaccustomed to consuming ICTthrough cloud delivery models,the cloud market will increasinglycannibalise legacy delivery modelsfor ICT. Telcos have faced disruptivetechnologies in the past—Voice-over-IP (VoIP) cannibalising publicswitched telephone network (PSTN),and standard Internet Protocol (IP)networks cannibalising expensivelegacy network technologies. Sometelcos have acknowledged the needto sacrifice legacy service revenue tobetter meet the needs of customers.As an example, Orange, Telefónica,and Deutsche Telekom all releasedapplications (apps) in 2012 thatprovide access to free voice callsand short message service (SMS)through an over-the-top (OTT)-basedservice across multiple networks andoperating systems.If cloud is destined to become asubiquitous as other disruptive changes,then should telcos embrace a newbusiness model for cloud and activelymigrate their business models towardsit, rather than follow a wait-and-see approach?From ICT to cloud servicesTelcos have successfully managed widearea network (WAN) propositions,but the step beyond that—into deeperoutsourcing or specific managedservices for customers—oftenresulted in bespoke features thatare not part of the standard modelstelcos can repeatedly deliver. Thesebespoke features and contracts haveled to a business model that seemsto rely on a culture that is alwayson the edge of being out of control.The result has been a patchwork ofprocess and systems fixes to get a newservice launched.Once the business allows contracts thathave non-standard aspects to enter thesystem, then additional costs emergeto cope with the extra requirements.Problems often then emerge duringcontract delivery and operationbecause the operational model doesnot have the right processes, tools,and third-party agreements in placeto execute the non-standard features.Taken to the extreme, the operationalfunction becomes a best endeavourseffort where it cannot confidentlypredict what service level agreement(“SLA”) it will deliver against, leadingto a growing volume of service creditsand contract target failures.To transform from an old operatingmodel and implement a new, moreefficient operating model is adaunting and difficult task. There areorganisational, process, and productmanagement and overall infrastructuretransformation challenges thateventually prohibit the deliveryof services through an agile, cost-effective environment.Cloud services, the telcos will argue,are nowhere near as diverse orcomplex as the managed networks thatthey have built for their customers.Telcos are well positioned to serve theB2B cloud market, because they ownthe network upon which the cloudapplications and services are delivered.They have experience in providingthe enterprise-wide network servicelevels that corporate customers need.Telcos can be positioned to take thelead, given the reach of their networksand their ability to manage largecommunication and hosting centres.Identifying and delivering the rightcombination of services that creates aunique customer experience will be thekey to their success.That may be the case, but if themarch towards cloud continues, thencustomers will increasingly look toproviders that have demonstrated thecapabilities to offer all of the benefitsof cloud, in a manner that is simple,repeatable, and that scales with theirneeds for cloud services. Unfortunatelyfor telcos, this is where they have faredless well: in their ability to modifytheir existing delivery flow, developthe appropriate automation, andstreamline their processes and systems.Dynamically changing operations toa more predictable, repeatable modelthat is driven by profit creation andnot just incremental revenue is not atrivial task for telcos that have a legacynetwork services business.This reality risks relegating the telcosto commodity status. Owning thenetwork may not be enough to justifybeing the cloud provider; if othersare doing a better job of realisingthe benefits of cloud, customers mayjust allow the provider to buy theconnectivity to link their service tothe customer’s infrastructure. Fortelcos to gain an advantage, theyshould expand their current smartnetwork management environmentinto their cloud management anddelivery infrastructure.
  • 6. 4 Cloud-enabled telco opportunitiesThe emergence of cloud as themainstream model for ICT will amplifythe need for operational excellenceand a seamless end-to-end operatingmodel that enables a high degree ofautomation, customer self-service,and proactive management to limitany outages. Telcos will not be ableto rely on adding more people andworkarounds to manage their portfolioof customer contracts. Many new,best-of-breed cloud providers—distinctfrom the telcos—are establishinga track record in the repeatableoperationalisation of well-defined,specific services.Big questionsCloud will change the way manybusinesses operate in the coming years.It will redefine the role of the CTO andthe IT function within organisations,and equally it will redefine the way inwhich these organisations purchasefrom their service provider.The big question for telcos is,recognising the lessons from previousbusiness ICT initiatives, how shouldthey exploit this opportunity? Whatroles should they take in the valuechain (vis-à-vis OTT providers), andhow should they reconfigure theiroperating model to address it?Success requires changeIn the rush to capture thisopportunity, many telcos areadopting an incremental ratherthan a transformational approachto delivering cloud propositions.Companies deliver new servicesthrough existing operating models—and they are using the legacy sales,implementation, and customer serviceapproaches without consideration ofthe capabilities required by cloud.Telcos need a new business modelcentred around cloud and thecapabilities required to deliver cloud.For the transition from legacy ICTto cloud business to succeed, telcoswill need to implement four keyorganisational changes:• P&L reporting lines andperformance metrics should beredesigned to allow cloud servicesto cannibalise existing legacyservices where this shift is drivenby customer demand.• Key customer relationships mustbe managed centrally to avoidbeing isolated by legacy businessunits (BUs).• Key capabilities must be sharedand leveraged across the cloud andlegacy businesses. For example,the network infrastructure willpotentially be the greatest source ofcompetitive advantage for telcos todeliver cloud alongside pure-playproviders and IT companies.• Consulting capabilities are requiredto help customers make thetransition to cloud.In terms of service development,standardised services (withinInfrastructure as a Service [IaaS],Platform as a Service [PaaS], andSoftware as a Service [SaaS]) shouldbe created so they can be providedindividually but will deliver morevalue as part of a bundled, end-to-endproposition (the whole propositionshould be greater than the sum ofthe parts).Cloud provides the business casefor telcos to develop new, service-oriented businesses that willposition them well for the new era ofenterprise ICT demands. The currentcloud propositions from telcos arepredominantly a standalone resellingof solutions from other technologyvendors. The challenge for telcosis to go beyond just reselling thesesolutions and to genuinely integratethis new capability with their legacynetwork, creating and cementingthe telcos’ advantage in the cloudmarket by virtue of their networkskill. Otherwise, telcos risk providingnothing more than a commodityservice, and customers will quicklydiscern towards innovators andprocure networks separately.This last point is the greatest hurdle fortelcos to overcome, but this challengepresents a significant opportunity toreinvent the way they deliver services.They have an opportunity to shift froma network-oriented to a customer-oriented organisation.
  • 7. 5Where to play in the value chain?Where to play in the value chain?The market for B2B enterprisesolutions is still dominated by legacyservices residing on the premises.However, this delivery model isgradually changing, and 41 percent ofcompanies now deploy some form ofcloud services.4The developed world is rapidly movingtowards an anything-as-a-servicestate of computing, where cloudemerges as the dominant way toprovide infrastructure, applications,and solutions—characterised byan off-premises, self-service, opexmodel of delivery. Although thisconcept is not new, the reality is nowa short-term rather than a long-termparadigm—the majority of workloadswill be ready for delivery over cloudwithin three years—and one that willcontribute significant revenues to thoseservice providers that can becomepreferred suppliers.Over 50 percent of IT Outsourcingcustomers surveyed view specialistprivate cloud vendors as the preferredsuppliers of cloud services inthree years.54 “The future of IT outsourcing and cloudComputing” (PwC survey based on interviewswith 489 business executives, November 2011).http://www.pwc.com/gx/en/technology/cloud-computing/index.jhtml5 “The future of IT outsourcing and cloudcomputing” (PwC survey based on interviewswith 489 business executives, November 2011).http://www.pwc.com/gx/en/technology/cloud-computing/index.jhtmlThis perception makes evident that thelegacy service providers lag behind thesmaller, pure cloud players in drivingcloud propositions. There are two keyreasons for this lag:• The existing business model—resistance to changing existingbusiness models and concerns aboutcannibalising legacy products• The existing operating model—failings in the existing operatingmodel to realign and redeploythe capabilitiesAs discussed in the previous section,these problems are especially true fortelcos. Their existing models centreupon the network layer and requiremuch greater adaptation to delivercloud services.The transition to cloud is hamperedpartly by supply-side obstacles—theentrenchment in existing businessmodels and operating models—andpartly by demand-side concerns
  • 8. 6 Cloud-enabled telco opportunitiesaround the difficulty of transitioning,the cost, and the implications of cloudfor access, security, and reliability.Category Existing business modelSuitability for cloudservice deliverySystems integrators andIT outsourcers• On-premises, integrated delivery• Hardware focusedTelcos • Bespoke service• Network focusedHosting providers • Self-service model of delivery• Data centre focusedOTT providers • Standardised, mass-market offering• Delivered over the top• Software focusedCurrent enterprise cloud serviceproviders can be allocated to one offour categories:CategoryService providers ranked“Leaders”“StrongPerformers”/”Challengers”Software6IBM, Microsoft, Salesforce.com Cisco, Citrix, GooglePlatform6Salesforce.com Cordys, LongJump,Microsoft, WaveMakerInfrastructure7Amazon, CSC, Dimension Data(acquired by NTT), Savvis(acquired by Centurylink),Terremark (acquired by Verizon)Bluelock, GoGrid, JoyentThe telcos’ model for legacyservices lacks the integration andstandardisation required for clouddelivery, and telcos therefore face agreater challenge than any of theircompetitors in transitioning to a cloudsolutions delivery model.A review of cloud service providers byPwC and leading analyst reports (suchas Gartner) reflects that telcos are yetto be seen as key players in any of thecloud layers through their existingbusiness. Their presence as leaders incloud infrastructure has been madepossible only through acquisitions(see emboldened companies in thefollowing table).6 “Analysis of vendor propositions and analysts opinion”(PwC 2013 US technology M&A insights, February 2013).http://www.pwc.com/us/en/transaction-services/publications/US-technology-mergers-acquisitions-2013.jhtml7 “Magic Quadrant for Infrastructure as a Service” (Gartner,October 2012) http://www.gartner.com/DisplayDocument?ref=clientFriendlyUrl&id=2204015
  • 9. 7Where to play in the value chain?The opportunities for telcosBefore embarking on a process oftransformation, telcos must identifythe type of cloud provider they wishto be, as different roles will demanddifferent sets of capabilities.PwC has identified the followingopportunities for telcos in the cloud-enabled world:A. Repackage existing capabilities—Leverage existing hosting andnetworking capabilities to developand deliver cloud infrastructureand storage services. Theseservices will be required for anyother functionality that moves upthe cloud stack (i.e., PaaS, SaaS,BPaaS). Utilise existing businessservices and operating functionsthat can be repurposed anddelivered as a cloud service (e.g.,billing). Position the new businessas a platform enabler—buildhorizontal and/or vertical cloudenablement platforms that canprotect and monetise the network,infrastructure, product, and dataassets by providing an ecosystem toleverage those assets.B. Mobility solutions—Work withmobility development teams tocreate integrated solutions inthe cloud with mobile and non-mobile applications.C. Industry-specific solutions—Workwith customers and partners todeliver industry-specific solutionsacross the value chain (i.e.,solutions for highly secure andregulated industries like healthcareand financial services, or solutionsfor industries with high content-streaming, etc.). Also team withprofessional services companiesthat can provide industry-specific expertise.D. Cloud broker or aggregator—Aggregate public cloud servicesand provide some quality of service(QoS) or security assurance(network performance optimisation,data security).E. Service enabler—Complementcore infrastructure, software, andplatform capabilities with otherassets and processes (e.g., dataanalytics and network applicationprogramming interfaces [APIs]) andprovide them to third parties so theycan better deliver their own services(application development, contentdelivery, revenue assurance throughoperator billing, etc.).F. End-to-end integratedpropositions—Connect some ofthe services above the networklayer (that is, software and businessprocesses) into the network so theyare standardised and integratedinto the network, and then theoperator can change the definitionof what the network provides. Theoperator can push the networkboundary upwards.
  • 10. 8 Cloud-enabled telco opportunitiesSoftwareInfrastructureNetworkMiddleware ConsultingTraditional telco End-to-end cloud playerLegacyapplicationsDatacentresManagedhostingIPnetworkManaged hosting supportand integrationExternalisingexisting capabilities(e.g. billing, dataanalytics)IaaSproviderSecurityassuranceQoSCloud migrationsupportMobilitysolutionsIndustry verticalsolutionsCloud brokerPaaSIndustyexpertiseBPaaSService enablerAAAAAABCCEEEDNetwork-centricService-centricend-to-endpropositionsF1. Existingcapabilities2. Developexistingcapabilitiesfor cloud3. Aquire newcapabilities4. Integrateand convergepropositionsRepackage existing capabilities B Mobility solutions C Industry-specific solutionsD Cloud broker or aggregator E Service enabler F End-to-end integrated propositionsAll of these opportunities shouldbe viewed in terms of the desiredcustomer segment and telcos’capabilities. A customer shift towardscloud offers telcos the opportunityto transform their business model,building a new fit-for-purpose platformthat grows with increasing cloudadoption and gradually replacesthe legacy business approach. Thistransformation opportunity includesthe potential to redefine the waytelcos offer service to their corporatecustomers. Given that telcos havebeen wrestling with the profitability,complexity, and lack of transparencyin their B2B businesses for the last10 years, continuing on the business-as-usual basis to migrate to cloud isprobably not a realistic route to successagainst the new entrant specialistcloud service providers that don’thave a complex legacy to protector transform.To access new capabilities and gain thescale required for global cloud services,telcos will need to consider strategicpartnerships. Depending on the type ofpartnership, new avenues of revenuescan be identified and implemented.• Technology partners—Developpartnerships with key technologysolution companies, and integratetheir services into the overall telconetwork and cloud structures.• Customers as partners—Developpartnerships with customersto gain unique insights into thedevelopment of services that canbe industry specific and providethe opportunity for sharedrevenue models.• Professional services firms aspartners—Work with professionalservices firms, which typically havekeen insight to telco operationsand services. They can combinethat knowledge with their ability toaccess their firms’ multi-industryexpertise and C-level insight,and they can work with the telcoto define products and servicesthat can be jointly marketed andsold to directly address specificindustry issues.These opportunities can be viewed against the telco’s evolution from a traditional network-centric provider towards aservice-centric, end-to-end cloud provider with a converged product offering.
  • 11. 9New business requires new capabilitiesNew business requires new capabilitiesBased on our experience of bestpractice companies, to successfullyimplement and operate cloudservices, a telco needs the followingminimum capabilities:• Secure, reliable data storage• Customer care or support• Integrated and highly automatedorder-to-cash process• Access to quality networkprovisioning with the ability toguarantee a high level of availability(for example, greater than98 percent)A further set of capabilities willbecome increasingly important ascompanies look to transition more oftheir workloads to the cloud and seek amore enhanced, integrated service:• Customer platform or portal forself-service management• Applications solutions architecture• A services management anddistribution environment• Professional services to supportclients on their migration journeytowards cloud• Sandbox environment forapps testing and integrationinto a network (a sandboxenvironment can be viewed as aPaaS environment)• Vendor and channel partnerships• Broad solutions catalogue, includingthird-party cloud applications• Service integration frameworkproviding end-to-end visibility andquality of service SLAs
  • 12. 10 Cloud-enabled telco opportunitiesCloud servicesoperating modelStrategyApplications solutions architectureVendor and channel partnershipsBroad solutions catalogueA services management and distribution environmentProfessional services to support clients on theirmigration journey towards cloudSandbox environment for appstesting and integration into a networkCustomer platform or portal forself-service managementService integration framework providing end-to-end visibilityand quality of service (QoS) service level agreement (SLAs)ServicecreationCreate demandCustomerdesignTransition &implementLeveragedservice deliveryTo successfully implement andoperate cloud services, a providerrequires these minimum capabilities.Integrated and highlyautomated order tocash processSecure reliabledata storageCustomer care or supportAccess to quality network provisioningA further set ofcapabilities will become increasinglyimportant as companies look totransition more of their workloads tothe cloud and seek a more enhanced,integrated serviceTelcos are stronger in some of theseareas than their tech competitors,and vice versa for some of theother capabilities.Telcos are stronger in thefollowing areas:• Network and hosting services—Telcos have the ability to guaranteespecific levels of quality throughownership of the network. Smallercarriers may need partnerships toextend the reach of these services.• Management services—Larger telcos currently providecomprehensive managementservices for their hosting andother telco-related WAN services(e.g., managed data services)• Existing partnerships—Largecarriers have teamed withtechnology vendors to leveragetheir capabilities to deliver a cloudself-managed environment.• Scale and scope—Telcos are ableto act as a single point of contactfor a multitude of vendor partnerproducts and services.• Distribution channel—Telcostypically have more established ITcustomer relationships and are ableto up-sell and cross-sell more easily.
  • 13. 11New business requires new capabilitiesTelcos need to improve in thefollowing areas:• “Network blinkers”—Telcos tendto analyse all situations from aninfrastructure perspective. Instead,they should treat all cloud activitiesas an enterprise architectureexercise and consider the multipledimensions of a client problem.This enables them to deliver morethan infrastructure.• Inability to leverage existingcapabilities—Despite clearsynergies between emerging cloudpropositions and the servicesalready delivered by telcos, thetelcos are failing to capture thisopportunity due to:−− Capital constraints for R&D−− Complex organisations (e.g.separating IT-related initiativesfrom non-IT initiatives)−− The inability to integratecomplex services becauseof different product andmarketing organisations−− The inability to communicatebetween internal telco businessand client organisations,which leaves potential serviceopportunities untouched−− The inability to see the bigger,longer-term opportunity• Legacy product constraints—Thelegacy of the proliferated productsis strong and restricts telcos to aset of processes and systems thatlimit their progression to cloud(particularly true for multinationalcorporate clients).• Lack of simplification—Productsand services are convoluted andunbundled, which is not appealingto the smaller and midsize B2Bcustomers. Telcos can offer out-of-the-box operational capabilitiessuch as distribution, retail, customercare, and billing (which most othercloud providers targeting the SMBsegment cannot offer); however,telcos are currently unable to actas cloud brokers or aggregators tostructure service offerings intoSMB-friendly products.• Brokering—Telcos should createan environment where the telcobecomes the integration pointfor customers requiring multipleinterfaces, applications and networkservices through a single point.As stated earlier, the partnershipsthat telcos develop combined withtheir infrastructure can positionthe telco as a hub for the traffickingof services.For many telcos, it will be easier tobuild a standalone system and processstack for their cloud proposition andmigrate their legacy products ontoit, rather than reengineering theirexisting systems and processes.To rapidly gain the capabilities theydo not possess, telcos will needto form partnerships and conductmergers and acquisitions to ensurethey can deliver a competitive set ofcloud propositions. Telcos will needto use these acquisitions to build acoherent cloud business. However, itshould be noted that integrating theseacquisitions into the core is certain todestroy them, so the telcos will need touse these acquisitions as the kernel of anew integrated business model.A selected overview of M&A activityduring the last few years showshow the size of the investments isincreasing. Telcos are prepared tomake even bigger bets as they realisethe need to push into the IT space.
  • 14. 12 Cloud-enabled telco opportunitiesJun-06 Oct-06 Jan-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Jul-11 Oct-11 Feb-12 Jun-12Acquisition dateSystemintegrationIToutsourcingConsultingSoftwareInfrastructure/hostingNetworkTimeline of selected acquisitions by telecoms operators in the global ICT sectorNote: Dimension Data, Terremark, Keane, and Hughes Telematics are represented at 50 per cent of acquisition value to fit onto the chartSource: MergerMarket, press searches, August 2012AT&T BT NTT OBS Singtel Telefónica VerizonCenturyLinkDeal size=$100 millionINS Group FrontlineLynxBasilicaTelemarketing PragueDiwan GroupeAlphawestGroupe SilicompINSCSSCSItelligenceMoorehouseTelemergenciaCybertrust*NeociesInterwiseComsatGTLWire One*Data MobilesJa JahIntegrallsIntelgroupDimension DataKeaneTerremarkM visionAlsyPacketVideoacensSavvis, inc.OpSourceCloudSwitchSuperclickHughesTelematicsNetmagicSolutionsPT. e-MetrodataUS-I
  • 15. 13The telco transformation journey—steps to successThe telco transformation journey—steps to successWhether a telco decides to reengineerthe existing operating model or toset up a separate function to providecloud services, the traditional telcomodel is not well suited for a cloudmodel and therefore extensivechanges are recommended. PwC hasidentified eight key changes telcosshould make to reposition themselvesto optimise their cloud propositions.These eight changes should beviewed in the context of a longer-term transformation:Step 1. Fix the basics1. Service creation—A standardised service catalogue is a critical element of deliveringservices profitably. The service creation process facilitates this standardisation by definingthe architecture, process, and outputs to be followed. With such a process, telcos canrapidly respond to the changing needs of the cloud market (for example, dynamicallyorchestrating new processes based on new cloud-based applications with a time to marketin weeks—not months). Extensive participation will be required of product teams, IT andnetworks engineering, and service delivery. This continual process will take time to mature.The primary challenges are to set up the process and then be disciplined about ensuring allservice development goes through the process.2. Reporting tools—Reporting tools are critical to provide management with financial andoperational visibility of the end-to-end service. This visibility enables them to identifyservice and portfolio improvements and ultimately can be productised to allow greatercustomer control, such as through a self-service portal.
  • 16. 14 Cloud-enabled telco opportunitiesStep 2. Build the capabilities3. Professional services capability—Telcos will need to recruit for solution selling, demandcreation, identifying and implementing a complex transformation, and maintaining CxOrelationships. Offering professional services requires specific expertise that is not widelyavailable. Therefore, both internal development and selective recruitment likely will berequired. This development and recruitment will take time, and telcos will be competingagainst the market for these capabilities.4. Integration of network management capabilities—Such integration will be a potentialdifferentiator for telcos against IT and pure-play competitors. To develop cloud servicesthat utilise and leverage telcos’ networks, core engineering capabilities must be appliedin a customer-centric world. This approach will require new tools and adding newresponsibilities to traditional network operations teams.5. Strategic partnerships—Telcos need to build a broader cloud ecosystem with industryand technology partners to be able to provide end-to-end service. Telcos can positionthemselves as cloud brokers or trusted partners. This positioning will also be importantto achieve speed to market, rather than taking an organic build approach. However,negotiating and implementing strategic partnerships will take time; therefore, telcos needto build a strong commercial and technical model covering the identification, negotiation,and management of partners.Step 3. Transform the operating model6. IT changes—Telcos need to improve their customer service experience by buildingautomated self-service ordering, provisioning, reporting, and billing systems. Cloudsolutions developed for customer propositions must also be tested, consumed, andoptimised for in-house use. Although ICT competitors lack network integration, theyalready have mature capabilities in IT infrastructure and are therefore able to implementmore automated and efficient system processes7. Change management—Cultural change should be implemented as part of a broaderprogramme to address a range of change issues: from product to service focus, fromtechnology-out to customer-in, from selling to procurement to selling to CxOs, and fromcentralised to distributed (including offshore) teams. Selling services should be viewed asan end in itself, rather than just supporting the telco carriage business.8. Single P&L—Services also need to be profitable and not just sold to support the carriageopportunities. Services and carriage should be measured through a single P&L, andservices should be priced economically rather than discounted to protect carriage margins.
  • 17. 15The telco transformation journey—steps to successLessons learnt: Telcosprogressing on thetransformation journeyTo rapidly build ‘new’ capabilities andaccelerate the transformation, telcoswill likely need to acquire currentcloud providers. For example, theNTT-Dimension Data acquisitionbrought together cloud solutions anddata centre infrastructure as well as anentrepreneurial culture. The Verizon-Terremark acquisition added datacentre capacity.To address cloud services furtherfrom core (but commoditised)IaaS offerings, strategic industrypartnerships will need to be forged.Examples include the AT&T-IBMpartnership for network-enabled cloudservices that combine network securityand private connectivity from AT&Tand an enterprise cloud platform,and the OBS-SITA partnership for airtransport industry cloud services.To seize the opportunity to play astrategic role in this new market,telcos will need to offer value-addedcapabilities on top of their networkmanagement capabilities. DeutscheTelekom, for example, already isdelivering some videoconferencingservices through the cloud. Telcosmust act quickly to benefit from theircompetitive advantage in networkmanagement; otherwise, they risk ITand pure-play competitors gaininga stronghold amongst their existingcustomer base.
  • 18. 16 Cloud-enabled telco opportunitiesHow PwC can helpAt a time when telco services and cloudtechnology offerings are becomingcommoditised, PwC believes the key tothe telcos becoming relevant is to buildstrategic partnerships with technologyand professional services providers.PwC has developed a methodologyand approach for assisting telcoswith the identification of newservice opportunities by industry,whilst identifying the appropriatepartnerships where and whenapplicable. We bring to thismethodology our deep understandingof all of the major industries.We leverage our relationshipsand credibility with the CXOs ofthe companies we serve and havecombined those relationships with ourexisting joint business relationships.The union of the two has created aculture of collaboration that generatesa set of unique solutions for ourcustomers and partners. We believethis partnering model will enabletelcos to develop more targetedcloud solutions that offer the abilityfor reuse.RetailAssess/uses casesValidate business opportunity with global strategyWork with product realization team to validateWork with business/consumer team to finalize use caseWork with partners to develop and deliver solutionEntertainment, media,and communicationsFinancialservicesHealthcare FederalPwC performsassessment andfeasibilityPwC engages withoperators and partnersto develop anddeliver a solutionacross the ecosystem
  • 19. 17ContactsContacts:Pierre-Alain SurGlobal Communications Sector LeaderPwC US+1 646 471 6973Soo-Kiat LooDirectorPwC US+1 703 918 3204Rolf MeakinGlobal Communications AdvisoryLeaderPwC UK+44 20 7213 1707Joseph TagliaferroDirectorPwC US+1 908 391 0409Mike PearlUS Cloud Computing LeaderPwC US+1 408 817 3801Oliver ThomasManagerPwC UK+44 20 7804 6161John ChanSenior ManagerPwC Australia+61 8266 2220Jasmin YoungDirectorPwC US+1 408 221 5588Cledwyn JonesDirectorPwC UK+44 20 7804 7698
  • 20. www.pwc.com© 2013 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please seewww.pwc.com/structure for further details.This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. PwC helps organisationsand individuals create the value they’re looking for. We’re a network of firms in 158 countries with more than 180,000 people who are committed to delivering qualityin assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.com. PM-13-0235 SL

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