Profitable Mobile Cloud Computing Opportunities for Service Providers

AzureCoast AG, Renggstrasse 28 -6052 Hergiswil, Switzerland.
www.azurecoast.com
White Paper from AzureCoast
PROFITABLE MOBILE
CLOUD COMPUTING
OPPORTUNITIES FOR
SERVICE PROVIDERS
AUTHORS:
NIGEL SINCLAIR THOMSON, REGIONAL DIRECTOR
AFRICA, AZURECOAST
CARLO PETROLO, DIRECTOR BUSINESS DEVELOPMENT,
AZURECOAST

September 2012 AzureCoast White Paper 2
www.azurecoast.com
Introduction
Service providers including telcos, mobile network operators (MNOs), mobile
virtual network operators (MVNOs), Internet service providers (ISPs) and even
Web hosts are finding it more difficult to increase or even just maintain their
average revenue per user (ARPU) as fixed and mobile voice revenues decline
and data usage increases exponentially.
This white paper looks at some of the challenges facing service providers and
the opportunities that mobile Cloud computing offers to mitigate these
challenges.
The paper then reviews some recent innovative mobile Cloud offerings from
service providers.

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Challenges Facing Service Providers
Service providers today are fighting off attacks on their business models
from all angles.
The Increasing Number of Over The Top (OTT) Operators
Service providers face a turbulent environment that pits them not just against
their traditional telco competitors but also against a wave of new generation
telcos and OTT providers like Skype, WhatsApp and Viber.
These OTT providers are exhibiting strong growth as they provide services
such as mobile VoIP and video which users’ own network operators are
resisting because they fear the cannibalisation of their own voice services. As
an example, Microsoft Skype had over 660 million users in September 2011
and hit 41 million concurrent users in April 2012. Although it commands 25%

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of the international call market, Microsoft Skype’s volumes are however small
compared to total telco minutes.
Because services such as Skype, WhatsApp and Viber are IP based, they have
turned the traditional model of charging per minute or per SMS on its head
and are having a growing negative impact on operator voice, SMS and
roaming charges. Furthermore, they are becoming increasingly popular even
though OTT providers cannot guarantee the quality of service (QoS) and are
using more and more service provider bandwidth without providing any
revenue in return. As OTT providers’ communications services use operators’
networks to deliver services that compete with the operators’ own services,
the relationship between operators and OTT providers has become
increasingly adversarial as many operators appear blinded and paralysed in
the lights of the oncoming OTT threat. It’s thus no surprise that the
deteriorating relationship often featured in comments made by speakers at
MWC 2012. One of these, Franco Bernabe, CEO of Telecom Italia, compared
OTT providers to leeches sucking the blood out of the veins and arteries of
telcos. Another speaker, Rene Obermann, Chairman and CEO of Deutsche
Telekom, quoted an OTT operator as telling him “You make the investments
and I take the profits”.
Net Neutrality
The threat of OTT operators is compounded by the introduction of net
neutrality legislation.
Net neutrality laws prevent telcos and ISPs from prohibiting user access to
the services of OTT operators. Furthermore, net neutrality means that service
providers cannot charge users extra for accessing these services either.
Net neutrality laws have already been implemented in Chile and the
Netherlands while other countries are considering the introduction of such
legislation.
Disintermediation of Telcos
Subscribers are finding more gratifing experiences with handset
manufacturers (Apple, Samsung etc) and application providers through the

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abundant app stores of Apple, Android, and Windows Mobile than with their
service provider, leading to loss of loyalty and perceived value.
Since telcos are intermediaries in this chain, they run the risk of becoming
commodities in the eyes of their users.
The Bitpipe/VAS Dilemma
Given the increase in OTT activity, service providers now face the challenge
of not only trying to remain a competitive specialist provider of quality access
networks but also having to provide value added services in order to
compete with OTT providers. If a service provider specialises in high quality
networks while only providing a limited portfolio of value added services, it
runs the risk of allowing its networks to generate value added income for
third party OTT providers.
While there is nothing that prevents service providers from offering both
access and value added services, it is unlikely that a service provider will be
able to excel at both. In a worst case, this could lead to a lack of focus and
attention to the service provider’s core business and hence compromise a
hitherto successful business model.
Increase in Data Usage
Operators are looking to data services as a way to offset declining voice
ARPUs.
Data usage is forecast to increase exponentially as smartphone use
increases. Service providers in developing regions of the world such as Africa
and South Asia are not immune to this trend. Even though data usage by late
adopters might be lower than that of early adopters, the introduction of
smartphones costing less than USD 50 will lead to a rapid rise in smartphone
usage in developing countries. This will require large increases in capital and
operational expenditure by operators to support this demand.
In addition to increased usage of smartphones, faster data networks and the
availability of more mobile applications also results in increased data usage.

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The challenge facing operators is illustrated by the latest Cisco Visual
Networking Index (VNI) Global Mobile Data Traffic Forecast1
. Released in May
2012, this forecast anticipates that global data traffic will increase more than
78% CAGR (18 fold) from 2011 to 2016. Data traffic in the Middle East and
Africa is forecast to grow at 104% CAGR (36 fold), although off a relatively
small base.
As would be expected, a large increase in video traffic is forecast. Although
much is made about the growth in mobile Voice over Internet Protocol
(mVoIP), the contribution of mVoIP to total data usage and growth is
relatively small.
Although large data growth is forecast, service provider revenues are not
proportional to this data growth.
In a worst case scenario, as per the first illustration below, revenues taper off
even though traffic growth increases exponentially. This might be expected
in immature markets with ‘All you can eat’ packages and late adopters having
similar data usage as early adopters.
Such a scenario will be catastrophic for service providers hoping that data
revenues will take the place of declining voice revenues.
1
http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns70
5/ns827/white_paper_c11-520862.html

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In the second example below, data traffic tapers off over time while revenues
start to increase. One would expect this scenario in mature markets where
late adopters use less data than early adopters and service providers offer
tiered plans with differentiated data pricing.
Although operators’ actual ratios of data usage to revenue generated will
probably fall somewhere between the above two extremes, it is clear however
that in addition to generating just the direct revenues accruing from data

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services, operators need to earn additional value added service (VAS)
revenues from their data services.
Mobile Cloud Computing Opportunities
Wikipedia2
defines Cloud computing as “the use of computing resources
(hardware and software) that are delivered as a service over
a network (typically the Internet)”.
Mobile Cloud computing is in turn the delivery of Cloud computing
resources on demand to mobile users.
Many of these services can be accessed by users via thin clients or browsers
on their mobile devices and hence are not dependent on the processing
power or data storage capacity of the devices.
We believe that given their strengths, mobile Cloud computing offers service
providers a cost-effective and efficient way to generate VAS revenues from
their data services.
Service Provider Strengths
Service providers such as telcos have strengths which they can leverage to
provide profitable mobile Cloud services while improving the experience they
offer their subscribers.
These strengths include:
• Their relationships with their customers. Service providers usually
have well known brands. These brand names can be leveraged with
service providers’ knowledge of subscriber information and their
billing relationships.
2
http://en.wikipedia.org/wiki/Cloud_computing

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• Ownerships of high speed networks. Mobile data connectivity is the
future and these networks are becoming more ubiquitous and faster
while latencies are decreasing, making them ideal for accessing cloud
services. In addition, because mobile connections don’t require a
wire, they are quicker to roll out while enabling users to access
services wherever they are. Control of the network and quality of
service (QoS) also enables service providers to manage the user
experience from end to end.
Increasing User Expectations
Users expect more and more of their service providers. These expectations
are illustrated in the following questions:
• If emails are traditionally from the PC world and voice is from the
mobile world, now that I can receive emails on my mobile phone, why
can’t I answer my mobile phone calls on my PC?
• Given that I get a mobile phone number with my SIM, why can’t I get
my Internet identity (e.g. my domain) with my SIM too?
• Why can’t I have multiple SIMs associated with my account?
• And why do I need separate voice and internet service providers?
As user expectations increase, so do the opportunities offered by the mobile
Cloud.
Opportunities for Service Providers
There are many opportunities for service providers to provide mobile Cloud
computing services, particularly in the small and medium enterprise (SME)
space. e.g.
• There are now more mobile devices than desktops
• Service providers such as fixed line operators can provide services to
mobile device users

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• Many businesses don’t have the financial (particularly CAPEX),
technical and infrastructure resources to build and operate solutions
in-house
• By accessing Cloud based services from third party service providers
such as telcos, companies are able to concentrate on their core
business.
• Many employees are mobile and want to enjoy access to the same
services outside the office as those available to them within the office.
• Some businesses are seasonal. Such businesses, as well as businesses
which are growing or getting smaller want access to services which
can scale up or down as per their requirements and hence are good
candidates for Cloud based services.
• Users, particularly younger ones as well as business executives who
are moving away from BlackBerry devices to iPhones/iPads and
Android devices, want to use their own personal devices at work.
Businesses wish to cater to these ‘Bring your own Device’ (BYOD)
requests without compromising the security of their information and
networks. Given that BYOD users’ devices access the Internet via
multiple networks, BYOD is thus an opportunity for telcos to provide
OTT services.
• The Cloud creates opportunities for operators to provide and
monetise services to upstream service providers as per a Telco 2.0
model in addition to just providing services to their traditional
downstream customers.
• Service providers can outsource their own Cloud services by entering
into partnerships with other service providers, thus converting their
own CAPEX into OPEX
Service providers can deliver mobile Cloud computing services to multiple
user bases via multiple routes, e.g.:
• To their own subscribers

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• To prospective subscribers (e.g. by forming MVNOs)
• To subscribers of other networks on an OTT basis
The delivery of Cloud services by MNOs or MVNOs allows these service
providers to associate many more services with their SIMs than just voice and
SMS.
New Mobile Cloud Offerings
As Cloud computing moves from being just an interesting idea to real
implementations, service providers have been experimenting with mobile
Cloud computing. Apart from allowing them to capitalise on the
opportunities offered by mobile Cloud computing, this is blurring the lines
between their roles as traditional telcos and their need to become innovative
service providers.
Recently launched mobile Cloud service offerings include:
TU Me from Telefónica
Telefónica launched TU Me in May 2012 following Telefónica’s purchase of
Jajah in 2009.
TU Me is a VoIP/messaging/file sharing application. At the time of writing it
has no connectivity with PSTN or SMS networks.

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Telefónica’s launch of TU Me is a good example of a telco offering OTT
services. This is particularly interesting given that Telefónica is also a
member of ‘joyn’, a GSMA inter telco RCSe collaboration which was unveiled
in February 2012.

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Rogers One Number
Rogers One Number (RON) was launched publically by Rogers Wireless,
Canada’s largest mobile operator, in February 2012.
RON turns users’ PCs into extensions of their mobile phones. This enables
users to answer calls to their mobile numbers on their PCs and send SMSs
from their PCs.
Apart from syncing users’ mobile address books to their PCs, RON also
allows calls to be handed off from mobile phone to PC in mid call.

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1toGo Mobile
1toGo Mobile3
(www.1togo.net) offers end user customers such as
businesses, prosumers, expatriates, frequent travellers, direct selling
organisations, fan clubs, support groups and other communities a unique
experience and their own easy-to-use mobile Cloud with services such as:
• An IP PBX with multiple phone numbers accessible on all of a user’s
devices: smartphones, PCs/Macs, via popular browsers as well as hard
IP phones and analog phones via VoIP gateways
• The customer’s own internet domain with a single address for each
user’s email (including push email), instant messaging/presence and
HD Voice/video for on-net calling/conferencing
• Online storage (enabling the same information to be accessed from all
the users’ devices) for archiving the user’s life and business
• A single wallet for paying for everything with the same bill.
1toGo Mobile also provides a quick time to value delivery mechanism for
service providers such as MNOs, MVNOs, ISPs and Webhosts to generate VAS
3
Nigel Sinclair Thomson is CEO of 1toGo Mobile

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and PSTN minute revenue from users on their own fixed or mobile networks
without having to host the technology themselves. Furthermore, by offering
1toGo Mobile’s services to clients of other service providers on an OTT basis,
service providers can generate VAS and PSTN minute revenue that was
previously unavailable to them.
1toGo Mobile has CommuniGate Systems’ (www.communigate.com) carrier
grade unified communications technology at its core. CommuniGate Systems
is a trusted, well established strategic partner to over 300 carriers worldwide
including Verizon, Deutsche Telekom, Tele2, Orange, BT, China Unicom and
Etihad Atheeb Telecom.

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In Conclusion
Mobile Cloud computing offers service providers a quick time to value
method to leverage their strengths and generate additional revenues from
users of their own networks as well as from clients of third party service
providers.
By partnering with third party Cloud VAS providers, service providers can
jump through the horns of the ‘Bitpipe/VAS dilemma’. This allows them to
concentrate on providing their clients with high quality networks while
enjoying the peace of mind that even if they’re not a walled-garden their
networks will generate VAS revenue for them.
In addition, by delivering such services through branded applications, service
providers can remain uppermost in the minds of their users instead of facing
disintermediation.
About AzureCoast
Cloud Communications Innovation
AzureCoast help executives deliver high value through technology and
services enablement. Our team works with strategic decision makers in the
telecoms, military and banking sectors. We help organizations leverage
cutting edge technologies and techniques for the success in the Cloud.
The AzureCoast team is a collection of industry experts from California and
Europe that have built some of most secure and massively scaled IP
Communications systems in the world. In some cases the team have built the
systems for entire countries.
Together, we bring experience and expertise only possible from years of
determination and dedication to excellence. We have seen every type of
problem and worked in every sort of environment.

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AzureCoast at a Glance
• Executives with seasoned experience building telecommunications
systems at super scale
• Our technical team has solid, proven expertise, with carrier and
government security backgrounds
• We partner with trusted sister organisations to bring additional
specialties and skills to projects
Our Mission
AzureCoast’s mission is to help executives deliver services that their
customers love and that improve their bottom line performance. We are
passionate about delivering value, not just technology for the sake of
technology.
We believe that the selection and use of only the most appropriate
technology is critical in the success of any service; no matter the industry
sector. Our aim is to help executives break free from the constraints
of incessant technology advancement and vendor lock-in, to learn from the
successes and failures of others and deliver compelling, useable services that
make a real difference.
For further information please contact:
Nigel Sinclair Thomson
Regional Director Africa
Email: nthomson@azurecoast.com
Website: www.azurecoast.com

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