The telcos are coming!

The power of cloud

One major development in IT that plays right into the hands of telcos is the advent of cloud services. What initially began with software supplied over the internet has exploded into a market that can supply storage, processing power and bandwidth on demand.

These days start-up companies need little more than an internet connection to their desktops; email, CRM, documents and accounting are hosted, as is the backup.

Cloud services require two things: the ability to scale to make it profitable, and a rock-solid network to ensure quality of service and customer satisfaction.

The business model of a telco relies on scale for profitability and managing networks is their core business. It seems like a perfect fit.

With the push into IT services and related hardware, telcos have the opportunity to integrate products into the cloud services to create standardised systems.

Unified communications applications in the cloud could be pre-configured to work with an IPBX and IP handsets, and sold as a bundle to businesses. Telstra's deal with Microsoft to supply versions of its ubiquitous productivity software is a step in this direction.

Smith, who spent 20 years selling hardware for IBM and then DEC, says the impact of cloud computing mirrors his experience in mainframes in the late '70s. At first, hardware drove all the sales, and software "fell out of the back of it".

Then when applications rose to prominence, hardware became subservient. "Now I see the same thing happening in our [communications] market," says Smith.

Telcos with IT skills are in a powerful position to write standard network-based applications for general business use and turn them into another optional feature such as voicemail.

Smith says IP telephony has been held back from mass adoption because the technology hasn't been fully connected to all business applications. Orange is writing application interfaces for IP telepony that tie the applications and communications layer together.

No matter the amount of integration carried out in the cloud or with pre-configured hardware, companies will always have specialised requirements that telcos could not make money on by servicing.

Most software as a service (SaaS) products today are point services rather than fully integrated solutions, says Jay Miley, CEO of Ingram Micro Australia.

Distribution can play a key role in the aggregation of SaaS offerings from vendors and suppliers and helping resellers to integrate these to provide integrated solutions for their customers.

"This allows a combination of best-of-breed services, applications and infrastructure into a single solution, rather than either a monolithic, one-size-fits-all solution or a collection of non-integrated services that don't provide a coherent business solution," says Miley.

Going up or down?

The IT services space is going to get very crowded. Domestic and international telcos are already competing for Australian customers in the enterprise and that competition is about to extend downwards.

Telcos recognise that SMEs have the same business requirements and technologies as larger companies. Until now the cost of delivering the technology to SMEs has been too high to make the market worthwhile.

Orange Business Services, which has been providing telecommunications and IT services to multinational companies for some time, is convinced it's easier to go down the chain.

"That's exactly our direction. We will develop at the high level because the costs aren't quite to where we need it for the SME market. It's still a touch high, and we need the quantity to get the return on investment," says Orange's Smith.

"As soon as we get that price down to the level we want - and my prediction is that will be in the next 12 months - then our whole strategy changes because then it becomes mass market."

Orange's Cavill clarifies that Orange has no ambition to become the only IT services provider in the market. While Orange does employ engineers of various stripes, it has always augmented its work with multinationals by hiring boutique integrators when it needed more hands or specialised skills.

"We have all that capability in-house. It's more a question of have you got enough of it within your FTE count to meet that demand," says Cavill.

This year Orange hired a head of channels for Asia and is looking for an alliance and channels manager for Australia. "We have a budget designed for next year," says Smith. "By the end of the year we will be seriously looking at alternative channels to market."

Are other telcos also going moving to a telco integrator model?

The recent news of Telstra's break-up makes it difficult to know whether ICT and telecommunications services will end up split apart or integrated more closely.

Vodafone is treating these first days of selling Business One as a way to fine tune its transition to selling more than carriage.

"Partly we were really happy with the fact that we were in a limited commercial availability where we've learned how to sell this product correctly and that we've got all our processes correct," says Page.

The telco has a product development roadmap that expands on the integrated communications theme but it won't divulge specifics. Page admits that video and collaboration would be a key part, as is software integration to packages like CRM.

He also says it's likely that Vodafone is working on a competitor to Telstra's T Suite, although Vodafone hasn't released any cloud service in any other country to date.

"There will be [a cloud service] in the future but not right now," says Page.

Optus appears to be happy with the status quo with its enterprise integrator, Alphawest. While the two companies present a united front to the customer, there are no plans to merge the ICT and telco businesses.

"There's been lots of discussion about integrating ICT companies into telcos," says Rob Parcell, Alpawest's CEO. "But there's been lots of evidence that that doesn't work. We need to keep them separate.

"With a professional services organisation there are fees for project management and design and that is slightly different than the telcos."

Optus Business sells IP telephony and conferencing to the enterprise, but it has made no mention of selling a commoditised IP telephony system to SMEs.

Alphawest is rolling out infrastructure-as-a-service for enterprise. It was selected to beta test VMware's vSphere and one of the first to get production units of Cisco's Unified Computing platform.
Both technologies are instrumental in supplying Alphawest's infrastructure-as-a-service, which will be released in the first quarter of 2010.

The telco has the capability and the skills to start a broader cloud service through its owner, Singtel, which operates a security-as-a-service business. This could theoretically be provisioned to Australian businesses.

Despite the operational separation between Alphawest and Optus, the integrator relies heavily on its telco heritage in its pitches to customers.

"We are deploying our infrastructure at the network level which means we can offer better service," says Parcell. "We are one, integrated provider."

Why it might not work

Telcos have long eyed IT as a business, but below the biggest accounts it has not worked. The main reason has been that the level of integration required for an IT project was too expensive for smaller companies.

Telcos standardise services so they can be maintained through a call centre rather than employing a customer account manager, as a reseller would.

But many IT technologies have matured to the point where much less integration into a company's infrastructure is required, thereby improving reliability and the customer experience. The arrival of cloud services reduces the need for on-premises customer equipment altogether.

These developments make it easier for telcos to standardise and scale technology and deliver it to many customers at a lower cost. If Orange's direction is any example, they are also taking action to shore up customer relationships.

Orange is offering two levels of its call centre, one international and the other domestic. The latter is "slightly" more expensive than the international, centralised call centre but customers get Tthe same sort of service that they would get out of the other IT companies, says Smith.

Orange also employs customer service managers to maintain relationships outside the call centre. Smith says he was brought into Orange from outside the telco industry specifically to address customer relationships.

The new Orange is "a company that listens to its customers, that works with its customers and provides the sort of service that they deserve", says Smith.