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The Cloud: Telcos Need a Long-Term Forecast

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London: - Have telcos (and their shareholders) really grasped how the advent of mainstream cloud computing could ultimately transform their industry? In most cases, I think not. In general, telcos' top management teams have yet to articulate a compelling vision of where their company will play in a hyper-connected, cloud-centric world.

Clearly, cloud computing - the provision of hardware and software on a pay-as-you go basis - depends on rock-solid connectivity. Telcos provide connectivity, so they should be pivotal players in the cloud market. But right now many of them seem to be on the periphery, particularly here in Europe. In January 2012, research firm Informa said that European operators accounted for only 7% of the $13.5 billion of cloud investments by operators globally in 2011. “European operators are being outgunned in cloud infrastructure,” wrote Carmille Mendler, principle analyst at Informa, at the time.

Analysts at Citi Research take a similar view. "In Europe, some telecom operators are lagging behind their US counterparts,” they wrote in a just published report in cloud computing. “In many cases their approach to cloud remains too fragmented and sometimes defensive rather than driven by a strategic vision."

The reasons for European telcos’ cloud caution seem to be manifold: Regulatory uncertainty and inconsistency, economic woes, privacy concerns and (probably) short-termism. For most European telcos, cloud computing isn’t going to move the revenue needle in 2012 or 2013.

Tonic for the top line?

Even so, the cloud represents a major revenue opportunity in the mid to longer term. If companies move mission-critical software into the cloud, they will likely pay a premium for cast-iron connectivity and, potentially, related services, such as robust authentication. “Telcos already have a trusted billing relationship and hold personal customer information,” analysts at the Telco2.0 Initiative (a client of mine) pointed out in a recent report. “Extending this capability to offer pre-population of forms, acting as an authentication broker on behalf of other services and integrating information about location and context through APIs would represent additional business and revenue generating opportunities.”

In fact, some commentators believe that many telcos hold potentially valuable and strategic assets in the cloud services market. Yet you rarely hear telco top management teams highlighting this opportunity to investors - the people that need to be convinced that telcos should spend billions of euros rolling out next generation networks.

The broader cloud ecosystem also has an interest in ensuring telcos and their shareholders have more skin in the game.  Providers of software-as-a-service and platforms-as-a-service should be imploring telcos to deploy more fibre and more LTE. Neither consumers nor companies are going to use cloud computing for important time-urgent tasks unless they can be sure the connectivity will be good enough.

Telcos need a coherent and compelling vision of a future in which they play a central role in delivering cloud services to both consumers and companies.  And, even more importantly, now is the time to articulate that vision to investors balking at the cost of laying more fibre or building out LTE.