Although Silicon Valley startups and bigwigs may have gotten to the cloud computing market first, telecom operators are still well placed to sell cloud computing services to enterprise customers, who hunger for more security and resiliency than companies such as Amazon and Google can offer. AT&T pounced this week, touting its strengths as a carrier for its Infrastructure as a Service (IaaS) offering.
To a certain extent, it'll cannibalize their [hosting] business, but it'll be a healthy cannibalization. It'll be eating the dead tissue.
"We see this cloud-like model as a substantial game changer in terms of how companies buy IT, and moving to a more network-based approach really is an advantage to us," said Steve Caniano, AT&T vice president for hosting and cloud services.
"This complements our network assets in that it really allows us to leverage our data center infrastructure … and build out a multi-tenant services platform that we can offer to our customers."
The third AT&T cloud product, Synaptic Compute-as-a-Service, how the company brands its IaaS offering, uses technology from VMware and Sun Microsystems and charges customers per-hour to provision a network through a Web portal. The global telco promises no starter fees, term commitments or termination fees. AT&T has not released its list prices yet, but it will offer customers choices among three server sizes and connectivity via the Internet or via private line.
AT&T released its Storage as a Service offering in May, nearly a year after launching Synaptic Hosting, a managed services, security and storage service for business customers.
Earlier this year, Verizon entered the cloud market with an IaaS offering. Unlike AT&T, with its no-fees promise, Verizon charges a $500 startup cost and a $250-per-month subscription fee.
Analysts say carriers will have to sell cloud computing services, such as IaaS, to combat sinking revenues from traditional voice and hosted services. Enterprise revenue for AT&T phone services fell 10.5% in the third quarter from a year ago, the Wall Street Journal reported.
"It's almost going to be completely necessary for every telco and every IT outsourcer to create a hosting offering that has the level of elasticity and has real pay-as-you-go functionality to it," said Ted Chamberlin, a research director at Gartner Inc. "To a certain extent, it'll cannibalize their [hosting] business, but it'll be a healthy cannibalization. It'll be eating the dead tissue."
As a carrier, AT&T can also offer business and technical services that exclusive cloud providers cannot, Caniano said. For example, enterprises that already use AT&T as their voice or data service provider can have the IaaS usage billed as an additional line item, instead of adding another invoice to keep track of.
Infrastructure as a Service customers can also build applications directly into the AT&T cloud, minimizing latency as it is distributed across the globe, Caniano said.
"Customers are telling us they want to leverage us for more than just the connectivity and leverage us for a service layer they can add as a value-added service," he said. "It really opens up some very interesting capabilities to our customers, which is in a way complementary to [the virtualization] they're already doing."
Telecom operators will have to sell cloud computing to customers by playing up these kinds of differentiators, Chamberlin said.
"Where they have a leg-up is they can provide the hybrid hosted architecture," he said. "They can provide dedicated, robust SLAs [service-level agreements] for enterprise apps. The Storage as a Service [offering from AT&T] was very ho-hum … but with this Synaptic Compute as a Service, they take one step closer to being able to compete with Amazon."
Operators must honor pay-as-you-go model, but move beyond IaaS
Operators will eventually have to move beyond Computing as a Service models, which include IaaS, if they are to sustain long-term profits, Chamberlin said. The pay-as-you-go style of selling cloud services means income can be inconsistent, as opposed to the predictability of a monthly fee for hosted services.
"The best way to make a sustainable profit without up-selling to more expensive services is to extend the applications people run in businesses -- instead of [their] making the capital expenses up front -- into the cloud," he said. "The whole key to this is Internet Protocol. With IP, it's one same protocol, so you can start to converge stuff."
Operators building intelligence into their networks should use that to sell cloud computing and other cloud-based services, Chamberlin said.
AT&T's plan to offer its IaaS relatively free of commitments will also work to its advantage, according to Amy DeCarlo, a principal analyst at Current Analysis.
"This is a good service and a good model for enterprises to experiment with and see if they like this and see how reliable they find this," DeCarlo said. "If they like it, they'll say, 'Hey, we're ready to go for something in terms of a larger implementation.'"
Even if they don't take the AT&T cloud for a test run, enterprises will first turn to their incumbent carrier 30% to 40% of the time when buying a new managed service, Chamberlin said.
"It's all about the stickiness. The more reason you give your clients not to go outside your company to buy stuff, the more wallet share you'll get, and it'll be harder for them to leave," he said. "It'll be like the Roach Motel -- you'll never leave."
Let us know what you think about the story; email: Jessica Scarpati, News Writer