Behind Oz's curtain: Research on new revenue from the Telco Cloud

Bala Thekkedath
18 May 2016

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For years, the largest communications service providers (CSPs) have relied on wireless service to offset declines in landline voice while still providing modest revenue growth.

Those days may finally be coming to an end. With over-the-top players having jumped into the game, the economics of wireless services will never be the same. Connectivity isn’t as valuable as it used to be, and as a result, STL Partners estimates global telecoms services revenues will drop from roughly $1 trillion in 2013, to just $700 billion by 2020. CSPs can either change the way they do business, or risk losing over $300 billion in potential revenue. That sort of choice is no choice at all.

Stormy weather, friendly clouds

A new approach is needed to turn this grim choice into a ripe opportunity, one that features not only better infrastructure and operations, but which is also software-defined and automated to maximize efficiency and support delivering new ideas quickly to keep pace with customer demand. We call this platform the Telco Cloud.

The shift won’t come easily. At their core, CSP networks are collections of proprietary appliances, custom built for specific applications and managed by custom software – and often provided by a single or few dominant vendors. The good news is that many CSPs ARE making the leap. They are gradually virtualizing every element of their existing CSP networks and then bringing in a more modern infrastructure to beef up the capabilities of the aging hardware already in place.

The key to this shift are two technologies: network functions virtualization and software-defined networking. NFV decouples the network functionality from underlying hardware systems that hosts them. SDN separates the control mechanisms for those network functions from the act of forwarding data. Together, NFV and SDN lets CSPs instantiate network functions as and when needed and scaled up/down depending on needs, improving efficiency at a scale CSPs have never before seen.

4 emerging revenue opportunities

Few businesses are better positioned than major telcos to deliver new services to a greater populace. The Telco Cloud is their catalyst, turning a connectivity-slinging CSP into a value-creating digital service provider.

We see this transformation unleashing new services in four categories:

  • Connect services: Connect services refer to the optimization of connectivity and networking, similar to existing connectivity and networking services but are delivered and consumed in a more cloud-like way.
  • Perform services: This category describes services that ensure optimized delivery of content and applications to the consumer; this is particularly important for services that require high bandwidth or low latency.
  • Capture, analyze and control: These services are less mature and are often dependent on the implementation of more advanced technologies. This category refers to networks that are “two-way,” with the potential for response and action at the edge of the network; this contrasts with existing networks that are more one-way orientated.
  • Digital agility: Finally, the fully realized Telco Cloud is digital from the ground-up, capable of delivering unique services anywhere. We asked nearly two dozen major telcos to weigh in on their use of the Telco Cloud and the majority said they’re following this path and also see growth in the transition. Using existing industry data we modeled the likely base revenue for a converged telco operating in a mature European market such as the United Kingdom. Factoring in a combination of voice, data, managed services and consumer digital products results in roughly $1.6 billion in revenue in 2016, declining to about $1.5 billion by the winter of 2021. Adding gross revenues from new services delivered via the Telco Cloud improves the total by 10.5%.

A software-defined future

Gains will come slowly and steadily, improving as work to implement the Telco Cloud continues. Personalized, high-value services will become easier to deliver with each passing year, reaching its apex when the traditional CSP infrastructure is fully digitized. The future of telco will be governed by platforms that are software-defined and digital native. For the CSPs losing clients and revenue to more agile and responsive competitors, it can’t get here fast enough.

Read the full Telco Cloud Research Report at:

Bala Thekkedath is NFV marketing director at Hewlett Packard Enterprise

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