Telcos invest $8bn in cloud, but generate pennies

CIOL Bureau
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BANGALORE, INDIA: Communication service providers (CSPs) committed almost $8 billion to cloud-related pursuits in the first six months of 2011, however, recent acquisitions won’t boost cloud revenues overnight and service differentiation remains poor, according to analyst firm Informa Telecoms & Media’s Telecom Cloud Monitor, a new analytical tool evaluating CSPs’ cloud strategies.


Informa estimates that the typical CSP generates less than five per cent of its enterprise revenues from annuity cloud services. Despite growing customer wins, some CSPs need to muster 10-fold growth to hit publicized cloud revenue targets.

Also Read: How to build a private cloud platform?

Of the 10 acquisitions and 21 investments announced in the first half of 2011, 80 per cent involved data centers, highlighting CSPs’ desire to bulk up on physical assets to sell virtual goods.


“Recent multiples paid for so-called cloud assets aren’t at Enron Era levels, however, they are generous,” said Camille Mendler, principal analyst at Informa Telecoms & Media. “More worryingly, the companies acquired — although growing — generate a sixth or less of their revenues from pure cloud services.”

On current performance, Informa concludes that many CSPs are swapping their dumb-pipe problem for a dumb cloud: 70 per cent of the 88 cloud services launched in the first half of 2011 were generic productivity and storage applications, often involving partners claiming a major share of the takings.

Software-as-a-service is a loss leader for most CSPs: Partners such as Google, Microsoft and Salesforce offer great tools, but they want their pound of flesh,” said Mendler. “Profitable differentiation lies in securing seamless access to enterprises’ digital assets, not just SaaS resale.”


Informa warns CSPs not to squander their powerful differentiators in the cloud marketplace. They must:

- Create high-value community clouds to serve the needs of specific vertical industries.

- Secure cloud access via any device in audited compliance with local laws.

- Mobilize the cloud to transform business processes encompassing people and embedded devices.