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Inside Telecommunications: July-September 2011 - Service innovations in the Telecoms sector - EY - Global

Inside Telecommunications: July-September 2011

Service innovations in the Telecoms sector

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Jonathan Dharmapalan
Global Telecommunications Leader
Adrian Baschnonga
Global Telecommunications Senior Analyst
Steve Lo
Global Telecommunications Center: Beijing
Holger Forst
Global Telecommunications Center: Cologne
Prashant Singhai
Global Telecommunications Center: Delhi
Serge Thiemele
Global Telecommunications Center: Johannesburg
Wasim Khan
Global Telecommunications Center: Riyadh
Mike Stoltz
Global Telecommunications Center: San Antonio

Small- to medium-sized businesses (SMBs) are expected to act as early adopters for cloud-based unified communications and collaborations services.

Telecoms target cloud computing gains.

The third quarter has seen plenty of announcements from operators regarding cloud service provision, from hosted communications and collaboration services to virtual infrastructure solutions. Many new services are being offered via acquisitions and investments, showing how important physical assets are to the growth of new virtualization services.

Small- to medium-sized businesses (SMBs) are a customer segment seen as highly receptive to operator propositions. SMBs are expected to act as early adopters for cloud-based unified communications and collaborations services, an area where operators continue to make headway.

To improve the value-add for businesses, vertical-specific solutions are emerging 3.

Cloud services are also starting to make their presence felt in the consumer space as well in areas such as gaming. Growth for cloud services is seen as largely positive and although there are mounting customer privacy concerns the cost savings and improved organizational agility present considerable value propositions.

Global cloud computing market forecast1

Global cloud computing market forecast

Much is made of the role that operators can play as providers of cloud-based services. They possess some natural advantages when it comes to the delivery of infrastructure-as-a-service (IaaS) solutions: guaranteed bandwidth, both at a standalone and multi-carrier level, and security. Their legacy communications services also enable the delivery of value-added services in partnership with software-as-a-service (SaaS) providers.

Combinations of location based services, identity management and billing also pave the way for various types of bundle packages. However, identifying appropriate niches in a rapidly widening cloud landscape is far from straightforward.

Industry watchers predict a solid role for operators as cloud service providers and providers of multiple cloud management. The question of how far telecoms should extend into the realm of IT-centric services provided via the cloud remains open to question. Clearly, legacy capabilities will partly determine the scope of moves into cloud service provision. Smaller cloud service portfolios may better reflect existing capabilities but could undermine margin management and customer ownership in the long term.

As a host of players from the technology and telecoms sectors look to deliver new services, either individually or via partnership, the need to differentiate is paramount. To this end, strategies that are sensitive to the needs of different verticals, or that rely on secure access or enhanced mobility as a unique selling point, could bolster operators' attempts to make the most of the cloud delivery model.

Instant messaging as an SMS substitute

Though talk of substitution in the telecoms sector is nothing new, in recent months it seems the next mounting threat will come from the potential impact of mobile IM on text messaging services.

The likes of BlackBerry Messenger and well established, mobile IM apps could pose new challenges for operators. For one, they work across smart phone operating systems, widening the addressable market.

They also automatically scan devices to find contacts using the service, another feature that could accelerate adoption by consumers. Already, data from operators shows that penetration of such services has reached a large majority of certain customer segments in a matter of months.

The threat isn't just limited to developed markets: at the end of Q2 2011, there were 523 million active mobile IM accounts in China.4

WhatsApp penetration among KPN Android youth users2

WhatsApp penetration among KPN Android youth users

For many players, the rise of mobile IM has the potential to curtail their customers' "out of bundle" spend. In the light of the data explosion, many industry watchers suggested migration to packages sensitive to data usage. However, flat-rate packages clearly still have a role to play in terms of protecting legacy revenue streams such as messaging.

Even so, the challenge posed by IM to text messaging revenues is likely to remain pronounced. Although downloadable apps from start-ups have generated headlines in recent months, technology heavyweights are ramping up their IM efforts.


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1 "Sizing the cloud," Forrester Research, 21 April 2011.
2 "KPN Investor Day: Consumer Wireless," KPN press release, 10 May 2011.
3 "Telco billing and cloud services: a multi-faceted business challenge," Innovation Observatory Opinions, September 2011.
4 "China ends Q2 with 523 mln IM users," Telecompaper Asia, 18 August 2011 via Dow Jones Factiva.

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