The "cloud" may be an overused term that means different things to different companies, but for carriers it's still potentially serious business. The cloud and the subsequent strategic importance of data centers to telcos was a recurring theme onstage at this year's PTC conference, and in the past few months, a number of carriers have been making high-profile pushes in their data center and cloud strategies.
Pacnet, for example, launched its third data center last month in Sydney, following data center landing station launches in Hong Kong and Singapore late last year. Tata Communications has also been leveraging its data center assets with cloud-based services such as InstaCompute - a public-cloud IaaS offering initially for India, with Singapore and South Africa next in line - and InstaOffice, a SaaS offering for SMBs in partnership with Google Apps. Even cellcos like SK Telecom are getting in on the act - last month, SKT launched its Cloud Data Center (via SK Broadband's data center in Seoul) to offer cloud-based services and solutions.
The market drivers for data centers and cloud services are fairly well understood by now - growing broadband traffic (particularly from the mobile sector) and growth in apps and content that need to be hosted closer to the market trying to access it. And of course there's the attraction of new revenue streams for service providers as they look to milk more value out of their data centers. Gartner estimates the cloud services market is worth $68.3 billion today, and will grow to $148.8 billion by 2014.
Approaches vary, depending on the telco strategy, the assets they have and the markets they're targeting, but the common thread in most cases isn't the data center so much as the network to which it's connected. Ultimately, it's the network that forms the foundation for the added value that carriers can bring to the cloud, and distinguish their cloud services from over-the-top Web 2.0 cloud services, such as Google Apps and Amazon AWS (or, as the Tata's InstaOffice example illustrates, make telcos an ideal B2B partner for such services).
Of course, it's not that easy. Even with network assets at their disposal, telcos hoping to cash in on the cloud will need to not only ensure that their data centers are up to the challenge, but also possibly rethink the concept of the data center itself.
In fact, a good starting place would be to define just what "the cloud" is from a telecom point of view.
According to Sanjay Munshi, product management director at Brocade, service providers should start by understanding the two basic cloud models in play as far as data centers go. "You have the private cloud, which is what enterprises use, where there's only one user and you have SLA guarantees. Then you have the public cloud, which is where Web 2.0 companies like Amazon and Google play, where you have many users coming into the data center sharing resources."
The sweet spot for service providers, he says, is a hybrid of the private and public models, "where you have some aspects of the private cloud like SLA guarantees, and public in the sense that it's shared by many users."
Joe Weinman, worldwide lead for HP's communications, media and entertainment division, also uses the term "hybrid". "It means dedicated, owned capacity, mixed with on-demand, pay-per-use capacity, the same way that you might own a car but also rent cars," he says. "Rather than two separate environments, the 'hybrid' occurs over a network and with a common management and security layer. The hybrid may be external, where an enterprise combines its own data center assets with service provider cloud services, or service-provider-internal, where the service provider augments its own data centers with pay-per-use capacity from a provider such as HP."
Network is the key
Weinman emphasizes that this "hybridization" occurs over the network, "accentuating the value of key service provider assets."
In other words, the real value for carriers offering cloud services isn't so much the data center as the network connecting it.
"How do service providers add value? The answer is the infrastructure, because they own it," says Munshi. "Service providers are migrating from pure connectivity oriented services - VPNs, B2B connectivity, bandwidth - to a services model where they're not only offering bare-bones connectivity but also services on top of that. So they're going from being a courier to being a destination, with the destination being the provider data centers."
One reason the network is key to all this, says Brocade's director of global service provider marketing, Daniel Williams, is because "service providers can and need to provide end-to-end service-level enforcement from the data centers to the customer site," which means a smart pipe capable of functions such as traffic metering and policing, hierarchal QoS, performance management and connectivity/fault management.
Indeed, carriers actively making a data center/cloud play are already banking on network assets as a key part of their strategy.
"Telecom providers have a unique advantage because they own network capacity that's readily available to them, and they should be in a significant position to influence the way clouds develop in the future," says David Wirt, global head of managed services for Tata Communications.
"It's all about delivery of applications, content and putting that content and processing power strategically close to the eyeballs and carefully positioned in the network, which is why we think having data centers that sit on top of the network is a critical factor and a key differentiator for us," says Chris Wilson, senior VP at Pacnet.
"You can start by putting everything in one data center and covering the whole of Asia very efficiently with low latency, and as your applications and content grow you can move to multiple data centers and create a distributed architecture that's linked together. We can put dark fiber between these data centers and allow a customer to build a very efficient distributed architecture and grow to meet their requirements."
For Pacnet it's also an opportunity to integrate its data center assets with its network assets to create new bundled service packages, Wilson says. "For enterprises, Pacnet already offers all the connectivity services and now the data center services, and we'll be able to put a layer of managed infrastructure and other services on top of that and create a bundle for the enterprise customer which I think will be quite unique."
One interesting aspect of this is that while network capacity ownership may give carriers an advantage over web-based cloud providers, as well as operators whose network and data center assets are smaller, it also creates an opportunity to make business partners out of them, says Wirt.
"We're intending to take everything we do with our enterprise customers and white-label it for other carriers around the world," he explains. "When you own the biggest subsea cable system in the world, you have interactions with a lot of different companies in various ways, and based on our early successes and conversations with other companies, we believe there's a market for a white-labeling strategy."
If nothing else, he says, Tata's network-powered cloud strategy is already having an impact on how pure-play cloud companies do business with them.
"If you look at a lot of the companies that are classified as cloud companies today, they're starting to buy more like a service provider from us. So the ones that are getting any kind of scale realize the importance of network connectivity in being a cloud services provider and how that makes or breaks their success in the future."
As for the actual cloud services that carriers can offer - IaaS, Paas, SaaS, etc - that will vary from market to market and from one service provider to another, says Munshi of Brocade, which offers a consulting service for telcos designed to help them sort out their service strategy.
"We help customers define what services to offer by defining each service, who the customers are that will pay, why they would pay for a given service, how much they would pay and what industries they come from," he explains. "For example, if you're looking at backup-as-a-service, healthcare wouldn't be a primary industry in the US because of regulatory concerns about security. But media and video services would be key areas to focus on."
Brocade also offers service validation by advising customers what hardware and software they'll need to buy, how to put it together and ROI analysis, Munshi says.
The additional hardware and software is something of a given, says Munshi, as many telcos are unprepared to offer cloud services.
"Many of the carriers we work with now have their own data centers, but they're not at the scale or not at the technology horizon that will not fit a telecom cloud model," he says. "They're either small, or implemented in a way that they need to be technologically upgraded to provide this service infrastructure because it's not only serving the internal population but also facing the end-customers."
To be sure, carrier readiness does depend on who you ask, and how long they've been gearing up for the cloud.
"We didn't have to do anything," says Wirt when asked how much work went into upgrading Tata's 42 data centers to offer its cloud services. "When I joined the company 15 months ago, we had a lot of new build, so there's no need for any of the locations where this will be implemented to do any retrofitting or improvement. In fact, the Singapore exchange that I'm sitting in now was purpose-built to be a cloud facility."
For telcos that haven't thought that far ahead, says Weinman of HP, they need to think about how to leverage their data center footprint well beyond the traditional internal back-office functions like billing and HR, to the point of looking at the network itself as an app.
"They need to consider transforming their network to become just another application sitting on a scalable IT infrastructure," he says. "For example, routing, WAN acceleration, hosted IP-PBXs, etc, are becoming just software. This will help them compete with new over-the-top entrants that aren't encumbered by legacy infrastructure."
In fact, Weinman adds, telcos need to be more flexible in thinking what constitutes a data center in the first place.
"It means thinking through how best to strategically leverage network assets and considering non-traditional locations as 'data centers', which might include switching centers or other network nodes, including last-mile distribution," he says. "These 'mini' data centers can support content delivery, multicasting and edge application delivery."
Telcos face other challenges in prepping their data centers for cloud services, Weinman notes. These range from the usual challenges in building any complex environment and the IT competencies required (which in turn requires smart partner selection - see sidebar, "Outsourcing cloud build-out") to the ability to devise a tailored, appropriate strategy (as opposed to a "me too" strategy), as well as practical issues such as a systems management layer that can span different heterogeneous environments.
It will also require telcos to rethink long-held assumptions in their usual business practices, he adds. These cover moving beyond bandwidth as a fixed quantity with a constant monthly recurring charge to bandwidth-on-demand integrated as part of an end-to-end cloud architecture, linked to an application-layer management control system.
Another issue is data security, which Wirt describes as "the No. 1 objection that people have to cloud services." Put simply, enterprises are being asked to entrust their apps and data to the cloud, and worries abound over what will happen to both should the company shut down, or experience a data breach.
However, says Wirt, fears over security risks will go down over time as cloud services see higher adoption but also because carriers that offer managed security services can integrate that capability into their cloud strategy.
"Because we provide managed security services, we have a visibility that most companies do not have, only my peer group does," says Wirt. "If you think of the way security is today, it starts when it hits the four walls of your premises, whether it's a firewall or the anti-virus software you put on a PC. As a network provider I can see from the originating source if someone is trying to promote a virus."
Sidebar: Outsourcing cloud build-out
Service providers facing competitive pressure to launch cloud services but lack capital to do so are turning to telecom outsourcing services. Like their own customers, carriers are looking to minimize their upfront capital expenses by outsourcing various pieces of their cloud deployments, says Amy Larsen DeCarlo, principal analyst at Current Analysis.
"Service providers are spending a lot of money investing in their networks and a lot of that money is going into the wireless infrastructure," she said. "They don't have a lot of money to dedicate to data center-based services... so they want something that's cost-effective."
Some are looking for turnkey cloud computing equipment packages that vendors have pre-assembled, says to Lew Tucker, VP and CTO of cloud computing at Cisco Systems. This approach offers carriers a quicker time to market for large-scale deployments by dictating the service objectives but leaving the cloud infrastructure design, testing, integration and configuration to the vendor.
"Our objective is for service providers to spend less time bringing up the basic infrastructure so they can spend more time on making each of their service offerings the best in the market," Tucker said.
These turnkey options mitigate the risk of building out the infrastructure "before one sale is made," said Lauren Robinette, principal analyst at ACG Research. "Cisco [is] managing the infrastructure... until the service provider directly takes on this business."
But there's a catch to this kind of telecom outsourcing for cloud deployment: lock-in with a single vendor.
Larger telecom cloud vendors such as Alcatel-Lucent, Ericsson and Huawei "take a more pure 'outsource your multi-vendor platform [to us]'" approach similar to HP and IBM, partnering with various cloud infrastructure vendors, Robinette said. Those vendor-agnostic services generally appeal more to service providers than the "pure Cisco-only" approach, she said.
DeCarlo cautioned that service providers may not be able to differentiate their cloud services as easily if they adopt telecom outsourcing services that uniformly pre-package cloud infrastructure - especially if business enterprises demand further customization that requires carriers to enlist the vendor again.
"Then you're going to have to spend for extra development cycles," she said. "On the flip side, the providers that have built their own stuff and are incredibly flexible might [have] some barriers they run into that we don't see right now."