Telcos see future in the cloud

BARCELONA, Spain--Where do the largest telecommunications companies in the world want to be in in the future? In the cloud.

We've all heard this schtick before: Carriers don't want to be the purveyors of dumb pipes. Their equipment suppliers--namely, Cisco Systems and Alcatel-Lucent--also don't want them to be dumb pipe operators. The reason is simple: There just isn't much money in being dumb.

Smart is the way to go.

But for telecommunications giants, what does it mean to be smart? For the CEOs of Deutsche Telekom, Alcatel Lucent, and Cisco Systems, who spoke as part of a keynote panel here at the Mobile World Congress today, it means building services that can live in the carrier cloud.

In other words, in addition to providing consumers with broadband and wireless-connectivity services, large telecommunications companies also want to offer services like home security monitoring, remote health care access, and smart-grid and energy monitoring. Using a cloud-based architecture that enables carriers to share computing power to deliver services is a cost-effective way to offer such services, these executives said.

"The cloud offers carriers the opportunity to bring new services to consumers at a faster pace than ever before," Cisco CEO John Chambers said during the keynote.

Chambers added that carriers are no longer making money strictly from reaping the efficiency benefits of moving from one generation of technology to the next. For example, when wireless operators moved from 2G wireless to 3G wireless, they saw a much larger payback, in terms of profitability, than carriers moving from 3G to 4G right now. The way for carriers to make money in the future, he said, is to offer new services.

"They need to develop services that people pay premium for," he said.

The 'smart' cloud
The idea of the cloud has been around for years. And consumers have already been using cloud-based services to do things such as store pictures and music. But the cloud of the future will deliver much more. While there are other companies, such as Google, that want to be in the cloud business too, large telcos and their suppliers believe that they are in a good position to deliver cloud services. One good reason is that they already own the infrastructure on which the services are delivered.

"We don't want to be a dumb pipes," said Rene Obermann, CEO of Deutsche Telekom. "We may not control the entire network, but we can provide end-to-end quality."

Many carriers are already moving in this direction. In the United States, broadband providers such as Comcast and Verizon Communications offer home security systems and remote energy management. AT&T announced last week that it is now offering a "platform" that will allow other service providers to offer their own cloud-based service.

For Deutsche Telekom, which is also moving in this direction, Obermann said his company has had to shift from exclusively focusing on the technology behind its services to also focusing on serving customers. The company previously had been paying more to protect existing revenue than on embracing different access technologies to better serve customers, he said.

This has meant using unlicensed Wi-Fi to help alleviate traffic congestion rather than keeping customers on the licensed 2G and 3G wireless networks, for which the carrier can charge per minute or per megabyte of usage. He also said the company has looked at its service plans and the tariffs it charges to simplify them for customers.

"We never really had a focus on the customer," he said. "But a couple of years ago, we changed that." And he admitted that Deutsche Telekom is still evolving, "We still have a long way to go, in terms of making things easier for our customers."

Obermann also said it's important for carriers such as Deutsche Telekom to focus on innovating to create new products and services for its consumers. For far too long, the industry has sat quietly and waited for others in the industry to innovate. Alcatel-Lucent's CEO, Ben Verwaayen, agreed. He said the days of carrier suppliers such as Alcatel-Lucent building products without the input of carriers are over. Now the two must work together so that equipment suppliers can help carriers achieve the goals of adding new services to their offerings.

"The classic telco mentality is not one of innovation," Obermann admitted. That must change, he said. This is why he has taken on a personal role within Deutsche Telekom, in addition to his CEO duties, of driving product innovation. He said he'd like to see the company generate half of its revenue from areas that it does not operate in today. And he said the cloud offers an opportunity to do that.

Telcos to regulators: Stay away!
But developing new services also means massive investment in infrastructure. Not only do networks have to be fast and ubiquitous, but they must also be secure. Obermann and Alcatel-Lucent's CEO Verwaayen said that this is where government regulators need to back off and give the industry more leeway so that they can come up with their own solutions.

Obermann grumbled that so-called over-the-top content and service providers, such as streaming video and audio services, make profits from the networks that his company and other telcos spend billions of dollars to build and optimize. And he said that Deutsche Telekom and other large telcos need to be able to manage their networks to ensure that they can deliver services to consumers. Regulators in some countries have argued that telcos, which own infrastructure and carry data, must allow traffic to flow freely without any management. They don't want these carriers slowing down traffic of potential competitors.

But Obermann argued that when delivering cloud-based services, best-effort networks, which are networks that allow traffic to flow freely, are simply not enough. He also said wireless networks, which are already constrained, in terms of capacity, need to be managed. Alcatel-Lucent's Verwaayen agreed. While Obermann was careful to say that he only intends to manage networks in a "nondiscriminatory" way, Verwaayen was not as politically correct.

"I know you have to say that, but I don't," he said. "This market must develop in such a way that consumers are given choice on quality. Without it, this industry can't do what we must do. I have several options to get from here to Madrid. And no one stops me from buying a first-class ticket, if I want to buy one. Why should we not give consumers the same choice?"