profitable mobile cloud computing opportunities for service providers

AzureCoast AG, Renggstrasse 28 -6052 Hergiswil, Switzerland.

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White Paper from AzureCoast

PROFITABLE MOBILE

CLOUD COMPUTING

OPPORTUNITIES FOR

SERVICE PROVIDERS

AUTHORS:

NIGEL SINCLAIR THOMSON, REGIONAL DIRECTOR

AFRICA, AZURECOAST

CARLO PETROLO, DIRECTOR BUSINESS DEVELOPMENT, AZURECOAST

September 2012 AzureCoast White Paper 2


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Introduction

Service providers including telcos, mobile network operators (MNOs), mobile

virtual network operators (MVNOs), Internet service providers (ISPs) and even

Web hosts are finding it more difficult to increase or even just maintain their

average revenue per user (ARPU) as fixed and mobile voice revenues decline

and data usage increases exponentially.

This white paper looks at some of the challenges facing service providers and

the opportunities that mobile Cloud computing offers to mitigate these

challenges.

The paper then reviews some recent innovative mobile Cloud offerings from

service providers.



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Challenges Facing Service Providers

Service providers today are fighting off attacks on their business models

from all angles.

The Increasing Number of Over The Top (OTT) Operators

Service providers face a turbulent environment that pits them not just against

their traditional telco competitors but also against a wave of new generation

telcos and OTT providers like Skype, WhatsApp and Viber.

These OTT providers are exhibiting strong growth as they provide services

such as mobile VoIP and video which users’ own network operators are

resisting because they fear the cannibalisation of their own voice services. As

an example, Microsoft Skype had over 660 million users in September 2011

and hit 41 million concurrent users in April 2012. Although it commands 25%



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of the international call market, Microsoft Skype’s volumes are however small

compared to total telco minutes.

Because services such as Skype, WhatsApp and Viber are IP based, they have

turned the traditional model of charging per minute or per SMS on its head

and are having a growing negative impact on operator voice, SMS and

roaming charges. Furthermore, they are becoming increasingly popular even

though OTT providers cannot guarantee the quality of service (QoS) and are

using more and more service provider bandwidth without providing any

revenue in return. As OTT providers’ communications services use operators’

networks to deliver services that compete with the operators’ own services,

the relationship between operators and OTT providers has become

increasingly adversarial as many operators appear blinded and paralysed in

the lights of the oncoming OTT threat. It’s thus no surprise that the

deteriorating relationship often featured in comments made by speakers at

MWC 2012. One of these, Franco Bernabe, CEO of Telecom Italia, compared

OTT providers to leeches sucking the blood out of the veins and arteries of

telcos. Another speaker, Rene Obermann, Chairman and CEO of Deutsche

Telekom, quoted an OTT operator as telling him “You make the investments

and I take the profits”.

Net Neutrality

The threat of OTT operators is compounded by the introduction of net

neutrality legislation.

Net neutrality laws prevent telcos and ISPs from prohibiting user access to

the services of OTT operators. Furthermore, net neutrality means that service

providers cannot charge users extra for accessing these services either.

Net neutrality laws have already been implemented in Chile and the

Netherlands while other countries are considering the introduction of such

legislation.

Disintermediation of Telcos

Subscribers are finding more gratifing experiences with handset

manufacturers (Apple, Samsung etc) and application providers through the



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abundant app stores of Apple, Android, and Windows Mobile than with their

service provider, leading to loss of loyalty and perceived value.

Since telcos are intermediaries in this chain, they run the risk of becoming

commodities in the eyes of their users.

The Bitpipe/VAS Dilemma

Given the increase in OTT activity, service providers now face the challenge

of not only trying to remain a competitive specialist provider of quality access

networks but also having to provide value added services in order to

compete with OTT providers. If a service provider specialises in high quality

networks while only providing a limited portfolio of value added services, it

runs the risk of allowing its networks to generate value added income for

third party OTT providers.

While there is nothing that prevents service providers from offering both

access and value added services, it is unlikely that a service provider will be

able to excel at both. In a worst case, this could lead to a lack of focus and

attention to the service provider’s core business and hence compromise a

hitherto successful business model.

Increase in Data Usage

Operators are looking to data services as a way to offset declining voice

ARPUs.

Data usage is forecast to increase exponentially as smartphone use

increases. Service providers in developing regions of the world such as Africa

and South Asia are not immune to this trend. Even though data usage by late

adopters might be lower than that of early adopters, the introduction of

smartphones costing less than USD 50 will lead to a rapid rise in smartphone

usage in developing countries. This will require large increases in capital and

operational expenditure by operators to support this demand.

In addition to increased usage of smartphones, faster data networks and the

availability of more mobile applications also results in increased data usage.



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The challenge facing operators is illustrated by the latest Cisco Visual

Networking Index (VNI) Global Mobile Data Traffic Forecast1 . Released in May

2012, this forecast anticipates that global data traffic will increase more than

78% CAGR (18 fold) from 2011 to 2016. Data traffic in the Middle East and

Africa is forecast to grow at 104% CAGR (36 fold), although off a relatively

small base.

As would be expected, a large increase in video traffic is forecast. Although

much is made about the growth in mobile Voice over Internet Protocol

(mVoIP), the contribution of mVoIP to total data usage and growth is

relatively small.

Although large data growth is forecast, service provider revenues are not

proportional to this data growth.

In a worst case scenario, as per the first illustration below, revenues taper off

even though traffic growth increases exponentially. This might be expected

in immature markets with ‘All you can eat’ packages and late adopters having

similar data usage as early adopters.

Such a scenario will be catastrophic for service providers hoping that data

revenues will take the place of declining voice revenues.

1 http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.html



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In the second example below, data traffic tapers off over time while revenues

start to increase. One would expect this scenario in mature markets where

late adopters use less data than early adopters and service providers offer

tiered plans with differentiated data pricing.

Although operators’ actual ratios of data usage to revenue generated will

probably fall somewhere between the above two extremes, it is clear however

that in addition to generating just the direct revenues accruing from data



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services, operators need to earn additional value added service (VAS)

revenues from their data services.

Mobile Cloud Computing Opportunities

Wikipedia2 defines Cloud computing as “the use of computing resources

(hardware and software) that are delivered as a service over

a network (typically the Internet)”.

Mobile Cloud computing is in turn the delivery of Cloud computing

resources on demand to mobile users.

Many of these services can be accessed by users via thin clients or browsers

on their mobile devices and hence are not dependent on the processing

power or data storage capacity of the devices.

We believe that given their strengths, mobile Cloud computing offers service

providers a cost-effective and efficient way to generate VAS revenues from

their data services.

Service Provider Strengths

Service providers such as telcos have strengths which they can leverage to

provide profitable mobile Cloud services while improving the experience they

offer their subscribers.

These strengths include:

• Their relationships with their customers. Service providers usually

have well known brands. These brand names can be leveraged with

service providers’ knowledge of subscriber information and their

billing relationships.

2 http://en.wikipedia.org/wiki/Cloud_computing



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• Ownerships of high speed networks. Mobile data connectivity is the

future and these networks are becoming more ubiquitous and faster

while latencies are decreasing, making them ideal for accessing cloud

services. In addition, because mobile connections don’t require a

wire, they are quicker to roll out while enabling users to access

services wherever they are. Control of the network and quality of

service (QoS) also enables service providers to manage the user

experience from end to end.

Increasing User Expectations

Users expect more and more of their service providers. These expectations

are illustrated in the following questions:

• If emails are traditionally from the PC world and voice is from the

mobile world, now that I can receive emails on my mobile phone, why

can’t I answer my mobile phone calls on my PC?

• Given that I get a mobile phone number with my SIM, why can’t I get

my Internet identity (e.g. my domain) with my SIM too?

• Why can’t I have multiple SIMs associated with my account?

• And why do I need separate voice and internet service providers?

As user expectations increase, so do the opportunities offered by the mobile

Cloud.

Opportunities for Service Providers

There are many opportunities for service providers to provide mobile Cloud

computing services, particularly in the small and medium enterprise (SME)

space. e.g.

• There are now more mobile devices than desktops

• Service providers such as fixed line operators can provide services to

mobile device users



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• Many businesses don’t have the financial (particularly CAPEX),

technical and infrastructure resources to build and operate solutions

in-house

• By accessing Cloud based services from third party service providers

such as telcos, companies are able to concentrate on their core

business.

• Many employees are mobile and want to enjoy access to the same

services outside the office as those available to them within the office.

• Some businesses are seasonal. Such businesses, as well as businesses

which are growing or getting smaller want access to services which

can scale up or down as per their requirements and hence are good

candidates for Cloud based services.

• Users, particularly younger ones as well as business executives who

are moving away from BlackBerry devices to iPhones/iPads and

Android devices, want to use their own personal devices at work.

Businesses wish to cater to these ‘Bring your own Device’ (BYOD)

requests without compromising the security of their information and

networks. Given that BYOD users’ devices access the Internet via

multiple networks, BYOD is thus an opportunity for telcos to provide

OTT services.

• The Cloud creates opportunities for operators to provide and

monetise services to upstream service providers as per a Telco 2.0

model in addition to just providing services to their traditional

downstream customers.

• Service providers can outsource their own Cloud services by entering

into partnerships with other service providers, thus converting their

own CAPEX into OPEX

Service providers can deliver mobile Cloud computing services to multiple

user bases via multiple routes, e.g.:

• To their own subscribers



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• To prospective subscribers (e.g. by forming MVNOs)

• To subscribers of other networks on an OTT basis

The delivery of Cloud services by MNOs or MVNOs allows these service

providers to associate many more services with their SIMs than just voice and

SMS.

New Mobile Cloud Offerings

As Cloud computing moves from being just an interesting idea to real

implementations, service providers have been experimenting with mobile

Cloud computing. Apart from allowing them to capitalise on the

opportunities offered by mobile Cloud computing, this is blurring the lines

between their roles as traditional telcos and their need to become innovative

service providers.

Recently launched mobile Cloud service offerings include:

TU Me from Telefónica

Telefónica launched TU Me in May 2012 following Telefónica’s purchase of

Jajah in 2009.

TU Me is a VoIP/messaging/file sharing application. At the time of writing it

has no connectivity with PSTN or SMS networks.



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Telefónica’s launch of TU Me is a good example of a telco offering OTT

services. This is particularly interesting given that Telefónica is also a

member of ‘joyn’, a GSMA inter telco RCSe collaboration which was unveiled

in February 2012.



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Rogers One Number

Rogers One Number (RON) was launched publically by Rogers Wireless,

Canada’s largest mobile operator, in February 2012.

RON turns users’ PCs into extensions of their mobile phones. This enables

users to answer calls to their mobile numbers on their PCs and send SMSs

from their PCs.

Apart from syncing users’ mobile address books to their PCs, RON also

allows calls to be handed off from mobile phone to PC in mid call.



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1toGo Mobile

1toGo Mobile3 (www.1togo.net) offers end user customers such as

businesses, prosumers, expatriates, frequent travellers, direct selling

organisations, fan clubs, support groups and other communities a unique

experience and their own easy-to-use mobile Cloud with services such as:

• An IP PBX with multiple phone numbers accessible on all of a user’s

devices: smartphones, PCs/Macs, via popular browsers as well as hard

IP phones and analog phones via VoIP gateways

• The customer’s own internet domain with a single address for each

user’s email (including push email), instant messaging/presence and

HD Voice/video for on-net calling/conferencing

• Online storage (enabling the same information to be accessed from all

the users’ devices) for archiving the user’s life and business

• A single wallet for paying for everything with the same bill.

1toGo Mobile also provides a quick time to value delivery mechanism for

service providers such as MNOs, MVNOs, ISPs and Webhosts to generate VAS

3 Nigel Sinclair Thomson is CEO of 1toGo Mobile



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and PSTN minute revenue from users on their own fixed or mobile networks

without having to host the technology themselves. Furthermore, by offering

1toGo Mobile’s services to clients of other service providers on an OTT basis,

service providers can generate VAS and PSTN minute revenue that was

previously unavailable to them.

1toGo Mobile has CommuniGate Systems’ (www.communigate.com) carrier

grade unified communications technology at its core. CommuniGate Systems

is a trusted, well established strategic partner to over 300 carriers worldwide

including Verizon, Deutsche Telekom, Tele2, Orange, BT, China Unicom and

Etihad Atheeb Telecom.



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In Conclusion

Mobile Cloud computing offers service providers a quick time to value

method to leverage their strengths and generate additional revenues from

users of their own networks as well as from clients of third party service

providers.

By partnering with third party Cloud VAS providers, service providers can

jump through the horns of the ‘Bitpipe/VAS dilemma’. This allows them to

concentrate on providing their clients with high quality networks while

enjoying the peace of mind that even if they’re not a walled-garden their

networks will generate VAS revenue for them.

In addition, by delivering such services through branded applications, service

providers can remain uppermost in the minds of their users instead of facing

disintermediation.

About AzureCoast

Cloud Communications Innovation

AzureCoast help executives deliver high value through technology and

services enablement. Our team works with strategic decision makers in the

telecoms, military and banking sectors. We help organizations leverage

cutting edge technologies and techniques for the success in the Cloud.

The AzureCoast team is a collection of industry experts from California and

Europe that have built some of most secure and massively scaled IP

Communications systems in the world. In some cases the team have built the

systems for entire countries.

Together, we bring experience and expertise only possible from years of

determination and dedication to excellence. We have seen every type of

problem and worked in every sort of environment.



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AzureCoast at a Glance

• Executives with seasoned experience building telecommunications

systems at super scale

• Our technical team has solid, proven expertise, with carrier and

government security backgrounds

• We partner with trusted sister organisations to bring additional

specialties and skills to projects

Our Mission

AzureCoast’s mission is to help executives deliver services that their

customers love and that improve their bottom line performance. We are

passionate about delivering value, not just technology for the sake of

technology.

We believe that the selection and use of only the most appropriate

technology is critical in the success of any service; no matter the industry

sector. Our aim is to help executives break free from the constraints

of incessant technology advancement and vendor lock-in, to learn from the

successes and failures of others and deliver compelling, useable services that

make a real difference.

For further information please contact:

Nigel Sinclair Thomson

Regional Director Africa

Email: [email protected]

Website: www.azurecoast.com

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