Enterprise services are emerging as new value engine for telcos amid rise in demand for services in the wake of digital transformation.
The COVID pandemic has pushed corporates and organisations of all scales and even governments to adopt/embrace technology in running business efficiently. Digital transformation, no longer just a buzzword, has become need of the businesses to interact with internal clients and customers.
In the new world, employees are working from home and scattered across geographies, and existing solutions may not be efficient or sufficient. Further, this is making enterprise network architecture, the traditional hub and spoke model become more complex, and organisations are looking for newer solutions. These new solutions are cloud-based, as services, and even the network, which were core for enterprises, is now rendered as a service.
Cloudification is a huge opportunity and global studies show adoption has been rising exponentially. This offers newer opportunities for ICT companies across the value chain of IaaS (infrastructure as a service), PaaS (platform as a service) and SaaS (software as a service); and telcos have level playing field in at least the first two services. Telcos are offering managed hosting services and offering consultation and migration support along with physical infrastructure at data centres with compute, storage, network and security services. This is significantly expanding the addressable market for telco enterprise solutions, finally.
Enterprise services requirements are changing. Telecom enterprise network connectivity solutions are seeing significant transformation. Corporates have significantly invested in applications and services. Traditional networks have now become bottlenecks in exploiting their full potential and corporates are re-engineering the network architecture.
Delinking of network and services is a key factor driving network transformation. Traditionally, telcos have monetised network investments through specific services. Vertically integrated ecosystem has helped telcos cross-subsidise networks, services and devices, thereby removing customers’ barrier to entry, e.g. PSTN network, where voice was a killer application. However, services are now delinked, and telcos need to monetise bandwidth connectivity independently from services.
Also, enterprises are adopting cloud-first strategy and cloud-native solutions, which enable them to be more agile, efficient and give resilience on scalability. Enterprises are connected to multiple clouds – on-premise data centre, public cloud, private cloud, clouds of SaaS providers, etc. This has made entire network architecture very complex.
Further, traditional WAN architecture worked well when all connections were from branches and a distributed workforce flowed back to a central data centre through MPLS lines (traffic backhauling), where security policies were applied. But the hub and spoke WAN architecture broke down as more direct internet connections were needed to access multi-cloud resources and SaaS applications. Backhauling all traffic to data centre before routing to internet cloud applications has resulted in increased MPLS cost, bandwidth inefficiencies, increased latency, and poor experience (on applications).
Agile, new-age business models are winning. Enterprise fixed voice services provide secure and flexible solutions and offer the benefit of a single global voice platform. However, the use of enterprise fixed voice services is anticipated to have a significant impact as corporates are exploiting new communication solutions via UC (unified communication). Global fixed voice telecom market has dipped at CAGR of 4.3 percent in past five year to USD 177 billion.
In contrast, Voice over Internet Protocol (VoIP) market, which was >USD 20 billion in 2018, is estimated to grow at a CAGR of 12 percent from 2019 to 2025. VoIP market growth is attributed to increased adoption of cloud-based VoIP services due to cost-efficiency. The enterprises are realising the benefits of converged voice & data services to enhance performance. The convergence of unified communication services and enterprise VoIP will enable live-chat, video-conferencing, and other calling capabilities, which is expected to aid the VoIP market.
Gartner estimates that by 2022, 74 percent of organisations will move at least 5 percent of their normally full-time, on-site workers, who had switched to working from home temporarily, into permanent remote-working positions; and by 2023, more than 50 percent of large organisations will connect to cloud providers using direct cloud connectivity from their WANs, up from 10 percent in 2019. By 2024, 74 percent of the new UC licenses purchased by organisations will be cloud-based, up from 48 percent in 2019.
Gartner’s Magic Quadrant for UCaaS shows, it is dominated by innovative new-age companies, while traditional telecom enterprise solution providers have lost the race.
Data connectivity solutions. Gartner expects global enterprise data network spend to remain stable over 2018-23 at USD 145 billion, but, within that, MPLS and traditional connectivity services are expected to decline at an annual rate of 3 percent and 6 percent respectively (while SD-WAN services are estimated to grow at 76 percent CAGR in same period). Point-to-point international private line and ethernet are likely to dip at an annual rate of 2 percent, while internet revenues are estimated to grow at 2 percent CAGR. Cloud connect is projected to grow at a CAGR of 22 percent in same period.
As enterprises move applications and data to ‘as a’ cloud platform, and in multiple clouds, SaaS application providers for CRM, HR, finance, and supply chain have become critical business resources that need to be accessible from anywhere via direct internet connections. Backhauling all traffic to data centres before routing to internet-based cloud applications has resulted in increased MPLS costs, bandwidth inefficiencies, increased latency, and poor experience on applications. Also, WANs are often composed of components from multiple vendors, limiting the visibility and control over performance and troubleshooting.
SD-WAN provides methods to prioritise critical business traffic and take advantage of internet broadband connections – previously used for backup and redundancy – to connect directly to multi-cloud resources. SD-WAN simplifies management of the WAN fabric with a controller-first overlay that is independent of transport layers – MPLS, ethernet, internet, leased lines, DSL, and LTE networks. SD-WAN controllers intelligently choose among the available transport mediums to deliver the best application performance as defined by SLA.
Gartner estimates by 2025, to enhance agility and support for cloud applications, 65 percent of enterprises will have implemented SD-WANs, compared with about 30 percent in 2020; 2) by 2025, to deliver flexible, cost-effective scalable bandwidth, 40 percent of all enterprise locations will have only internet WAN transport, compared with ~15 percent in 2020; and 3) by 2024, 30 percent of enterprises will employ SDCI (software-defined cloud interconnect) services to connect to public CSPs, up from less than 10 percent in 2020.
To conclude,the new digital paradigm offers both challenges and opportunities to telecom operators. New business and delivery models are required to address enterprise needs and drive growth, and operators that are agile and able to evolve fast with the market will win. Further, the adoption of new services, and moving up in the value chain will bring telcos close to digital companies.
The new ICT stack, as the enterprises procure services and connectivity solutions separately will include at bottom, bandwidth connectivity; at the top, three types of services, UC, SaaS and IoT.
It also throws business opportunity at the middle layer between connectivity and service layer. This layer includes key enablers devices management, security, analytics, and scalable computing infrastructure and platforms.
Telcos have been perceived as a utility providing cost-efficient bandwidth to customers. Smart telcos have bandwidth economics, but they also know other requirements of clients. These telcos are developing products and services including middle level capabilities to enable services over the network infrastructure. They also orchestrate ecosystem of other service providers leveraging their reach, analytics and infrastructure capabilities. Like IT industry, new-age telcos are building multiple partnership models, thereby bringing the best to customers. It can be assumed that operators building a very efficient platform will be able to truly become a smart telco.
As telcos move up the ladder, their CapEx intensity would fall, and their reach would expand to globe. It is a huge economic opportunity; hence enterprise solutions can be truly new value creation engines for next-gen enterprise-focused telcos.
As the digital economy expands, telcos must expand their service portfolios far beyond their current scope. They must also learn which service niches best suit their competencies and define how to manage these diverse service portfolios. They can do so by identifying their competitive advantages and the relative market strengths of competing OTT players.
Huawei sees five digital destinations for telcos on digital transformation scale starting from infrastructure-centric to service-centric. The telcos would ideally aim for digital transformation involving evolution into a sophisticated digital service provider, but very few may be able to scale the ladder. We see huge value creation possibility if telcos come close to IDSP (Integrated Digital Services Provider), stage four on the digital transformation scale.
With this backdrop, an analysis on Tatas Communications, Airtel and Jio’s enterprise solutions and their evolution brings out Tata Communication (TCom) as the smart telco, the best in India telco enterprise space. It indicates that the company can potentially reach IDSP position on the digital transformation scale, has significantly progressed on the path, and is likely to be the strongest telco enterprise play in India. The capabilities have been evaluated on evolving telco business model, and how each telco can be imprinted on enterprise service provider requirements; and digital transformation scale.
New ICT enterprise stack. TCom has good presence in all three stacks required under evolving telco business model.
- Connectivity – Bandwidth. TCom is one of world’s largest sub-sea cable network providers and the only player which own a ring across the globe. It has leveraged its connectivity solutions to provide borderless solutions. It also provides transformational hybrid solutions for cloud enablement, and mission-critical applications. Its service offering includes IZO SD-WAN, IZO Internet WAN, IZO Hybrid WAN, and IZO Private Connect.
- Mediation – Cloud infrastructure and security. a) Cloud: TCom provides managed cloud and infrastructure services including global colocation, storage and backup services and managed hosting services. It also provides cloud enablement platform (IZO suite) including IZO Private Cloud, IZO Cloud Storage, IZO Cloud Containers, IZO Managed Cloud, IZO Cloud Analytics and Disaster Recovery. It has partnership with public cloud service providers such as AWS, Microsoft Azure, GCP, IBM Cloud, and Oracle; b) Security: TCom has five international defence centres that are cyber security response systems with state-of-the-art facilities. It also provides industry-leading threat-management service to minimise risk, and managed security services.
- Services – Unified communications, application and SaaS and IoT. a) UC: It provides UCaaS powered by Cisco and Microsoft Teams solution, global SIP connect and Contact Centre as a Service powered by Amazon Connect, Cisco Webex and its own InstaCC Global; b) digital platform includes secure and connected digital workplace, and Digital Customer Experience; 3) IoT: TCom has a suite of services under MOVE platform.
Further, it is incrementally using the partnership model, and expects to remain asset-light, and has significant global reach. It is the only telco in India to enjoy this status. TCom is in a fairly advanced stage in its digital transformation journey, based on all four broad parameters, digital infrastructure, digital operations, digital customer engage, and digital services. and has the potential to be IDSP on digital transformation scale, stage four.
Bharti Airtel, aligned to market demand, still has a long way to go! Unlike TCom, Bharti’s addressable market is India, or corporations operating in India. The digital products and services requirement /demand of India corporates lag their international peers, in terms of technology adoption; thus the level of ICT requirement is significantly different. However, with a growing number of hyper-scalers and B2C digital economy, the demand for ICT products and services in India will start catching up with global peers’ soon.
|How TCom, Jio and Airtel score|
|TSPs||New ICT stack||Digital transformation scale|
|Bharti||Local Smart Telco||Smart Digital Pipe|
|RJio||Digital services specialist||Services enabler|
New ICT enterprise stack
- Connectivity – Bandwidth. Bharti has good stack of solutions on VPN and internet. It has secured internet with SLA, and security. It also has VPN-based solutions, including intelligent VPN with automated and centrally managed SD-WAN solutions. It has data centre business catering to the needs of hyper-scalers, and other colocation demand.
- Mediation – Cloud infrastructure and security. Bharti has a host of services, Nxtra Public Cloud, Nxtra Private Cloud, and Nxtra Hybrid Cloud, and also offers managed hosting services. It also has partnerships, and is consulting partner for AWS cloud deployment/migration. On security, it has a host of services under Airtel Secure portfolio including one of the largest integrated SOC-NOCs.
- Services – Unified communications (UC), application and SaaS and IoT. a) UC. A comprehensive portfolio of UCaaS is not visible, but Bharti has partnership with BlueJeans (Verizon) for video conferencing and Airtel IQ, a cloud communication suite to transform customer engagement using calls or SMS and mobile or web apps; b) Digital platform includes partnerships with G-Suite;
- IoT. Airtel IoT is an integrated platform that offers end-to-end solutions that are powered by a variety of connectivity technologies that suit business needs.
Partnership has been the preferred route for Bharti to grow and, as need arises, we believe it may forge more global partnerships to harvest local demand, thereby upselling/cross-selling products and services to customers.
Under New ICT enterprise stake, clearly Bharti is not a utility telco, but it is neither a smart telco. Rather, it is local smart telco, which is between the two layers.
On the digital transformation scale, Bharti is or can become smart digital pipe, which is stage three.
|Smart Digital Pipe||IDSP||Services|
|Autonomous virtual infrastructure||High||High||High||High||Low|
|Open platform API architecture||n/a||n/a||High||High||Med|
|Digital operations||Flexible organization operations structure||Med||Med||Low||High||Med|
|Multiple business models||Low||Low||Med||High||Med|
|Digital customer engage||360o omni channel CEM||Low||Med||High||High||Med|
|Multiple channels to market||Low||Low||High||High||Med|
|Digital services||Diverse portfolio of|
own & 3rd party services
|Open ecosystem of partners||n/a||n/a||Med||High||Med|
Reliance Jio-Very little known, but aspires to transform into digital services specialist. Unlike other telcos very little is known about enterprise offerings/services of Reliance Jio. However, in its strategic presentation in October 2019, the company showed ambitious scope of expansion which was impressive, but execution is the key. It has earlier this year announced its bundled plans for SME segment, but enterprise solution offerings to large enterprises are still not known.
Considering limited understanding/information, the analysis for RJio on two rating scale has significant shortcomings; and this analysis may only be partially true.
New ICT enterprise stack
- Connectivity – Bandwidth. RJio is the internet-first company with end-to-end next-generation IP network. It has largest terrestrial fibre connectivity in India, which it has hived off into InvIT exclusively focusing on products and services. It also has been aggressively investing in building data centres, and recently announced USD 950 mn investment for data centre in Uttar Pradesh.
- Mediation – Presence across platforms. RJio aims to have presence across device management, security, analytics and cloud (IaaS and PaaS). It also has been working on new-age technologies such as AR/VR, AI/ML and Blockchain. It appears to be spreading itself across services, which may hamper plans of specialisation, and products may be designed catering to local market (India) needs, which may not find huge demand in global market.
- Services – It plans to be one-stop shop for services. It has started providing IP centrex to SMEs and has developed proprietary video conferencing application JioMeet. Though not much is visible about its cloud offering, it had announced partnership with Microsoft Azure. It has been developing IoT services focused on multiples business verticals such as connected cars, and assets, smart hospitals, etc.
The initial services offering by RJio indicates that the company does not aim to sell plain vanilla connectivity solutions, but plans to bundle platforms and services, which is great. These offerings could be very relevant for SOHO and MSMEs, but the needs of large corporates are very different. More clarity on RJio’s services offering for large enterprises is awaited. Clearly, on new ICT enterprise stack, RJio aims to be a digital services specialist, but it won’t be easy as global service providers are aggressively expanding in India and have huge lead in terms of products and offerings. Further, these products of international service providers are adopted globally, and MNCs may look at globally compliant products, which may be a big limitation for RJio.
On the digital transformation scale, RJio would in all probability aim to reach service enabler and retailer stage with disproportionate focus on selling its own services and platforms. It may also plan to go global with many of its services (similar to its plans for 5G equipment where it wishes to be global supplier).
Considering that RJio’s birth happened in the digital era, it would have negligible legacy drag. Nonetheless, digital transformation is an approach, and it needs entirely new organisational mindset, which is more agile, and accepts the partnership model as a way of business. On other hand, RJio has been known for its strength of executing large projects itself, and developing large-scale commercial services; example – VoLTE deployment in India. It has in the past tried to build partnerships with Microsoft, Qualcomm and Google, but no major commercial rollout with partners has been seen yet.
Like Amazon which transformed from being a B2C digital consumer company to an enterprise technology leader, RJio has plans to transform from being a B2C mobile services company to a technology behemoth. It wants to leverage services demand driven by its core business, and develop enterprise grade solutions for other corporates.
Based on an ICICI Securities report.