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Telefonica has announced an Open Cloud agreement with Huawei to join forces to build public cloud services throughout Telefonica’s operating footprint. The service will be deployed in 1Q16 in Brazil, Mexico, and Chile and in five additional locations later in 2016. This development comes weeks after Deutsche Telekom (DT) and Huawei announced their own Open Cloud initiative. With these moves, DT and Telefonica hope to pose a serious challenge to the dominance of Amazon Web Services (AWS) in the public cloud market.

Bold move, lost cause, or both?

Telcos have a checkered history in cloud, with notable failures to launch or profitably sustain public cloud services over the last five years. AWS, meanwhile, has become a byword for innovation in public cloud. It has built its IaaS platform on proprietary hardware, which enables it, when combined with its scale, to continuously drive down storage and compute prices to levels that others have struggled to profitably match. In addition, it is host to a thriving developer community that is second to none. In 2015 alone AWS launched more than 200 new services and features.

The challenge for telcos is how to compete against such a giant. Launching Open Cloud services with Huawei may be a bold move by both DT and Telefonica, or it may be a lost cause. Ovum believes the risks are high. Both DT and Telefonica have mitigated the capital expenditure toll, with Huawei deploying its Open Cloud infrastructure in existing Telefonica and DT data centers. Huawei is funding the investment, banking on demand from enterprises in the future.

Telcos are highly trusted in some markets, especially by SMEs. This is true of both Telefonica and DT in their respective operating countries. Telcos can leverage their strong brands and deep capillarity in operating countries to provide ICT services, although instances of success have been relatively rare. The potential, nevertheless, does exist. Some markets are highly sensitive to data sovereignty issues. DT’s “Made in Germany” approach resonates with German firms concerned about data privacy and security in the post-Snowden world. However, such “emotional” appeals may lose their attraction given Open Cloud’s reliance on a Chinese vendor.

We are yet to see evidence that service providers such as Telefonica and DT have public cloud partner communities in their respective markets that compare to those of AWS. In Chile, for example, AWS boasts seven established consulting partners with advanced certification on AWS developer platforms; in Germany it has 40 and in Brazil it has 68. These partners have deep skills in domains as varied as digital marketing, web applications, archiving, big data, and development and test, as well as applications expertise spanning Oracle, SAP, Salesforce, and Microsoft. It is difficult to understand how telcos can match the power of this channel without spending a great deal of time and money.


Further reading

Telecoms Cloud Monitor: 1H15, TE0005-000740 (August 2015)

Framework: Telco Cloud Business Models, TE0005-000721 (July 2015)

“As EU Safe Harbor falls, telcos can rise in the cloud,” TE0005-000756 (October 2015)


Evan Kirchheimer, Practice Leader, Enterprise Services

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