ADTRAN Blog

This post adds another wrinkle to a topic that everyone is struggling with. Previously, I examined this question from the perspectives of both vendors and businesses. Each has a distinct set of drivers to remain premise-based or go cloud for UC, and now it’s time to consider what this looks like for service providers. Recall that this series was prompted by ADTRAN’s recent announcement regarding NetVanta and the newly-added ability to support both deployment models.

Sometimes too much choice can be a bad thing, but as noted in my initial post, this allows ADTRAN to participate in both sides of the trend, so there’s not much downside for them. Businesses are happy to have these options, but they need to carefully weigh the implications of choosing a path, especially a new one. As soon as “hosted” or “cloud” enters the conversation, another wrinkle appears, and that brings us to this post.

When VoIP or UC solutions are premise-based, the business opportunity for both vendors and service providers is pretty clear-cut. Generally, the vendor and/or channel partner owns the customer, and the service provider brings the connectivity. With hosted or managed services, that dynamic changes – sometimes in a big way and sometimes only a bit. This mainly depends on how much outsourcing takes place, and that decision will be influenced by many factors.

In some cases, management will dictate this shift to IT as a way to cut costs, and in others, IT will recognize its limits and drive the decision to move in this direction. For larger enterprises, IT likely can think this through without help, but in smaller-scale environments that help is often needed. This could be because IT has limited resources at hand, or they don’t understand the underlying technologies well enough. Regardless, there could be a lot at stake for service providers, with a potential opportunity to add new value for this set of business customers.

I’ve discussed the appeal of cloud communications many times, and along with that comes a blurring of the aforementioned line defining the roles for vendors and service providers. Each will have their own motives and value propositions, and business customers will have their loyalties to consider when making choices. The “single solution platform” from NetVanta is being marketed to both enterprises and service providers, so whichever way these roles shift, ADTRAN has a play. That’s good for the vendor, as it opens the door a bit wider for service providers.

So, why is this good news for carriers? The easy answer is to keep their customers, but there is more to consider. Service providers of course need to offset declining revenue from legacy services, and migrating customers to IP doesn’t quite achieve that. Businesses adopt IP to save money, so while this is a lower cost service to provide, the carriers see lower revenues. NetVanta gives them a platform to support premise-based or cloud-based services. The former represents the status quo, where they just provide connectivity and perhaps basic VoIP service. Now they can give customers more options, either by supporting a mixed environment or possibly taking them entirely to a cloud-based solution.

This scenario is especially attractive for VoIP customers, where there is little upside for carriers. As these customers start to consider UC, carriers now have a play for this richer suite of applications, along with which come new revenues to help offset the drop-off from legacy services. Incumbent carriers may not have had these options before, and that’s where things get interesting. Competitive carriers – namely CLECs – have been operating this way for years, and have grown at the expense of incumbents, so there is a natural incentive here to level the playing field.

Being a hosted provider, however, raises new questions about how to bring these services to market. In a passive relationship, the carrier provides connectivity and the UC vendor – often the incumbent telecom vendor – provides the UC solution. Increasingly, we are seeing incumbents partnering with these vendors to offer turnkey solutions, which allow the carrier to maintain a reasonable level of customer ownership.

For carriers that want to jump into hosted UC now, this is probably the best way to go. Another scenario, however, is the homegrown model, which many competitive carriers have followed to maximize the business opportunity. This takes time and resources that carriers may not have, but the option is still there. More likely, carriers can pull together a UC offering from vendor partners on a white label basis and go to market with a fully-branded cloud solution. This would still require upfront work around interoperability and integration with NetVanta, but the end result is an opportunity to gain greater share of wallet from their customers.

At face value, this may seem like a deliberate strategy to get the upper hand on UC vendors with their cloud offerings, but there’s more to consider. When thinking about why service providers would want to support both premise and cloud-based solutions, vendors are not the only threat. As the cloud broadens its reach across all IT functions, both service providers and vendors face new forms of competition that is largely from outside the telecom world.

Pure play cloud providers – both public and private – can potentially bypass both, and that possibility will become increasingly likely as the current vendor consolidation trend continues. That’s another topic altogether which I’m happy to explore if there’s interest. On that note, drop a line here to share your thoughts on what you see unfolding, but for now I hope this series of posts helps round out the bigger picture shaping the choice between hosted and premise-based services.