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August 2011

NEC Takes the Telecom Cloud from PowerPoint to Live Customers

NEC Takes the Telecom Cloud from PowerPoint to Live Customers

Always be suspicious of a technology where the number of PowerPoint presentations exceeds the number of live case studies.

But that’s been the case with telecom cloud computing for the past couple years.  The IT giants — IBM, Microsoft, and Amazon — are creating the buzz over cloud with their advertising dollars.  Unfortunately, those guys give us little detail on how they go to market.

But recently I sat down with Shinya Kukita, chief manager of International Sales at NEC, who gave me a refreshingly candid progress report on his firm’s success in the telecom cloud market.  NEC’s biggest cloud customer is Spain’s Telefonica, which has recently expanded its contract with NEC to cover Latin America, a potentially big market indeed.

Dan Baker: Kukita-san, congratulations on pioneering the cloud computing business in the telecom market.

Shinya Kukita: Thanks, Dan.  We’re proud of what we have accomplished so far, but I must explain that our Telefonica partnership in cloud computing is not a buyer/seller relationship at all.  Telefonica buys nothing from NEC.  Instead, each party (NEC and carrier) contributes something to the partnership and not all deals are exactly the same.

NEC typically offers our expertise, technologies, cloud platforms, and ISP recruitment and management skills to the table.  Conversely, the telecom usually brings its marketing, sales, and customer base to the relationship.

Telefonica serves about 20,000 small to medium enterprise customers, companies as large as 50 to 100 employees.  And we’re pleased to say our services base is growing nicely.  We are trying to repeat this same success with Telefonica in other regions, primarily in Southeast Asia and Latin America.

One of the biggest hurdles to face in cloud computing across a public network is security.  How did you overcome that?

Well, our carrier cloud implementation is a form of public cloud service, but is not an Internet-based cloud.  The Internet-based public cloud is good for consumers because it’s mostly free.  But in general, the enterprise needs to build its own cloud instead of accessing through the public cloud because of various limitations, security being a very big one.

Going forward, we feel service providers opportunities are excellent.  Generally, large enterprises will opt to build their own clouds.  But that still leaves a big gap for small-to-medium sized enterprises who will be underserved unless telecoms step in to help.

So our value proposition for telecom carriers is, “You already have a relationship with SMBs through your network service and it’s those same enterprises that are looking for somebody to become their cloud or IT service provider.  In short, telecoms are in a great position to bundle network and cloud services together.

How are those cloud services being billed to the end customer?

Actually, in the case of Telefonica, it’s billed as a fairly straightforward extension of the network service they sell to them.  It is typically a postpaid, monthly billed service.  The enterprise customers are already paying for broadband connectivity this way.  But we know that to expand this market into developing countries, we will need to deliver more flexible billing capabilities.

How do you sell your solution to carriers?  And are your cloud customers primarily your switch customers?

Frankly being a switching provider at a particular account helps a little, but not very much.  Telefonica is not a switch customer, for example.  Yes, many of our South Asia customers are switch customers, but still, this is an entirely new business concept for them.  Also, when we sell hardware, we interface to the purchasing department, but when we sell cloud including BSS and OSS, we need to go through the CTO or CIO.  So this is an entirely different situation.

As we prospect for likely customers, we go through a kind of the checklist.  First, we are eager to approach telecoms who are looking for new revenue sources.  If that requirement is met, we then try to convince them that cloud is a good revenue source.  Next we try to prove the point that SaaS is the good starting point.  Finally we ask them to choose NEC as their SaaS partner.

The IT shop at the carrier is another key influencer.  There are many scenarios here.  At one carrier, they just acquired another IT services company.  In another case, they are hiring the IT experts to build up the IT department.  At still another carrier they are trying to convert the internal IT organization to become a revenue-generating IT organization.  And at another telecom, they are trying to convert the telecom people to IT people.

So, depending on those variations, our strategy could be quite different.  Inevitably, one of the biggest challenges for us is to identify who the best counterpart is to sell this scenario to the telco.  That is the first challenge.

What do your SaaS applications look like?

When we offer SaaS (software as a service), these are really two groups of applications.  The first group comprises general applications for small-to-medium enterprise like billing, office apps, or training/collaboration.

The second group of applications is more industry specific for hospitality firms, education, healthcare, utilities and the public sector services.  Actually, one of NEC’s strengths is we have experience in vertical IT applications (non-cloud).  We feel that we can expand that experience to broad international markets and convert it into a cloud app.

In addition, there are dozens of specialized applications that can be provided as a cloud service: desktop communication, digital signage, physical security, retail solutions, transportation solutions and education solutions, to name a few.  But we recommend telecoms start with SaaS, then use the same platform through a common management layer to add verticals one after another.

What obstacles are you facing as you work with carriers?

One of the key difficulties is changing the mindset of the sales people in telecom.  The salespeople feel comfortable selling network, but it’s hard to change their mindset to selling IT either in addition to network or instead of network.  We sometimes feel they need to create some incentive programs.

Finally, I’m curious which market you see becoming hotter in cloud computing: developed countries or developing countries?

It is hard to say.  Developing countries with their very limited broadband connectivity may not be the best place to offer cloud computing.  On the other hand, we see great interest in cloud computing there.  The low penetration of PC or IT applications, in general, will help promote cloud computing there because you don’t have to invest in hardware assets.

In developed countries, they understand the benefits of cloud, but they have existing IT assets and it’s hard for them to switch from that to cloud computing.  And in many cases, the IT experts inside the enterprise will work against cloud computing to save their jobs.  In the developing countries, however, there is no IT expert in the enterprise.

This article first appeared in Billing and OSS World.

Copyright 2011 Black Swan Telecom Journal

 

About the Expert

Shinya Kukita

Shinya Kukita

Mr.  Shinya Kukita (ms-kukita@ct.jp.nec.com) is chief manager of International Sales and Operations Business Unit at NEC Corporation.  He received his B.E. degree in electrical engineering from Tokyo University in 1981.

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