Fighting the tide of telco commoditization, Telstra style

SUMMARY:

Like all telcos Australia’s Telstra is struggling with its place in the cloud. We discuss this topic with Jim Fagan, director of Telstra’s Global Platforms

telstra
Jim Fagan – Telstra

Telco executives have long been fighting a battle against falling user revenues and the rising tide of commoditization. Jim Fagan, Telstra’s Hong Kong based director of Global Platforms, discussed with diginomica how the Australian incumbent is looking towards added services across East Asia as its differentiator.

Fagan joined Telstra as part of the telco’s PacNet acquisition and was previously at Rackspace and Dell which gave him a first hand view of the increasingly commoditized hardware and hosting markets.

Pacnet itself was built out of the turn of the century dot com ruins of Global Crossing Asia with the company inheriting a network of subsea cables, data centers and telco assets across East Asia overseen by dual head offices in Singapore and Hong Kong.

Because of that convoluted structure, PacNet struggled to gain investor or market confidence and the rise of AWS and China’s AliCloud decided the company’s future with Telstra eventually buying the operation after several years on the block.

Fagan sees AWS as being hard to beat globally but in Asia the Chinese operators have a great opportunity.

It’s quite interesting, if you look at AliCloud they’ve had great success in China and if you look at their story its not that far off Amazon’s. They had a massive business that was online and digital and the cloud was an almost natural extension.

Their technology is strong and I think they’ll do well in Singapore, Hong Kong and the East Asian region. Every cloud provider, unless you’re Amazon or Azure, is going to struggle in the developed markets where AWS and Microsoft have a strong footprint and Google is now coming on strong.

Telstra acquired Pacnet at the end of 2014 as part of its cloud and services buying spree that included application developer Readify and systems integrator Kloud, Fagan sees these as part of broader offerings from telcos to servicing their customers’ cloud needs and trying to establish their value offerings beyond commoditized carrier services.

Overall carriers have a massive opportunity to really add value in cloud. I think we’ve all gone through a journey, Telstra included and a lot of other places, where we actually tried to be a cloud company and build an infrastructure as a service offering. In real life there were bigger players who had more scale and were better at it and you really need that scale to be profitable.

If you look now at where Telstra is I think we approach using cloud as adding value in the connectivity perspective.

Customers can go out and get AWS or Azure on their own, the ‘why Telstra?’ is that they are probably running a Hybrid environment, they are probably looking at running a multi-geo nowadays and the fact they can tie that together through our cloud gateways so you can plug in once through our network and then you get that secure access to the cloud.

To answer the ‘why Telstra’ question, the PacNet acquisition gave the Australia telco a huge boost in the East Asian region, Fagan believes.

It gave us the largest network in East Asia by far so what we could do from resiliency, latency, connectivity and the different offering we could do and the different offering we could get into gives us a unique value add.

Telstra did have a good network in Asia but this has super sized it. The other unique aspect is the joint venture with PBS in China. The fact we have telecom and data centers in China is one of our programmable cloud and software defined network that we used on our PEN cloud gateway, we are able to offer AWS’ Direct Connect in China. We are the only provider that can offer solutions where we can tie customers’ private clouds in Singapore or the US into China.

This raises the question of competition for hardware vendors. In the East Asian and European markets Huawei last year flagged how they intend to partner with major consulting firms like Wipro, Tata and Accenture to provide their own intelligent networking offerings.

Fagan sees this as part of the commercial ‘frenemies’ phenomenon that’s long been common in the software industry.

The way I view the world right now is ‘co-opetition’, in some areas you cooperate and in some areas you’re competing. If you look at our strategy in both cloud and SDN, we want to work with leading technology providers to give us the building blocks but we really strongly believe we have to create our own IP and differentiation around these technologies.

This is because we need to differentiate in the market and the velocity of change in technology is amazing. By adding our own IP it gives us control of our roadmap so we get by working with our customers to figure out what features, functions and capabilities that they really want versus what is driven from a vendor perspective.

Like all telcos, differentiating itself in the marketplace is important given the commoditization of telecommunications services. Fagan points out this is a challenge for businesses in most industries as digital technologies disrupt their marketplaces.

If you look at business it’s always been about ‘I can I differentiate in the market? How can I expand to new markets? How do I protect the markets I’m in?’ The questions have never changed.

With the speed of technology, what you used to have – which is definitely disappearing – is the old warren buffet question of how do you build a moat. The best industries of the ones that have a moat around them. In today’s world there are no more moats.

In industries that are asset heavy, the digitization opens up the boundaries of where you can go and what you can do. Changing that thinking is a bit of a new paradigm.

The business outcomes haven’t changed, it’s the universe you’re trying to play in and the speed you have to execute against.

My take

As we’re seeing across the developed world, saturation in mobile and data markets is forcing telcos to look at diversifying beyond their core businesses to find growth, Verizon’s acquisition of Yahoo! being the most notable of that change.

For companies like Telstra in already mature markets, the challenge is compounded as declining annual revenue per user won’t be offset by the relatively sluggish growth rate of the broader economy meaning that growth is only going to come from expanding their product offering.

It’s not surprising then that Telstra are looking at East Asia and services for growth opportunities, however those markets are fiendishly competitive with their own well established incumbents and business practices that can bewilder western executives and boards.

For a well funded company like Telstra casting around for opportunities, those markets are worth a shot and positioning themselves as a middleman between enterprises and the cloud could prove a successful strategy. It will however depend upon whether they can demonstrate value for customers facing their own digital disruptions.

Image credit - via Data Center Post