Telcos are ready to make money from the cloud – and they don’t mean simply by providing copper or fibre links to other cloud providers.

Telecommunications companies, also known as carriers, are a unique opportunity to capitalise on the cloud by building their own cloud data centers.

Yes, up to this point, the bulk of the cloud business has belonged to IT companies or dedicated companies like Amazon, Microsoft and Rackspace. That might change.

A conversation with a group of analysts and technology providers yields the unmistakable conclusion: Telcos want to try to capture the cloud dollars, euros, pounds sterling, yen and renminbi. It’s not certain, however, if they will succeed.

Jeremiah Caron, Senior Vice President of the international tech consultancy Current Analysis framed the biggest and most obvious advantages held by the telcos: They own their own networks, and already have relationships with enterprise customers.

That’s good, but not good enough, said Caron. “Telcos are just one of many types of companies trying to address cloud problems or that need to address cloud problems.

In the past, telcos had their own world, communication services, where customers would buy what the telcos offered.” In the cloud market, that’s definitely not the case. Telcos are only one group of players looking to grab the opportunity.

“Infrastructure as a service is a big opportunity for telcos,” Caron continued.

“Telcos have to understand that most large enterprises are still using cloud as a tactical resource. It's not strategic.

"So when the cloud becomes more strategic for the enterprise, that's when the opportunity becomes more relevant to telcos — and they will have an advantage.”

Another advantage: Enterprises increasingly want Ethernet connections everywhere, including directly to their cloud providers.

Thanks to standards like CarrierEthernet 2.0, from the MEF (Metro Ethernet Forum), telcos can make a compelling case to get the cloud business.

Kevin Vachon, Chief Operating Office of the MEF, sees the opportunity for telcos – but challenges as well. “There's a huge risk that they won't even be able to play even as a cloud carrier if they don't take the steps to cloudify their network.”

The progression of the network fabric has moved towards Ethernet, Vachon explained, and CE 2.0 is being widely adopted.

“It's being built out in the industry by major operators and a lot of interconnect stuff is happening. There's a global fabric which is being built with many capabilities today to deliver cloud services quite effectively.”

Going forward, and thanks to Software Defined Networking (SDN) and Network Functions Virtualisation (NFV), services can become more dynamic, Vachon said.

“SDN will only make Ethernet services more manageable and lower the OpEx. NFV will drive Ethernet services to become more dynamic as well.

"If telcos follow that road map they will have the fabric in place to take advantage of new capabilities to be successful as a cloud carrier.”

Telcos – almost by definition – own the end points for nearly all communications to and from the cloud. They offer direct Ethernet from data centers to the cloud, DSL over twisted pair or data over cable for homes and small businesses, and WiFi and 4G for mobile.

This – again, almost by definition – gives them a unique ability to secure those communications. Yet, says Hongwen Zhang, CEO of cloud security provider Wedge Networks, this hasn’t proven to be a strong selling point.

“IT spending is growing really quickly, and the cost of security breaches is even higher,” said Zhang.

“The reason for that is the universal adoption of connection technologies,” with billions of phones and trillions of Internet-connected devices in the Internet of Things. Plus 220 million global SME customers who are currently not being defended at all.

Zhang continued, “Who is in the best position to provide security for them? It's the telcos, the guys who provide pipes for the end users.

"And hence they are in a very good position to deliver service knowing fully well that the security breach is mainly coming from networking.”

Why haven’t the telcos been successful? Unfortunately, telcos can take a long time to provision new features, he explained, “and in particular security services are very time sensitive.

So there are break-ins and and there are security events happening and the traditional way of managing networking functions takes too long to adjust to a security posture.”

“That's why the next wave of security innovations is actually empowering telcos for the revenue generating part is this agility that's offered with SDN and NFV that allow them to quickly roll out new security services handling the new security outbreaks,” Zhang concluded.

A believer in the potential of telcos to grab a share of the cloud market is Said Ouissal, Vice President of Juniper Networks.

“The Internet is powered by the telcos. Effectively we are all accessing the Internet through a telco. We went from dial up that they ran over the network as an overlay to something that's completely integrated in the network. Cloud will do the exact same thing.”

Ouissal continued explaining why telcos could have an advantage: “Connectivity is important. I'll give you a very simple application that is actually very hot with large banks and others: virtual desktops.

"A lot of companies are saying instead of giving everybody their own computer we're going to just give you a screen and give you a thin client and we're basically going to virtualize this and get scale in a data center.”

Virtual desktop applications are very latency-sensitive, said Ouissal. “If you run that on an Amazon-based cloud, you click on something and you would have to wait 100, 200 milliseconds before your click actually is received on the server.

"So that's an application where connectivity comes very close and very important where you could say this can only be done if you're local to that user that is trying to use that VDI service, Virtual Desktop Infrastructure service.”

And who is local to the customer? The telco.

Telcos will matter more and more in the future, according to Jeff Schmitz, who is the Chairman of the CloudEthernet Forum, a new industry organisation that evolved out of the MEF. “

“Carriers have some very strong enterprise relationships. They sell not just services, but a lot of equipment to the enterprise customers. So they have longstanding relationships. You can't discount those longstanding relationships,” said Schmitz.

“Also, everyone can talk about the cloud and all the excitement of OpenFlow and OpenStack and OpenContrail, but nothing works if the network doesn't work.”

“The experts in building highly secure reliable networks ultimately are the carriers. That is their ultimate weapon. And I think they know that with consistent outages you see at AWS [Amazon Web Services] and such, reliability is a weak point [for cloud service providers],” Schmitz continued.

“As more critical applications migrate on to the cloud, enterprises will look for their trusted partners who have reliable secure networks to place those on where they can feel comfortable as they transition those applications.”

Schmitz concluded that although telcos have advantages, they still have challenges ahead. “Are they moving as swiftly as some of the smaller nimble guys? Probably not. But I think that they'll get there and they have the infrastructure to do that and be successful.”

Innovation will have to be a key priority for carriers, added Wedge Networks’ Zhang, in an increasing cost-driven market for both cloud and connectivity.

“Telcos are selling commodity services. And that has two aspects. One is that in the telco world there's an ever increasing chance that people are just leaving from one service provider to another service provider,” he said.

“The other is that cutthroat pricing reduces average revenue per user [ARPU]. That's why the only way for telcos to get ahead is to offer new services.

"From the cloud operation point of view, it’s about what can they do to offer new services that can change this equation.”

By Alan Zeichick