An Insight into the Current State of Cloud Services in the ASEAN Region and the Role of Local and Regional Telcos in the Market

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1 Telco Cloud Strategies in ASEAN An Insight into the Current State of Cloud Services in the ASEAN Region and the Role of Local and Regional Telcos in the Market Published: 19 Aug 2013 By Ganesan Periakarruppan Current State of ASEAN Cloud Computing Market Cloud computing has emerged as a game-changing delivery model, leading to significant technological and business disruptions across the globe over the last 5 years. While cloud computing has matured in countries such as Australia, Japan, the United States, and Europe, it continues to be at different phases of introduction in the ASEAN region. Singapore, driven by globally leading enterprises, is an exception to this. The Market Leader - Singapore In ASEAN, Singapore has been leading the region when it comes to the adoption of cloud computing, given the strong infrastructure setup to host cloud services. A major development of 2012 in the Singapore cloud computing market was the launch of the Central G-Cloud program by the Infocomm Development Authority (IDA) of Singapore. The key objective of this program is to not only build private cloud infrastructure for government agencies in Singapore but also to develop public cloud infrastructure. This program has been a boon to the local service providers, with the biggest gainer being the home-grown telco, SingTel, which has been awarded a fiveyear tender to provide the Singapore Government with cloud computing infrastructure. On the other hand, the Business Application as a Service (BAaaS) market is expected to achieve a CAGR growth of 34.5 percent between 2012 and Key applications witnessing adoption in Singapore include communication and collaboration solutions, office productivity suites, CRM, and other non-core applications. The Challenger - Malaysia Following Singapore closely, Malaysia is the second-largest cloud computing market in the ASEAN region with major enterprises beginning to move their services into the cloud. With the assistance from the Multimedia Development Cooperation (MDeC), many local independent software vendors (ISVs) and SMBs are stepping into the cloud arena. One of the programs by MDeC is the SME Cloud Computing Adoption Programme. The key goal of this program is help elevate competitiveness and efficiencies of local SMBs. The incentives, clubbed with the other benefits of cloud services, are driving SMBs to choose cloud computing over managed services, as it helps them focus on their core business rather than investing time and resources on IT infrastructures and management. On the BAaaS front, Malaysia is also witnessing a robust growth with an expected CAGR of 33.2 percent between 2012 and However, the adoption level continues to remain low, and there is a significant need to enhance awareness levels among local businesses. The Followers - Indonesia, Thailand, and the Philippines Indonesia, Thailand, and the Philippines are the nascent cloud computing markets in ASEAN, taking a more wait-and-watch approach. The increasing awareness level, especially of the benefits around cost savings, and improved productivity and efficiency have led to an increase in

2 uptake of cloud services in these countries. Thailand, in particular, has witnessed an increase in the uptake of cloud computing due to the flooding that was a major natural disaster in 2010/11. Formation of the Electronics Government Agency or better known as the e-government agency is also to provide cloud services and to act as an application store for state agencies. The e- Government agency will invest approximatelythb50 million to set up cloud computing services for its agencies. Complete cloud package here includes all three services stacks - SaaS, Infrastructure-as-a-Service (IaaS), and PaaS. The biggest obstacle for Thailand is that the regulatory environment has not been consistent due to frequent change of governments in recent years, producing many inconsistent ICT policies. In Indonesia, the low availability of high-speed reliable Internet has been a bottleneck for the government and the various industries that would like to enter the market. Identifying this challenge, the government-owned PT Telekomunikasi Indonesia (Telkom) announced plans to invest $233 million over the next four years to roll out next-generation network capable of speeds of up to 100Mbps. With the roll out, its government agencies in Technology Assessment and Application Agency (BPPT) have selected Fujitsu technology to provide cloud services for one of their critical IT operations. This move is expected to accelerate the implementation of e- government services in Indonesia and benefit city/municipal councils across the country, with better delivery system of public services. The Philippines is another nation that was slow in driving its ICT industry forward. The main challenges in the country were the lack of ICT standards and security concerns. Other concerns are related to the lack of standardizations in the tools used by government agencies and challenges faced from the country's political framework. To overcome these issues and drive forward the ICT technology, the government has launched a program called "Smarter Philippines" ICT initiative. The core objective of this program is to interconnect 70 percent of the government offices as a precursor to a government cloud. The other project that has also been implemented by the government is the Philippines Digital Strategy (PDS) ( ). The key aim of this is to leverage the use of ICT for national development. These projects are expected to drive the growth of ICT forward, and the local telcos would have a huge part to play in fulfilling the government's dream. Lastly, Vietnam is beginning to witness initial uptake for cloud services. However, this is limited and the market growth continues to be low. Most enterprises in Vietnam are not keen to move to the cloud due to security and quality of service concerns. Nevertheless, as the awareness around the advantages of cloud computing rises, enterprises are beginning to adopt cloud services. Key area of interest among enterprises is server virtualization and cloud-based applications (SaaS). With an increasing number of CIOs keen to move to the cloud, what is the potential opportunity for the telcos? Telco Strategies to Tap the Opportunities The growth in cloud computing in the ASEAN region is expected to accelerate further by the entry of telcos. Telco participants bring a few advantages with them when compared to the pureplay cloud service providers.

3 Exhibit 1: The Telco Advantage Source: Frost & Sullivan The ownership of network infrastructure positions the telecom service providers uniquely against the other three types of service providers. The visibility of the network helps them better manage cloud services and provision for foreseen challenges. Apart from an end-to-end control over service delivery, the telcos have a strong partnership and support network that allows them to create customized solution that are tailored for their clients unique business requirements. Furthermore, they have greater bundling capabilities than any other market participants in the ecosystem. The telecom service providers are able to scale more rapidly than pure-play IaaS providers due to the breadth of their customer base and the trust that is reposed by their customers on their execution. This ability to scale rapidly, also results in cost savings that could be passed onto the customers, making the telcos one of the most cost-competitive market participants in the IaaS space. The telecom service providers learnt the ropes of globalization much earlier than other participants through extensive network hubs across the globe and further complemented that with a deep local presence that offers the best of global and local environments. This is important for the SMBs as they do not get intimidated while doing business with a telecom service provider.

4 The one point that is missed by many is the fact that the telcos themselves are also cloud users. Some of the telcos have transferred their business functions and computing requirements to the cloud to take advantage of the flexibility and faster time-to-market advantage the telcos gain through their cloud. They have already migrated their existing services and support functions onto shared infrastructure, therefore reducing total cost of ownership. Areas like Consumer Media and Business Applications should be the core focus of telcos. Current Telco Cloud Service Provider Landscape in ASEAN There are significant differences in each of the markets in ASEAN on the maturity of local telco cloud service providers. While Singapore has the most mature set of telcos, other countries are still witnessing local service provider evolution. Singapore In Singapore, all three prominent telcos have already established their cloud portfolios to tap into this growing opportunity. Their cloud offerings range from simple cloud storage to extensive applications and CDN services. They provide services across the cloud value chain, of IaaS, PaaS, and SaaS. These participants also provide their services to customers across Asia Pacific not limiting themselves to the ASEAN region. Both SingTel and Starhub have also won contracts in cloud deal for the public sector. SingTel, having consolidated its group companies NCS, Optus, and Alphawest and its managed services into one business unit, has established itself as a key participant in the region offering a range of services across all delivery models. Apart from its own services, SingTel has also established a cloud marketplace that offers thirdparty applications (including Google Apps) to its customers. On the other hand, Microsoft 365 and public cloud IaaS are the two key service offerings from Starhub. Malaysia Maxis and Telekom Malaysia (through VADS) are offering various cloud solutions, and their traction in this market is increasing. Since 2012 Maxis has been the more proactive telco in Malaysia when it comes to new investments for cloud computing. While they set up a new datacenter, they have strengthened their cloud computing team and are putting into action new initiatives to expand their current portfolio. Telekom Malaysia was late in the game. However, it is rapidly enhancing its capabilities and introducing new services to meet current requirements. Government has emerged as a key vertical by demonstrating strong initial uptake of its cloud services. Indonesia The telco market in Indonesia is led by Telkom Indonesia and IndoSat. Telkom Indonesia offers its cloud offering through TelkomSigma. It offers infrastructure and applications through its cloud portfolio. Its infrastructure services range from private cloud to public cloud solutions, with bursting options. Its SaaS solutions include financial services solution, mobile workforce management, and office automation. IndoSat has recently partnered with Dimension Data to launch an enterprise class public cloud service for the Indonesian market. The Indosat Cloud, a public cloud IaaS offering, supports on-demand provisioning of cloud servers with customized CPU, RAM, storage, as well as management of compute, storage and networking. This is an example of the earlier highlighted partnership between telcos and IT service participants. Thailand

5 The key telco participants in Thailand offering telco services are True IDC and TOT. Both companies offer IaaS- and SaaS-based cloud services. The current demand for cloud is being serviced by IT service providers, therefore requiring the telcos to rapidly improve their marketing and delivery strategy to further entice more of their voice clients to move into their cloud offerings. The Philippines In the Philippines, the key participant in the telco market offering cloud services is PLDT. PLDT has launched its own public cloud infrastructure, which is expected to further boost cloud computing adoption in the Philippines. PLDT has recently invested in network enhancements and datacenter expansion, which would provide support for present and future ICT needs as businesses become more complex and competitive. Vietnam The telcos in Vietnam are very small providers of cloud services. The major local telco participants in Vietnam are Viettel and Vietnam Posts and Telecommunications (VNPT). VNPT has teamed up with DTS Communication Technologies Corporation (DTS) to provide MegaERP services in Ho Chi Minh City. VNPT has also teamed up with Polycom to offer MegaConference, which is a subscription-based Video as a Service (VaaS). While the participants highlighted above are local telcos, there are other global participants, such as AT&T, BT, NTT Communications, Orange, and Verizon, who provide their services in the ASEAN region. While NTT Communications has expanded its presence into Malaysia, others are primarily targeting the Singapore market and looking to serve smaller opportunities through their Singapore datacenter. BT is planning to expand its ASEAN footprints by doubling its market share in Asia. BT's core focus moving forward would be the Vietnam market, which it considers a high-growth market due to strong growth expected for local businesses. Orange on the other hand is also expanding its business operations in the region. Roadblocks for the Telco Cloud Service Providers While the telcos have their strength on the infrastructure portion of the cloud, their biggest drawback is their lack of experience in selling services and solutions. Telcos have traditionally been product focused. Business models, sales channel, partnerships, and ICT revolve around a product's lifecycle. This issue is further complicated by their lack of agility, especially in cases of incumbent telcos. While the telcos have introduced cloud services, the current direct sales team and channel partners is making it a challenge to effectively take these services to market. Hence, there is a need for a restructuring or internal transformation to better serve services customers. Another challenge for service providers has been competition from over-the-top (OTT) participants such as Amazon and Google. These participants have established a large scale datacenters and have been able to offer services at low price points. This is not the market segment where telcos can necessarily compete. Hence, it is essential for them to create a differentiated offering sticking to their core capabilities - high SLAs and strong support capabilities. An appropriate solution at the initial stages for the telcos to deliver the complete cloud ecosystem would be to establish a partnership with IT service participants. This would enable the telcos to do joint sales and marketing roadshows to increase the impact probability in the cloud market.

6 Recommendations The ASEAN cloud computing market may be divided into two. One is the mature markets of Singapore and Malaysia and the other is the growing markets of Indonesia, Thailand, the Philippines, and Vietnam. The telcos in Malaysia and Singapore have established a critical mass of customers and a mature understanding of the business model. Considering the growth opportunity in Indonesia and Thailand, telcos, such as SingTel and Maxis, can have joint ventures with local participants in these countries to enhance their revenue stream while being able to share their valuable experience in the new market. Partnership here can be classified under three different categories. The partners for collaboration here include: Cloud Enablement Vendors: These partners would be able to help the telcos in acquiring the right tools and solutions to set up their own cloud environments. Key components of cloud enablement solutions include virtualization, orchestration, provisioning, selfservice, billing, and metering, all essential in setting up a smart cloud offering. ISVs: ISV partners provide a two-fold benefit to telcos. First, they provide applications that telcos can consolidate from multiple vendors into an online portal or a marketplace to their customer base. Second, ISVs looking to port their applications to a multi-tenant environment may choose to leverage the telco's IaaS to host their applications and be a customer themselves as well. Cloud Implementation Partners: These partners would act as the consultants for the telcos, where they can advise their clients on which application is cloud viable and which should be implemented through other delivery models. These implementation partners also play the role of a cloud broker/aggregator where they partner with multiple cloud service providers and offer the relevant services to customers. This partnership would provide an additional channel for telcos that are looking at alternate sales channels. The ASEAN cloud computing market is full of opportunities for both local and regional telcos. With increasing market awareness and mature solutions coming into the picture, the market is expected to accelerate the growth curve and gain a critical mass. However, the need of the hour is to establish a strong cloud portfolio and effective channels and help improve awareness levels.