Wednesday, December 23, 2009

In The Cloud Computing World …. Who Pays For The Telecom Infrastructure?

No doubt cloud computing, SaaS, web 2.0 & mobile devices are going to drive bandwidth that has inherent low latency, high bandwidth, high availability.

Now … in terms of Telco/ISP's vs application service providers …. The question is .... if all the VC money is following the applications - who pays for the infrastructure? The telecommunications industry needs to evolve to better support the current and future needs of SaaS, cloud computing et al.

That evolution means developing the business and technical capability to work with the over the top (OTT) applications in a meaningful way - i.e. being able to deliver the application-specific QoS required, being able to leverage their relationship with the subscriber to help OTT companies provide new value for the subscriber, and the telecommunications industry needs to be able to participate in the revenue model of the OTT movement.

Without the revenue-sharing component, the access service provider will have little motivation or even capability to develop the types of network services required for web 2.0 - never mind web 3.0.

Traditionally the infrastructure costs have been part of the service cost.

For a hosted application, for instance, the entity hosting the service has to buy the infrastructure required to host it on (servers, rackspace, firewalls, and Internet bandwidth, etc.) and will wrap this into the price they charge for the service. The bandwidth charges they pay will go to the Service Providers who use this to pay for their infrastructure.

SaaS which require higher bandwidth, lower latency, and high availability may have to be more selective of their bandwidth providers. The larger ones may have to start acting like an ISP themselves in order to get best service and coverage …. and to take advantage of the economics of Internet connectivity. To a large degree Google already does this.

One of the big problems is that, whilst the choice of supplier can have a significant impact on the quality of your internet service. Fundamentally the Internet is a multi-provider, best effort network. Any carrier will only have a limited influence on the end-to-end service quality it's users get.

ISPs (in general) have been working to upgrade their network and systems to cope with these newer services, but the inherent qualities of the Internet mean this is always going to be best effort.

And whilst ISPs need to adapt to this new environment, they will only do so if the incentives are there (meaning that direct or indirect revenue streams need to support it).

If service providers are willing to pay ISPs for a better service quality, this could be a driver. However, the nature of the Internet and the fact that any carrier can only provide very limited guarantees, I wonder if service providers will be willing to pay a premium.

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