Delivering enterprise connectivity services today is very different from even five years ago, and telecommunications companies that have dominated the market for many years today are having to make a lot of adjustments to the way they do business.
Technological concepts like Software Defined Networking and Network Function Virtualization are changing the way carriers design and manage their networks and open opportunities for delivering services in new ways. Meanwhile, rising enterprise demand for cloud services has created both new market opportunities and powerful new competitors for telcos.
We caught up with Nav Chander, research manager for enterprise telecom at IDC, who recently completed a study of the top enterprise connectivity service providers, to talk about the effects the advent of SDN and NFV and the rise of enterprise cloud are having on the market.
SDN and NFV Change Network Architecture and Telco Services
As far as telcos are concerned, SDN is an enabling technology, not a revenue-generating product in itself. It is a new way to architect their networks that enables them to manage infrastructure and deliver services in new ways. “What’s more interesting is NFV and virtualization of services,” Chander said.
NFV is a blueprint for defining those services, things like VPN, WAN, intrusion detection, firewall, and so on. It is virtualizing functions that used to be performed by physical boxes. They become software defined, but they are actual revenue-generating services.
AT&T and Japan’s NTT Communications are examples of service providers that use SDN technologies in the most advanced ways.
AT&T has been aggressively transitioning to virtualized network management. Its Network On-Demand service, for example, enables enterprises to consume bandwidth the way customers consume cloud infrastructure: scale up or down dynamically, in real-time, based on demand.
NTT, which started using SDN as a tool about five years ago to manage interconnection between its own data centers eventually turned that data center interconnection technology into an enterprise product. The SDN infrastructure supports NTT’s global private cloud services delivered from about 130 data centers in close to 200 countries.
Customers can quickly provision compute, storage, and networking resources anywhere on this global network. “The advantage is they no longer have to own and manage and connect that,” Chander said.
Competing for Enterprise Cloud Dollars Won’t Be Easy
The big difference between what NTT is offering and what the big cloud infrastructure providers like Amazon Web Services and Microsoft Azure are offering is NTT’s services are delivered over a private network rather than the public internet. This supposedly makes the services faster and more secure.
But it doesn’t mean NTT is not competing with Microsoft and Amazon. Leading public cloud providers all have private offerings and partnerships with colocation providers and carriers that enable enterprises to consume their services over private network links.
NTT today provides its private cloud services to some of the largest multinationals, Chander said. “It’s a great market, but it’s limited. Meanwhile, (the rest of) the enterprises still will go to cloud providers and perhaps system integrators.”
For most customers, Amazon and Microsoft are by far the most trusted cloud providers, and addressing the market beyond the largest global-scale players will not be easy for NTT and its peers. “It’s a huge uphill battle,” Chander said.
The Unique Position of Colos
Amazon and Microsoft’s command of the cloud market puts data center providers like Equinix in a highly advantageous position. These data center providers “have the opportunity to really capture the cloud exchange market,” he said.
Companies like Equinix, CoreSite, Datapipe, Interxion, and Telx can give enterprises both space, power, and cooling for their servers and direct private network links to servers of the big cloud providers. They act as intermediaries between enterprise customers and as many cloud providers as they can get to colocate and interconnect in their facilities.
These services are in high demand and growing. “It’s an early-stage market,” Chander said. “I think it’s going to be very high-growth.”
IDC expects enterprises to at a minimum double and at a maximum quadruple their use of cloud services, both Infrastructure-as-a-Service and Software-as-a-Service, over the next two years, he said. They may be using Azure or AWS today, but they will also want to connect privately to Salesforce, Oracle, or HP, for more services.
This trend hasn’t been lost on Equinix and its peers. Equinix has been growing the ecosystem of cloud providers in its data centers aggressively, starting with IaaS and more recently focusing on SaaS firms.
Colocation providers don’t have a monopoly on this market, however. All the major network carriers, including NTT, AT&T, Level 3, Orange, and Verizon, among others, also offer private connectivity to big public cloud services.
The way enterprises use IT is changing, and these changes are affecting the entire ecosystem of vendors and service providers that cater to the enterprise market. Everybody, from hardware suppliers to network carriers, will have to make big adjustments to the way they develop and use technology and take products and services to market.