This article originally appeared in the December 2010 issue of INTERNET TELEPHONY.

Telecom service providers are in a unique position to become major players in the cloud. They can leverage both their network assets and direct customer relationships to offer service value beyond connectivity to their end customers. Much of the focus by these future telecom cloud providers has been on the technical challenges associated with virtualization and network management along with the speed, reliability, and latency of their bandwidth. While these technical challenges are unique, the business model challenges will ultimately determine if they can make money in this game.

For telecom cloud providers, the cloud consists of five key characteristics: utility (pay as you go) price models, self-service provisioning, self-managed infrastructure, flexible compute consumption, and a multi-tenant environment. At first glance this may look very similar to an application service provider model, where computer-based services are provided to customers over a network that is a hosted in a data center or central office. But to fully benefit from the cloud advantages, the new telecom cloud providers will need to embrace an improved partnering model.

For example, cloud-enabled platforms will allow enterprises to provision resources and add capacity on demand. This elasticity promotes rapid deployment of solutions, but will force the telco cloud provider to create new service level agreements with their partners to support this dynamic and self-service environment. In addition, the telecom cloud providers will need some new technology partners to integrate these cloud applications. New programs are emerging that are designed to enable integrators, application developers, and telecom providers to offer integrated solutions for their joint customers. The telecoms will need to be careful and identify the right companies that are leaders in the cloud and know how to partner.

Finally, the telecom cloud provider must avoid the cloud trap of low profit and high customer churn. By providing more value through partners who are vertically focused, they can move higher in the stack. Applications such as content and storage management as well as distribution can be offered through the partner channels and create better margins. If they stick to providing the basic network stack, then it will become nothing more than a commodity play.

Jeff Hudgins is vice president of product management at NEI (News - Alert) Inc.