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The key to utility computing

It seems like everyone is trying to get on the on-demand, utility computing bandwagon. Nearly every technology company has its own utility computing strategy. But the telecommunications carriers have been slow to focus on this market opportunity. Ironically, the telecom carriers control one of the most important components in making the promise of utility computing a reality: the network.

Jeff Kaplan

Utility computing, as defined by THINKstrategies, is the automated delivery and management of computing power and business applications.

As the IT industry focuses on new, enabling technologies such as grid computing or Web services, companies need to have fast, reliable and secure networking to support utility computing. Yet, this is one of the most essential elements of any small and medium-sized business's technology arsenal.

Because of the rapid dissemination of computing power and business applications to end users, high-speed networking is critical. Yet, this infrastructure layer is generally taken for granted, especially as all of the major interexchange carriers (IXC), including AT&T, MCI and Sprint, and intra-LATA (ILEC) exchange carriers, including BellSouth, Qwest, SBC Communications and Verizon, roll out a similar set of Internet Protocol and Multiprotocol Label Switching-based public and virtual private network services.

Rather than see these network infrastructure services as a competitive advantage for utility computing, many businesses view them as simple commodities that are ancillary to their utility computing strategies.

This has only aggravated an already bad situation for the telecom carriers. Telecoms were devastated by a cycle of overbuilding during the dot-com era, followed by brutal consolidation during the dot-com bust. Even as the economy rebounds, the telecom carriers have been caught in a crossfire of intense price competition created by continued deregulation and fading differentiation.

In addition, revenue declines among the IXC and low revenue per employee ratios among the ILEC have led to additional layoffs, leaving carriers unable to capitalize on a surge in outsourcing. Meanwhile, large and small enterprises are offloading a greater proportion of their day-to-day IT and telecom operations to their vendors and carriers.

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Fueling the demand for outsourced utility computing is the fact that many enterprises want to transfer the burden of their existing operations to third-parties, and would like to make them more flexible and cost-effective. Over the past 18 to 24 months, the carriers have aggressively expanded their managed service portfolios to include LANs, security, storage, messaging and call center offerings.

The carriers also launched a variety of hosting initiatives during the dot-com era that met with varying success. And with the collapse of the hosting industry, the carriers had to retrench and recalibrate their efforts in this sector. BellSouth and Qwest teamed with IBM and Hewlett-Packard Co., respectively, to operate and market their hosting services. The success of, NetLedger and other hosted application services has re-ignited the hosting market and drawn the carriers back into this sector. Now, nearly all of the IXCs and ILECs are offering hosted customer relationship management and other business applications on a subscription basis.

Our research shows that enterprises view application and managed services as stepping-stones to broader-based utility computing tools. Our research also found that companies are establishing strategic sourcing agreements with a smaller number of key suppliers to reduce the cost of doing business with multiple vendors and carriers. Given the commodity nature of the telecom carriers' core networking business, they must aggressively expand their application and managed services to offer the broadest portfolio and best strategic sourcing service possible.

While these challenges are significant, the carriers can't afford to allow their core network capabilities to become even more commoditized and further marginalized by missing the utility computing wave. Their core networking competency is a critical ingredient in making the promise of utility computing a reality for all enterprises.

Kaplan is the managing director of THINKstrategies, a Wellesley, Mass.-based strategic consulting services firm. Jeff can be reached at .

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