Seven reasons why Latin America Telcos should focus on the SME market

(Oct 26 2012) Cloud , Mobile Enterprise

1. 

   Telcos are beginning to see the opportunity to provide cloud computing services to small to midsized enterprises (SMEs) across Latin America. This is not surprising when one considers that the number of SME business in that region will approach 22.4m in 2012. This is also because, as we all know, Latin America will experience a significant ICT transformation with the increasing adoption of fixed and mobile broadband services. Pyramid Research predicts that by 2017, business fixed broadband penetration services will reach 100% in Argentina, Colombia and Costa Rica, and will reach more than 60% in Brazil, Mexico and Venezuela.

   But why should telcos go after the SME cloud services market in Latin America?

   Reason #1: The SME cloud services market will grow at CAGR of 38% for the next 5 years.

   Pyramid Research estimates that the overall cloud services market in Latin America will reach $4.8bn in 2012. This latest figure includes the market value for all business segments. The SME cloud services market is estimated to reach $1.9bn in 2012 and will grow at a CAGR of 38% in the 2011-2017 period, to reach $12.7bn by 2017. While the microenterprise and small to midsize enterprise (SME) segments represent 42% of the overall market in US dollar terms, they account for 99 of every 100 businesses in Latin America. This data proves that the SME market will be as dynamic as the large enterprise and corporate segments, which are expected to growth at a CAGR of 35% for the same period.

   Reason #2: Seven Latin American countries are ranked among the countries with the highest enterprise cloud readiness scores among 49 nations.

   In our latest Enterprise Cloud Readiness Index, seven countries in the region made the list: Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico and Venezuela. All have the right mobile and fixed broadband penetration levels, and technological infrastructure, compared with other developed nations, to meet the region cloud services requirements.

   In this context, we define enterprise cloud readiness as the set of economic, demographic and technological indicators that predicts the degree to which enterprises leverage cloud services in a specific country. The computation of the Enterprise Cloud Readiness Index is based on successive aggregations of the following indicators: number of businesses, nominal GDP, number of computers, number of new smartphones, fiber-optic (FTTH/B) connections, 3G/4G subscribers and business broadband penetration.

   Reason # 3: Service providers own the relationship with the SME market.

   The main service providers in Latin America have established relationships with SMEs and vendors, and thus they have the opportunity to generate additional revenue streams by expanding their portfolios to include cloud services. They own valuable market intelligence that allows for customer profiling and segmentation to develop services tailored to the specific needs based on business size and vertical.

   Traditionally, telcos have dominated the SME market for telecom services, as opposed to the IT and OTT service providers. Over the years, they have institutionalized massive operational, marketing and call center capabilities and departments to serve and provide support to the SME market.

   Reason # 4: Telcos own the network and data centers.

   Despite the fact that the major IT service providers and OTTs (e.g., Microsoft, Google, IBM, HP) have made significant investments in the region, it is unquestionable that service providers have control over critical portions of the network infrastructure value chain. Network ownership allows telcos to scale and bundle cloud services with their connectivity services more quickly and easily than traditional IT service providers, and it has earned recognition for solid QoS. Furthermore, all network and data center functions can run on the same commercial platform to reduce capital cost, operations, administration, maintenance and time to market. To be sure, network ownership is only marginally helpful if competitors are offering better OTT IT services.

   Reason # 5: Telcos have the service footprint.

   Telcos have network reach. Broadband and mobile license obligations have forced telcos to invest to provide services to metropolitan and rural areas, increasing the geographical coverage and providing services to dispersed branches and remote workers. The service provider data center computer nodes are embedded in, and distributed across, the network. This geographic dispersal reduces the latency so carrier cloud is nearer to the SMEs. Proximity to the node is a fundamental requirement to provide satisfactory SLAs and QoS.

   Reason # 6: Telcos have existing and strategic relationship with, IT service providers, OTTs and ISVs.

   Telcos have existing and strategic relationship with IT service providers, OTTs and ISVs and can use their scale to negotiate and bundle white-label or co-branded cloud services in attractive ways. Telcos in Latin America have developed partnership models (e.g., Telefonica/NEC, Alestra/SAP) aiming to create and distribute cloud services in a simpler and more cost effective way.

   Pyramid Research believes that telcos should resist the temptation to build their own cloud capabilities. Contrary to this, telcos should partner with and/or coexist with ISVs, IT service providers, OTT service providers and ultimately with the cloud aggregator/broker in order to build a solid value proposition for the SME market.

   Reason # 7: Cloud services will help increase ARPU and reduce Churn while controlling capex and opex.

   Finally and most importantly, telcos will be able to maintain their leader position within the SME market, increasing ARPU by upselling cloud services and cross-selling core services (e.g., IP VPN, dedicated Internet and 4G) — all by reducing the amount of capex and opex and the timelines required to introduce and manage new product lines.

   In our recent report, “How Latin American Telcos are Tackling the SME Cloud Opportunity,” (click here to learn more about this report) we provide close look at the competitive cloud services offerings for the SME segment in seven selected countries in Latin America, followed by a diagnosis of how the cloud service offerings and market trends are likely to evolve in the next five years.

   By: Daniel Ramos, Senior Consultant, Pyramid Research

   Daniel Ramos will be discussing this new report in a special breakfast briefing on Wednesday October 31 at 4G World. To request an onsite meeting with him at the show, please contact him at dramos@pyr.com.

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