To cloud or not to cloud….Here is the answer

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The benefits of outsourcing an international switching hub to a cloud platform and the possible use cases

In the current environment, which is defined by declining voice traffic in many cases, stagnating revenue and squeezed margins, two key challenges present themselves to international operators and wholesalers: optimizing operational efficiency, while generating innovation and new initiatives – all this at minimal risk and cost.

And in a world where everything is expected to work at all times, on all devices and from everywhere, the need for efficient and flexible high quality international interconnection capabilities has never been so critical to operators’ success.

Additionally, innovation and the expectation for new services is moving at an ever-increasing speed and operators therefore must completely reinvent the way they launch new services or solutions: with speed, agility, low cost and openness.

Outsourcing versus building and owning your own infrastructure, especially for international non-core network segments or services, is therefore worth serious consideration.

 The true complexity and cost of ownership

When looking at the cost of ownership of such facilities, it is not only the expense of buying and maintaining switching and BSS platforms that are cash intensive. The required colocation and technical support needed on site adds a considerable amount to the operating cost of such platforms.

Dimensioning and scaling are additional issues to consider, especially if one doesn’t know exactly how the business will grow or sometimes even how the business might decline.

In addition, the need for geographic diversity, or regional nodes for better quality of service, could essentially double the cost of owning international interconnect hubs, which adds further strain on operators’ networking budgets.

On the other side of the coin, there is a cost of ownership that is rarely considered: the loss of revenue due to the time it takes to launch new services or innovations.

When choosing to build and own their own international hub, either to address a new segment, launch a new service or reach a new geography, it can take operators and wholesalers many months to bring such projects to fruition. This translates into a considerable loss of potential revenue, which could have been harvested much earlier if time to market was kept to a minimum. This is compounded by the fact that if the time to market is not rapid enough, the window of opportunity for this new service or solution may have been missed.

All this results in a significant Total Cost of Ownership (TCO), which goes well beyond just the cost of buying and maintaining equipment and networks.

Simplification through hosted voice cloud platforms

One solution to consider to minimize cost, risk, as well as time to market for new products, is the outsourcing of the international hub function to a Cloud Platform as a Service provider such as Cataleya.

Business ready platforms, such as Cataleya’s Orchid Cloud, enable operators to start interconnecting only days after signing up to the platform, while paying only for what they use. This translates into immediate time to market, ultimate flexibility in terms of traffic growth and business model, low cost and low risk.

Key Orchid Cloud benefits:

Network flexibility: Orchid Cloud offers fluid scaling and therefore empowers operators to grow their business from zero to almost infinity, at the speed and increments that suits their business. Once interconnected, the platform grows with them in real-time. In addition, short term volume increases or overflow traffic requirements, that would not warrant the upgrade of an existing owned platform, can be sent to the Orchid Cloud platform. Finally, bridging migration periods caused by internal network upgrades or changes can also be handled very cost effectively by Orchid Cloud, rather than purchasing or deploying duplicate switching platforms during such periods.

Business model flexibility: The Orchid Cloud pricing structure is built to mirror operators’ needs and business. Such a platform requires only a minimum monthly subscription commitment. From there, operators will only be charged based on actual minutes sent through the platform on a monthly basis. The higher the volume, the lower the platform cost per minute.

High carrier grade quality: Orchid Cloud is based on fully redundant Orchid One SBC nodes in high specification datacenters to ensure high availability. If, however geographic redundancy is required, or if other regional nodes need to be accessed to keep the call media in region and reduce latency, operators can simply subscribe to another partition in a different location, instantly. All this while having the benefit of managing the cloud platform via one single management interface. 

The proof is in the numbers

To better understand the financial benefits for operators to outsource their international hub to a cloud platform such as the Orchid Cloud, we have analyzed the difference in total cost of ownership of building and running an overseas switching hub versus using a hosted platform service for two main business cases.

The first use case discusses the establishment of an international hub in comparison to using a hosted platform service for an existing business or service. This could be for example for the decommissioning of a hub to be replaced by an outsourced solution or for a group wanting to aggregate its Opcos’ operations within a central outsourced hub. In these two cases the business and traffic is already ongoing.

While the second use case discusses the introduction of a new switching hub for a new business or service altogether, where traffic will be ramped-up from zero.

Use case 1: Existing business use cases

  1. a) New interconnect hub

When choosing to outsource your international switching hub function instead of building your own, we found that in the first year (when based on a running rate of 100 million/month), the total cost of ownership when owning the international switching hub amounted to US$290,500, compared with US$182,500 with a hosted solution such as Orchid Cloud. This equates to a cost difference of US$108,000 and savings of 59%.

When looking at the total cost of ownership savings for longer periods of operation, cost savings amount to US$289,000 and US$470,000 over the course of 3 and 5 years respectively.

Table 1: Total Cost of Ownership scenario: Existing business – Own-Build vs Orchid Cloud

Term Own-Build Orchid Cloud Saving Own vs Orchid Cloud
TCO Y1 $290,500 $182,500 $108,000 59%
TCO Y3 $831,500 $542,500 $289,000 53%
TCO Y5 $1,372,500 $902,500 $470,000 52%
  1. b) Decommissioning of an interconnect hub

Operating existing international switching nodes can also be considerably costlier than outsourcing to a cloud provider. The hosting cost alone, plus the 24/7 technical support required to ensure high uptime and fast response times in case of system failures, plus the management time to deal with the hosting provider and the support company, represent a significant cost year after year.

The depreciation of the platform over its lifetime also needs to be factored in. Even more costly is when operators have their own dedicated engineering support team in each overseas location.

Therefore, the decommissioning of an international switching hub, to be replaced by an outsourcing solution such as Orchid Cloud, is something to consider to minimize the cost of operation of your network, while continuing to ensure similar or better functionalities and high quality.

When looking at the savings, again based on a platform that caters for around 100 million minutes per month, we found that in the first year, the total cost of ownership when owning the switching hub amounted to US$270,000, compared with US$182,500 with a hosted solution such as Orchid Cloud. This equates to a cost saving of US$88,000 or 48%.

When looking at the total cost of ownership savings for longer periods of operation, cost savings amount to US$269,000 and US$450,00 for a similar platform over the course of 3 and 5 years respectively.

Table 2: Total Cost of Ownership scenario: Existing business – Decommissioning vs Orchid Cloud

Term Own-Build Orchid Cloud Saving Own vs Orchid Cloud
TCO Y1 $270,500 $182,500 $88,000 48%
TCO Y3 $811,500 $542,500 $269,000 50%
TCO Y5 $1,352,500 $902,500 $450,000 50%

 

It is important to note, that there are a number of unquantifiable benefits attached to outsourcing switching hubs to a solution such as Orchid Cloud. For example, people, time and money spent to maintain, upgrade and manage such a hub can now be focused on the core business or even on innovations and new services in segments other than voice. This solution therefore enables operators to continue running their voice business (as long as it lasts) as efficiently as possible, without the time and effort required to do so.

Use case 2: New business, service or solution use case

Now if we look into the launch of an entirely new service, with traffic ramping up from zero to 100 million over 6 months, the above analysis does not take into consideration the lost revenue and margin when choosing the build option. Based on 100 million minute (after a 6-month ramp-up), and an average revenue per minute of US$0.04/minute, if a 6-month delay occurred in the time to market of a new voice product, this could represent a loss of revenue of US$24 million over the course of the year. Further on, based on a margin of 10%, this would represent a potential loss of margin of US$2.4 million.

This means that in the first year, an operator’s net profit could be improved by US$2.4 million, if choosing a hosted voice platform option such as Orchid Cloud.

Definitely not a small sum!

Table 3: Potential increase to the bottom line using Orchid Cloud

Own-Build Orchid Cloud Difference between Own and Orchid
Service launch month Month 7 Month 1 6 months
Total minutes transported 350 million

over 12 months

950 million

over 12 months

600 million

over 12 months

Average revenue per minute US$0.04 US$0.04
Average margin % 10% 10%
Total cost of the hub (Year 1) $145,250 $182,500 ($37,250)
Total minute revenue US$14 million US$38 million US$24 million
Total minute margin US$1.4 million US$3.8 million US$2.4 million
Total profit US$1.2 million US$3.6 million US$2.4 million

 

To cloud or not to cloud – And the answer is…

The above use cases clearly show that outsourcing international switching hubs should deliver substantial savings and/or improved business results. Even though individual scenarios may vary, we believe that exploring the option is a must and good business practice.

Learn how Cataleya’s Orchid Cloud platform can enable service providers to outsource their international voice business to a hosted environment with less hassle and at a fraction of the cost, this with many additional benefits gained at the same time.

This article was first published inside the latest issue of Disruptive Telecoms, a TelecomDrive.com initiative


Andreas Hipp
Andreas Hipp is working as the CEO of Cataleya. The company provides real-time communications software and CPaaS solutions for all VoIP switching and analytics as well as A2P messaging needs of communication service providers. Cataleya is headquartered in Singapore with its own technology development and support teams in Silicon Valley, Pune and London.