Wholesale Channel - ASP Dedicates Infrastructure for Telcos

By Khali Henderson

Posted: 09/2001

Wholesale Channel

ASP Dedicates Infrastructure for Telcos
By Josh Long and Khali Henderson

Many ASPs are targeting telecom providers as distributors of their hosted
computing services. The strategy makes perfect sense: Sell the service through
the vendor that end users know and trust and already are writing a check to
every month.

For the telcos, the value proposition plainly is to avoid the time and the
cost of building and managing hosted applications.

Now, ASP TeleComputing ASA is offering network service providers (NSPs) a
middle ground between total outsourcing and doing it themselves.

The ASP, which was ranked among the top 10 ASP vendors in a recent Gartner
Inc./DataQuest report, allows telcos to have dedicated infrastructure.

This means the telco can house a TeleComputing-owned server in its premise,
thus taking advantage of its own infrastructure, such as a data center and
network, to drive down the costs of providing hosted applications.

TeleComputing also offers private-label solutions under a more traditional
arrangement, wherein telecom companies use its shared infrastructure. The shared
private-label solution lets NSPs incorporate hosted applications for their
subscribers within 30 days.

The shared option is popular with providers as a quick entry strategy, says
TeleComputing CTO Jeff Hagins, who recently was elected to the board of
directors of the ASP Industry Consortium (ASPIC).

"Over time, most all NSPs want to migrate to their own data center to
leverage their investment in facilities and network," he says. "What
seems to be driving them to start with it in our data center is time to
market."

In either the shared or dedicated scenario, private-label partners pay an
upfront fee, plus a monthly fee per subscriber. This per- subscriber fee is
based on several factors, including the length of the contract, the minimum
volume commitment and the amount of the upfront fee. So, a NSP that pays
$100,000 upfront would have a higher per-sub fee schedule than one that pays
$200,000.

Image: How It Works

While each deal is negotiated individually, the primary differences among the
options are that with the dedicated service, the upfront fees are higher, the
volume commitments are greater (minimum 5,000 subs) and the per-sub fees are
lower. "They are lowering the per-month subscriber charge because we are
not paying for the data center and the network," Hagins explains.

He also says that, in both cases, the NSPs become a virtual ASP that doesn’t
have to worry about managing service elements, such as servers, storage
networks, routers, etc.

"Even [if our platform resides] in the NSP data center, we are managing
that," Hagins says. "If they need more capacity, we will show up and
put new servers in."

TeleComputing supports hundreds of business software applications, such as
Microsoft Office and Microsoft Exchange. It achieved Microsoft Corp. Gold
Certified Partner status for hosting and application services this summer.

At the heart of company’s technology is TECOS, an OSS that automates the
provisioning, management and delivery of application services. The TECOS-based
solution incorporates a technology platform, consulting, design, development,
managed services and a sales program.

Bart Taylor, a partner at Boston-based research firm Giotto Perspectives,
says telecom providers are seeking "turnkey ways to add enhanced
services" without developing in-house platforms and other expertise.

"The challenge is always tying existing services to new services, and
for the service provider, the issue is creating revenues that are incremental to
core services," Taylor says.

Service providers are climbing the value chain by incorporating collaborative
messaging applications, such as e-mail, instant messaging and shared
calendaring, according to Hagins. He says service providers could earn a gross
margin of between 20 percent and 50 percent on the applications offered by his
company.

Many NSPs have sought to launch their own ASP services but have discovered it
is harder than they imagined, Hagins says. Microsoft and TeleComputing jointly
are developing leads in the NSP segment. Hagins also says that TeleComputing
services more than 450 small to medium-sized business customers in Europe
through a direct sales channel. It operates a cash-flow-positive operation in
Europe. The company has a presence in Norway, Sweden and the United Kingdom, as
well as in the United States.

Hagins says the ASP is placing more importance on signing agreements with
financially stable wholesale customers. In March, TeleComputing signed an
agreement with in-building carrier Broadband Office, but shortly after providing
applications to a number of customers, the company discontinued service, he says
(San Francisco-based Yipes Communications Inc. has received approval to purchase
the assets belonging to Broadband Office. See Business News, page 20).

In the spring, the ASP also had announced an agreement with Washington,
D.C.-based StratComm LLC, a company that bills itself as a network integrator,
value-added reseller and ASP, but the deal fell through.

Dean Goldsmith, principal at StratComm, said he wanted to outsource the ASP
functions to TeleComputing, but the startup costs were more than the company
anticipated. Furthermore, he said, StratComm’s systems integrator
"gurus" felt threatened despite the fact that the company was
demonstrating a lackluster performance in the ASP arena prior to announcing the
TeleComputing agreement.

As a part of its business, StratComm already provides hosted applications to
a property management company, which is offering hundreds of residents Internet
access and applications, but Goldsmith says that to realize its potential, a
company would be better served to specialize in the hosted delivery model or
partner with a company like TeleComputing.