TM Forum: Qwest eyes over-the-top, cloud to compete with AT&T, Verizon

Perhaps because it’s already come back from the brink of death once, Qwest Communications (NYSE:Q) is content taking a contrarian approach to its future, relying on partnerships and more open business models to compete with larger rivals.

Delivering the keynote at this morning’s TM Forum Management World Americas event in Orlando, Neil Cox, Qwest’s executive vice president –product development and management, detailed his company’s growth strategy, staking his company’s future to what he called four “theses”:

• Voice services must be augmented with video, including multimedia communications delivered to “fourth-screen devices”
• Apps, not just current mid-band mobile apps but future broadband apps delivered to many screens, will trump the Web and first-generation search
• Video to the home only requires live sports, everything else can be over-the-top and accessed on-demand
• Cloud and managed services will fundamentally reshape the enterprise market, creating a new managed services value chain

A large part of Qwest’s strategy can be attributed to the unique state of its network business: it does not own a wireless network, instead leasing services from mainly Verizon but also partnering with AT&T; it does not offer video or IPTV on its own, choosing to partner with DirectTV instead; and it owns a nationwide (indeed global) transport backbone from which to launch managed services.

That approach differs in key respects from competitors, including AT&T and Verizon, which not only operate their own 3G and soon 4G mobile networks but deliver branded video/IPTV offerings into the home. Both of those companies have made great strides into the application business, particularly on the mobile side – AT&T in partnership with Apple and the iPhone and Verizon with its emerging Android and open mobile strategies.

Qwest is betting that mobile apps will be just the tip of the iceberg, with true broadband into the home enabling richer, video-centric apps across not just one but multiple screens.

“We believe there will be a fourth screen, we believe we have to add video to voice and we really believe once the development community understands they have a 20- or 40-gig landing place in the home [thanks to Qwest’s fiber-to-the-node and VDSL2 network], wait until you see what those apps will look like.”

Qwest is also taking a different path in its video-to-the-home business, based on the idea that very few services in the future will need to be live – perhaps only sports or news – and that rather than focusing on delivery, and controlling, video services into the home, it plans to take advantage of Ethernet-connected DirectTV boxes to allow a broad array of over-the-top services to enter the home.

“We differ from our peers in the industry,” Cox said. “We see walled garden IPTV plays breaking down. We see a tremendous amount of over-the-top services. You are going to see a ton of new business models around things like ad-supported video. All of this over-the-top stuff is coming, and we at Qwest aren’t going to stand in the way.”

To help enable those over-the-top services, Qwest is moving strongly into the content delivery network (CDN) business, helping those providers optimize their content delivery into Qwest homes. “We want to partner up and get into the value stream of these [over the top] economics.”

On the enterprise front, Qwest is banking heavily on using its nationwide network to deliver managed cloud, services to customers. Just four years ago, “you could play football” in its 13 nationwide data centers, Cox admitted, they were so empty. Since then, Qwest has grown a simple hosting and storage business to fill up those data centers. The next step is to use that same data center infrastructure to deliver managed services that combine the network and applications in ways that Cox believes will transform enterprise IT.

“Cloud computing isn’t a new technology; it’s a new business model,” he said. “It’s occurring because of what [the telecom industry] has done to provide [reliable and affordable] transport.”

With that change in mind, Qwest believes its data centers and network backbone have the potential to be “worth ten-fold what they are today,” Cox said, adding that cloud business models require partnerships with app and solution provides and standards and protocols that connect and make interoperable network clouds.

Cox detailed Qwest’s journey over the past decade, back from the brink of bankruptcy to its current levels serving 2.9 million broadband, 10.6 million voice and 858,000 video customers across its 13-state market. It currently passes 3 million homes with its fiber-to-the-node/VDSL 2 network and is adding 1 million to 1.5 million homes per year. Financially, after contracting in 2002, the company is now cash-flow positive and has paid shareholder dividends in the last eight quarters.

“Nobody thought we would survive,” Cox said. “We did it by focusing on the customer experience and making the decision to be really smart with the capital deployments within our network. And that’s how we’re going to thrive going forward.”