All aboard the services express as telcos extend their cloud reach
Both Telefonica and BT are showing their determination to carve out sales in emerging technology services through either acquisitions or key partnerships. Business technology journalist, Antony Savvas follows the action.
In Telefonica’s case, it’s acquisitions that are the order of the day, with its Telefonica Tech unit acquiring the UK and Ireland business of Munich, Germany-headquartered Cancom for €398 million.
International player Cancom had gradually built up its cloud service capabilities in the UK and Ireland through significant acquisitions over the last few years, and the region was seen as a stepping stone to its now wider US activities.
A high price?
But maybe the price that Telefonica Tech is paying for the UK&I business was too much to resist for Cancom, representing a multiple of 15.8x (Enterprise Value/EBITDA).
With 600 employees, Cancom UK&I provides professional and managed services in advanced IT, cyber security and multi-cloud solutions through various data centres across the region. All this is now Telefonica’s, which has long been present in the two countries through its O2 subsidiary.
“This acquisition reinforces Telefonica Tech’s growth story and its positioning in one of the group’s four key markets, the UK,” says the Spanish-headquartered company.
Telefonica Tech is a strategic unit that Telefonica included in a corporate growth plan it presented to shareholders and the market in November 2019. The operation is serving the group as it seeks to accelerate its service activities in areas such as cyber security, the cloud, the Internet of Things (IoT), big data and blockchain.
So far this year, Telefonica Tech has integrated acens part of the Telefonica Group since 2011 to strengthen its value proposition for small to medium-sized enterprises (SMEs) in the cloud, and this July it also announced the acquisition of Altostratus Cloud Consulting.
Altostratus is a Spanish company specialising in multi-cloud services and is a Google Cloud Premier Partner for Southern Europe. In addition, it offers big data and machine learning solutions, among others.
A larger target
Telefonica says it expects the unit to grow by “leveraging” the 5.5 million-strong B2B Telefonica Group customer base, including O2 business customers. The O2 business segment that can be targeted is now potentially much larger as a result of the recently completed joint venture with Liberty Global that formed Virgin Media O2.
Cancom UK&I is a certified Microsoft Gold Partner for nine competencies, including Azure Expert MSP, CSP Direct, LSP, Surface Silver Partner and FastTrack, among other relevant partnerships with leading technology vendors. So that dovetails nicely with the Google Cloud competencies of fellow acquired company Altostratus.
Growth all round
Cancom UK&I reached €155 million in revenues in 2020, of which managed and professional services represented more than 50% and these are growing. The unit is expected to reach €190 million in sales for 2021.
For its part, Telefonica Tech says its revenues have grown by more than 25% in the first half of 2021. As well as the UK and Ireland, its main markets are in Spain, Germany and Brazil.
Jose Cerdan, CEO of Telefonica Tech, says, “Having the Cancom UK&I talented team join Telefonica Tech will strengthen our cloud and cyber security capabilities.
“Our combined value proposition and global reach allows us to position ourselves as the strategic partner for our B2B customers in their digital transformation strategy.”
As far as Cancom is concerned, which is active in most of the areas that Telefónica Tech is, it says it will use the proceeds of the sale to fund acquisitions across its “core” DACH region, consisting of Germany, Austria and Switzerland.
While Telefonica goes down the acquisition path, BT is concentrating on making stronger alliances with key and emerging players.
A just-announced alliance with Microsoft around managed voice, cyber security and other industry-focused services could help BT reverse the ongoing decline at its Enterprise and Global businesses, which saw their combined revenue shrink 11.5% year-on-year in the quarter ending June 2021.
The alliance is targeting areas from digital manufacturing to health and includes the wider availability of unified communications built on the Microsoft Teams platform, with BT providing “secure and reliable connectivity”, say the pair.
The two companies add that they will design and launch a new generation of managed security services to “enable and protect the modern collaborative workplace”. With the pandemic having created a burgeoning market for hybrid working between office and home, this is a sweet spot both companies are determined not to miss.
Bas Burger, CEO of Global at BT and “executive sponsor” of BT’s partnership with Microsoft, says, “This partnership will ensure all of Microsoft’s solutions work ‘Best on BT’ and support both companies’ commitments to improving digital skills.”
Omar Abbosh, corporate vice president of industry solutions at Microsoft, adds, “The alliance is just the start of an exciting, shared journey of innovation and collaboration that will shape the future of telecoms.”
A bold claim, but BT is certainly now making an effort when it comes to not just relying on voice, broadband and TV sport (which it might be selling off anyway). This column recently highlighted that BT had signed up to be a provider of new company Arqit‘s security platform-as-a-service.
Arqit’s QuantumCloud is aiming to tackle a substantial data security gap that has caused widespread concern among those wanting to build operationally useful Internet of Things networks, namely the lack of reliable security that is both cost-effective and automatic.
To protect IoT sensors, QuantumCloud’s quantum key distribution (QKD) for encryption at end points can be created both at the edge and in the cloud. The keys can also be constantly changed to offer further protection and can be rolled out in unlimited numbers to support the large customer bases of telcos.
It’s a solution that could no doubt be used to protect joint BT/Microsoft customers.
The author is Antony Savvas, a global freelance business technology journalist.