4-page Case Study
Posted: 8/30/2013
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Telefónica Telco Giant Uses Hybrid-Cloud Strategy to Trim IT Costs by 15 Percent, Gain Agility

Telefónica, one of the world’s largest telecommunications providers, is making sweeping changes in how it delivers IT services to the business. It is using a hybrid private-public cloud strategy based on Microsoft software to reduce IT costs by 15 percent, ramp up business agility, and increase data center flexibility and reliability. Its private cloud, based on Windows Server 2012 with the Hyper-V technology, is the cornerstone of a new Tier 4 Madrid data center. There, it will consolidate 18,000 physical servers across Europe to just 6,000 physical servers. Soon, it will link this private cloud to Windows Azure, the Microsoft public cloud service, to give the business tremendous flexibility in where it runs its IT workloads. With a hybrid-cloud strategy, Telefónica can deliver IT services to the business in days instead of months and make them far more reliable.

Telefónica, S.A. is a global broadband and telecommunications provider that provides communications, information, and entertainment solutions to more than 315 million customers across Europe, the United States, and Latin America. It is one of the largest mobile network providers in the world. Telefónica had 2011 revenues of nearly €63 billion (US$80.8 billion) and employs 260,000 people.

In the early 2000s, telecommunications firms enjoyed rapid growth and healthy margins, primarily due to terrific expansion in mobile markets. Telefónica focused on expanding its global cellular infrastructure and, in the data center, deploying new servers and services as quickly as possible. There was little concern for cost control. “The majority of our services and systems were over-specified to provide adequate performance for peak loads,” says Adrian Steel, Head of Global Infrastructure for Telefónica. “There was little use of virtualization and few Intel architecture-based servers. We had many UNIX operating system-based systems, Oracle databases, and proprietary hardware architectures. Also, because our business is highly decentralized, spanning more than 100 companies around the world, we had a huge amount of duplication.”

Then came the global economic recession in 2007 and a dramatic slowing in telco growth. Margins were squeezed, and with more telco providers in the market, business became much more competitive. Cost control suddenly became critical to profitability. Telefónica had accumulated tens of thousands of servers spread across dozens of data centers globally—27 data centers in Europe alone.

* By reducing our IT spend by 15 percent through the use of Microsoft cloud software and services, we free up money to spend on creating new innovative services to make the business more competitive. *

Adrian Steel
Global Head of Infrastructure, Telefónica

Telefónica knew that it needed to do more than virtualize servers; it needed a new paradigm for delivering technology to the business. It wanted to dramatically lower operating costs, but it also wanted to speed up data center velocity. It took weeks to deliver server resources to the business, which was not acceptable in a highly competitive market where first-mover advantage often meant market-share winner. Telefónica also wanted to improve infrastructure reliability so that business-critical services were never interrupted.

In 2011, the Telefónica Group Chief Information Officer challenged the business to stop buying servers. He challenged the company’s shared services organization to establish IT standards and begin formulating a strategy for consolidating the company’s global server glut. The company decided to build a 15,000-meter Tier 4 data center in Madrid, Spain, and consolidate its 27 European data centers—containing approximately 18,000 physical servers—into this state-of-the-art, highly reliable data center. A Tier IV data center (as defined by the UPTIME Institute) provides 99.995 percent uptime by making extensive use of redundant components and a fault-tolerant infrastructure.

The company’s goal is to virtualize as many of those 18,000 servers as possible, using the Hyper-V technology in the Windows Server 2012 operating system for Windows-based applications and the Red Hat Enterprise Virtualization hypervisor for applications based on the Linux operating systems. “While we want to standardize on open source software and Intel architecture-based servers wherever possible for cost reasons, we also want a flexible environment where we can provide the optimal infrastructure for every application,” Steel says.

Build Private Cloud with Capacity for Thousands of Virtual Machines
The company decided to configure the Windows portion of this data center as a private cloud, in which virtualized servers and storage are pooled as a single configurable IT “fabric” that can be dynamically allocated and reconfigured on the fly. This strategy coincided perfectly with the launch of Windows Server 2012, which deeply impressed the Telefónica IT staff. “Hyper-V technology in Windows Server 2012 is every bit as capable as VMware and for Telefónica more cost-effective,” Steel says.

Telefónica engaged with Microsoft Services Enterprise Strategy to design the private cloud architecture and proof of concept and also lay out the migration criteria. It then engaged Microsoft Services Consulting to help build the private cloud and outline an expansion plan. Microsoft and Telefónica used Microsoft System Center 2012 to create virtual machines, perform physical-to-virtual (P2V) and virtual-to-virtual (V2V) workload migrations, monitor the servers and workloads, and optimize performance.

Today, the Telefónica private cloud is in its infancy, but it will eventually contain up to 10,000 virtual machines. Using Windows Server 2012 and HP ProLiant servers, Telefónica plans to consolidate 18,000 physical servers to about 6,000 physical servers.

The first step in consolidating servers is to determine if an application can be moved to the Madrid data center or needs to stay in-country for latency reasons. If it can be moved to Madrid, it is virtualized using a straight P2V strategy. For example, if an application currently requires three physical servers, those three servers will be converted to virtual machines. If the application needs to stay in-country, it will still be virtualized. Telefónica expects to relocate 80 percent of its applications to the Madrid data center. Once all the servers are virtualized in Madrid, Telefónica will launch a consolidation program to eliminate duplication and optimize various environments, such as creating a large database server farm from dozens of standalone servers. It will also look at where it can take expensive proprietary software, such as Oracle, and run those workloads on less expensive Microsoft software, such as Microsoft SQL Server 2012 database software.

Approximately 40 percent of the massive Madrid data center will consist of Windows-based servers running some of the company’s biggest workloads—SAP and the company’s collaboration services—in addition to the Telefónica public website, its intranet, all file and print servers, and critical middleware applications. Other virtualized applications include Microsoft Lync Server 2013 and Microsoft SharePoint Server 2013. The remaining 60 percent of the data center will contain Sun Solaris, IBM, and open source systems that run the company’s telephony applications.

Augment Private Cloud with Public Cloud
Telefónica also plans to make use of public cloud services—specifically Windows Azure—in its new IT infrastructure delivery model. Windows Azure is the Microsoft cloud services development, hosting, and management environment. By 2016, Telefónica plans to have 80 percent of its infrastructure running in either a private or public cloud and only 20 percent running on-premises on standalone servers. “Telefónica sees cloud computing as enabling greater agility,” Steel says. “A hybrid-cloud approach enables us to deliver faster response to new service requests; we’re no longer dependent on server acquisition and provisioning processes and costs.”

* [Our Microsoft-based private cloud] gives us the flexibility to move virtual machines around the globe quite easily. I’ve never had that capability before, ever. *

Adrian Steel
Global Head of Infrastructure, Telefónica

Steel applauds the seamless public-private cloud computing experience. “We’re quite impressed with the linkage between the on-premises Windows Server 2012 environment and the Windows Azure environment,” he says. “This cloud connectivity even extends to the desktop, with Windows 8 and Microsoft Office 365.” The Windows 8 operating system makes it easy to store documents with SkyDrive Pro cloud storage, and Microsoft Office 365 unites familiar Microsoft Office applications with the power of Microsoft productivity servers into one connected, online solution. In March 2013, Telefónica signed a deal to move 80 percent of its European employees (70,000) to Office 365.

“Microsoft has made it easy to consume cloud-based services in a pain-free way,” Steel says. “It’s very attractive to be able to spin up virtual machines on-premises to get a service to market quickly and then move that application to Windows Azure if it better serves the business to do so. Where it runs becomes a simple cost calculation. The business doesn’t know or care where applications are running—a hybrid-cloud strategy gives IT far greater flexibility.”

Telefónica has the Microsoft Enrollment for Core Infrastructure license, which facilitates the hybrid-cloud strategy by eliminating expensive additional software costs. Microsoft licensing stays the same for the company, even when it moves servers from one data center to another or moves them from a data center to the Windows Azure cloud.

By creating an IT strategy that relies on both private and public cloud computing using Microsoft software and cloud services, Telefónica expects to reduce IT costs by 15 percent, deliver IT services to the business in days instead of months, and bolster data center reliability.

Reduce IT Costs by 15 Percent
Telefónica expects to reduce IT costs by 15 percent with its private cloud model. This includes software licensing efficiencies, replacing more expensive Linux-based hardware with Windows-based servers, reduced data center real estate costs, data center power and cooling, and IT management costs. “By using a Microsoft hybrid-cloud strategy, we’re going to reduce our physical server footprint by 66 percent,” Steel says. “The power and manageability savings of such a reduction is huge. By reducing our IT spend by 15 percent through the use of Microsoft cloud software and services, we free up money to spend on creating new innovative services to make the business more competitive,” says Steel.

Increase Business Agility
Whereas it now takes up to 20 weeks to deliver resources using physical servers, it will take Telefónica less than a week to deliver a server to the business when its private cloud environment is fully operational. “The delivery speedup made possible by Microsoft private cloud software is an incredible benefit for the business,” Steel says. “This kind of velocity enables us to take a completely different approach with our business users. With a private cloud environment, we can deliver a ‘try before you buy’ service. We can present a new service, such as Microsoft Lync Server to one of our companies and let them try it for a week. This is easy with a private cloud, because we can create the necessary virtual machines in minutes, deploy the software quickly, and get their users operational in a day. Business users’ reaction is, ‘Wow. That was fast. We love it.’ And if they don’t love it, we can tear down the environment in minutes and return those resources to the private cloud pool, where they can be used for other projects.”

Private cloud computing has already sped up Telefónica’s responses to business needs and, further, enabled IT to lead the business in how it can use technology to work smarter. “Once our data center operations are fully automated, our team will have more time to come up with new ideas to present to the business,” Steel says. “They’re not battling with ‘keeping the lights on;’ they are liberated from that drudge work to investigate great ideas that drive the business forward.”

Steel further says that the Telefónica shared services IT division and Microsoft share the same vision for corporate computing. “Telefónica is firmly committed to hybrid cloud,” he says. “Our strategy is neither all private nor all public. What we love about using Hyper-V in our private cloud is that it gives us complete flexibility to mesh with and ultimately move into Windows Azure when we need it. So our strategy is very, very attuned to Microsoft.”

Improve Availability and Flexibility
Telefónica’s new Tier 4 data center teems with hardware-level reliability improvements, such as redundant power supplies and cooling equipment. But these features are matched by reliability improvements in Windows Server 2012, such as live migration and Hyper-V Replica, which give Telefónica unprecedented levels of resilience at the hypervisor layer.

“VMware previously had an edge over Hyper-V in reliability, but Windows Server 2012 Hyper-V live migration is an absolutely credible alternative,” Steel says. “When we add that layer to our Madrid data center, we will have resiliency and redundancy through the whole infrastructure. Imagine the benefits of having about 18,000 virtual machines running in the same fabric, with about 75 to 80 percent server utilization. We’ll be able to live-migrate workloads from Madrid to the UK or from our private cloud to the public cloud. It gives us the flexibility to move virtual machines around the globe quite easily. I’ve never had that capability before, ever. The physical infrastructure becomes largely irrelevant, and this frees the business to run its IT services wherever it makes the most sense.”

Windows Server 2012
Windows Server drives many of the world’s largest data centers, empowers small businesses around the world, and delivers value to organizations of all sizes in between. Building on this legacy, Windows Server 2012 redefines the category, delivering hundreds of new features and enhancements that span virtualization, networking, storage, user experience, cloud computing, automation, and more. Simply put, Windows Server 2012 helps you transform your IT operations to reduce costs and deliver a whole new level of business value.

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For More Information
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Solution Overview

Organization Size: 286000 employees

Organization Profile

Telefónica, S.A. is a Spanish broadband and telecommunications provider that serves more than 315 million customers across Europe, the United States, and Latin America.

Business Situation

Telefónica wanted to reduce server sprawl to trim costs, but it also wanted a more flexible way to deliver IT services to the business—and to make those services always available.


Telefónica is adopting a hybrid-cloud strategy whereby it runs some applications in an efficient on-premises private cloud based on Windows Server 2012 and others in the Windows Azure public cloud.


  • Reduce IT costs by 15 percent
  • Increase business agility
  • Improve availability and flexibility

  • HP ProLiant servers

Software and Services
  • Windows Server 2012 Datacenter
  • Microsoft Hyper-V
  • Microsoft Azure
  • Microsoft System Center 2012
  • Microsoft Consulting Services
  • Microsoft Enterprise Strategy Services
  • Datacenter

Vertical Industries
Communications and Network Service Providers


Business Need
  • Cloud & Server Platform
  • Cost Containment

IT Issue
Private Cloud