Will Outsourcing of Managed Services and Network Maintenance Make Telecoms More Competitive?

Introduction:

Managed services and outsourcing of wireless and wireline network operations has become an emerging trend in the global telecom industry.  Here are a few examples:

  • Last year, Embarq outsourced its Network Operation Centers (NOCs) to Nokia Siemens Networks (NSN).
  • In a blockbuster deal announced a few months ago, Sprint announced it will pay Ericsson as much as $5 billion over seven years to manage its CDMA and iDEN wireless networks as well as its fixed-line network.
  • Alcatel-Lucent has joint ventures with Indian operators Reliance and Airtel for mobile and fixed networks, respectively.
  • Light Reading stated this week that Huawei has made significant strides in its managed services provisions in India. The Financial Times reports that BT will outsource the upkeep of its local phone network to a joint venture of Carillion and Telent, in a £1bn deal expected to be agreed in the next two months.
  • WiMAX rural operator Open Range today announced an agreement with IP backhaul vendor Harris Stratex to run its NOCs for five years.

Rajeev Suri, Director of NSN’s managed services business unit says the global managed services is a $277 billion market.  Which carrier will be next to outsource its operations? Will that make them more competitive and profitable? And how much new managed services business will traditional network equipment vendors get?  We focus our attention on the new managed network players in this article.

The new kids on the Managed Network block:

1.  Huawei had reported over 45 managed services contracts at the end of 2008 with an increase in sales of managed services of 67 percent for 2008. A Huawei spokesman told Light Reading, "Ericsson is the market leader in managed services, and we are playing catchup. But we are catching up very fast. By the end of this year we should bridge the gap between second and third." Certainly a bold claim, but Huawei has made significant strides in its managed services provisions in India, according to the spokesman. These include the creation of a Network Operating Center just outside Delhi that is engaged with Bharti Airtel Ltd., Reliance Communications Ltd., Tata Teleservices Ltd., and Vodafone Essar, as well as newer operators, to manage elements of their networks. Huawei also shares a contract with Alcatel-Lucent for the design, deployment, and management of Unitech Wireless’s GSM network. The spokesman believes that what happens in India in managed services is symptomatic of what’s happening in the rest of the world and is confident that Huawei will catch up quickly in managed services, just as it did with the infrastructure product market. For more on Huawei’s forray into managed services please see:

Huawei Plays Managed Service Catchup

 

 

2. The FT states that the Carillion and Telent joint venture has signed a letter of intent with BT Openreach, the subsidiary responsible for maintenance of the copper wires that run from local phone exchanges to homes and small business. The contract is yet another example of telcos outsourcing their non-core businesses to trim cash in the face of the recession.

Ian Livingston, BT’s chief executive, is trying to revive the company’s fortunes through cost-cutting. He faces the prospect of an expected fall in revenue in 2009-10. For more on this breaking story, please see:

BT outsources upkeep of local network

 

 

3. Open Range Communications- a U.S. rural WiMAX network operator-  is the first WiMAX provider to turn over its network operations management to another company.  Harris Stratex, which won this managed services contract, hopes to do similar deals with other small network operators in hopes of becoming a miniature version of its Tier I vendor counterparts (e.g. Ericsson and Nokia Siemens Networks).

Open Range plans to build WiMAX networks, using Alvarion equipment, in 546 rural markets covering six million people in 17 states. It’s also partnering with Globalstar to use its satellite spectrum to create a hybrid WiMAX-satellite broadband service. While Open Range has more resources than most, the managed services contract with Harris Stratex will free the company to focus first on its deployment and then on new services over WiMAX.

Harris Stratex Vice President of Global Services Keith Donahue makes a big distinction between managed services (which is what it’s pursuing) and outsourcing of network operations (which involves taking over a carrier’s entire networking operations).  "We have neither the scale nor the balance sheet to do that, but we have the resources to manage the network infrastructure for smaller operators," Donahue said.

The small network operator market is a particularly ripe one, according to Donahue.  He says that many Tier 3 or rural operators don’t have the resources to run their own NOCs, instead relying on their vendors to monitor their components in the network as part of ongoing maintenance and service contracts.  He believes only the large network operators have the finances and scales to build and run their own NOCs. "The majority of carriers never make the investment in a network operations center," Donahue said. "They treat every vendor’s equipment as discreet domains. Harris Stratex is offering them something those operators have never had- a centralized and integrated network management and operations solution."

Harris Stratex claims to have one advantage over the larger network equipment vendors when it comes down to head-to-head competition for smaller managed services contracts.  The company has its own network management platform- NetBoss XT- which it has sold to global network operators for more than a decade.  Harris Stratex can leverage this technology in its pursuit of managed services deals.   In sharp contrast, the big boys on the block- Ericsson and NSN have to get their platforms from IBM and HP. 

For more on this breaking story, please see:

Harris Stratex takes on Network Management

Conclusions:

While we see managed services as a very strong trend, we are very skeptical that traditional network equipment vendors can do a better job – at lower cost- then either fixed line or mobile network operators.  For example, Ericsson will be managing operations for SPRINT’s CDMA and IDEN cellular networks, but it has no experience with those technologies (Ericsson is primarily a GSM wireless infrastructure equipment vendor that provides both access and backhaul network elements).  So what qualifies them to take over SPRINTs cellular networks?

But the newer, greenfield operators that don’t have any experience in managing networks or operations might be better off by outsourcing network operations and/or managed services/ NOCs.

What’s your opinion?  Do you think Clearwire would do well by outsourcing its network maintenance and management services to another vendor?

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 Comment from Robert Syputa of Maravedis on The shift to managed networks:
                              
"There is no question that there is an accelerated shift to managed networks. What is meant by these terms: ‘Cloud Computing’, software and business methods virtualization incorporated into Enterprise 2.0-3.0? It is the leveraging of the new IP communications networks across wireless and wired transport media. The only way that leverage can take place is with the involvement of IT which is on a path that is being incorporated into the evolution of wireless networks." 

 

Please post your comments in the box below. 

 

 

 

 

 

 

 

0 thoughts on “Will Outsourcing of Managed Services and Network Maintenance Make Telecoms More Competitive?

  1. I suspect these new entrants will have a difficult time with the Tier 3s and 4s. There are already well established entities like NeoNova, NRTC, Visionet and others who are trusted and provide competitive outsourcing services for portions of a telco’s network. Given the rural nature of the Tier 3s and 4s, it unlikely that outside entities from larger markets could be competitive with the efficient and versatile technical workforce employed by the independent telcos.

  2. 1. In response to Ken’s comment, my concluding remarks referred to greenfield carriers that do not have any full network built yet. Clearwire is the best example in the U.S. I was not referring to the independent/ rural telcos that Ken refers to as Tier 3s and 4s. Nonetheless, rural telco Open Range did hand over NOC management to Harris Stratex.

    2. What was most surprising to me in the article above, was that Carillion and Telent joint venture (an unknown entity) will be taking over BT’s local phone line network maintenance and management. Frankly, I can’t understand how that could help BT be more competitive. Will the cost savings of that outsourcing deal compensate for a potential degradation of local loop service, due to an inexperienced entity managing the local phone network?

  3. The outsourcing of network started over 5 years ago and is now well understood. However, as demand for more and more complex VAS grows, operators need to look at how they manage their VAS. Some leading operators have outsourced management of their VAS and this will most likely prove a trend-setting move. VAS are critical to improving profits (as they tend to be high margin) and operators need to devote more resource to understanding/managing their customers (i.e. on marketing) rather than on managing VAS providers. Many operators have over 30 VAS providers and even more VAS services. Its highly time/resource consuming managing the services and the service providers.

    Recently, Bharti Airtel signed a managed services deal with Comviva, making it the first telco in the world to have a managed services agreement for all its value-added services portfolio.

    As part of the three-year deal, Comviva will manage more than 2,000 of Airtel’s VAS nodes across India from various partners, to meet defined service level agreements.

  4. Follow up from TMCnet

    More Telcos Turn to Vendors for Managed Services

    By Anuradha Shukla
    —————————————————-
    A recently released report indicates an increase in the need among both fixed and mobile network operators to lower operating expenses in a bid to build new revenue streams through managed services outsourcing.

    Simon Sherrington, research analyst for the latest report says operators are driven to find fresh ways to cut business costs especially in what he refers to as the “hyper competitive, slowing markets.”

    Only a few years ago, operators thought it was risky to use telecom managed services for anything except back-office IT systems. However, the trend has changed now and these services are being used by all operator types, in all regions of the world, and practically all network functions.

    Sherrington emphasized that this trend will give rise to service providers that own all or most of their infrastructure but transfer operation of that infrastructure to one or more third parties.

    Other key findings of the report show that the use of managed services has become a mainstream strategy for telecom network operators and those not having a managed services strategy must reevaluate their position to avoid being left behind by their competitors.

    http://hosted-voip.tmcnet.com/feature/articles/62612-more-telcos-turn-vendors-managed-services.htm

    What’s this all about?

    The telecom outsourcing market generally includes network implementation and maintenance, system integration and managed services and consulting. In order to minimise costs, carriers try to concentrate on developing new services and implementing a service-oriented model and marketing strategy.

    Managed service functions include the planning, optimisation and development of networks, end-user applications and business support systems. One part of technology integration includes the implementation of network services and carrying out day-to-day operations and maintenance of networks, services and support systems.

  5. The long-term plan for operators (and infrastructure providers) would be to invest in newer self-managing, self-healing, self-organising networks based on open standards. When you open up a highly complex but largely proprietary domain like OAM to open standards, it loses its niche and with time becomes more competitive. The operators stand a better chance of getting the best deal, so to speak, rather than having to hire and train an army of dedicated personnel to manage proprietary OAM infrastructure. Networks are becoming increasingly complex and difficult to manage. This is where standardisation and resultant outsourcing come in.

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