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:
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:
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:
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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