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Mobile Subscribers Yearwise comparision

A Logical Step: Network outsourcing helps operators focus on core businesses

December 31, 2012

Faced with intense competition, shrinking margins and increasing network complexities, telecom operators have redefined their “core” business operations. They have revised their strategies and realised that while managing network and IT infrastructure is critical for businesses, this can be outsourced to vendors and other specialists to achieve cost reductions and improved network operations. As a result, over the years, the managed services business has witnessed significant uptake by the Indian telecom industry. The segment has come a long way since the first managed service contract was signed between Bharti Airtel (then Bharti Televentures) and Ericsson in 2004. Today, service providers are focusing on end-user experience and looking at innovative delivery models. All existing operators have partnered with managed service providers. The launch of 3G and 4G has driven the demand for these services as operators have outsourced the roll-out and maintenance of their next-generation networks to vendors and specialists.

tele.net takes a look at the benefits of managed services for operators, key trends in the segment and the way forward…

The concept of managed services has been prevalent in the IT industry for several years. Though the telecom industry has been a late entrant in this domain, outsourcing of network building and management has offered several benefits for operators, given the rapidly changing technological environment. Telecom operators have started using these services strategically, which has helped them to increase their focus on core operations and finances. Over the past decade, operators’ acceptance of partnering with third parties for external expertise to manage their networks and IT infrastructure has opened new business opportunities for network equipment vendors, systems integrators, and applications and service specialists. Therefore, managed services have become an important part of the business portfolio of these entities.

Under the managed service model, the service provider offers or is engaged in the management of functions/services that were traditionally carried out internally by a telecom operator. Managed services can be divided into three basic categories – IT, hosting services, and network-related services. Initially, operators signed contracts for IT-related managed services, but then started outsourcing network and hosting-based managed services as well. The functions performed by service providers include planning, optimisation and development, which can be applied to networks, end-user applications and services, and business support systems (BSS). Managed services also involve technology integration and development of networks, services and business support systems. These may also include the management of day-to-day functions such as operation and maintenance (O&M) of networks, services and BSS, field services and customer management. In addition, managed service contracts can involve hosting, managing network capacity, spare parts management, security, and business consulting.

Rationale for outsourcing managed services

There are two key drivers for outsourcing network and related operations to a vendor. First, operators lack the expertise of network vendors and such contracts help the former leverage the technical proficiency of vendors while deploying and operating networks. Of late, the telecom sector has witnessed significant technological advancements and end-user demand for new service offerings, supported by next-generation networks. Users are looking for a more personalised, content-rich experience. The transition to next-generation networks, systems, devices and services is complex and expensive. This has driven operators to sign strategic managed service contracts for addressing reliability and security issues in IP-based networks.

Moreover, outsourcing network operations results in lower operational expenditure. According to estimates, this model has helped operators reduce their operational expenditure by 15-30 per cent, and improve their earnings before interest, taxes, depreciation and amortisation by 2-5 per cent. This also allows operators to focus on revenue generation. Employees working on the managed part of the network are usually transferred to the vendor. This provides opportunities to increase skill and knowledge levels.

Further, intense competition in the industry has made innovation a differentiator for operators, which is driving organisations to outsource network operations to specialists. Operators can bundle a managed service with access and connectivity to drive additional revenues, increase customer loyalty and reduce churn. By deploying technology through a managed service, businesses can avoid upfront capital investments, transfer any technology obsolescence risk to the managed service provider and minimise the recurring operational costs of maintaining a highly skilled operations team.

Managed service offerings

Managed service offerings are generally provided in a multi-vendor and multi-technology environment. The partnership between the operator and the managed service provider is generally governed by a service level agreement with key performance indicators.  Vendors offer services across four broad areas – operations, field maintenance, operational readiness, and shared solutions. For managed operations, a service provider takes the responsibility for the planning, design and construction of an operator’s telecom network and the BSS and operation support system. The service provider can also manage the day-to-day O&M of network operation centres and sites. Under the managed field maintenance functionality, the service provider manages field operations on behalf of the operator and maintains its sites in a particular region. The managed operational readiness service provider works with operators to build, upgrade or expand their networks for a limited period of time. Under the shared solutions functionality, the service provider generally uses its own third party-owned technology. The solutions could apply to an application, end-user service such as hosting, or a network.

The business models have evolved over the years with most telecom equipment vendors offering end-to-end support to operators. Leading network infrastructure vendors such as Ericsson, Nokia Siemens Networks (NSN), Huawei and Alcatel-Lucent have developed a service portfolio to offer such solutions to operators.  Companies such as Comviva are managing operators’ portfolio of value-added service (VAS) delivery to end-consumers by consolidating the VAS platforms. Core networking companies such as Cisco and Juniper have been providing services in the core or edge data network area.

Issues and challenges

Traditionally, a “network” has been a key enabler for operators and they have regarded it as the core functionality. However, with technology advancements, increasing network complexity and new service areas to focus on, outsourcing network operations has become a logical step. However, outsourcing involves a few challenges. One of the major issues is the loss of strategic control over networks. Also, an operator’s networks can be maintained by multiple vendors. The core network may be handled by one vendor while the radio network may be handled by another. For instance, Bharti Airtel’s networks are currently being managed by leading vendors such as NSN, Huawei and Ericsson. Since these vendors are business competitors, effective relationship management among the related parties becomes crucial. Moreover, increasing outsourcing would reduce operators’ ability to monitor supplier performance and manage network migration.

Managed service contracts often involve the movement of an operator’s personnel to help vendors in establishing networks. For instance, in 2004, the contract between Bharti Airtel and Ericsson involved the latter taking over close to 250 Bharti employees. This phase of human resource (HR) transition may also become an area of concern as the employees involved may no longer be on an operator’s payroll. Further, the operator and the vendor may have very different HR policies.

The way forward

The pressure on operators to optimise their costs while looking for new growth drivers has led them to revaluate and revamp their existing business models. Network outsourcing and managed services have helped operators in the past in reducing opex, increasing capex utilisation and in focusing on core growth areas. The launch of 3G and 4G applications has renewed the focus on the managed service business. These networks are extremely complex and pose management-related challenges for operators. By outsourcing these operations to specialist vendors, operators can now focus on meeting end-user demand and exploring new business avenues.

Key drivers

•Financial pressure – Improving bottom lines

•Operational efficiency – Network performance; economies of scale; and improved processes, tools and methods

•Need for competence – Convergence, technology shift and increased complexity

•Challenging business environment – Consolidation, new services, partner relations, increasing competition and price pressure

 
 

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