How to Avoid the Telco Tar Pit

May 11, 2010

Over the past several years, network outsourcing has become a strategic priority for more and more operators.

Rather than manage their networks themselves, operators are focusing their energies on  marketing, customer service and product development, all of which require increased management attention in today’s market.

According to Pyramid’s report  Telecom Managed Services: Network Outsourcing Enters Its Third Phase, this development has resulted in major network suppliers capturing billions of dollars in outsourcing business in just a few years.

In emerging markets, the driving force behind outsourcing decisions generally remains cost savings.  In developed markets, however, interviews we conducted suggest that other forces could be at play. We believe that developed-market operators may now be heading into yet another stage — what we call the “third phase” of outsourcing. Two different, yet complementary trends are expected to drive outsourcing decisions in the future:

• Network sharing. Operators are saving large amounts on opex and capex by teaming with erstwhile competitors to share sites and even radio access network infrastructure components.
• Over-the-top applications. Given the massive explosion in applications like social networking that ride over networks and bypass operators almost entirely, there is a new urgency for operators to reinsert themselves into the value chain in order to avoid becoming so-called dumb pipes.

Both of these trends are leading operators to turn to their vendor partners for support. In late 2008, for example, Ericsson signed a four-year contract in the UK with MBNL and T-Mobile. Under the contract terms, Ericsson will manage MBNL’s 3G network and T-Mobile’s 2G network and the combination of the two networks, a process that will involve reconfiguring network equipment and decommissioning some 5,000 sites. Cost savings are estimated at £2bn ($3bn) over 10 years.

Where will this third phase of network outsourcing lead? We believe it likely spells the end of the operator of the past — one with full control over all network functions, monopolist-style attitudes toward customer service and slow delivery of new services.

— Elizabeth Bramson-Boudreau, Analyst at large

Related content:

Telecom Managed Services: Network Outsourcing Enters Its Third Phase
Research Report
This report analyzes the three phases in the development of the network outsourcing market, providing the drivers for the industry’s evolution into its third phase. By analyzing the experience of three operators from a combination of developed and emerging markets (E-Plus, BASE and Bharti), this report assesses the impact that network outsourcing has had on performance of telecom operators, both from a financial as well as a competitive point of view. To uncover trends in network outsourcing, Pyramid Research examined all telecom managed services deals announced since 2002 by the top three suppliers, Alcatel-Lucent, Ericsson and NSN — in total 191 contracts. The report concludes by analyzing these three network outsourcing players separately.

Telecom Managed Services: The Rise of the Hollow Operator
Heavy Reading Insider
This report presents an in-depth analysis of the current state of the telecom managed services sector. It maps the functions that network operators are turning over to third parties and analyzes the very broad range of companies offering telecom managed services to fixed and mobile network operators, looking at how their portfolios differ. The report investigates future prospects for the market, and provides profiles of 18 leading providers of telecom managed services.

How Services Are Transforming the Network Ecosystem: Global Market Analysis and Forecast, 2008-2013
Research Report
This report examines the worldwide market for network consulting, network implementation, network product support and managed network services as well as associated expenditures from 2007 through 2013. It presents market sizing and a five-year forecast for four discrete service activities, and includes global segmentation by region, vertical industry and organizational size. In addition, this report discusses in detail factors such as network technologies, geopolitics, macroeconomics, customer demand and industry competition that continue to shape and influence the global marketplace for end-to-end network services. It also examines the most common organizational challenges facing network services providers (NSPs) through the remainder of this decade and into the next, and outlines how a successful NSP can help clients navigate around these challenges.

Mobile Infrastructure: Keep, Share, Outsource? Operators Ask, Vendors Act
Heavy Reading Mobile Networks Insider
This report analyzes the evolving market for infrastructure sharing, while addressing the growing interest in outsourcing. It focuses on the various types of sharing — RAN, core network, roaming, and spectrum — as well as network managed services and full network outsourcing. It examines the opportunities and challenges of sharing and outsourcing for operators and vendors alike, and covers some of the primary technical and regulatory issues. The report also profiles 11 companies, exploring explores their strategies for sharing and outsourcing.