Outsourcing for telcos

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Vendors and operators are increasingly entering managed services agreements as new entrants look for expertise and a quick time-to-market, while established telcos try to stay ahead of rivals. Informa's recent conference focused on the issues facing this growing segment of the market.

"It started being driven by vendors because they wanted to sell more, as any vendor would do - but operators are starting to realise the need for it," says Labib Matta, senior advisor at neXgen Advisory Group.

Matta is, of course, referring to managed services, a growing concept in the global telecoms scene. CommsMEA attended Informa's recent conference in Dubai to learn about how managed services can work for developing market operators.

In its purest form, managed services are outsourcing. On the flip side, there are many new entrants - several without traditional telecoms experience - who lack the funds to start up and desperately require the resources and expertise of a partner. These two types of operators require a very different approach from a managed services strategy.

"For the success of new entrants, it's extremely critical to have a managed services strategy, whereby it takes them away from pure competition on access, which is normally controlled by the incumbent and is still subject to a lot of the regulatory deadlines and challenges, to a more independent model providing value-added services on top of a telecom infrastructure that allows them to make money, differentiate and generate revenue," Matta says.

Partnering with a vendor will allow new entrants to acquire the key skills and understanding of technical operations. Vendors have the technological experience, and can then pass this on to their partner through training seminars.

For the existing operator that might be reluctant to share its revenues, the new competition threatens to destabilise its margins and it therefore needs to counter what the new entrants are doing. "They've been pretty happy with the access-only revenue. They will give you a connection fee for internet and telephone, but they are not looking more than that simply because they didn't feel the need," Matta says.

"But with competition coming, that need is happening, especially when you have new entrants focusing on value-added services when the existing incumbent is trying to watch and counter," Matta says.

A vendor's perspective

With a managed service partner, operators can outsource many of their processes, including service parts management, operations in the field, front and back office, call centre and billing centre.

But a managed services strategy now encompasses many of these elements and services, working with a partner to operate their entire network in some cases.

"Initially, when a vendor was able to provide any one of these services by themselves, there were never a lot of economies of scale or synergies," says Leroy Blimegger, VP, global technical services, Huawei.

"But if you take each of these individual tasks and put them together and start looking at overall network operations, this is the next generation of managed services."

The three step mantra in vendor operations, Establish-Operate-Transfer (EOT), holds true in many cases. But operators now aren't looking to wrest back control of their network and services from the vendor. The ‘Transfer' part of the strategy can be omitted entirely.

"In the three years we've been doing managed services, we've not come to the point where we've done the 'T' part," Blimegger explains.

"I imagine that most of the operators are going to find that they won't ever do the 'T' part; the concern for the vendors is that this will only exist if they don't do their jobs well. But the operations will not be transferred back to the operator, they'll just be transferred to a different managed services provider."

Another factor to consider is the lifespan of the agreement; in the formative years, a new entrant might be working with a limited customer base, numbering 100,000 or so. A managed services path might see their subscriber numbers jump to several million after three or four years.

This means that the partnership must adapt to the circumstances, and to an operator, it is more advantageous to have a managed services model in the later years. To get around this problem, some vendors, like Ericsson, have tried to think about a 'managed capacity' model.

Blimegger adds: "We started thinking about managed capacity model, where you pay as you grow. In the earlier phases of the network, where there's low traffic, few customer complaints and very little field maintenance, you end up being able to pay much less for your operations and the vendors should recognise that."

"I know Ericsson tried several years ago to implement a managed capacity model and there were a lot of lawsuits and losses. Huawei is trying to learn from those mistakes and do it even better."

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