Outsourcing is a logical outcome of the competitive pressures that the telecom industry has been facing over the years. Rapidly declining revenues, rising operating costs, disruptive technologies such as Voice over Internet Protocol (VoIP), coupled by upstart competitors and consumer demand for more differentiated services have been breeding ground for outsourcing.

Fixed-line telephony services are rapidly declining as operators pitch against mobile services. Mobile services, on the other hand, have reached a saturation point in many developed markets, and operators are having to tap new revenue streams. The arrival of 3G-based services have put an additional pressure on mobile operators to launch new products and services.

“These players play a disruptive role in the market and make service providers review their existing business models,” says Bhowani Shanker, Head, Telecom Software Business, HCL.

Yet another challenge for telecom operators has emerged from a very unlikely front — IT product and services companies with a corporate customer base have started competing with network providers for all encompassing technology solutions. These include IT equipment, integration, hosting, management services and telecom solutions. Some telecom providers have responded to this challenge by developing systems integration and IT services competencies or by forming partnerships with IT firms.

Telecom operators are under tremendous pressure to hold on to their customer base by providing enhanced customer experience. There has been a complete make-over in the traditional thinking when the only go-to-market strategy was the network.

Operators have to keep pace with emerging technologies and changing market dynamics, yet, run lean organizations. Outsourcing provides an attractive alternative to manage these challenges while still being able to deliver shareholder value.

The big question is to find the right balance of how much to outsource — after all there is a huge base of knowledge and in-house competency. How can operators offset risks in end-to-end outsourcing, and yet, free their management bandwidth to focus entirely on service delivery? Does increased outsourcing enable operators to reap forecasted benefits or does it lead to loss of control and underperformance?

Naturally, there is no one size fits all approach to telecom outsourcing. Each operator has to evaluate its business environment and decide on the extent of outsourcing required. Different geographies have different imperatives just as different category players operate under different market pressures.

— Simon Sherrington, Associate, Analysys Research

“Faced with falling equipment revenue, service providers are positioning themselves as network operators for telecom companies.”

However, there is no doubt that there have been significant outsourcing activities in this sector in the recent past, and a review of the market activity shows some broad outsourcing trends.