Network Outsourcing

As opposed to the times when operators made the network the fulcrum of their business strategy, recent times have seen a number of end-to-end network outsourcing contracts being signed.

While network outsourcing has been practiced for years, it has always been in pockets, and operators have usually worked with multiple providers to offset risks. Never had operators signed all encompassing deals to a single service provider who would not only manage other providers but also maintain, upgrade and expand the network, and develop applications for end customers.

Outsourcing of core network activity is here to stay, and will increasingly be used by telecom network operators, according to a new report by U.K.-based Analysys Research. The report estimates that the European market for technology and customer-related outsourcing services, which was at $7.6 billion in 2005, is expected to rise to $10 billion by 2010.

Operators can save substantial operating costs as well. According to the Analysys Report, Telefort in Netherlands, which has outsourced network design and maintenance to Ericsson, achieved an immediate 20% savings on its network management. Similarly, Priority Telecom in U.K., which has outsourced off-hours network monitoring to Lucent, is estimated to have reduced operational costs by 50% compared to its in-house capabilities.

“Faced with falling equipment revenue, equipment service providers are increasingly getting dependent on services revenues, and are positioning themselves as network operators for telecom companies — an attractive outsourcing proposition for smaller telecom operators which do not have access to resources, expertise and scale,” says Simon Sherrington, the lead author of the report and an Associate with Analysys Research.

This has given rise to service providers moving toward creating regional pools of expertise to attract more prospects. For instance, Ericsson seems to be gaining ground in the Western European market with an end-to-end IT and network-management deal signed with 3 UK, network manager of 3G and applications with 3 Italy. More recently, Ericsson signed another deal with Vodafone, Netherlands to manage its entire network.

These deals have given Ericsson tremendous scale and expertise on which smaller operators can leverage. Ericsson’s current managed-services contracts account for about 53 million subscribers.

Similarly, Nokia is positioning itself strongly in the Asia Pacific (APAC) market with its recent end-to-end deal with Hutchison Essar in India for network planning, optimization, operations, maintenance and administration of third-party contracts for network operations. Nokia is now leveraging its economies of scale by setting up its Network Operating Center (NOC) in Chennai, in South India to offer managed services to customers in the APAC region, Europe, Middle East and Africa.

India is emerging as a global hub for network operations for Ericsson, too. In 2004, Ericsson won a $400 million network-outsourcing deal from Bharti, one of India’s largest telecom provider, to manage some circles of its mobile network. Faced with increasing domestic competition, and the need to curb capex in an expanding market, Bharti signed a landmark deal in 2004 handing over its mobile network management to Nokia, Ericsson, Siemens and Motorola.

Global service providers that were focused on providing solutions to enterprises are now eyeing telecom companies. For instance, the recent Sprint-HCL deal that requires HCL to provide network-monitoring services may be small in size, but it is indicative of a trend that is likely to see the ingression of these players into the telecom equipment provider stronghold. “The Sprint relationship is just the beginning, as it allows us to gain a foothold into the network-management space of the operator,” says HCL Technologies’ Shanker. “The key is to expand the relationship with Sprint and provide larger benefits that will accrue with consolidated outsourcing.”

Earlier IT-service players participated in the network-management space as subcontractors to manage NOC, switches, etc., but increasingly IT-service players, especially global service providers, are seen to be competing with primary service providers.

Outsourcing OSS-BSS

While Western Europe, India and New Zealand have been aggressively outsourcing end-to-end core network operations, there has virtually been no such deal in the U.S.A. The U.S. market is dominated by large carriers like AT&T, Verizon, Sprint, Cingular and Qwest, which have established networks and already achieved internal efficiencies.

— Aditya Jayaraman, Head, Telecom Practice, TCS, North America

“Consolidation brings together a number of different platforms – homegrown and off the shelf products – which the operator has to run seamlessly as a single system.”

However, U.S. operators have been aggressive when it comes to outsourcing Operations Support Systems-Business Support Systems (OSS-BSS) operations. This is because operators have a lot of homegrown applications, as historically, Commercially Off The Shelf (COTS) products were not available, and telcom operators had to build their own systems. “These systems have not entirely been replaced, and require a lot of maintenance, upgrades and patches to make them work with new systems and with other systems as they get in the consolidation mode,” says Aditya Jayaraman, Head, Telecom Practice, TCS, North America.

This is a healthy market. The total OSS-BSS revenues from products and services passed $44 billion globally in 2002, according to a report by Dittberner Associates, a Maryland-based telecom research and consulting firm. The report points out that the market will grow at an annual rate of one percent, but increasing to an average of approximately five percent over the next six years. The period of 2005–2008 is expected to be driven particularly by OSS-BSS for wireless and broadband services, at a growth rate of eight percent.