Service Providers: Ascending the Managed Services Value Chain

13 Jul 2009

By Stephen Makayi, Eric Hui

Over the last ten years, and especially the last five or so, the service provider landscape has faced unparalleled disruptions that have broken down traditional industry structures and boundaries. Market disruptions have primarily been driven by step-change evolutions in communications technology, which have in turn been catalysts for re-shaping the fundamental dynamics of the communications industry. Disruptive trends such as service oriented architecture (SOA), Web services (Web 2.0), and virtualization have in turn facilitated new business and service delivery models like software-as-a-service (SaaS), platform-as-a-service (PaaS), managed services, and now cloud computing.

These disruptive trends have allowed providers from largely different technology domains and heritages to compete in the same space and future - integrated managed service offerings for next-generation customers. As network service providers, systems integrators, data center-centric providers, and over-the-top providers all jostle for position and relevance, learn about adjacent markets, consider partnerships and/or acquisitions to extend their offers, and look to create differentiated options in this new turbulent landscape, the sum total of their activities can be aptly described as a "new era of promiscuity for service providers".

Service Provider ChallengesThe collective impact of these disruptive trends and resulting market dynamics on Service Providers can be summarized in five main strategic challenges:

"¢ How do they protect existing revenues (revenue protection)‾
"¢ How do they generate new revenue streams (revenue augmentation)‾
"¢ How do they increase asset utilization at a lower cost/per unit (cost-base reduction)‾
"¢ How do they differentiate their offerings in the marketplace (market relevance)‾
"¢ How do they execute service delivery most effectively (operational excellence)‾

These challenges are compounded by the current US led global slowdown that is anticipated to last through 2010. Gartner forecasts a worst-case scenario of global business IT budgets declining by up to 2.5% in 2009, an estimate that appears conservative based on current US and global macroeconomic trends. For business customers the limited prospects for growth and the high cost of capital provide them with incentives to turn to managed services as a means of limiting capital investments and gaining greater flexibility of IT infrastructure. This is particularly true of small-to-medium businesses (SMB) that need lower flexible cost structures to stay afloat, making them opportune for targeted managed services.

In addressing the challenges presented, the first-order question for service provides becomes what should be the minimum step they need to take in order to remain relevant to, and compete effectively in, the managed service market space‾ Although TDM technologies and platforms have supported service providers and business customers well over a number of years they neither have the requisite processing, scalability, flexibility nor cost attractions to support the asymmetric and complex dictates of managed services requirements effectively.

Consequently, migration to an IP next-generation network remains the first-order building block for service providers to "

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