Win-win relationship

10 May 2006

Outsourcing of the network and services is bringing vendors and operators closer together, but how far should they take the relationship‾

The relationship between vendor and operator in the telco world has always been a close one. While there is the occasional spat, mostly the two get on comfortably and are mutually supportive, with outside relationships generally accepted. In other words, it's been a fairly open relationship.

Today, however, it seems the two friends are maturing and in some cases ready to take the next step. It's not quite a marriage, but increasingly telco and vendor are both willing to take the relationship further by entering into network outsourcing agreements. While some partners might question why they didn't do this sooner (it's not a new idea, after all), like all close relationships there's the potential for things to go horribly wrong. You just have to look at outsourcing in the IT world for evidence of that.

Growing up

Metaphors of marriage aside, there's little doubt that outsourcing in the telco world is picking up after years of promise, spurred on by falling equipment revenue on the vendor side and a more complex network environment on the operator side. 'It really is kicking off,' said Jean-Charles Doineau, services infrastructure practice leader at Ovum. He points to approximately $2.5 billion of contracts last year, although that amount is spread out over multi-year agreements.

Those contracts are coming from all parts of the world, according to Stefan Jelvin, director of strategic marketing for Ericsson's global services business. 'There is a lot more pull than push compared to a few years ago,' he notes. Ericsson's current managed services contracts account for some 53 million subscribers - a figure he says would put it among the top ten mobile carriers worldwide if it were a single operation.

According to a new report on outsourcing from Analysys Research, the market for network and customer-service outsourcing will grow rapidly over the next five years. It predicts the outsourcing of end-to-end network operations and management will be one of the fastest growing segments, with annual growth of 14%.

In fact, Analysys warns that operators need to urgently review their outsourcing strategies if they are to remain competitive. 'Outsourcing has become an important weapon in a telecom operator's strategic arsenal,' said analyst and outsourcing report author Simon Sherrington. 'An effective and well-managed outsourcing scheme can deliver flexibility, reduce time to market for new services and help to deliver profit growth for shareholders,' he added.

While there is no flat-out opposition to outsourcing, there are contrarian voices that urge caution. Keith Willetts, chairman and CEO of the TeleManagement Forum (TMF), notes that outsourcing is happening, but he questions whether a vendor would be any better at running the network. 'I'm not sure a competency in making the stuff qualifies you to operate and manage the technology - it's a completely different set of capabilities - especially if you are promising to do it faster, cheaper and better.'

Willets points to IT outsourcing contracts that have come back in-house over a period of time and warns that this should be a signal to proceed cautiously. 'I wonder if five years from now we don't end up with all these equipment vendors wondering why they've taken on this business and a lot of the operators saying we get dreadful service from these guys,' he said.

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