Operators are taking more managed services as they seek to provide new services, gain access to capacity outside their capabilities and support offerings such as content delivery networks, disaster recovery and business continuity.  By George Malim

Not so very long ago, the operator attitude was that everything it provided had to be owned and operated in-house. However, as access to capital has become constrained and operators need to launch innovative services that rely on skills outside their traditional base, there’s a new acceptance that taking services and systems from experts who can accelerate their time to market, limit capital expenditure and potentially save operational cost is a logical progression.

Brian Fitzpatrick, managing director of managed network services at BT Wholesale, has seen the shift. “A few years ago there were definite opportunities starting to present themselves but what was unthinkable a year ago is now under consideration,” he says.

“Companies are morphing in one direction or another and it’s not just traditional ISPs or companies like Sky that are moving in multiple directions simultaneously. There’s a willingness to look at what we’d define as network light as a consequence of financial pressures.”

And it’s not just the operator’s network that’s under the managed services spotlight. Operators are now more willing to outsource more of their management functions.

“Time to market, cost efficiency and available skilled resources have all become more important than maintaining total control,” says Jim Grady at Global Crossing.

“To start, most carriers are currently outsourcing some internal business function, whether it be IT, payroll, human resources or inside sales. These functions have varying levels of impact on the external customer, and as carriers have become more comfortable with outsourcing and its benefits, they will, like all enterprises, look for additional ways to outsource third party resources.”

Andrew Biddlecombe, senior product manager of managed services at ntl:Telewest Business, also identifies the change in attitude. “Application as a service and cloud computing are encouraging data centre growth and facilitate the inclusion of disaster recovery and business continuity services,” he says.

“Many of these types of services are not natural carrier deployments, meaning that partnerships make sense as they play to each side’s strengths and, for example, mean neither side is limited by audience size and together they can service any demand.”

“Service providers often wish to offer new and exciting services and applications,” adds Biddlecombe. “But are constrained by internal development cycles, availability of resources and a fast time to market requirement. White-labelling of services enables either a short-term resale fix or can be a longer term strategic choice to enable the service provider to focus on their core competencies.”

Grady agrees: “As a carrier business grows to add new services or capabilities demanded by the market, or potentially moves into new global markets, skilled resources become critical in addressing speed to market and cost containment.”

Vendors have embraced this shift in acceptance.

“Deployment needs to be very quick and the risk is outsourced to the supplier,” says Cedrik Neike, senior director of services sales for Europe at Cisco Systems. “Service providers don’t have the money to launch new services so want a risk share model with a supplier like us for an offering such as out unified communications platform. They want to take something like that off the balance sheet and bring it together as a pay-as-you-grow proposition.”

Neike’s colleague, Anja Langer Jacquin, director of business innovation at Cisco, identifies that different types of carrier have different attitudes to taking managed services. “Although we’re seeing a shift, you can still make the distinction between incumbents and challengers,” she says.

“Incumbents have more expertise and more people but, while they’d like to explore managed services further, they need to keep their own engineers employed. The challengers aren’t as proud of having the network as the core of their business so are more open. However, managed services aren’t about outsourcing your mess for less, they’re about accelerating new service delivery.”

Langer Jacquin points out that Cisco doesn’t see managed services as a means for the company to buy itself into business by selling services and equipment on a rental model where it can’t pursue traditional sales.

“There’s a risk Cisco may lose and in other cases we’ll win,” she explains. “It’s about taking a calculated risk based on the level of our involvement. The more we’re involved, the more risk we’ll take.”

Biddlecombe acknowledges that, from a carrier point of view, the managed service provider must be committed to the deployment and give the carrier confidence. He points out there is no typical deployment.

“It depends on the carrier in question, the service and the reason for purchase,” he says. “Ease of inclusion in the product set and process model will dictate the rate of adoption, this challenge lies with the managed service operator. In becoming a flexible and accommodating partner, they provide the confidences required by the intermediate carrier to enable them to take these imported solutions to market with confidence.”

The scope of managed services is becoming so broad, especially at green field operation launches that have no heritage and no constraints from existing capacity and models.

“A whole range of services are being adopted by carriers,” says Biddlecombe, “from simple access to point to point services such as broadband leased lines and ethernet extensions through to newer types of access services such as wireless, microwave, 3G and the construction and management of complete ethernet or MPLS networks.”

For Langer Jacquin, green field operations are also an ideal target market. However, they are becoming scarce and more fertile areas are green field operations within existing operators.

“Green field is clearly easier but in Europe we are not seeing a huge green field opportunity,” she adds. “It’s not true green field, it’s more about the type of audience [for our managed services].”

Vodafone, for example, is not a green field operator in the UK but it has recently signed a deal with BT to provide IP-enabled voice and broadband as a dedicated business-ready managed service to underpin the launch of Vodafone One Net, a communications service aimed at SME customers offering one number for fixed and mobile phones, one voicemail and one contract through one service provider for a fixed price. That’s a green field within BT.

Fitzpatrick also gives the example of KCom, formerly Kingston Communications, which is the incumbent in and around the UK city of Hull.

“They’re a fixed line provider, they dabble in wireless and they’re an ISP,” says Fitzpatrick. “We initially talked to them about building a next generation network for them but now we literally have taken over complete outsourcing of their operations and customer services for them. There’s no set rule other than understanding the needs of the customer company.”

ISPs are another sector looking to compete by taking managed services to increase their offerings. “Large ISPs are realising the pressures in the broadband market where growth is possible but decreasing,” says Fitzpatrick.

“They’re looking to expand their portfolios mostly in areas such as voice and SaaS. They take full advantage of our expertise which has enabled companies like Sky to offload their voice services to us. At Virgin Media we manage all of their switching infrastructure.

“There are definite trends in each area. Fixed operators are looking at why they operate a network at all and, if they don’t have a network, why should they have a control centre?” Mobile operators’ single largest initiative is the rationalisation of network assets, especially in backhaul, he suggests.

“We try to not necessarily develop solutions that we believe the market will want but rather we do it by sitting with our largest customers and trying to bring our design and capabilities to them,” he says.

“The power of it is scale. My incremental cost of doing something for Sky or Virgin is far lower than their cost of doing it themselves. Virgin’s focus is content delivery for their cable TV customers but they had 89 switches operating with 1000 employees. I have 600 employees so for me to run that is nothing. It is horrendously complex and mission critical to get it right but for Virgin they’re doing it today in a way that is materially more cost effective than they were previously.”

Return on investment from managed services is as variable as the nature of deployments themselves, as Biddlecombe explains.

“The return on investment of managed services depends upon the approach adopted,” he says. “Some carriers will simply re-brand white label, third party services as their own and resell to their customer with a degree of mark up. Other carriers will seek deeper interconnection and integration between the managed service and their own network and services. In that instance there will be a degree of capital expenditure involved but this will often be covered by the supply organisation who will be investing in the relationship.”

However, it can be a great business for the supplying operator as well, as Fitzpatrick attests; “Through the managed network services initiative we’re able to underpin about 40% of our current business on long term contracts. That incrementally brings stability to the business.” GTB