Operators are accepting the idea of handing over running their networks to a specialist, says Ericsson’s managed services head Valter D’Avino. Co-sponsored feature: Ericsson  
 
 



Valter D’Avino: We’re not just talking about efficiency. When
we unbundle the chain we release value 
 
 

There is an inevitable business logic to outsourcing, believes Valter D’Avino. The logic that has prevailed in many different industries is now being accepted across the telecoms business — and he wants Ericsson to lead the way in bringing the benefits to operators around the world.
“We now have a global network. We manage more than 370 million subscribers,” says D’Avino, a vice president of Ericsson and the head of managed services. “In a few years it will be a billion. But we are not going to be an operator. We do not want to be an operator.”
Ericsson provides services to fixed and mobile companies around the world from field maintenance to full network operation.
“They can concentrate on the commercial side and we manage the service,” says D’Avino. “It’s unbundling the chain.”
The telecoms industry, he says, is following the route taken by many other industries — such as air travel, power and IT. “We can’t say that every industry has the same features, but it is happening and this is not a temporary phenomenon.” Unbundling is now a phenomenon that senior executives in many different industries are familiar with, “though it has been facilitated by the international crisis”.
Operators have recognised that, so long as the customer stays in their hands, “the technology could be given to someone else”, says D’Avino. “We could reshape the industry. This is a change that is going to happen.”
One of Ericsson’s most spectacular breakthroughs came in July 2009, when Sprint agreed a seven-year network services agreement for its wireline and wireless network. Sprint uses CDMA technology for its mobile services — an area where Ericsson previously had relatively little experience — but the logic still prevailed.
“We have taken over 6,000 Sprint staff and we are transforming Sprint’s operations,” says D’Avino. The executive has been helping Ericsson develop its outsourcing portfolio since the very earliest days, when many operators were wary about letting go of their network.
Following the company’s first mega-deal, with Hutchison in Australia, D’Avino was key to its mobile start-up in Italy. “We were running that as a separate operation, with around 1,500 employees and consultants.” Hutchison also agreed a further deal for its operation in the UK.
“These were so-called greenfield operations,” says D’Avino. “They were new networks and the operators did not want to build the network organisations as well as the commercial operations.”
At a similar time the idea was starting to be accepted in India — long a centre of IT outsourcing, demonstrating the appeal of managed services in a range of situations across the world.
Initially, “Outsourcing in telecoms was still scattered. Most operators regarded the network as extremely strategic and not for outsourcing,” says D’Avino.
But from small starts, the idea has spread around the world from wireless to wireline: the Sprint example is an excellent illustration. “We are showing that it’s not restricted to 2G and 3G services, but that managed services can be applied to any technology.” Ericsson even manages a television broadcast network — though not the programmes — in Sweden.
“What we’re seeing is an industrialisation of the process,” says D’Avino. “We are applying common processes and tools and they are applicable everywhere.” The approach to outsourcing has changed since the early days: now Ericsson has the scale to concentrate much of its network management, for example, into two big global centres, one in Romania and one in India.
Even operators that are resisting the outsourcing argument are, however, accepting that networks are no longer a differentiator, he argues. “Look at the operators that are going for network sharing,” he says.
Ericsson’s most prominent participation in the recent network sharing trend is operating and maintaining the 3G network for MBNL, a UK company which is a joint venture of T-Mobile and Hutchison’s 3.
T-Mobile and 3 formed their infrastructure sharing agreement in January 2008 with the aim of delivering UK-wide 3G services and to improve in-building signal strength.
Ericsson is responsible for the operation and performance management of both parent companies’ 3G networks and T-Mobile’s 2G radio infrastructure. As part of the deal, it is also responsible for decommissioning thousands of cellsites as the world’s largest consolidated 3G network is created.
In many parts of the world operators in markets with five, six or even seven rival networks are looking at the business logic of similar moves, says D’Avino. “This is a change that is going to happen.”
It’s even likelier to happen when operators consider the costs of building up internal knowledge for HSPA, the high-speed data add-on to 3G services, and then LTE, the 4G evolution which is now starting to enter commercial trials. “LTE is going to happen all over the place,” says D’Avino, “but operators do not want to invest too much in building up new technological knowledge.”
It is uneconomical for every operator, wanting to build an LTE network, to spend money on hiring scarce specialists. Operators face a choice: build up the expertise internally, or go outside.
“There is a space for us. We can help put together the infrastructure and build the networks for the operators, and we can optimise existing networks. It can be better to come to an external agent such as Ericsson — especially as it’s our core business.”
With more network mergers in the offing around the world, D’Avino believes that there will be more opportunities for the vendor. “Others will be following the same steps as 3 and T-Mobile in the UK. They could put a combined network together by themselves, or they could use an external agent like us.”
There is a triangular relationship with Ericsson, and they have to agree between themselves a standard quality of service that Ericsson must deliver as part of the contract.
“In the future we see the possibility of a variant, with a separate financial partner taking care of the assets and selling the services to the operators. But that is another wave that is still to happen. We are hearing discussions about it.”
Some companies are still wary, especially the large fixed operators that are the incumbents in their markets, says D’Avino.
“We’re not just talking about efficiency. When we unbundle the chain we release value.” Sometimes, when it signs a managed services deal, Ericsson is asked to maintain the existing service level — as measured by key performance indicators — and reduce the operational expenditure.
“We can give back the opex saving,” he says. “At the other end of the scale, we can keep the costs the same but improve the KPI. In some emerging markets, for example, a company does not want to save opex but they do want a better service.” And there are “all the possible combinations in the middle”, he notes.
The industrial logic of managed services will strengthen further with the emergence of mobile data services, says D’Avino. The outsourcing provider will be a facilitator of these new services that will use connected devices, he believes. “We have that vision of 50 billion connected devices in 2020.”
Will it be a marriage for life? In other words, once an operator picks Ericsson to run its network — or two or more operators pick the company to run a combined network — is Ericsson there for ever?
“Not necessarily,” says D’Avino. “The customer is not a prisoner.” There is always a clause in the contract that governs what happens at the end of a contract. “It is clearly stated how a customer can get the network back, or change managed services supplier. We agree that from day one.”
And choosing Ericsson as a managed service provider does not mean choosing Ericsson as the network equipment provider, he is quick to add. “Outsourcing is vendor-agnostic. Half the equipment that we manage is coming from another vendor.”
Is there always a business case behind a managed services proposal? Yes, says D’Avino. “We are not going to take on any business just for the footprint or the market share. We have withdrawn from tendering for a project if there is no industrial logic.”
“There have to be two business cases — one for us and one for the customer,” he adds. “Outsourcing needs to create value for both of us.”
Ericsson does not want to risk its reputation, he warns. “If there is no logic we will withdraw from bidding. But outsourcing is the way the world is going.” GTB