Managed services are becoming more popular in telecoms as operators refocus on sales and marketing and their relationships with customers. By George Malim
 
 


Guiseppe Donagemma, NSN: Vendors are best positioned
for offer managed services with scope

 
 
 
As operators continue to transform and come to terms with the new telecoms value chain the previously unthinkable notion of not needing to run or own networks is becoming more popular. After all, operators used to manufacture equipment and it is now routine to buy in hardware from outside vendors so why should services be purchased in the same way?
“There is a clear shift in focus from just operating and maintaining networks to managing customer relationships through delivery of superior service experience,” says Guiseppe Donagemma, head of west south Europe region at Nokia Siemens Networks.
“The changing business environment is also putting pressure on operators to find new and more efficient ways to run their business by outsourcing some of the activities that they have traditionally done in-house so that they can focus their time resources on business activities that help them build valuable customer relationship.
“These trends are, in turn, defining the role of equipment vendors. Operators are now looking to equipment vendors to manage their network operations, ensuring best network and service quality, while they focus on long-term competitiveness and profitability.”
There’s such an appetite that NSN’s managed services business now constitutes 45% of its overall business, says Donagemma.
There are several market drivers that attract operators to outsource their network operations, according Mehrzad Nabavieh, managed services director at ZTE. These include cutting costs, balancing opex and capex, accessing knowhow and guaranteeing network quality.
However, providing managed services is also a shift for vendors, he says; “Vendors see their margins in equipment decreasing. Hence they look at the services as revenue streams to increase profit. The equipment vendors normally have good knowledge to run and maintain the equipment and therefore providing managed services can lead to win-win cases.”
Joe So, director of Huawei’s service marketing department, thinks vendors are ideally placed. “The links between operators and vendors have grown to a long-term, trusty and collaborative relationship,” he says.
“Vendors have the natural advantage since they know networks well and have in-depth knowledge of network technologies, which is indispensable to the success of managed services. What operators need is end-to-end solutions, not solutions for networks only. Therefore, vendors may co-operate with systems integrators to better serve customers.”
Bringing in wider IT expertise along with knowledge of the multi-vendor environment is critical for Nabavieh; “We undertake the entire scope of the daily operation and maintenance of operators and we’re also able to address the multi-vendor equipment environment by managing the third party equipment and act as single point of interface to the operator,” he adds.
For Andreas Herzog, president of managed services at Alcatel-Lucent, that’s a critical ability since there are so few single vendor networks in existence. “A true, reliable and credible managed services player must be able to provide the same set of services independent of the equipment deployed by an operator, whether it is their own or from a third party,” he says.
“That differentiates the players. A few, including us, are vendor-agnostic while others are only able to provide managed services on their own equipment. A managed services engagement is a five, seven or ten-year engagement and operators want to be free in their forthcoming equipment selections.”
Arthur Musgrove, head of the OSS and billing practice at Patni, points out that this is a natural progression not so much pushed forward by vendors as a logical progression of the increased emphasis on services.
“You have to continually remember that the demand for managed services originated with customers. As technology matured, the drive towards managed services grew as the role of the equipment itself ceded to providing a service,” he says.
“For example, as carriers don’t want organisations to build a network that they would own, they sought partnerships that meant they could deliver services without being fixed to the kit they were using or had.”
Herzog sees two types of managed services markets emerging. “In emerging markets, the focus is less on cost-saving and more on growth,” he says. “In India, for example, Bharti and Reliance are using managed services for reasons that include cost savings but their managed services focus is on satisfying their demands for growth. In more mature markets, managed services started earlier and pure cost saving was the focus.”
Risk is the issue that concerns everybody in managed services — whether provider of customer. “Given the capex intensive nature of telecoms investment, this risk of failure is large scale and often hidden — similar to utilities — so we anticipate that this risk will penetrate deep into the telecoms supply chain,” says Musgrove.
Fastidious measurement and reporting underpins managed services engagements so operators get an up-to-date clear picture of what actually is being delivered by their managed services. That focus on performance also provides security for the managed service provider who can then prove that it has delivered on its promises.
“All managed services contracts are performance-related and the vendor is committed to a set of service level agreements and key performance indicators,” says Nabavieh.
“Failing to comply with SLAs and KPIs normally leads to various types of penalties. ZTE conforms with operators’ required network quality levels as long as performing the necessary activities are within ZTE’s control. In a managed services contract there will be defined exclusion clauses to limit the vendor’s liability for instance with service interruption due to power supply outage.”
Donagemma emphasises that managed services providers must conduct careful due diligence. “The extent of risk we would take on would be based on our own due diligence of operators’ businesses coupled with operators’ own business objectives,” he says.
However, risk is unavoidable and willingness to share in it will become a differentiator in Herzog’s view. “From my point of view, willingness to share risk will be a strong differentiator in the next 12 to 24 months. There is a strong push of risk transfer,” he says. “For me, providing managed services without taking a significant proportion of the risks is not sustainable.”
A debate continues to rage about which types of organisation is best placed to provide telecoms managed services. IT managed services providers and systems integrators will say it is them because they are independent and have multi-industry experience while telecoms vendors will say they are the only ones who properly understand the operator business.
“Given the global scale and experience, vendors are best positioned for offer managed services with large scopes,” affirms Donagemma. “However, there are local providers for field services in some countries. Systems integrators or IT companies are not in the telecommunications managed services domain.”
Nabavieh also sees equipment vendors as best placed to provide telecoms managed services. “The network equipment suppliers like ZTE are the best positioned organisations to provide managed services,” he says.
“The vast majority of operation and maintenance activities in a network are related to the access network. Hence, there exist cost saving synergies when the supplying vendor builds and later on operates and maintains the network.”
Herzog, however, thinks the market is currently the preserve of telecoms vendors. “So far it is only and exclusively telecoms equipment vendors that provide telecoms managed services,” he says.
“As a managed services provider you have to handle the operations of the network and thousands of people on behalf of customers. You need to know your customer very well for them to trust you to do those things for them and the main reason why vendors today have basically got a monopoly in this area is they have a long relationships of trust with carriers.”
There is still some distance to be covered in terms of the extent to which managed services are being deployed at operators and there is further to go in maturing specific practices in relation to telecoms managed services.
“Our vision of the market in the future — the next five to 10 years — will be a specialisation and split between infrastructure providers and content and service providers,” says Herzog.
“We see that model as a further evolution of managed services and, while Alcatel-Lucent has no interest in owning telecoms infrastructure, we see independent investors investing in state-of-the-art, modern telecoms infrastructure with the business model created between operators using that investor-owned infrastructure to deliver services. A services partner will be required to maximise the infrastructure and guarantee the performance level of services.”
Nabavieh sees two trends in managed services provision dependent on the nature of the operator business being served. “For start-up operators, there are very few financial incentives to set up and run their own operation and maintenance organisation,” he says.
“The capex required to recruit and train the staff and set up the facilities will become quite hefty so a vast majority of start-ups will consider outsourcing of operation within a managed services contract.”
“There is a split between mature operators when it comes to opting for outsourcing of operations and maintenance,” continues Nabavieh.
“An increasing group of mature operators are willing to outsource the operations and maintenance. A second group of mature operators choose managed services for a limited period of one or two years when they go to new technologies such as migrating from 2G to 3G or 3G to LTE.”
The service will hedge the risks of failures when the new network is launched and assure transfer of knowledge to their organisation, he adds.
“A third group, which is diminishing in size, relies on their own in-house organisation and only purchases services sporadically when specific requirements emerge.” GTB