  | Issue: | India 2009 |
| Article no.: | 10 | |
| Topic: | Managed services for telecom operators | |
| Author: | Valter D’Avino, and Kapil Mittal | |
| Title: | VP & Head of Product Area Managed Services in Business Unit Global Services/General Manager & Head of Sales, Managed Services | |
| Organisation: | Ericsson, Sweden/Ericsson India & Srilanka | |
| PDF size: | 368KB |
About author
Valter D’Avino is the Vice President and Head of the Product Area, Managed Services in Business Unit, Global Services at Ericsson, Sweden. Prior to his current position, Mr D’Avino was President for Ericsson Network Services Italy. Mr D’Avino has held many senior management positions in the Ericsson group. He has been a Global Customer Account and Key Account Manager for Telecom Italia Group, Wind, and H3G among others. Mr D’Avino earned his Master of Science degree from the University of Naples. Kapil Mittal is the General Manager & Head of Sales, Managed Services for Ericsson India & Srilanka; he has over 14 years of experience in the Telecom industry – in the Indian, European and Asia Pacific regions managing various sales and marketing positions. Mr Mittal has held a number of multi-faceted leadership roles at Ericsson including a long-term management assignment at company headquarters in Stockholm, where he led commercial management for Hutchinson, Orascom, Maxis and others. Mr Mittal is an Electronics & communication engineer and holds an MBA in Strategy Management from IIT Delhi.
Article abstract
Telephone operating companies, driven by competition and by the growing economic crisis, are constantly seeking ways to improve their operations while reducing costs. In the past, telcos believed that anything that had to do with their networks was part of their core business and had to be handled internally, but this position has been increasingly challenged in recent years. Operators now realise that outsourcing, managed services and even infrastructure sharing with other operators increases ROI and makes good business sense.
Full Article
IMF forecasts for 2009 predict economies around the globe; see one of the greatest contractions since the Second World War. “As the financial crisis has become more entrenched, households and firms are increasingly anticipating a prolonged period of poor prospects for jobs and profits. As a result, they are cutting back on consumption, notably of durables, and investment.” According to recent research by Arthur D. Little, “Crisis is a transformation catalyst for operators: previous economic crisis’ were opportunities for Telecom operators to drive two non-exclusive options to transform their business models: leveraging offering renewal and cost cutting opportunities.” Verizon’s CEO Ivan Seidenberg, for example is optimistic: “Verizon’s businesses would remain strong through economic uncertainty… could actually have a positive effect on Verizon’s high-speed Internet business…. If people travel less and if they are less going out to eat, they are home more. And that’s likely to mean they will spend more time on their computers or using other applications!” One of the few encouraging side effects of the financial crisis concerns telecom operators’ inclination and motivation to farm out their day-to-day activities. As focus shifts from revenue generation to margin preservation and hence cost rationalization, the pace of decision-making in favour of professional outsourcing of services seems to be irresistibly clear. In this climate, more and more operators are seriously questioning why they are investing in life cycle management, optimization, operation and maintenance of their networks. Are these activities really part of their core business? After all, managing the network is central to their business, but not their core business as such! While other industries have tried, tested and enjoyed the benefits that outsourcing offer for a number of years, most telecom operators have traditionally viewed network operation as part of their core business – a view closely linked to the strong technological focus within the telecom industry. In the IT industry, for example, data centre outsourcing has existed for 20 years. Tech Mahindra signed a US$1 billion five year outsourcing deal with BT Global in 2007 and Bharti and Vodafone have outsourcing deals with IBM etc. Businesses now realize that outsourcing and managed services are not an all-or-nothing proposition. They can be used strategically within an organization to gain a variety of benefits for the business. As the telecom industry matures, operators will continue to increase their focus on finances, supporting the use of managed services. Operators will continue to experience intense competition, resulting in decreasing end-user tariffs and a potential reduction in EBITDA margins. In spite of a substantial increase in cost focus in recent years, telecom operators are still at a relatively early stage of organizational streamlining compared to players in more mature industries. Managed services A ‘managed service’ is one provided by a service provider that takes on management responsibility for a function that has traditionally been carried out internally by a telecom operator. There are, broadly speaking, four business models for managed service offerings; they can be categorized according to the operators’ strategic, organizational and business needs: Operations For Managed operations, a service provider takes over part or all of a network’s operations. Typically, the service provider takes responsibility for the planning, design and construction of the operator’s telecom network and BSS/OSS. The service provider can also manage the daily running and maintenance of network operations centres (NOCs) and sites. Field maintenance With managed field maintenance, the service provider manages field operations on behalf of the operator and maintains its sites in a given region. This is provided as a standalone service or as part of a larger managed services deal, which might include managed operations. Operational readiness The managed operational readiness service provider works with operators to build, upgrade or expand their networks, running the network for a limited period of time and handing the running of the network back to the customer. Shared solutions These services generally use technology owned by the service provider or a third party. These solutions could apply to an application, to an end-user service, such as hosting or to an entire network or parts of it. Managed service offerings are commonly provided in a multi-vendor and multi-technology environment. A service level agreement (SLA), measured by key performance indicators (KPIs), controls the partnership between the managed services provider and the telecom operator. Profitability and managed services As valuation is partly driven by growth, operators in fast-growing markets generally show higher valuation ratios. However, operators struggle to create shareholder value. A company creates value only if it increases its ROI by either: • Decreasing invested capital (reduce infrastructure CAPEX, sell-off assets, pay-as-you grow model or increase pre-paid share); • Increasing Revenues (implement revenue assurance programmes, accelerate rollouts, launch new applications, work with mobile virtual network operators – MVNOs, etc.); and • Decreasing network OPEX (site/network sharing, operations outsourcing, etc) Bechtel, a construction company in the US, is an example of outsourcing for higher efficiency; it offers US operators much better prices on cabling than the operators can achieve in-house. Operators can reduce their working capital requirements by increasing the pre-paid share of their total subscriber base since with pre-paid services the operator gets paid before delivering the service and the pre-paid balance can be used to finance operations. With post-paid services, the operator only gets paid sometime after the service is rendered, so it must finance the operation itself. Managing shared sites for lower OPEX The above hypothetical example illustrates how much an operator could gain from a typical site sharing arrangement for a new site. When sharing existing sites there are greater potential OPEX savings since site rentals differ and the cheapest sites can be contracted. In practice, the cost savings will be subject to other parameters as well. The Indus joint venture between Bharti, Idea and Vodafone increases the returns for each by jointly managing and operating their infrastructure; this reduces both operating costs and the capital needed for infrastructure. The cost of field service operations For a given network size and geography, field service efficiency is a function of network quality (low quality increases the number of trouble tickets per site) and output per engineer (number of trouble tickets closed per engineer). Some field service organizations do six times as many site visits per engineer than others. Some networks generate 15 times as many trouble tickets than others. While outsourcing IT operations is a common business model, outsourcing, telecom field operations and remote maintenance is just starting to gain momentum. Global network operations centres (NOCs) in low cost, but highly technically skilled, markets like Romania, India and the like, remotely manage many trans-continental network operations. Each time there is need to send out a field service technician, there is an associated cost. To reduce this cost it is necessary to: • filter errors in the NOC better so that only relevant alarms generate a trouble ticket for the field service organization. Good filtering can reduce site visits by ten per cent; • significantly improve field maintenance efficiency through the introduction of a workforce management application; and • closely manage the parts inventory at sites and eliminate the outdated parts so technicians cannot bring the wrong spare parts to the site. Managing field operations increases ROI by decreasing network OPEX. Industrialising managed services In the near future, therefore, it is likely that the shift in responsibility for roles in the value chain enabled by managed services and the increasing complexity of technology will result in a win-win scenario for both telecom operators and managed services providers (MSP). However, many operators do not yet use managed services. This might be due to concerns regarding the potential loss of competence and control; belief that a third party would find it difficult to manage operator-specific circumstances; fear regarding dependence upon a single MSP; or uncertainty regarding the provider’s ability to sustain the cost reduction over time. Experience shows how operators have used a rigorous evaluation process to reduce risk and maximized the potential for successful managed services engagements. Assessment of MSP capability includes looking for experience in similar types of contracts. It is also important to establish whether the provider understands the operator’s cost base and can commit to an appropriate cost-level evolution. When evaluating a MSP, the operator should look for both global and local synergies. Managed services providers that are also equipment vendors can also increase synergies. They gain insight into operator activities through managed services engagements and can apply what they learn to equipment offerings that provide the operator with greater efficiencies. Managed services for business support functions will, in all likelihood, continue to be provided by both traditional and non-traditional telecoms players. Telecom players are likely to increasingly address areas such as customer relationship management (CRM), provisioning and billing, while IT players will be well represented in the areas of ERP and office applications. The drivers of today’s managed services market will continue to be important for years to come. The growing number of managed services agreements will create a virtual circle resulting in increased MSP competence, which will make even higher efficiency and economies of scale possible. This, in turn, will make managed services even more attractive to operators and most will enter into some kind of full or partial managed services agreement. The key to success will be adopting an end-to-end view of managing networks, services and business support systems, with the end-user in mind.
