Transformation-driven

With a decisive shift from legacy networks already underway, telcos’ needs for smooth migrations to 4G LTE are loud and clear

Mobile-led telecom services are undergoing a paradigm shift. From being used primarily for voice and SMS-based communications, mobile phones are more and more used for a growing variety of data-based over-the-top (OTT) services. If 3G prepared the ground for a data-led growth, 4G LTE, LTE-Advanced and other yet-to-arrive technologies are promising to make the data play dominant in a not-toodistant future.

In today’s age, literally everyone and everything is connected through data. And this has increased the amount of pressure on the networks of service providers.

Already, voice ARPUs have begun to fall, in what appears to be an irreversible trend. At the same time, operators are faced with an uphill task to differentiate themselves and maintain the quality-of-service expectations of their subscribers. Also, they must work to grow data revenues at faster rates so that a slowdown in voice revenue growth could be effectively offset.

Obviously, management and maintenance of telecom networks, which already comprise a heterogeneous mix of different generations of technologies, is more complex than it ever was. The need for outsourcing of network management is also therefore greater than ever before, as it allows telcos to focus on aspects related to business growth, branding & marketing, and consolidation, among other things.

In this background, the role of managed services providers such as Ericsson, Nokia and Huawei has become even more significant for the telcos. At the same time, the managed service providers too need to ensure that they have the right pools of skillsets and resources to stay relevant in view of a changing telecom landscape.

Changing market dynamics

The managed services vendor landscape has just gone through one more leg of consolidation, with the acquisition of Alcatel-Lucent by Nokia disrupting the equilibrium in the industry to an extent. The acquisition is expected to strengthen Nokia’s position in 4G LTE, fixed broadband and other core network segments.

Also, it would enable Nokia to pose a tougher competition to the Swedish gear maker Ericsson and the Shenzhenbased Huawei, globally as well as in India. Meanwhile, Ericsson too has been doing some key acquisitions to maintain — and extend — its position in the managed services provider segment in the country. Huawei has also intensified its focus on the managed services segment, leveraging its strengths in its home market of China. Like its competitors, the company is also strengthening its offerings with a view to accommodate future technologies such as 5G.

Meanwhile, the growing maturity of Internet of Things (IoT) is expected to become a more significant factor that would further improve the managed service prospects of the provider vendors.

Vendor report card

In India, the competition has largely stayed between Ericsson and Nokia, though Huawei has been working strategically to strengthen its play in the country’s managed services market. Meanwhile, the industry consolidation

(as a result of Nokia’s buyout of AlcatelLucent) was expected to improve the pricing power and operational efficiencies of the players, but changes in demand-side dynamics may upset things a bit.

All major telcos in India — Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications constitute the demand-side market for managed services. Interestingly, the fiscal gone by was also witness to a wave of consolidations on the telco side, as the large telcos explored possibilities to increase margins and improve customer experiences. However, this also helped improve the bargaining powers of telcos when negotiating managed service deals with the vendors.

Growing management complexities

During the early years of managed services, the key factors largely used to be cost and efficiency related. However, in recent years, the industry has witnessed a growing trend of multi-vendor network deployment deals, as a result of which considerations for factors like interoperability and integration have grown in importance. The trend continues to be there in the rollout of 4G LTE networks, which means that the complexities are not going to go away for managed service providers in future as well.

For Ericsson, Reliance Communications is currently a key customer. The vendor is managing both the wireline and wireless networks of RCom across its operations in India. The seven-year contract, reportedly valued at more than $1 billion, spans RCom’s 2G, CDMA and 3G networks as well as 150,000 km of fiber. The contract is an existing agreement with Ericsson covering 11 regions in the north and west.

Ericsson also manages 15 circles of Airtel, which also happens to be Ericsson’s oldest managed service customer. Besides, there also is a managed service component in the 4G deal it has bagged the country’s third largest operator, Idea Cellular. Ericsson would also be working to upgrade 2G networks in nine of the circles and 3G networks in five circles, for Idea.

On the back of these developments, Ericsson reported an impressive rise in its managed service revenue in India, which happened to be among its fastest-growing geographical markets globally.

Nokia too has bagged a number of contracts from Bharti Airtel, Reliance Jio and Videocon Telecom. Bharti Airtel had awarded the contract to Nokia in 2015 to expand 4G network in six circles. The Finnish gear maker had also won a contract from Videocon earlier.

Incidentally, Nokia promoted its India head Sandeep Girotra as the head of the Asia-Pacific and Japan market, and named Sanjay Malik as the new head of the country. The change in the India leadership is a part of the ongoing restructuring exercise to combine the teams and processes of Alcatel-Lucent, which Nokia bought last year in an all-stock global deal valued at 15.6 billion Euros.

Growth opportunities ahead

Managed services will continue to play a pivotal role in driving operators’ business agendas and transformation strategies. Historically too, the role of a managed service provider has been more of a partner than just an equipment supplier. This is going to be all the more pronounced as the telcos undergo a phase of migration from the legacy networks to IP-based 4G LTE and other next-generation networks.

Technology is undergoing a stepchange and telcos would be in need of more evolved support from their managed service providers in order to better navigate the changes and the challenges that are presented by those changes.

Also, the end users of telecom services are maturing rapidly and their quality- of- service expectations are rising. As a result, there is a growing emphasis on simplifying the customer experience, for which telcos are turning to their managed service partners for support. Telecom operators will continue to explore long-term relationships with the managed service providers, who also double up as equipment vendors, to support the changing needs of their next-generation end-customers.

Customer retention strategies will continue to be a focus area in future. To optimize capex and opex, majority of telcos are now forming strategic alliances with managed services providers so as to outsource major parts of their network management functions and keeping only the core functions in-house.

Also, while managed services were so far largely used by wireless operators than wireline operators, that is also going to change, going forward. For instance, the RCOm outsourcing deal involved both national long-distance and radio access networks. The industry could see more of such deals.

The managed services vendor landscape has gone through one more leg of consolidation, with the acquisition of Alcatel-Lucent by Nokia disrupting the equilibrium in the industry to an extent.