Managed Services Converged Infra Play Arrives
A growing thinking among telcos that they would need to bring IT and network pieces closer, on a single platform, to derive greater business value out of the two investment sets becomes center stage
The increasing adoption of data services and growing complexities in the telecom networks have opened up new opportunities for managed services providers, but the multi-vendor approach being adopted by telcos has also made the business environment more challenging for the players. In India, the seeds of managed services were planted in the year 2004, when Bharti Airtel signed a network contract deal with Ericsson. Today, the managed services market has evolved and is very much process driven, with service level agreements (SLAs) continuing to serve as key assessment parameters. Like other mature telecom markets, Managed Services is growing well in the country despite overall slow pace of the sector. In fact, one of the major factors attributed to the growth of Managed Services is to bring in operational efficiencies in the difficult times.
Operators in India continued to sign deals of getting the services managed by third party players, mostly telecom solution providers. The operators continued to engage Managed Service Providers for more and more circles this year while there were also some replacement deals wherein an operator appointed a new service provider to replace the incumbent.
Managed Services is still dominated by the cost factor and this remains the critical factor that an operator takes into account while selecting one. In India also, the preference is skewed towards low cost Managed Services providers while the premium service providers attempted to fight competition by offering increased value for every rupee spent by the operator. This meant inclusion of many new services extending the scope of Managed Services. It resulted in retention of the customers as well as maintaining of the order value in increasingly competitive market.
Despite, competitive pressures, Managed Services segment witnessed the highest growth rate in FY 2013-14 within the carrier equipment and solutions category of the Telecom Equipment market. The market was pegged at Rs 9,129 crore as against Rs 8,422 crore registering a growth of 8.4% compared to the previous year.
Managed services models are being adopted by operators to reduce capex and for improving customer experience. Compelled by the shift from network centric approach to service centric approach, telcos have been exploring new and innovative delivery models.
Key Trends
A new normal of telcos engaging multiple managed service providers for different telecom service areas or different technology segments is driven by a multitude of reasons. These include the need to get best-in-class equipment and skillsets
corresponding to a technology and the desire to reduce spending through increased competition among vendors.
Nevertheless, the telcos are also cautious that they don’t overstretch the multi-vendor model beyond a threshold, lest it becomes counterproductive, given that vendor management has got challenges and complexities of its own. Telcos, therefore, are also looking to optimize the number of managed service providers they engage with.
The top managed services players in the country are Nokia Networks, Ericsson, Huawei, Alcatel Lucent and ZTE.
Top Deals
Norway based Telenor, for instance has followed a completely outsourced model to achieve breakeven in six of its operating circles. The company has selected Alcatel Lucent to provide operational support and business transformation services for three circles of Gujrat, Maharashtra and Andhra Pradesh.
According to Alcatel Lucent, the agreement reaches beyond traditional managed services and helps put the operator on a transformational path that would enable its customers to experience quality services.
Alcatel-Lucent also won a seven year end-to-end network managed services contract from the fixed and mobile services operator Reliance Communications. The deal covers Reliance’s operations in eastern and southern India. Valued at over $1 billion, the contract encompasses Alcatel-Lucent bringing together Reliance’s independent wireless and wireline teams to form a single network management organization. The vendor will also drive standardization of the tools, processes and best practices that are applied across Reliance’s businesses.
The Swedish vendor carrier networking major Ericsson’s managed services portfolio in the country has also consistently grown, with close to 10 deals in its kitty. It has customer engagements with telcos like Bharti Airtel, Aircel and Idea Cellular. Ericsson’s focus is on addressing opex needs, customer retention and innovative business models to increase revenues. In early 2013, the company secured $1bn worth of managed services contracts from Reliance Communications. As per the deal, the Swedish vendor will operate and manage the wireline and wireless networks for RCom’s northern and Western region in the country for seven years.
Ericsson’s arch European competitor, the Finland-based Nokia Networks (formerly Nokia Solutions and Networks, and Nokia Siemens Networks) boasts of 15 years of strong experience in global managed services business. The company is working towards expanding the scope of its managed services agreements with top service providers. Overall, the vendor is managing around 160,000 base stations in the country and serves all the top telcos such as Vodafone, Bharti Airtel, Aircel, Idea Cellular and Tata Teleservices. The company also manages 175,000 transmission nodes and over 4,000 IP routers and switches—all multi-vendor and multiyear contracts.
Nokia Networks has also come up with its predictive operations offering, which is designed to identify potential service degradations and outages with 95 percent accuracy. As part of its managed services portfolio, the service, as claimed by NSN, will enable telcos to improve quality by 15 percent. The managed services portfolio of Nokia Networks is delivered from its global delivery centers in India and Portugal.
Chinese gear maker Huawei has adopted a new approach to offer managed services to telecom network operators. The Chinese vendor is working with Aircel, Tata, MTS and Bharti Airtel, among others for their managed services. In November, last year, Huawei along with ZTE, managed to get the Sistema Shyam Tele Services’ (SSTL)’s multi-vendor managed services contract.
In another interesting develop-
ment, Bharti Airtel, which famously introduced the concept of subcontracting by outsourcing its many non-core functions to IBM, decided to purchase the entire stake in its joint-venture with Alcatel-Lucent Managed Network Service India. The reason for the exit is speculated to be ALU’s declining profits and its desire to seek an exit route from non-profitable ventures.
Growth Drivers
As the telecom industry is evolving and mobile internet is taking center stage, there is a consistent pressure on operators to improve the returns on their investments while maintaining same or better service quality. This has led to a persistent evaluation from service providers to identify best practices to reduce their costs without falling.
According to analysts, drivers of current phases of managed services are characterized by a greater focus by operators on how to adapt to the changing dynamics of the industry and position themselves better for future opportunities. It emphasizes that the key drivers that would contribute in the growth are network sharing and the emergence of over-the-top applications such as social networking.
Managed service model offers telcos a great way to reduce costs, minimize investment and human capital and concentrate better on subscriber acquisition, retention and business development and growth. In a scenario, where capital investment requirements are on an alltime high, managed services are a tool to stay not just afloat but competitively relevant. The sector could perhaps take fresh cues from the IT sector, which has been reaping the rewards of outsourcing for longer.
As the service providers are shifting more and more focus on the expansion of 3G services and the rollout of 4G services, the requirement for managed services will only further evolve.
It helps telcos to focus on their core business needs, which could eventually drive their profitability.
With the sub segment getting more competitive, it would be tougher for the smaller vendors to enter and survive in this market
What Next?
Considering the growing competition and threats from OTT players, telcos will continue to look for strategic partners who could help them plan, deploy, realign and grow their networks by way of modernization and transformation processes.
The usage of analytics tools is bound to grow and new SLAs are going to be written. While the telecom network managed services space is largely dominated by network equipment providers, IT services players like IBM, TCS, Wipro and Tech Mahindra are also constantly exploring avenues where their strengths in IT services could be leveraged. In order to tap the opportunity, Wipro is focusing strategically to develop telecom network service offerings to meet the changing requirements of various sets of communication service providers.
In June 2014, Wipro won a managed services contract from Indian cable distribution company DEN Networks. Under the agreement, Wipro would be facilitating DEN Networks to streamline the deployment of its next generation services and provide quicker service activation, while also delivering accurate rating and billing and improved customer service experience.
The managed services business is also increasingly about vendors competing on price as well as cost effectiveness. With the space getting more and more competitive, it would be tougher for the smaller vendors to enter and survive in this market. A study from ABI research says that the top vendors have procured the benefits from an industry in rationalization turmoil. It says that globally, the top three vendors Ericsson, NSN and Huawei now together account for around 85 percent of total telecom managed services revenues and would continue to improve their execution skills.
Further, the telcos are looking to adopt the cloud based services and concepts like software defined networking (SDN) and network function virtualization are grabbing their attentions. They are also realizing a strategic need to find a way to orchestrate between their IT and telecom networks, which have traditionally been mutually discrete and somewhat isolated systems. There is a growing thinking among telcos that they would need to bring IT and network pieces closer, on a single platform, to derive greater business value out of the two investment sets.
A prevailing multi-vendor environment and telcos’ best-in-class approach implies that discrete parts of the network could be dominated by different vendors. Telcos’ need to better integrate and orchestrate these network pieces with the IT platforms would lead to new partnerships among the vendors coming into being. A recent example is the Ericsson and Ciena partnership, which included packet-optical distribution, converged IP-optical joint development and distribution as well as an SDN collaboration framework.
Telcos’s strong desire to have a converged infrastructure play is best reflected in the Airtel’s captive Network Experience Center that went live in 2012 and also in Vodafone’s Super Network Operations Center that came into being recently in 2014. The Airtel facility enables monitoring of networks spanning mobile, DSL broadband, mcommerce, DTH, enterprise services and even international cables across its India and South Asia operations. The Vodafone SNOC would provide it with an integrated insight into the working of the telco’s 120,000 sites across the country.