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Managed services: the next big thing in telecom

It is a paradigm shift for the telecom industry, transforming decades-old business models. A quarter century from now, a vast majority of telcos will have all or parts of their networks managed and operated by a different company, according to British analysis firm visiongain.
Sound crazy? Not to companies that are already saving big through outsourcing.

Less than a year after Brasil Telecom Comunicação Multimídia handed over day-to-day operation of its fiber network to Ericsson, the data services company is already seeing a significant cost reduction, according to Network Manager Arthur Magalhães.

 

The expectation is for even higher annual savings as the company’s network continues to grow by 1-2 percent a month and Ericsson leverages resources from its growing Brazilian services operation, he says.

 

“We don’t want to deal with people and training, and with all the subcontracts,” Magalhães says.“We wanted somebody to take care of the fiber, the configuration and the programming, so we could focus on our customers and being competitive in the market.”

 

NINE IN 10 OPERATORS WILL OUTSOURCE

Prachi Nema, lead analyst with visiongain, says operators can gain a 15 percent cost saving by outsourcing portions of their business.

 

By the end of 2007, 10 percent of  operators will have outsourced their network management, Nema says.

A quarter century from now, 90 percent will be outsourced.

 

“Tier one operators won’t initially go for an end-to-end solution where they will outsource completely,” Nema says. “They could go for a hosted application just to try it out. If that works, they may try it again.

 

“It’s the MVNOs (mobile virtual network operators) and the greenfield operators who will be most interested
in the managed services solution in coming years because they lack the experience and the expertise to run the networks,” she says.

 

GETTING CLOSER TO CUSTOMERS

Outsourcing was also the next logical step for 3 UK, which in 2005 signed one of the largest managed services contracts in industry history.

 

At that point, 3 UK had been in business for nearly three years, and matured as an operator in the fiercely competitive UK market.

 

John Vickerman, the company’s people and property director, says the company needed to focus on what it does best: offering great value and exciting services to its customers on the move.
 
“Particularly with 3G services, which is what we’re about, you need to be close to customers and explain what’s involved,” Vickerman says.

 

FREEING UP RESOURCES

By outsourcing more than 1000 of its technical employees, 3 UK realized immediate savings.

 

In 2006 and into this year, the company has focused on rolling out a nationwide retail presence. It also hired 1000 additional retail workers in the UK.

CHOOSING THE RIGHT MODEL

The one-vendor, 100-percent-outsourcing model that Brasil Telecom Comunicação Multimídia and 3 UK chose has its pros and cons.

 

Having only one vendor to interact with makes communication easier. It also creates a dependency that can make an operator vulnerable if problems arise.


 

But Magalhães says he is happy with the managed services contract his company signed.

"As the network grows, the contract grows, and everything should be working fine," he says.