Times have changed. Only the foolhardy go it alone. Outsourcing and managed services are now part of every carrier’s business model, whether fixed or mobile, and there’s a real opportunity for the savvy carrier in developed markets to make a good living in providing managed services to carriers in developing markets.
It’s a scenario which crops up with increasing frequency. Most recently, France Telecom entered into a two-year agreement to manage Ethiopia’s state-owned monopoly telecoms network, Ethio Telecom, earning up to $40 million from the deal. France Telecom aims to improve and modernise Ethio Telecom’s overall business by implementing a new organisational structure, and all of Ethio’s current employees will remain on the payroll until the last person is redeployed in the new company. France Telecom has a very similar arrangement running with TeleYemen, the incumbent operator in Yemen, for the last seven years.
There are other examples. BT, for instance, has won awards for its deal with Bahrain operator Nuetel. BT operates Nuetel’s infrastructure and provides 24x7 technical support, monitoring and roll-out of leading converged services for the company, which is the main alternative telecommunications provider in Bahrain. It is all part of a strategic relationship between Nuetel and BT, covering technical consultancy and services development, joint marketing and the resale of BT’s worldwide services. BT brings its global capabilities and outsourcing track record, and Nuetel contributes an advanced infrastructure, sales capabilities and focus on the Bahraini and Gulf markets. The agreement also extends Nuetel’s portfolio of services significantly, allowing Nuetel to expand its services regionally and globally by leveraging the BT global infrastructure.
How to do it right
Camille Mendler, Yankee Group vice president, comments: “There’s a real opportunity for the incumbents of Europe, who have suffered from getting it wrong in the past, to show the companies in developing markets how to do it right.” Mendler says that she recently spoke to a Vietnamese operator who was looking for help on how to develop its business from the consulting divisions of carriers, turning to the likes of BT, Deutsche Telekom and France Telecom rather than to a big management consultancy. “It’s an evolution of the classic wholesale proposition,” she says. “These companies want access to both short-term and long-term expertise.” And it’s a reminder of the results of Capacity’s November Smart Wholesale Survey, which found that western European wholesalers flagged managed services and outsourcing as a hot spot and strong driver of revenue growth, along with cloud computing and international bandwidth.
Some carriers are grasping the opportunity more wholeheartedly than others. For some time, Global Crossing has been packaging up and marketing its wholesale division’s services under a Fast Track branding in order to “enable service providers to quickly extend their reach globally, without incurring additional capital and operational expenditures.” In early 2010, for example, Etisalat signed up with its Fast Track services to gain access to North and Latin American markets, extending its customers’ connectivity in countries where it doesn’t have coverage by being part of the Global Crossing MPLS network. Other names on the list of Global Crossing’s partners include Telekom Malaysia and Tele Pacific.
Reach and expertise
In Europe, Interoute has been quick to see the possibilities that outsourcing can bring to its business. With a network footprint that runs for more than 55,000km through Europe and with backbone/ long-haul connectivity to 99 cities and metropolitan area networks in 21 of those cities, the company is well placed to assist partners looking to expand and deepen their footprint and services. Commercial director Jonathan Wright says the company looks at outsourcing from two viewpoints: carriers can use Interoute’s reach and expertise to expand into new areas; or they can take and use its expertise to build and improve their own network.
Wright says that customers look to outsource for a number of reasons: these reasons being geographical, technological or strategic. “We work with a large Greek operator,” he says. “Its competencies are within Greece. It would cost it a huge amount to take its in-house operations elsewhere – I’m talking about large contracts for field support, and all sorts of tax, regulatory and licensing issues, just for a start.” He adds that with company taxes being typically between 15% and 30%, there’s also potential for big savings, especially in transit countries.
Wright says that, as a rough guide, operators can expect to pay five times as much for the field elements of a network if they decide to go for a do-it-yourself approach rather than outsource. There are also staff savings in the network operations centre to consider, to say nothing of the difference in quality that results from using an already tested and proven network. “A new network might take 18 months to settle in,” Wright says, “but if you outsource, these teething troubles just go away.” As an example, Interoute works
with Danish telco TDC in the Nordic countries. It has a reciprocal arrangement with TDC – Interoute provides TDC with a pan-European VPN, and TDC provides access to its Scandinavian network.
Changing mindsets
While owning your own network might have been a matter of national pride with some European former incumbents, that is changing. Developments in technology are forcing carriers to consider outsourcing. Says Wright: “Many of the networks built in the first tranche have not been well looked after and are based on old technologies. The fibres are coming up for renewal.” These companies are now asking themselves why they want to build and own a network, when they can turn to a partner who already has a network and which might even have a range of managed services that they can whitelabel. “There are carriers asking whether they should really want to run a network,” says Wright. “They’re examining the direction they want to work in.”
Interoute has spotted another outsourcing opportunity – that of building networks on behalf of other operators, especially in developing markets. Wright points out that Interoute has the skills in design, building and management and has standardised its processes to enable it to offer network design and building to other companies. It recently announced that it would be providing the landing station in Italy for Albania’s first competitive undersea fibre-optic cable, to be constructed as the first phase of Unifi’s Balkans-Italy Network (BIN) and due to be operational by the first quarter of 2011. It also provides the landing station and backhaul for Tunisie Telecom’s subsea cable landing in Sicily, where the Tunisie Telecom cable links into Interoute’s network. Interoute has also built a network for an African partner, the details of which have yet to be announced.
It’s an opportunity that Yankee Group’s Mendler thinks will develop in the future and which should make for some interesting battles in the times ahead. “How soon will it be before we see telcos clash with equipment vendors who are trying to diversify?” she asks.
Adjusting the business model “The successful execution of a telecoms operator changing its focus from a traditional carrier will be one that can offer integrated networking and IT solutions such as managed services, expertise management and network infrastructure,” says Francois Eloy, MD of Wholesale at Colt. “But this will only be achieved by those anticipating and responding to customers’ challenges and aspirations. The race to meet these demands will be won by those who are able to respond to customer needs with the greatest degree of agility.”
Eloy thinks that to remain competitive, telecoms operators need to adjust both their business models and technology framework to effectively plan for providing more than simply voice and data connectivity.
A recent study conducted by Portio Research in conjunction with Colt surveyed over 350 CIOs across Europe to evaluate their readiness for cloud computing. The research revealed that CIOs are very optimistic about the future of cloud services, with 86% believing it will be the most significant operating method of the future. Flexibility, rather than cost savings is now their primary concern as CIOs look to provide for the future needs of the companies they work for.
“Executing the delivery of higher value offerings (such as IT managed services and expertise management) represents a huge change, but one that is crucial – not only to sustain a move from ‘traditional telco’ to integrated solutions and network provider but also to ensure they are in a position to deliver against the growing demand for services that use the network as a backbone, such as cloud computing,” says Eloy. “We are reaching a point where we can no longer address demand by throwing more bandwidth at our challenges. Smarter solutions are required.”
The era of traditional telecoms companies supplying bandwidth for fixed and mobile voice connectivity is in decline, with incumbents understanding the need to make the transition from service to value providers.
