The managed services market has moved on in recent years, with wholesale carriers in the outsourcing game facing a learning curve to remain first choice for their customers. Guy Matthews considers where the market has come from and how it might evolve in the future.
The business of selling network services to enterprises is changing profoundly, creating openings for exciting new models and challenging service providers of a traditional and cautious disposition to step up to the mark or face being relegated to the sidelines. New and innovative technologies are revitalising the enterprise network game - technologies such as SDN and NFV. These come with new capabilities that are enabling service providers to build custom networks for their customers that integrate private networks, VPNs, internet and cloud connectivity into hybrid networks that are as agile as they are automated and programmable. Offered as a Network-as-a-Service (NaaS), today’s networks are customisable in many different ways, helping to solve the continually shifting strategic business requirements of all type of enterprise.
The practice among telecoms operators of outsourcing aspects of their business to carrier partners has changed fundamentally in the past few years, challenging those carriers to learn and adapt in order to remain relevant.
In the not too distant past, operators would seldom outsource something as core as the running of their network. Peripheral elements of their business, such as billing, customer service or contact centre management, would be fair game for passing to third parties and being paid for as a managed service. Now the outsourcing of a far wider range of things is accepted as reasonable economic good sense.
“Managed services have expanded to encapsulate all sorts of different areas, such as going to a third party to get cloud services you can resell on a white label basis, without having to build any of your own cloud infrastructure,” says Camille Mendler, lead analyst, enterprise services with consulting firm Ovum. “You’ve got many people providing this sort of managed service, from NTT’s Dimension Data to IBM.”
The time has certainly long passed, she says, when the primary purpose of outsourcing was to save money: “Telcos aren’t outsourcing ‘mess for less’ any longer,” as she puts it. “They have already achieved that. Telcos are in the main financially very efficient operations that have cut their costs down to or near the bone. It’s not about cost saving, but new revenue generation and growth.”
Mendler foresees that the impact of developments like SDN and NFV will change the definition of managed services still further over the coming years: “You might in future have a third party looking after service level management for you,” she predicts.
“Aspects of customer experience might be delivered as a managed service, and perhaps the guaranteeing of application performance across diverse networks – things that an ordinary operator might not be capable of and might look to someone else to manage.”
Efforts at outsourcing driven purely by expected cost savings have in any case often proved unsatisfactory for both wholesaler and customer, says Cathal Fitzpatrick, head of technology at Openmind Networks, a developer of rich communication service solutions. “What has proven to be more successful are services focussing on areas of specific value-add that can be concentrated at a wholesaler, and delivered in a cost effective manner to many clients,” he believes. “This allows the client to benefit from the wholesaler’s expertise at an affordable cost, and correspondingly, allows the wholesaler to efficiently scale a managed services business.” He picks managed security services as a good case in point: “Wholesalers are uniquely positioned to observe and understand security threats on interconnect links, thereby gaining expertise unavailable to clients,” he says. “This expertise can be offered as different forms of services – from audits and threat assessment, to active enforcement of policy rules and controls. Preventative measures on grey routes messaging for mobile operators is a particular sweet spot for wholesale carriers, as a return on investment can be readily shown.”
Mastering new skills
Carriers are having to respond by mastering new skills outside their obvious comfort zone. Not only are they retooling their networks for a software-enabled and virtualised future, they are also having to take on board and respond to a number of unfamiliar customer expectations.
“What traditional carriers, and I include us here, have been really successful with has generally been network centric,” notes Len Padilla, VP product strategy at NTT Communications. “At NTT we’ve been successful at turning network into something like a service, especially through NFV and to a lesser extent SDN. NFV is about giving the customer the chance to provision virtual circuits, and changing the features of the network they are using through a portal. This is in some ways a traditional area where you’d expect telcos to do well.”
Carriers are now shifting into less charted areas like managed IT and compute services, he observes: “Where they are on that journey depends on when they decided to get into it,” adds Padilla. “We have deep experience of hosting multi-tenant platforms – what became cloud. For the industry as a whole, the compute side of managed services is something a lot of people didn’t quite understand. Some thought it was all about competing with Amazon, and that was never going to work. Those guys – like AWS and Azure - do what they do well with the developer centric public cloud, and our customers use that, but what we’re offering is something a little different.” Padilla says those carriers in the vanguard of this shift have found a ready managed service opportunity that goes some distance further than an AWS or a Google can offer: “We can offer the customer something with SLAs and a bit more security wrapped around it, and special services on top,” he explains. “We give visibility and ability to enforce governance over all platforms, not just ours. That’s where managed services in the cloud space are going for the telco. We can be the management layer that helps service providers make sense of this. We’re also making a big push into remote infrastructure management. And as an example of non-cloud things that are becoming cloud like, there’s unified comms, delivered as a managed service.”
Cloud is certainly emerging as the biggest reshaper of the managed services landscape. It is not only driving a huge change in the architecture of today’s networks, but creating a need for bandwidth on demand, service automation, orchestration and quality of service in a way that is throwing up opportunities for those positioned to support transition to the cloud. The cloud is also creating opportunities for new players to enter the market and compete for global contracts. With the right infrastructure in place, they can go out and win new business.
“Cloud connectivity platforms are a key growth market,” believes Jerzy Szlosarek, CEO of Singapore-based wholesale carrier Epsilon. “As cloud adoption continues to surge globally, enterprises need simple and efficient connectivity to their cloud service providers. These cloud connectivity platforms play a critical role in the ecosystem and enable MSPs to monetise the cloud in new ways. They can capture new revenue by selling cloud connectivity platforms to create new stickiness with enterprises.”
Szlosarek sees shifting dynamics between the worlds of cloud and network infrastructure: “When global Ethernet is delivered with an on-demand model and supported with end-to-end visibility, MSPs have a real advantage in the market,” he believes. “They can simplify and accelerate an enterprise’s access to cloud connectivity.”
The differentiating factor, he says, is the selection by the service provider of a platform partner who can give them the performance, and reach they need: “They need to choose wisely and look for a platform partner that is built to serve the cloud and isn’t just in the market with a ‘me-too’ offering,” he adds. “We really believe that network infrastructure has to match the agility, flexibility and simplicity of the cloud services it enables. That’s what cloud connectivity platforms do and that is changing the managed services market.”
Cloud-based platforms
This much changed managed service ecosystem is both a challenge and an opportunity for carriers in the outsourcing game. For their customers, especially their mobile operator customers, it is a win-win, as empowering as it is liberating. Cloud-based platforms that deliver critical services on a managed basis mean that an operator’s size and reach is no longer a limit on its success. As a result, the mobile market is becoming a more dynamic and competitive place. In particular, it is becoming easier to make a success of a newly launched MVNO business, able to leverage cloud-based services in an agile way to help launch new value-added services for subscribers.
“This is a great time to be a new MVNO,” believes Steve Barefoot, senior product analyst at Interop Technologies, a vendor of NFV solutions for mobile operators. “As more and more services have become available from the cloud, MVNOs now have more ways to differentiate themselves from the competition, including from their network provider. The business model for MVNOs has literally changed because of the breadth of cloud-based services that have become available. They are no longer relegated to being the discount brand of their MNO affiliate. Instead, they can choose managed services from a number of third-party suppliers to supplement their core offerings.”
New service areas that are already flourishing in this climate include Voice over Wifi, VoLTE and Voice over Data, as well as IMS and the applications enabled by it. All potentially require the acquisition of complex new skills, and therefore lend themselves to an outsourced model. IMS through the cloud is a realistic proposition for operators that would once have been effectively priced out of it. Again, MVNOs are freed up through the managed service models, able if they wish to provide new services like VoLTE before their MNO host has had time to adopt it themselves.
As enterprise mobility matures and becomes more central to business success, so operators will look to managed services to help them achieve other things, including interoperability with key technologies including middleware and the internet of things. These developments will add to the complexity of back-end integration and the management of mobile apps, and provide an area where carriers can add their special type of value through outsourcing.
“I predict that telcos and cloud service providers will broaden their platform offerings to support enterprise mobility with full enterprise-grade technology stacks and value-added mobile cloud services such as data analytics,” says Cathal McGloin, VP mobile platforms at open source software provider Red Hat.
“Some forward thinking telcos have already begun offering enterprise app development services, and I predict that more will take up this business model in 2016, as well as smaller cloud service providers.”
Bringing value to businesses
Managed services will grow into new areas with the continual emergence of new technologies, allowing service providers to tap into new domains, such as big data and IoT, enhancing their ability to compete in the digital era. Service providers will need to sustain existing strategic partnerships and seek new ones to enable them to reduce risk, compete more effectively and enhance the experience of their customers and ensure efficient and optimised operations.
It’s a situation tailor-made for managed services says Rotem Katsir, director of services marketing at Amdocs: “When a service provider is in an IT managed services relationship, it is like a happy marriage,” he believes. “It reflects a win-win situation for both parties. The managed services provider delivers operational excellence with cost savings, while the service provider can focus on its core business.”
Katsir cites the example of his own company’s relationship with Vodafone: “From the ground up, we built a shared services and development centre with centralized operations, fit to serve a range of diverse markets,” he explains. “The benefits include capital and operating expenditure cost reductions, increased predictability of operating expenditure costs through a fixed long-term agreement, as well as reduced risk, overhead and management complexity.”
He agrees that the next stage must see service providers seek managed services partners who can develop their capabilities around new domains such as IoT: “Just look at the results of a recent study by Telesperience, which found that this trend will continue up until 2020, when investment priorities are likely to be centred around customer experience and cloud services, followed by big data analytics. Overall, managed services providers have identified this trend and have started leveraging their capabilities to answer the needs of service providers who are seeking sourcing engagement models that will help them enter new domains in a cost-efficient way.”
Katsir refers to separate research from analyst firm Gartner, predicting that by the end of 2016, more than 50% of infrastructure and operations organisations will be using business value dashboards as their primary means of communicating value to their business customers, up from 5% today: “This means that what is needed is a realignment towards extracting maximum business value from IT activities,” he claims. “This means focussing on service providers’ business goals and their related business KPIs. In every customer interaction, the effort and focus must be on reaching a holistic understanding of their needs, and the obstacles that prevent them from getting there. Then, to complete the value chain, managed services providers must create and demonstrate action plans that show the best possible improvements they can deliver. Such plans must speak the business language of the customer, while demonstrating compelling business value and return of investment.”
More growth to come
There is clearly a lot of growth still left in managed services, and many new service areas that are as yet uncharted. Managed services and outsourcing will in all probability become ubiquitous in all corners of the communications ecosystem, and will in due time be considered the de-facto method for delivering services. The risk for organisations that fail to embrace this trend will be obsolescence or at least partial irrelevance or marginalisation. Where once managed services came with taint of concern over areas like performance, reliability and security, these are now addressed by the current generation of managed service providers. Nobody can claim that managed services are at the periphery of the industry. Outsourcing has been around long enough already such that it can no longer be viewed as a novelty or a luxury. The question mark for carriers, as providers of that outsourcing, is how much longer they can remain first choice for service providers, given how much diversity and credible choice there now is in possible services partners.
“Services are a growth area, but the big question is which kind of organisation is going to be providing those services,” says Ovum’s Mendler. “Will it be a telco? And if it is a telco, which division of the telco will it be? Will it be the wholesale services division, or some other part? Will it be a vendor, or some party from outside the traditional telco ecosystem? If it is to be a wholesaler, then today’s wholesalers need to pick up a lot more skills, because it’s not just about outsourcing roaming or voice or messaging. It’s all up for grabs, and that’s what’s interesting about the managed services market today.”
