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Network equipment providers Changing the Communications Ecosystem?

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  • 1. Network Equipment Providers – Changing the Communications Ecosystem? Rebecca Watson, Program Manager Communications Infrastructure and Convergence October 27, 2010
  • 2. Contents 1. Introduction 2. Network Outsourcing Description 3. Outsource Business Model 4. Outsourcing Drivers and Restraints 5. NEP Outsource Strengths 6. Network Outsourcing Wins and Observations 7. NEP Outsource Challenges 8. Service Provider Outsource and NEP Outsource Considerations 9. Long Term Implications of Network Outsourcing 10. Final Observations 2
  • 3. Introduction 3
  • 4. Network Outsourcing - A Definition Stratecast defines network outsourcing as an arrangement between the CSP and its network outsource vendor whereby the NEP is responsible for total network operations and maintenance. Other facets of a total network outsource arrangement may include: • Planning, design and build out of new networks • Planning, design and implementation on existing networks for capacity builds, new technology implementation and/or complete outsource of portions of the networks • 1st level network operations support functions • 2nd level and above support functions • Long term contractual arrangements • Asset and personnel transfer • Risk and Revenue Share Arrangements 4
  • 5. The Traditional and New Outsource Arrangement 5
  • 6. Business Model Comparison Traditional Outsource Details Total Outsource Details CSP is decision maker for content of and timeline for Outsource vendor is responsible for network upgrades and network upgrades and patches maintenance CSP is responsible for negotiation with and managing of Outsource vendor is responsible for re-negotiating and/or network, IT, hardware, software other the entire vendor assuming other vendor maintenance contracts and maintaining ecosystem other vendor equipment Outsource arrangement is typically for new network, Outsource arrangement is for management and maintenance of network expansion and/or upgrade legacy infrastructure and may include network upgrade Short term contract length; 1 to 2 years Long term contract length; 3-10 years or more Outsource contracts with multiple vendors; one for network, The CSP has a contract with one or two outsource vendors are one for billing, etc. the primary outsource vendors are responsible for other network and/or back office vendor equipment, contracts, and SLA enforcement, etc. CSP is ultimate decision maker for network design and Outsource vendor has ultimate responsibility for network design implementation and implementation CSP network and IT personnel perform various planning, Outsource vendor provides entire staffing for management, installation and other duties maintenance and upgrades. CSP network operations staff and outside contractors are Outsource vendor may hire CSP staff as well as employing the responsibility of the CSP including payroll, benefits, and internal staff and/or contractors other human resource functions. Contract negotiations with other network and back office Outsource vendors either assume existing contracts with other vendors are the responsibility of the CSP and payment is the vendors and/or renegotiate new terms and are responsible for responsibility of the CSP. payment. CSPs provided all customer-facing support functionality. The outsource vendor may have one or all level customer-facing support responsibilities. Disparate customer support systems were used; one by the Single system back office systems are used by the outsource CSP and one by the outsource provider. vendor and CSP. 6
  • 7. Outsource Drivers Ranked in Order of Impact Rank Driver 1 - 2 Years 3 - 4 Years 5 - 7 Years 1 Reduction of costs X X X 2 Acceleration of revenue and X X time to market 3 New technology X X implementation 4 Sharing and reduction of risk X X 5 Ability to bring next- X generation networks, applications and technologies to market quickly Source: Frost & Sullivan. 7
  • 8. Key Drivers Summary Costs Revenue Generation Implementation New Bringing of Trends Technology Risk Sharing Applications to Market Quickly Source: Frost & Sullivan. 8
  • 9. Outsource Restraints Ranked in Order of Impact Rank Restraint 1 - 2 Years 3 - 4 Years 5 - 7 Years 1 Internal culture X X 2 Cost effectiveness X X X 3 Due diligence requirements X X X 4 NEP risk assessment X X X 5 Ability of NEP to provide X services effectively and efficiently Source: Frost & Sullivan. 9
  • 10. Key Restraints Summary Cost Effectiveness Due Diligence CSP Culture NEP Risk Assessment NEP Capability Source: Frost & Sullivan. 10
  • 11. NEP Strengths in Network Outsourcing • Ability to support a multi-vendor environment • Global infrastructure • Expertise • Personnel availability and capability to acquire personnel • Credit and funding facility • Research and Development • Experience and References 11
  • 12. NEP Outsource Challenges Contractual Issues Relationship Factors Asset transfer of equipment or network outsource CSPs wanting to continue to have control and input into outsourced networks NDA arrangements with CSP equipment vendors Union and personnel issues with transferred personnel Availability of software license transfers for other vendor products Ongoing relationships with vendors that are competitors Contract negotiation with other vendors on competitive network elements Communication between CSP and vendor after transfer on network upgrades and outages 12
  • 13. NEP Outsource Challenges Equipment Issues Major Equipment Supplier Issues Inconsistent adherence to maintenance NDA arrangements and proprietary dates equipment information Software and other license transfers, Equipment operated outside of number seats and other software specifications related items Obsolete or non-supported network Old equipment, due to be replaced, not elements operating at peak capacity Uncooperative vendors and/or limited Cost to bring equipment to operating access for maintenance, product order documentation, and equipment upgrades 13
  • 14. Network Outsource Arrangements 14
  • 15. NEP Outsource Arrangements - 2010 Outsource Outsource Client Description of Outsource Arrangement Provider Nokia-Siemens Lightsquared – United NSN and LightSquared signed an 8-year, $7 billion agreement. NSN is States responsible for the design and deployment, maintenance, management, and operation of LightSquared’s terrestrial mobile network. The network build includes deployed approximately 40,000 cellular base stations by 2015 Nokia-Siemens NII, operating as The agreement covers the management of NII’s networks across Nextel, Latin America markets in Argentina, Brazil, Chile, Mexico and Peru. The scale of the contract makes it the first of its kind in Latin America and is one of NSNs’ largest, multi-vendor, multi-country managed services agreements Alcatel-Lucent Vivacom - Bulgaria Outsource of end-to-end mobile network including transferring approximately 600 employees to ALU Ericsson Vodafone Germany Management of field services for Vodafone's fixed and mobile access and transmission network, and fixed core network nodes in Germany. The deal includes a personnel transfer of approximately 600 Vodafone employees Ericsson Telefonica O2 UK Field maintenance services for radio and switch sites, spare parts management logistics support, network optimization and facilities engineering services Ericsson Telefonica Brazil Operation of Telefonica's network operations center in São Paulo which is an extension of an existing agreement where Ericsson operates and maintains the new optical fiber network in São Paulo 15
  • 16. NEP Outsource Deals - 2009 Previous Outsource Outsource Client Description of Outsource Arrangement Provider Nokia-Siemens Orange – United Operations, maintenance and optimization of Orange’s 2G/3G mobile Kingdom network including transfers of 470 line level employees to sub- contractors and/or to NSN direct employee status Nokia-Siemens Orange - Spain Fixed and mobile multi-vendor network operation and management Nokia-Siemens Embarq, Ltd. – United Ownership of Embarq’s (now CenturyLink) voice network and network States operations center with employee transfers Alcatel-Lucent Sunrise - Switzerland Mobile, fixed and broadband network outsourcing and employee transfers Alcatel-Lucent Bharti Fixed network outsourcing and IP transformation Alcatel-Lucent Reliance Telecom – This outsource arrangement involves a new joint-venture arrangement India between the two parties. The arrangement includes ALU providing network outsource services to Reliance as well as Reliance and ALU partnering to provide outsourcing services to other CDMA and GSM network operators Alcatel-Lucent Global Crossing – Operations, management and maintenance of Global Crossing’s IP/MPLS Global network infrastructure Ericsson Yoigo – Spain TeliaSonera’s mobile operator in Spain has entered into an agreement that Ericsson is responsible for the operations management and maintenance of its 3G network. The operations management includes field services, the NOC and support of the hardware and software. Ericsson Sprint Wireless and wireline network outsourcing including employee personnel transfer Ericsson 3 Italia Extension of an existing network outsource arrangement for management of 3 Italia’s 3G network and its IS & IT infrastructure. The extension also includes provisions for Ericsson to upgrade the 3G mobile broadband access and core network. 16
  • 17. Service Provider Outsource Considerations There are many considerations for outsourcing: CSPs have made a strategic decision to support next- Services generation services and technologies, legacy portions of the Business Model network are outsourced to the NEP CSPs do not have the expertise to run next-generation Expertise networks and/or do not want to assume the risk of next- generation products CSP networks are widely dispersed and there are geographic Geography areas that are far from the CSP core service area Mergers and acquisitions may drive CSPs to outsource a Acquisitions portion or all of an acquired asset if bottom line profitability CSPs have multiple vendors and vendor products and Multi-vendor determine it is more efficient to outsource the entire network Environment to alleviate the time consumed by network equipment upgrades, patches and scheduled maintenance Source: Stratecast 17
  • 18. NEP Outsource Considerations NEPs have many considerations too, the high level ones are: Outsource Overall business objectives of the client, for example, is the client Objective willing to relinquish control of the network in its entirety Status of the network; what will it take to bring the network to a Network Viability reasonable operating level from both a re-design and equipment status perspective NEPs must be able to successfully complete an in-depth and Due Diligence sometimes lengthy disclosure process NEPs consider the viability of asset and personnel transfers, assumption and/or re-negotiation of existing maintenance, hardware Outsource Details and software license agreements, and the status of the network equipment Financial and Risk Financial stability of CSPs, the commitments to other vendors and Assessment contractual obligations and risks of sharing arrangements Source: Stratecast 18
  • 19. Long Term Implications of Total Network Outsource • The decision of when to retire legacy network infrastructure shifts to the network outsource vendor as long as required services can be provided • CSPs can concentrate on services, and more importantly customer service • Outsource arrangements keep the door wide open to the business model where the CSPs are truly able to focus on new, innovative services, and retail operations • Employment opportunities with CSPs shift from network-centric to customer- centric • Total network outsourcing has the potential to transform the CSP into a new entity that can focus on its client base and not the network 19
  • 20. Final Observations • Total outsource changes the CSP and NEP relationship paradigm as well as changing the definition of what each entity is…the CSP a true provider of services versus a network operator and the NEP, and network operator versus a product and services vendor There is opportunity to ‘green up’ the network infrastructure • Opportunity for network and back-office sharing • Opportunity for market-centric providers to enter the market • NEPs become more sensitive to CSP operations 20
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  • 23. Thank You Questions? 23
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  • 25. For Additional Information Jake Wengroff Becky Watson, Program Manager, Corporate Communications Communications Infrastructure Information & Communication and Convergence, Stratecast Technologies (A Division of Frost & Sullivan) (210) 247-3806 (303)695-7673 Jake.wengroff@frost.com becky.watson@frost.com Perry Somers Director of Business Development, Stratecast (A Division of Frost & Sullivan) (360) 416-4982 psomers@frost.com 25