1. FEATURE: MANAGED SERVICES
In October 2009, Alcatel-Lucent announced
what was claimed to be the first managed
services contract for a mobile operator in East
Africa. Orange Uganda’s network is now managed
by the company which provides technical support,
repair, field maintenance, and other services.
A month later, Zain awarded Nokia Siemens
Networks (NSN) a contract that represented the
Finnish company’s biggest multi-vendor
outsourcing project in the region. Over a five-year
period, NSN will manage more than 3,000 of
Zain’s multi-vendor mobile sites in Kenya,
Tanzania, and Uganda. Managed services (MS)
had arrived in Africa.
Research from Informa Telecoms Media
published earlier this year predicts that worldwide
mobile operator spending on MS and outsourcing
will reach USD29bn by 2014. Driven by the
convergence of fixed and mobile networks, the
global economic slowdown, and increased
competition, Informa senior research analyst Paul
Merry says operators are “forced” to concentrate
on their core skills, assets, and expertise in order
to survive. He adds that although the recession
has driven operators mainly in the developed
markets to re-think their business models,
developing regions will also follow suit as their
markets begin to mature.
Mohamed Hosny, director of managed services,
Motorola Networks, concurs. “Most African
operations have an ARPU range from USD4-10,
and the management dilemma is that costs are
growing faster than revenue. Data traffic is
increasing. More traffic means more network
investments and a bigger and more complex
network that requires higher operational
expenditures. Unfortunately, the telecom industry
has not been able to generate the required revenue
growth to compensate for the traffic increase.
Competition is fierce, new services and offerings are
required every day, users demand much more for
much less and are not loyal. Churn is a reality,
By outsourcing network management, operators
can focus on their core business. But do they risk
losing operational control as well as all their
technical expertise? RAHIEL NASIR finds out
Under new
management
Nokia Siemens Networks managed
services are supported by three Global
Network Solutions Centres. One is in
Portugal and two, including this one in
Chennai, are in India. They bring
together more than 1,500 specialists
who optimise networks and deliver
managed services to 23 operators
around the world. It’s claimed that the
centres perform over 1.2 million
configuration changes and produce
90,000 performance reports per month
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efforts to acquire new
subscribers are costly, and
access to capital is limited.”
Key vendors say that
operators across the world
are adopting new business
models to help them meet
such challenges and are
looking to MS as the
solution. Staffan Akesson,
Ericsson’s VP of Managed
Services for MEA and
Central Europe, says that
MS provides a “growth
engine” to operators, and
adds that it is also a proven
enabler for shared rural
coverage which is a way for
the operators to expand their coverage in a cost
effective way. “Many operators in this region
have legacy managed services models in place
with their network vendors. This model has
helped the operators during the initial phase of
the operation but it has proven to be less
optimal as a long-term model. Therefore,
operators in this region are now looking to
transform their legacy managed services model
to a long term operating model.”
In developed markets, NSN says that network
coverage and voice quality are no longer
significant differentiators for communication
service providers (CSPs). In developing markets
such as Africa, where the race is on to sign up
literally millions of new subscribers every month,
CSPs are looking for partners who can help
deliver the necessary coverage and capacity.
NSN’s head of managed services for MEA,
Samir Kumar, says: “The challenges range from
the need for rapid network rollout in emerging
markets, to a pressing requirement to optimise
and drive down operating expenditure and
capital expenditure in mature markets where the
huge rise in fixed rate data and video traffic is
putting great pressure on margins. Using
managed services for networks, CSPs can
improve their cost position, increase revenues
through improved service quality, coverage and
usage, and prioritise the crucial business
processes – in particular, customer acquisition
and retention – that are now really core.”
Kumar speaks for all the major vendors in this
market when he says that managed services
provide a tool for CSPs to improve their
efficiency and operational performance while
freeing up their resources to focus more closely
on their main business of serving end users.
“Outsourcing some essential but non-
differentiating activities can deliver average
savings of about 20 per cent – and for some CSPs
it could be even more. But essentially, it allows
CSPs to concentrate their efforts on those areas
that are critical to their business growth:
launching new services, winning and maintaining
a growing portfolio of happy subscribers, and
ultimately translating into healthy profitability.”
Risky business
MS has also introduced the idea of risk share. “The
concept of shared risk is a marked transformation
in approach for the telecoms vendors,” says Merry.
“In the past, they acted as relatively independent
agents despite the close working relationship
engendered by managed service contracts. In
essence, shared risk involves the closer integration
of the revenue streams of the managed service
partner and client with the explicit aim of making
both more reliant upon each other. It has been
touted as a more realistic proposition for telecoms
players, which face very real risks in outsourcing
their business, as the corporate partners share some
of the potential risk of outsourced or managed
services through financial liability.”
Merry adds that the impact of shared risk is
arguably greater where build-operate-manage
(BOM) and build-operate-transfer (BOT) models
are used, particularly where upfront and initial
investment is contributed by the MS partner. “This
type of approach has been identified as a possible
solution for accelerating telecommunication
developments in African markets and this is an area
where this type of development is expected.”
ZTE agrees. Its senior manager for Service
Product Marketing and Sales, Yang Zhaojiang, says
that examples of risks include workforce
management, investments in unproven markets and
technologies, or simply upgrading internal systems.
“Outsourcing these tasks offers a way of hedging
against the risk. Firstly, ZTE can be more easily
fired than the entire internal team, which provides
greater flexibility if the investment is proved to be
unwise. Secondly, scaling the solution to meet
explosive market demand is more easily
accomplished through an outside group with a
broader talent pool. And thirdly, operators should
not invest in training and education for their own
workforce for new technologies, platforms or
processes until these have proved themselves in the
marketplace and operators can take them in-house.”
Graham Kemp, Aircom International MD, says
that the faster the demand grows in Africa for
additional services, the greater the reason for an
operator to outsource the management of its
operation. Aircom specialises in network
optimisation and Kemp says that it would make
“most sense” for an operator to consider
outsourcing the management of parts of its network
in an aggressive expansion phase such as a launch
or network technology migration.
But which part of the network should be
outsourced? “From a purely financial point of
view, if all elements of the operation could be
optimised to increase revenue, reduce operational
cost, and ensure cost-effective financing, the
operator should consider outsourcing the entire
operation,” says Kemp. “It is therefore imperative
that the operator first of all considers what part of
their network could be outsourced without losing
control of certain strategically important aspects
of their network.”
Networks are complicated organic structures and
one of the biggest mistakes operators can make
when considering outsourcing is making it even
more complicated. “A managed service approach is
adopted in order to simplify and make the network
more efficient, and basically make more money,”
says Merry. “But what can actually happen is that
operators create an additional layer of complexity
where you have something called ‘meta
management’ – literally the management of the
manager. Operators have to be very careful when
they move into these kind of arrangements that
they don’t add that additional layer of complexity
because then they’re negating the whole point of
the approach to begin with.”
What MS can offer
Vendors argue that dealing with such complexity is
part and parcel of MS and is something that they
have vast experience in. For example, NSN says
that with industry consolidation, network sharing
agreements, and co-existing fixed and mobile
technologies, all CSPs have to operate and manage
a multi-technology, multi-vendor network. “We
have the capability and expertise to manage
networks and virtually all technologies under
Monitoring the network: operators could impose penalties on their managed
service partners for failing to deliver agreed performance levels
22 SOUTHERN AFRICAN WIRELESS COMMUNICATIONS May/June 2010
Mohamed Hosny,
Director of managed
services,
Motorola Networks
“Competition is fierce, new
services and offerings are
required every day, users
demand much more for much
less and are not loyal.”
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3. May/June 2010 SOUTHERN AFRICAN WIRELESS COMMUNICATIONS 23
managed services contracts,” claims Kumar. “We
are pioneering a unique, centralised global delivery
model through integrated, multi-technology, multi-
vendor central delivery hubs – Global Network
Solutions Centres (GNSCs). The GNSC
operational concept means that we have a shared
delivery organisation instead of duplication of
dedicated organisations, and can consolidate
multiple elements of our global, end-to-end services
strengths in one location. This network of GNSCs
is designed to help our customers get to market
faster through ‘round-the-clock’ project
management, ensure high network and service
performance, and improve service delivery
efficiency while reducing risk.”
Alcatel-Lucent offers a range of solutions, from
multi-vendor management (which provides a
consistent, SLA-based, single point of interface for
specified vendor maintenance contracts), through to
a complete build-operate model in which it handles
all operations. “And in between, there are options
that can include transforming legacy network
operations over to new all-IP platforms, and
migrating end customers on to those new
platforms,” says Thierry Langlais, the company’s
VP for Managed Services Sales and Business
Development EMEA. “This also includes the
associated IT components which we provide
directly or with the support of strategic partners.”
Huawei reckons that it is the fastest growing MS
provider in emerging markets. It claims to have
achieved 120 per cent year-on-year growth, and in
Africa it currently has MS contracts with MTN,
Vodafone, Visafone, Warid, Etisalat, et al. “We offer
a complete and highly flexible outsourcing solution
which can be customised to meet individual
customer requirements,” says Gareth William,
senior sales consultant for Huawei’s SAAFRICA
Managed Service Business Unit. “We provide a
range of service products including field operations,
NOC, network performance improvements, multi-
vendor management, spare parts management, as
well as network capacity management. Our
solutions provide complete end-to-end ownership
and responsibility for all network operations.”
Motorola see three main categories of MS
customers: incumbent operators who have existing
operations; greenfield operators who face the
challenge of building a brand new organisation; and
broadband operators who are challenged by the cost
of customer acquisition. “The scope of services
functions to outsource for the first two operators
can be the same,” says Hosny, “although the
approach is different, as in one case focus should be
made on how to transition and transform existing
operations, while in the other case it is how to ramp
up a new organisation in a timely manner.”
Motorola’s solutions for these two types of
customers include services for design planning and
optimising networks, operation management, and
network modernisation. “For broadband operators
whose main challenge is related to cost of customer
acquisition, Motorola offers its Customer Premises
Equipment Managed Services. Here, service providers
pay a one lease monthly fee which includes the box
and associated operational support for logistics,
refurbishment, replacements, and customer care.”
Divorcing your partner
Vendors present a very solid and credible case for
cellcos to use MS. But some operators are worried
about relinquishing control to third party service
providers, and in particular their fear is of
dominating vendors who dictate contract terms, or
even becoming the competition. Informa’s Merry
says: “There’s a real scenario where you’ve had
MVNEs thinking ‘why don’t we set up the entire
process and run it for ourselves because we have the
expertise in place?’. I can’t see any of the managed
service providers moving down that route, but there
is that kind of concern in the background.”
He also points out that an operator’s technical
expertise is effectively “stripped out” when an MS
deal is signed. This was the case with NSN’s
contract with Zain. As part of that agreement,
around 350 Zain employees who worked on
network operations in Kenya, Tanzania, and
Uganda, transferred to NSN. “People are central
to our managed services business, and under our
various MS contracts, we have successfully
integrated 13,300 personnel from CSPs into
Nokia Siemens Networks’ fold,” says Kumar. The
company adds that such employees are transferred
along with all their existing contract terms and
that they also benefit from further development
via training programmes. Ericsson agrees that MS
offers advantages to technical employees: “We
provide compelling career paths for engineering
and operations staff from the operators and
Ericsson is a very attractive employer globally and
in this region,” claims Akesson.
But Merry advises operators to be careful,
particularly in a BOT arrangement where there
should be a strict contract which stipulates that
any expertise that the vendor has put in place is
then handed over to the cellco.
Clear SLAs are vital when signing a managed
services deal. Alcatel-Lucent’s Langlais notes that
a successful engagement requires the creation of a
true partnership which may differ from a
“classical” customer-supplier relationship.
Motorola’s Hosny agrees: “The perfect contract
does not exist, but effective governance does. In a
managed services relationship, the greatest value
is not created at the contract signature, but during
the contract and operational lifecycle. Contracts
never reflect with precision the spirit and
ambitions of both the operator and the provider.
Effective governance is the key building block for
continuous value creation and a trustful
relationship build-up with the operator.”
Hosny adds that it can be really difficult to
“divorce” your MS partner so both parties must
also clearly define exit strategies. Aircom’s Kemp
agrees: “The greater the part of the network the
operator outsources, the more difficult it will be to
resume management control of the operation at the
end of the managed services contract. A lot of
things can happen in the medium to long term with
telecommunications companies, and the operator
should be able to seamlessly regain control of their
network, if the need arises. There must therefore be
a clear and achievable exit strategy defined in the
managed services contract that will govern both
operator and vendor in the case of this decision.”
Kemp also adds that it is imperative for operators
to constantly monitor and measure the deliverables
stated in the SLA: “The operator will also be able to
impose penalties if deliverables are not met.”
Merry is sceptical about vendors claiming that
outsourcing can deliver average savings of about 20
per cent. He says that in his experience, vendors
would approach operators, mainly in developed
markets, with promises of cutting certain running
costs by 25 or 30 per cent. “In some of the African
markets they may well still be saying that – but [for
that to be true] an operator would have to be
running the network incredibly inefficiently.”
That aside, there is no doubt that MS and
outsourcing will continue to grow in Africa.
Demand for voice and data services continue to
rise and operators need to meet this challenge
while also dealing with increased competition,
declining ARPUs, the need to grow revenue, and
evolving technologies. “Most operators in Africa
have entered, or will shortly enter into, an
expansive phase of migration and implementation
of new technologies,” says Kemp. “With vendor
financing potentially being offered, the outsourced
model during expansion will become more
attractive, especially as operators start to move
more towards technologies like LTE. With the
very fast pace in the introduction of new
technology, driven by customers who want more
and more bandwidth to the handset, the
outsourced model will continue to grow.”
Ericsson’s Akesson concludes: “Managed
services is a growing trend and we can see how
most operators in the region and specifically in
Africa are considering outsourcing as part of
their long term strategy. There is a strong need
for structural efficiencies in Africa and managed
services, including network sharing, is the
answer to that need. We are just in the
beginning of this trend.” I
FEATURE: MANAGED SERVICES
Paul Merry,
Senior research analyst,
Informa Telecoms Media
“The concept of shared risk
is a marked transformation
in approach for the
telecoms vendors.”
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