The huge contract awarded by German mobile communications operator E-Plus Mobilfunk to Alcatel-Lucent has highlighted the explosive growth in mobile network outsourcing and managed services.
The E-Plus deal, which some analyst firms estimate could be worth as much as 1.5bn euros ($2bn), is the latest in an ever-expanding line of $100m+ contracts signed by mobile operators around the world to bring in third party suppliers that can handle the expansion and operation of their infrastructure.
Andy Williams, president of Alcatel-Lucent’s network operations division, identified a number of factors that are driving network operators toward outsourcing. He said: Operators are not seeing the same sort of growth from traditional voice services that they once had, and they are looking to drive down costs using external partners. They can gain access to greater economies of scale by having their global networks managed from an outsourcer’s operations center.
Williams also believes that operators are attracted to outsourcing by the flexible access it gives them to technical skills. We have thousands of people with the skills to handle major network technology changes, which the operators don’t necessarily have internally. Operators may not want to employ large numbers of people for a five-year period to help them upgrade to IP networks, and outsourcing enables them to do this in a more flexible way.
According to Janne Takala, business development director for managed services in Nokia’s services business, there are two main target customer groups that are driving growth in managed services spending. He told Computer Business Review: In mature markets such as the UK, operators are looking to ease the pressure on their bottom line and they are becoming increasingly selective about what they spend their money on, and what they consider to be core operations. In emerging markets such as India, operators face huge challenges in supporting their growing subscriber bases and they are looking for third parties to help them deploy and manage new networks.
Takala gives the example of its deal with Indian operator Hutchison Essar as being typical of the sort of opportunity that Nokia pursues in emerging markets. Nokia extended a five-year managed services deal with the operator last June, and has taken on more than 800 of its internal team as part of a contract to supply GSM equipment and manage the extension of its network across India. Takala said; There are six million new mobile phone subscribers in India every month, and operators want to focus on branding and marketing and leave the technical operations to a partner.
As Alcatel-Lucent’s win with E-Plus demonstrates, there are also big projects up for grabs in mature markets such as Western Europe. Typical of most of the large network outsourcing deals signed to date, the operator has transferred a large number of its internal team (750) proving network operations and support to the vendor, but E-Plus retains responsibility for strategic network planning and network development, including the selection of communications locations and technical equipment
Takala said that demand for network outsourcing services has yet to take off in the US in the same way that it has in Europe and Asia-Pacific. He said: One of the attractions of outsourcing your network infrastructure is that you gain access to greater economies of scale. But in the US, a lot of the mobile operators are already very large, and the case for them to outsource is not as strong as it is in Europe.
Three of the big network equipment manufacturers have emerged as the front-runners in the telecoms network services space: Ericsson, Nokia and Alcatel-Lucent. Takala said that on tenders for major network outsourcing deals, it does help if the client has already deployed a lot of its kit: Whoever has supplied the base technology has an advantage. But we go after non-Nokia accounts as well as existing customers on the product side of our business.
Alcatel-Lucent said it won the E-Plus contract despite Nokia-Siemens being the principal technology supplier to the operator. Williams said: We are judged on the strength of our services proposition. One of the key criteria that clients look for on these big services engagements is that the supplier needs to be able to integrate all sorts of equipment from multiple vendors.
Williams believes that telecoms equipment manufacturers are undergoing a similar evolution to the one that occurred in the IT outsourcing space, whereby technology vendors such as IBM and Hewlett-Packard moved to a services-led model in order to meet the increasingly complex requirements of their customers. He said: The problems that operators are trying to solve are more to do with how they can integrate new technologies from multiple suppliers across multiple networks at the right price point, rather than how they can acquire the right technology with the right characteristics.