13.telco outsourcing strategies detecon

Member of

Carrier Network Outsourcing –

A realistic Alternative or a new Hype?

Content

Lessons learned from lean and efficient Industries

Current Telco’s Reactions on Restructuring Pressure3.

Example 1: Out-tasking Business of Detecon Al Saudia4.

Example 2: Outsourcing Deal of Alcatel with One in Austria5.

1.

Out-tasking/Outsourcing – Hype or Alternative?6.

The sandwiched Telco’s2.

Automotive IndustryHighly Automated assembly and integration“Just-in-time” principles for standard partsFast, cheap, flexible, efficientCompetition on features and brands/image70%-90% of key parts from external sources

Low-cost AirlinesIntense use of IT and customer self-serviceDemand based pricing schemesHigh load factorsIntense use of outsourcing

RetailHighly automated flow of goods and partsJust-in-time stock control and order logisticsManagement of cost-based end-endHighly flexible product life-cycles

Significant Lessons:

High levels of end-to-end automated process flow

Rigorous elimination ofmanual or ineffectiveprocesses

Intense use of highlyqualified (outsourcing)partners

Very high business flexibility

Just-in-time capacity management

Demand based pricing

BankingHighly automated capital flowsIntense customer self serviceFast changing financial product life-cycleElimination of manual back-officesHigh level of customer oriented interworking

1. Lessons learned from lean and efficient Industries

Source: Inputs from K.J. Willets, Chairman TM Forum

1. Lessons learned from lean and efficient IndustriesExample “Smart Roadster” Assembly: 95% external sourcing

CAPEX & buying boom exhausted financials…

CA

PE

X F

ixed

Lin

e O

pera

tors

US

($bn

)

25

50

75

1990 1994 1998 2002 2006

OPEX remains on high level…

1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02

Ope

ratio

ns c

osts

as

% o

f rev

enue

75%

80%

85% BTDeutsche Telekom Drive

downcosts

Drive up

customerservice

Drive up

revenue

Driveup

businessflexibility

Several Improvement areasat the same time…

Multiple downward pressure on tariffs…

Over-capacity

Newtechno-logies

Compe-tition

Regu-lation

Tariffs

Over-capa-city

2. The sandwiched Telco’sTelcos are under high pressure because they just started their way towards a leanand efficient industry

The lean &efficientTelco


Sale

s &

Mar

ketin

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Serv

ice

Ope

ratio

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Net

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k Pl

anni

ng

Cor

e N

etw

.O

pera

tion

Acc

ess

Net

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Ope

ratio

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Fiel

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Most Operators have pillar organizations with a low level of process integration

Low level of automated process work flowToo much staff expenses

Rigid and inflexible business processesPoor time-to-market cycles

Non-appropriate systems, poor system integration level, inaccurate data

Low level of customer services

Processes and systems cannot scaleSlow growth

High risks and cost of changesSlow introduction of new services

Supplier “zoo”Low level of economics of scalesIT

O

pera

tion

Cus

tom

erSe

rvic

es

2. The sandwiched Telco’sHot topics on Telco’s management agenda


What is the main value of a telecom operator ?

The customerbase

Never differentiate by…

Telecommunicationsnetwork technologiesIT technologiesOSS/BSS technologiesIntegration & Archi-tecture

But always differentiate by…Service featuresNetwork qualityProcess optimizationData intelligenceCustomer serviceService packaging

Cost reduction, OPEX stability and concentration on customer value are the main reasons why network outsourcing/out-tasking to professional partners is presently under broad discussion and realization

Telcom´s is the largest industry with the lowest realization level of out-tasking and outsourcing!

3. Telco’s current Reactions on Restructuring PressureStabilizing OPEX and reducing cost seems to be main drivers

3. Telco’s current Reactions on Restructuring PressureTelco’s try to get rid of tangible assets, network O&M, tactical network planningand related staff in the network area

Siemens closed a contract with Brazilian fixed line operator Telemar in 2002 to maintain the network in 6 states. Deal size: US$ 13 million a year. Savings: approx. 10%

Ericsson operates and maintains the whole mobile network of Telecom New Zealand

Ericsson closed a deal in 2002 with Brazil Telecom to operate and maintain the network in the southern provinces.

Ericsson closed a deal in 2002 with O2 Netherlands to maintain and operate the whole mobile network including planning, design and implementation

Alcatel continues in 2002 the maintenance of KPNQwest pan-European network

Ericsson closed a deal in 2002 with Hutchison Telecommunications to manage the outsourced mobile network in Australia.

BT closed a deal with national fixed switched network provider Redstone. The whole network was outsourced to BT for operation and maintenance. Redstone keeps strategic control.

Alcatel closed a deal with mobile operator One in Austria. One outsourced the transport network and the technical planning. Alcatel executes planning, operation and maintenance for the whole network. The deal size is 472 million € for 7 years.

New Zealand Telecom announced in 2003 expansion of relationship with Alcatel by outsourcing planning, development, operations, design, buildings and fault units in 2004

3. Telco’s current Reactions on Restructuring PressureOutsourcing/Out-tasking in the network area is a current main stream in the Telco scene

Applications

Back office

Network

Core Operation Support

Games, news, ring-tones, e-mail, chat,messaging and portals

Middleware

MMS-C, SMS-C, corenetwork, radio accessnetwork, transmission links, masts/towersand buildings

Project management, forum management and system integration

Provisioning, billing, churn management, CRM, office IT, network management, activation, authentication, assurance, roaming and system integration

Network maintenance, network build, network planning and design, site acquisition, civil works

System Integrators BPO providers

SpecializedVendors

Construction/support service companies

Telcoms vendorsFixed telcosSource: Ovum 2003

3. Telco’s current Reactions on Restructuring PressureThe Telco outsourcing landscape and main areas of activities

ApplicationBenefits Back office/Network

Main driverEconomics of scale Main driver

Not yet importantConvert fixed costs intovariable costs

Not yet important

Major driverPredictability of cost Major driver

SignificantAccess to skills Could be important forsmaller operators

Should be significant, buthard to measure

LimitedEconomics of scope

Major driverSharing risks Important both in operationand future proofing of NT

LimitedFocus mgmt. attention Important

3. Telco’s current Reactions on Restructuring PressureCurrent outsourcing short-term drivers for carrier network outsourcing/out-tasking

Source: Ovum 2003

Source: Mummert Consulting F.A.Z.-Institut 2003

66

86

56

86

34

14

44

14

Planned No Plans

All Mobile Operator All Mobile Operator

Focusing on Core Business Outsourcing

2003 Interview Results from 100 Executives in the German Telecom Industry:

More than 50% are interested in outsourcing

Specific high interest from mobile ope-rators

%

3. Telco’s current Reactions on Restructuring Pressure Current results on willingness to outsource

4. Example 1: Out-tasking Business of Detecon Al Saudia

Network Ownership is with the customer

Customer monitors network performance

Responsible for network planning and extension, traffic routing, procurement

Contract package for SLAs and KPIs to operate and maintain the nation-wide transport layer

Provisions on number of billable staff, support staff & materials, skills, education, locations, local staff, training

Operation and maintenance of a clearly defined part of the customers network(mainly transport layer): long-distance network, junction network, rural communications network, incl. buildings, maintenance centers, towers

Detecon is responsible for repair, spar parts, facilities, buildings, set-up of own car fleet

Detecon integrates new network partsor equipments (contract amendments)

Clear reporting (compliance of network performance, billable staff, training, etc. ) and interfaces

Payments according to billable staff, compliance with KPIs and SLAs, fulfilment of training requirements, etc.

Transport NetworkDet

econ

al S

audi

a

Saud

i Tel

ecom

(Fix

ed N

ewor

kO

pera

tor)

Basis: O&M out-tasking contract

Basics of Out-tasking Business

NetworkDevelopment

NetworkRollout

NetworkOperation

NetworkMaintenance

NetworkDesign

Radio Networkplanning

Site Acquisition &management

Construction

Installation &Commissioning

Facility Management

Logistics (Spare Parts & Terminals)

Central support functions (Quality, Reporting)

Transmissionplanning

Service Provisioning

NOC

Network TAC *

TAC Maintenance Level 1



* TAC= Technical assistance centre

4. Example 1: Out-tasking Business of Detecon Al SaudiaNetwork Out-tasking Landscape

Saudi TelecomResponsibility

Detecon al SaudiaResponsibility

Client Benefit #1Client

Benefit No 1

Predictable yearly OPEX budget for the contract period (benchmark: 1.2 – 1.5 US$ per main line/month)

Client Benefit

No 2

Contract is based and defined on network performance parameter according to SLAsand KPIs

Client Benefit

No 3

Contractor responsible for recruiting, training and skill building of local staff

Client Benefit

No 4

Incorporation of best practice experience and results through re-tendering and competition after 3 years period

4. Example 1: Out-tasking Business of Detecon Al SaudiaVarious client benefits

Core Ntw. Plng.

Radio Ntw. Plng.

Site Acquisiton

Core Ntw. O&M

Radio Ntw. O&M

Transm. Ntw. O&M

Core Ntw. Plng.

Radio Ntw. Plng.

Site Acquisiton

Core Ntw. O&M

Radio Ntw. O&M

Transm. Ntw. O&M

RNCNode BUE

PCU

GGSN

BG

IP

BackboneSGSN

BSC MSC GMSC

HLR

VLR

AUCSCPSMS

EIR

BTSMS

PSTN

ISPRNCNode BUEUE

PCU

GGSN

BG

IP

BackboneSGSN

BSC MSC GMSC

HLR

VLR

AUCSCPSMS

EIR

SCPSMS

EIR

BTSMS

PSTN

ISP

Alc

atel

One

(Mob

ile O

pera

tor)

Basis: Outsourcing and O&M contractContract package for SLAs and KPIs to operate and maintain core and radio netw., exec. tact. planning

Outsourcing of transmission network assets, tactical planning department., O&M department

Operation and maintenance of wholecore and radio network, incl. facility mgmt., network management centres, maintenance centres, towers etc.

Alcatel integrates new network partsor equipments (contract amendments)

Alcatel is responsible for repairand spar parts

Alcatel is responsible for tactical planning,Site acquisition

Network (except transmission) Ownership is with the customer

Customer monitors network performance

Responsible for strategic network planning

Clear reporting (compliance of network performance) and interfaces

Payments according to compliance with O&M KPIs and SLAs, fulfilment of planning tasks, etc.

5. Example 2: Outsourcing Deal of Alcatel with One in AustriaBasics of Outsourcing Business

Deal Size: 472 Mio €over 7 years including 200 staff from One

Source: Alcatel Austria

NetworkDevelopment

NetworkRollout

NetworkOperation

NetworkMaintenance

NetworkDesign

Radio Networkplanning

Site Acquisition &management

Construction

Installation &Commissioning

Facility Management

Logistics (Spare Parts & Terminals)

Central support functions (Quality, Reporting)

Transmissionplanning

Service Provisioning

NOC

Network TAC *




* TAC= Technical assistance centre

Outsourcing Landscape

One Responsibility

AlcatelResponsibility

5. Example 2: Outsourcing Deal of Alcatel with One in Austria

Source: Alcatel Austria

Client Benefit

No 2

Contract is based and defined on radio-, transmission-and core network performance parameter according to SLAs and KPIs. No Alcatel equipments in the network

Client Benefit

No 3

Contractor responsible for recruiting, training and skill building of staff.

Client Benefit

No 4

Focus of management team on customer and services, no more management power and attention on tactical planning and daily O&M issues.

Client Benefit #1Client

Benefit No 1

Predictable yearly OPEX budget for the contract period (benchmark: 2.5 -3.0 € per mobile customer/month)

5. Example 2: Outsourcing Deal of Alcatel with One in AustriaVarious client benefits

Client Benefit

No 5

Transmission layer outsourcing frees the operatorfrom a burden. Transmission is not an essential part of the production and service platform

Pro’s Con’s

Operator is refocusing on customers and services

Management of out-tasking/outsourcing partner could cause a high level of attention (contract adaptations, interface and process tuning, performance assessment, etc.)

Out-tasking and outsourcing offer operators chances to become leaner and more efficient.

Predictable OPEX stabilizes the financials, cost per subscriber are going down

Scaling, growth, changes and not foreseeable new network elements could increase OPEX later

Operators and vendors could build an ideal partnership because of long common history

Vendors are not used to operate and maintain networks. The influence from the operators on utilization of professional tools and methods is limited

Operator can rebuild a lean and efficient organization Pillar organization is mostly unchanged. Chances for improving business flexibility are not taken

Quicker introduction of new services Flexibility of outsourcing partner is limited; process flow-through is not optimized

+

+

+

+

+

-

-

-

-

-

Pro’s

Careful selection of the partner and careful contracting are essentials

A clear strategy to implement higher business flexibility, high level of process automation and a customer oriented organization is the imperative basis of considering out-tasking/outsourcing

6. Out-tasking/Outsourcing - Hype or Alternative?

13.telco outsourcing strategies detecon

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