FEATURE: MANAGED SERVICES

In October 2009, Alcatel-Lucent announcedwhat was claimed to be the first managedservices contract for a mobile operator in East

Africa. Orange Uganda’s network is now managedby the company which provides technical support,repair, field maintenance, and other services.

A month later, Zain awarded Nokia SiemensNetworks (NSN) a contract that represented theFinnish company’s biggest multi-vendoroutsourcing project in the region. Over a five-yearperiod, NSN will manage more than 3,000 ofZain’s multi-vendor mobile sites in Kenya,Tanzania, and Uganda. Managed services (MS)had arrived in Africa.

Research from Informa Telecoms Mediapublished earlier this year predicts that worldwidemobile operator spending on MS and outsourcingwill reach USD29bn by 2014. Driven by theconvergence of fixed and mobile networks, theglobal economic slowdown, and increasedcompetition, Informa senior research analyst PaulMerry says operators are “forced” to concentrateon their core skills, assets, and expertise in orderto survive. He adds that although the recessionhas driven operators mainly in the developedmarkets to re-think their business models,developing regions will also follow suit as theirmarkets begin to mature.

Mohamed Hosny, director of managed services,Motorola Networks, concurs. “Most Africanoperations have an ARPU range from USD4-10,and the management dilemma is that costs aregrowing faster than revenue. Data traffic isincreasing. More traffic means more networkinvestments and a bigger and more complexnetwork that requires higher operationalexpenditures. Unfortunately, the telecom industryhas not been able to generate the required revenuegrowth to compensate for the traffic increase.Competition is fierce, new services and offerings arerequired every day, users demand much more formuch less and are not loyal. Churn is a reality,

By outsourcing network management, operatorscan focus on their core business. But do they risklosing operational control as well as all theirtechnical expertise? RAHIEL NASIR finds out

Under newmanagement

Nokia Siemens Networks managedservices are supported by three Global

Network Solutions Centres. One is inPortugal and two, including this one in

Chennai, are in India. They bringtogether more than 1,500 specialistswho optimise networks and deliver

managed services to 23 operatorsaround the world. It’s claimed that the

centres perform over 1.2 millionconfiguration changes and produce

90,000 performance reports per month

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efforts to acquire newsubscribers are costly, andaccess to capital is limited.”

Key vendors say thatoperators across the worldare adopting new businessmodels to help them meetsuch challenges and arelooking to MS as thesolution. Staffan Akesson,Ericsson’s VP of ManagedServices for MEA andCentral Europe, says thatMS provides a “growthengine” to operators, andadds that it is also a provenenabler for shared ruralcoverage which is a way forthe operators to expand their coverage in a costeffective way. “Many operators in this regionhave legacy managed services models in placewith their network vendors. This model hashelped the operators during the initial phase ofthe operation but it has proven to be lessoptimal as a long-term model. Therefore,operators in this region are now looking totransform their legacy managed services modelto a long term operating model.”

In developed markets, NSN says that networkcoverage and voice quality are no longersignificant differentiators for communicationservice providers (CSPs). In developing marketssuch as Africa, where the race is on to sign upliterally millions of new subscribers every month,CSPs are looking for partners who can helpdeliver the necessary coverage and capacity.NSN’s head of managed services for MEA,Samir Kumar, says: “The challenges range fromthe need for rapid network rollout in emergingmarkets, to a pressing requirement to optimiseand drive down operating expenditure andcapital expenditure in mature markets where thehuge rise in fixed rate data and video traffic isputting great pressure on margins. Usingmanaged services for networks, CSPs canimprove their cost position, increase revenuesthrough improved service quality, coverage andusage, and prioritise the crucial businessprocesses – in particular, customer acquisitionand retention – that are now really core.”

Kumar speaks for all the major vendors in thismarket when he says that managed servicesprovide a tool for CSPs to improve theirefficiency and operational performance whilefreeing up their resources to focus more closelyon their main business of serving end users.“Outsourcing some essential but non-differentiating activities can deliver averagesavings of about 20 per cent – and for some CSPsit could be even more. But essentially, it allowsCSPs to concentrate their efforts on those areasthat are critical to their business growth:launching new services, winning and maintaininga growing portfolio of happy subscribers, andultimately translating into healthy profitability.”

Risky business

MS has also introduced the idea of risk share. “Theconcept of shared risk is a marked transformationin approach for the telecoms vendors,” says Merry.“In the past, they acted as relatively independentagents despite the close working relationshipengendered by managed service contracts. Inessence, shared risk involves the closer integrationof the revenue streams of the managed servicepartner and client with the explicit aim of makingboth more reliant upon each other. It has beentouted as a more realistic proposition for telecomsplayers, which face very real risks in outsourcingtheir business, as the corporate partners share someof the potential risk of outsourced or managedservices through financial liability.”

Merry adds that the impact of shared risk isarguably greater where build-operate-manage(BOM) and build-operate-transfer (BOT) modelsare used, particularly where upfront and initialinvestment is contributed by the MS partner. “Thistype of approach has been identified as a possiblesolution for accelerating telecommunicationdevelopments in African markets and this is an areawhere this type of development is expected.”

ZTE agrees. Its senior manager for ServiceProduct Marketing and Sales, Yang Zhaojiang, saysthat examples of risks include workforcemanagement, investments in unproven markets andtechnologies, or simply upgrading internal systems.“Outsourcing these tasks offers a way of hedgingagainst the risk. Firstly, ZTE can be more easilyfired than the entire internal team, which providesgreater flexibility if the investment is proved to beunwise. Secondly, scaling the solution to meetexplosive market demand is more easilyaccomplished through an outside group with abroader talent pool. And thirdly, operators shouldnot invest in training and education for their ownworkforce for new technologies, platforms orprocesses until these have proved themselves in themarketplace and operators can take them in-house.”

Graham Kemp, Aircom International MD, saysthat the faster the demand grows in Africa foradditional services, the greater the reason for anoperator to outsource the management of its

operation. Aircom specialises in networkoptimisation and Kemp says that it would make“most sense” for an operator to consideroutsourcing the management of parts of its networkin an aggressive expansion phase such as a launchor network technology migration.

But which part of the network should beoutsourced? “From a purely financial point ofview, if all elements of the operation could beoptimised to increase revenue, reduce operationalcost, and ensure cost-effective financing, theoperator should consider outsourcing the entireoperation,” says Kemp. “It is therefore imperativethat the operator first of all considers what part oftheir network could be outsourced without losingcontrol of certain strategically important aspectsof their network.”

Networks are complicated organic structures andone of the biggest mistakes operators can makewhen considering outsourcing is making it evenmore complicated. “A managed service approach isadopted in order to simplify and make the networkmore efficient, and basically make more money,”says Merry. “But what can actually happen is thatoperators create an additional layer of complexitywhere you have something called ‘metamanagement’ – literally the management of themanager. Operators have to be very careful whenthey move into these kind of arrangements thatthey don’t add that additional layer of complexitybecause then they’re negating the whole point ofthe approach to begin with.”

What MS can offer

Vendors argue that dealing with such complexity ispart and parcel of MS and is something that theyhave vast experience in. For example, NSN saysthat with industry consolidation, network sharingagreements, and co-existing fixed and mobiletechnologies, all CSPs have to operate and managea multi-technology, multi-vendor network. “Wehave the capability and expertise to managenetworks and virtually all technologies under

Monitoring the network: operators could impose penalties on their managedservice partners for failing to deliver agreed performance levels

22 SOUTHERN AFRICAN WIRELESS COMMUNICATIONS May/June 2010

Mohamed Hosny,Director of managedservices, 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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managed services contracts,” claims Kumar. “Weare pioneering a unique, centralised global deliverymodel through integrated, multi-technology, multi-vendor central delivery hubs – Global NetworkSolutions Centres (GNSCs). The GNSCoperational concept means that we have a shareddelivery organisation instead of duplication ofdedicated organisations, and can consolidatemultiple elements of our global, end-to-end servicesstrengths in one location. This network of GNSCsis designed to help our customers get to marketfaster through ‘round-the-clock’ projectmanagement, ensure high network and serviceperformance, and improve service deliveryefficiency while reducing risk.”

Alcatel-Lucent offers a range of solutions, frommulti-vendor management (which provides aconsistent, SLA-based, single point of interface forspecified vendor maintenance contracts), through toa complete build-operate model in which it handlesall operations. “And in between, there are optionsthat can include transforming legacy networkoperations over to new all-IP platforms, andmigrating end customers on to those newplatforms,” says Thierry Langlais, the company’sVP for Managed Services Sales and BusinessDevelopment EMEA. “This also includes theassociated IT components which we providedirectly or with the support of strategic partners.”

Huawei reckons that it is the fastest growing MSprovider in emerging markets. It claims to haveachieved 120 per cent year-on-year growth, and inAfrica it currently has MS contracts with MTN,Vodafone, Visafone, Warid, Etisalat, et al. “We offera complete and highly flexible outsourcing solutionwhich can be customised to meet individualcustomer requirements,” says Gareth William,senior sales consultant for Huawei’s SAAFRICAManaged Service Business Unit. “We provide arange of service products including field operations,NOC, network performance improvements, multi-vendor management, spare parts management, aswell as network capacity management. Oursolutions provide complete end-to-end ownershipand responsibility for all network operations.”

Motorola see three main categories of MScustomers: incumbent operators who have existingoperations; greenfield operators who face thechallenge of building a brand new organisation; andbroadband operators who are challenged by the costof customer acquisition. “The scope of servicesfunctions to outsource for the first two operatorscan be the same,” says Hosny, “although theapproach is different, as in one case focus should bemade on how to transition and transform existingoperations, while in the other case it is how to rampup a new organisation in a timely manner.”

Motorola’s solutions for these two types ofcustomers include services for design planning andoptimising networks, operation management, andnetwork modernisation. “For broadband operatorswhose main challenge is related to cost of customeracquisition, Motorola offers its Customer PremisesEquipment Managed Services. Here, service providerspay 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 forcellcos to use MS. But some operators are worriedabout relinquishing control to third party serviceproviders, and in particular their fear is ofdominating vendors who dictate contract terms, oreven becoming the competition. Informa’s Merrysays: “There’s a real scenario where you’ve hadMVNEs thinking ‘why don’t we set up the entireprocess and run it for ourselves because we have theexpertise in place?’. I can’t see any of the managedservice providers moving down that route, but thereis that kind of concern in the background.”

He also points out that an operator’s technicalexpertise is effectively “stripped out” when an MSdeal is signed. This was the case with NSN’scontract with Zain. As part of that agreement,around 350 Zain employees who worked onnetwork operations in Kenya, Tanzania, andUganda, transferred to NSN. “People are centralto our managed services business, and under ourvarious MS contracts, we have successfullyintegrated 13,300 personnel from CSPs intoNokia Siemens Networks’ fold,” says Kumar. Thecompany adds that such employees are transferredalong with all their existing contract terms andthat they also benefit from further developmentvia training programmes. Ericsson agrees that MSoffers advantages to technical employees: “Weprovide compelling career paths for engineeringand operations staff from the operators andEricsson is a very attractive employer globally andin this region,” claims Akesson.

But Merry advises operators to be careful,particularly in a BOT arrangement where thereshould be a strict contract which stipulates thatany expertise that the vendor has put in place isthen handed over to the cellco.

Clear SLAs are vital when signing a managedservices deal. Alcatel-Lucent’s Langlais notes thata successful engagement requires the creation of atrue partnership which may differ from a“classical” customer-supplier relationship.Motorola’s Hosny agrees: “The perfect contractdoes not exist, but effective governance does. In amanaged services relationship, the greatest valueis not created at the contract signature, but duringthe contract and operational lifecycle. Contractsnever reflect with precision the spirit andambitions of both the operator and the provider.Effective governance is the key building block forcontinuous value creation and a trustfulrelationship build-up with the operator.”

Hosny adds that it can be really difficult to“divorce” your MS partner so both parties mustalso clearly define exit strategies. Aircom’s Kempagrees: “The greater the part of the network theoperator outsources, the more difficult it will be toresume management control of the operation at theend of the managed services contract. A lot ofthings can happen in the medium to long term with

telecommunications companies, and the operatorshould be able to seamlessly regain control of theirnetwork, if the need arises. There must therefore bea clear and achievable exit strategy defined in themanaged services contract that will govern bothoperator and vendor in the case of this decision.”

Kemp also adds that it is imperative for operatorsto constantly monitor and measure the deliverablesstated in the SLA: “The operator will also be able toimpose penalties if deliverables are not met.”

Merry is sceptical about vendors claiming thatoutsourcing can deliver average savings of about 20per cent. He says that in his experience, vendorswould approach operators, mainly in developedmarkets, with promises of cutting certain runningcosts by 25 or 30 per cent. “In some of the Africanmarkets they may well still be saying that – but [forthat to be true] an operator would have to berunning the network incredibly inefficiently.”

That aside, there is no doubt that MS andoutsourcing will continue to grow in Africa.Demand for voice and data services continue torise and operators need to meet this challengewhile also dealing with increased competition,declining ARPUs, the need to grow revenue, andevolving technologies. “Most operators in Africahave entered, or will shortly enter into, anexpansive phase of migration and implementationof new technologies,” says Kemp. “With vendorfinancing potentially being offered, the outsourcedmodel during expansion will become moreattractive, especially as operators start to movemore towards technologies like LTE. With thevery fast pace in the introduction of newtechnology, driven by customers who want moreand more bandwidth to the handset, theoutsourced model will continue to grow.”

Ericsson’s Akesson concludes: “Managedservices is a growing trend and we can see howmost operators in the region and specifically inAfrica are considering outsourcing as part oftheir long term strategy. There is a strong needfor structural efficiencies in Africa and managedservices, including network sharing, is theanswer to that need. We are just in thebeginning of this trend.” �

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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