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Partnering for progress

Facing pressure to develop new services quickly and to cut operational expenditures, telecommunications service providers are increasingly outsourcing their day-to-day network operations.partner-for-progress

Telecom operators in the Middle East are increasingly considering outsourcing the management of their networks to companies in order to lower costs, increase capabilities and focus on other strategic imperatives.

Telecom operators that consider a network outsourcing strategy are mostly driven by the desire to save OPEX, and to compensate for the lack of internal capabilities in specific technology domains.

According to a recent study by the consulting firm Strategy&, telecom operators entering into outsourcing deals expect to reduce OPEX by 20 to 30 percent. However, cost is not the only factor driving this trend, as the planning and operation of next-gen networks have made operators consider outsourcing.

“The margin pressure continues to increase for operators amidst the explosion of data traffic and decline of revenues from voice and messaging,” says Christian Bartosch, Associate Director at The Boston Consulting Group Middle East. “In addition, capital intensity is increasingly scrutinised and moving OPEX to CAPEX to show higher EBITDA has become a less attractive option. Consequently, outsourcing strategies which increase EBITDA and reduce capital intensity, are highly sought-after.”

A second consideration is the increasing skills shortage due to rapidly accelerating technology shifts. Most operators are seriously overwhelmed with the speed of progress in technology. The proof of this is that the transition from 3G to 4G took about half as long as the transition from 2G to 3G. In parallel, to complete 4G modernisation, 5G trials are already ongoing and some operators predict their first commercial use by 2018. Since the introduction of ISDN and DSL, core and fixed access networks are seeing the greatest change through software defined virtualised networks (SVN which combines SDN and NFV). When it comes to mobile access, cloud RAN is around the corner.

“Operators are increasingly shifting their emphasis from the engineering-centric stuff like running networks to customer-centric stuff like marketing, segmentation and customer service,” says Jan Dawson, an analyst with Jackdaw Research. “They see networks as a necessary asset that allow them to do what they do, but running those networks is not necessarily a core competency anymore.”

Mohammed Samir, market services head for Middle East and Africa, Nokia, offers another perspective, “When operators are doing network maintenance themselves, the delivery framework does not keep pace with market developments, resulting in inefficiencies which accumulate over a period of time. Outsourcing is an effective way of getting efficiencies as well as synergy benefits by exploiting economies of scale.

“Enhancing and updating the competences of resources on fast-evolving technologies is a big challenge for telcos as opposed to managed services partners, where competence management goes in parallel with technology evolution, which is fundamental for efficient service delivery.”

Telecom network outsourcing is a fairly new trend in the region, and operators considering managed network services from outsourcing companies should carefully assess how these services will be delivered.

“A telecom operator has to be very crisp in defining its alliance and partner strategy,” Bartosch says. “Adopting a well-thought-out approach to network outsourcing is key to ensuring that the partnership isn’t opportunistically driven. While some outsourcing will remain transactional, the big ‘winning’ outsourcing relationship will be strategic. In a way, vendor relationships in these deals will closely resemble those pertaining to the auto industry’s OEM-supplier ecosystem. Major cost-saving initiatives built via network outsourcing must include core elements such as trust, flexibility, strategic alignment and financial clout. Network quality has also become a key success factor when it comes to edging out the competition.”

It is also important for telecom operators to understand the pitfalls of outsourcing. “Network operations outsourcing has matured over the years in terms of contract lifecycle management and operational governance,” Samir says. “However, telcos need to ensure the transition of a full operations setup towards the managed services partner, and ensure that it is rightly governed to avoid any impact to end user services. Telcos being brand conscious will need to engage with the regulatory and government authorities to ensure employee transfer is managed with utmost care and diligence.”

Traditionally, in the past, the plan-build-run of a network was treated as an isolated activity with clearly defined interfaces. Outsourcing activities commonly followed this segmentation of activities. Often, network operators outsourced the ‘run’ part as managed operations and the ‘plan-build’ part as full turnkey deployment to vendors. This siloed approach in three groups has proven to be suboptimal for the agile development of enterprise IT solutions. Teams did not work well together, and when issues arose, blame was circulated between the three groups, and fault management was lengthy and complex. Now, the DevOps model is commonly used where the silos between plan-build-run are broken down and the teams cooperate in an agile way across the whole system lifecycle. As functionalities in telecom networks are increasingly implemented – like IT enterprise solutions – operators have started to face similar challenges in networks. Therefore, network outsourcing deals will have to accommodate the DevOps operating model.

“In many network outsourcing deals, the expectations of both sides become misaligned. From the operator perspective, the cost savings are not as big as expected and the network quality is worse than feared,” Bartosch says. “From the vendor side, the potential for cost savings is smaller and the volume of the pull-through high margin equipment business lower. This will generally result in a slowdown in the required technology transformation and bickering about network quality.”

According to PA Consulting, there are many steps operators can take to avoid these pitfalls. This includes understanding what you hope to achieve through outsourcing, and decide whether the programme is about cost savings or getting close to customers. Think of this relationship as a strategic and trusted partnership, rather than a transactional contract. The supplier you chose should have a close cultural and strategic fit, and both parties should take a collaborative approach throughout the process. Choose KPIs that allow the supplier to take responsibility and risk for the service.

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