NEW YORK—The trend toward managed network operations and maintenance will have much greater impact on the wireless industry than consolidation, concludes Mercer Management Consulting after researching telecom sector developments.
After interviews with more than 100 senior telecom executives and industry observers, the firm said its research indicates the $26 billion managed and advisory services market, which already comprises one-fifth of the overall telecom infrastructure market, will nearly double by 2010.
“The traditional, vertically integrated operator model is giving way to one where network operations and maintenance—the traditional source of differentiation for operators—is being handled by third-party vendors,” stated Mercer’s report.
Mercer points out that, historically, vendors such as L.M. Ericsson, Lucent Technologies Inc. and Cisco Systems Inc. provided equipment and services for that equipment to operators. The vendors provided mainly maintenance, installation and training services to the operator, and then the operator ran all the other aspects of the network.
However, Mercer said things have changed over the past few years since operators now face greater pressure to streamline their cost structure, improve service levels, and manage a bewildering array of technologies. In fact, one operator in Mercer’s research had more than 6,000 technology vendors represented in its network.
“As a result, more operators have asked vendors for comprehensive, long-term assistance in running their networks,” stated Reuben Chaudhury, a director at Mercer.
This assistance is taking two forms. First, vendors provide advisory services help the operator develop service roadmaps, decide on future network technology architecture, and optimize and integrate various networks. Growth in this sector, which currently has revenues of $18 billion, will be led by vendors with consulting and integration skills, Mercer said.
The second type of support identified by Mercer is the $8 billion managed services market. Operators used to be comfortable outsourcing only basic installation tasks, but now they are willing to consider outsourcing core maintenance and operations functions.
“The most eager firms in this regard are wireless providers, particularly in emerging economies, which often need help with complex technical networks and don’t have the resources of their larger counterparts,” wrote Dave Sovie, a director at Mercer.
One flavor of large-scale network outsourcing is the recent adoption of the “managed capacity” model, in which the operator avoids the initial capex investment in favor of a “pay per use” approach, thereby sharing the market risk with the vendor.
Over the next five years, Mercer estimates, 60 percent of the world’s wireless operators will have some form of managed services. If operators move toward fourth-generation networks, which will be inherently more complex than current 3G networks, operators are unlikely to have time to understand and efficiently manage a 4G network, particularly if it is rolled out rapidly. This could accelerate demand for managed services, according to Mercer.
“The strongest growth (in managed services) will likely be among second- and third-tier operators, especially in developing markets,” said Chaudhury. “We estimate that within five years, roughly 80 percent of such operators will have some form of managed service contracts and 20 percent of them will fully outsource their networks.”
Securing contracts will not be a cinch for vendors, however. Mercer said operators have expressed strong dissatisfaction with the level of vendors’ understanding of network operations and with their managing a multi-vendor network. For vendors, this has several implications:
c Selling large-scale managed services is different than selling equipment, and requires equipment makers to develop new services-related business designs. Vendors must develop new capabilities, craft replicable services and solutions, and create scalable delivery “factories” and supporting processes.
c Managed services contracts often require the transfer of personnel from the operator, which most vendors find difficult to accommodate. Collaborations between traditional telecom vendors and IT outsourcers are likely as telecom vendors seek to acquire these skills.
c Profitability in this market depends in part on scale. This trend should further accelerate consolidation among telecom vendors.
For operators, the Mercer research suggests a shift in priorities. As more network operations are outsourced, the basis of competition will shift to marketing and services innovation. This shift will require operators to develop a deeper understanding of shifting customer priorities and adapt their offerings and business designs accordingly.
Chaudhury and Sovie said they expect to see accelerated introduction of new services, better quality of service, and a growth in specialized products as well as offers for niche markets.
