Editor’s Note: Welcome to our weekly Reader Forum section. In an attempt to broaden our interaction with our readers we have created this forum for those with something meaningful to say to the wireless industry. We want to keep this as open as possible, but we maintain some editorial control to keep it free of commercials or attacks. Please send along submissions for this section to our editors at: dmeyer@rcrwireless.com.
The telecommunications industry, like most industries, is in a state of technological and economic flux driven by intense competition and new technologies. Earlier inflection points in the market have largely been driven by one technology or one business change, but today’s context is driven by a confluence of disruptive new technologies that dramatically affect how, when, and where business gets done.
Improved mobile services have prompted tens of millions of consumers to cancel their landlines, eating into the traditional revenue streams enjoyed by AT&T, Verizon and other large carriers. As consumers continue to recognize the value of phone service using VoIP, many more households and businesses worldwide will choose these types of cost-effective services as alternatives to landlines and traditional telecommunications offerings. At the same time, wireless access to the Internet threatens traditional DSL broadband suppliers like Comcast.
In addition to shrinking revenues, operators are also facing rapidly shrinking margins. Globally, voice revenues are expected to fall below the 60% threshold this year, and it’s likely to get worse before it gets better. Operators can expect margins to shrink from the current 30% range to as low as 8% over the next five years.
The paradox of huge market opportunity with sharply declining margins combined with tech-savvy, data-hungry, price-sensitive consumers forces operators of all stripes to re-think traditional business models. To extend and defend their value propositions, they need flexible cost structures and dynamic new revenue streams – both of which require investments in innovation and new business models, but neither of which has historically been an area of strength for the telecommunications industry.
To break out of old habits and set the stage for success, operators need to leverage existing assets and adapt to changing consumer requirements at both the operational and systems levels. Such requirements have driven a rebirth of the managed services model, particularly using delivery in the cloud and SaaS, by offering the repeatable processes and methodologies and the application-agnostic solutions that will allow carriers to boost long-term return on investment.
Not your father’s managed services
The term “managed services” is no longer synonymous with “outsourcing.” Think large-scale transformation at the speed of machines. Think self-funded innovation. Forget about the army of consultants. Forget about “right-sizing” your system. Forget about cost-cutting as your primary business advantage.
Today, managed services is about repeatable processes and methodologies; flexible and adaptable technologies; application-agnostic solutions; and large-scale transformation at the speed of business. Managed services is no longer a tactical approach, but a strategic advantage for companies looking to harness the new technologies and services necessary to remain competitive in peer environments and relevant to customers.
According to a recent Insight Research report, the U.S. managed services market is expected to reach $43 billion in 2013, including managed mobility services. The report suggests that in the near term – as the telecommunications industry continues to be affected by severe reductions in IT spend – managed services solutions provide one of the most profitable avenues for operators to survive and thrive in today’s rapidly evolving marketplace.
You can’t make it rain without the cloud
The evolution of managed services wouldn’t be possible if not for the cloud. The cloud not only supports innovation, but also increases time to profit for new products and services because the underlying infrastructure can more easily adapt to meet consumer demand in real-time.
For example, BSS systems are extensive, complex, and inflexible – they have many moving parts, a scarcity of skilled and trained technical resources to manage them, and rising operational costs, all of which decrease the size of an operator’s innovation investment. A managed services approach that supports delivery in the cloud offers more efficient operating models to support rapid and continual innovation and new product and services offerings while keeping costs under strict control.
It’s also important to keep in mind that moving to cloud-based models or over-the-top offerings doesn’t mean operators have to rip and replace existing BSS systems. Today’s managed services environment supports flexible, enabling technologies that eliminate product and process density from the start.
The challenge is getting on that cloud. It requires a shift in how operators view their business models, and it requires support from the entire organization – not just operations and IT. Understanding the requirements from both commercial and technical perspectives is critical.
In addition, successful managed-services engagements require proper scope. Again, if we look at BSS, a patchwork-quilt approach to project scope can’t tackle the complexity and intricacies of managing such an environment in the cloud. To improve time-to-profit, realize cost efficiencies, and fuel innovation, operators must empower their partners to take on a broader scope. Partners must integrate more fully into the business with outcomes that map to strategic objectives. Partners must possess a deep understanding of the operator’s challenges and be able to work effectively to deliver the desired results.
Paradox to profit
The paradox of huge market opportunity combined with sharply declining margins remains a significant challenge for an industry that has long relied on predictable revenue streams and consistent customer requirements. To remain relevant and better serve the evolving demands of their customers, operators now need to look inwards to leverage their existing assets and adapt at a systems level.
Unlike the managed services agreements of the past that focused on tactical operations, a skilled partner can serve as a strategic asset and reduce overall architecture complexity, providing an agile solution that allows operators to compete effectively, respond to market forces faster, and optimize expenses. Successful operators have begun to see managed services as much more than a cost cutting exercise; today it is their pathway to profit.
