Operators have to ensure availability, reduce operational costs, and maintain an innovative network portfolio in increasingly compettitive times.
The managed services market for telecoms is forecast by Informa to grow to over $34bn by 2013, as operators of all sizes become more open to having end-to-end services, encompassing everything from installation to management and monitoring, provided to them by an external partner. The whole aim of a managed service is to ensure that it is up and running and available to the client all the time. Advantages to the client come in many forms, including offloading the need to retain in-house staff for those particular services, since they are managed on the outside, that the onus or responsibility is now on the service provider to ensure that services are available at all times.
Critically, services usually come with service level agreements (SLAs), so there are consequences for failed service. Risk management comes from limiting the upfront investment in infrastructure and being able to launch services in a more time-efficient manner. Since there is a frenetic drive underway to launch new mobile services across the continent, it makes sense that managed services will likely grow in appeal to those operators currently active in African markets.
Incentivising the communications economy
In understanding the appeal of managed services to African operators, it is necessary to realise that there are financial incentives in outsourcing to a professional service provider - who is likely competing in a free market economy, and hence forced to offer competitive rates - as there is no need to train up and then continually incentivise employees with specialist skills, to run and maintain expensive test equipment, or handle legally complex HR issues.
There are also signs that mobile operators will likely seek further help from the outside as a consequence of the slowdown in voice revenues, which is putting increased pressure on them to maximise returns from mobile data revenues. To illustrate this point, Informa Telecoms & Media says mobile telecom revenues will reach US$1.1 trillion by 2015 with 40% of this figure (US$440 billion) coming from data services. Its 2011 survey, together with research from Nasdaq-traded Motricity, suggests that a growing number of carriers are interested in moving to a managed service model for data offerings.
A critical focus on the competitive edge
Informa’s Nicholas Jotischky emphasises, “The pressing need for innovation is critical for emerging markets due to the increased competitive, investor and subscriber demands placed on operators to manage churn, expand margins and improve the user experience.” Sure enough, the advantages of managed services are already recognised by a number of operators in the region. For example, the African operation of Bharti Airtel this year penned an agreement with Comviva to provide mobile managed VAS services across its 16 operations in the continent. Under the terms of the five-year deal, the mobile VAS solutions provider Comviva is to manage all of Airtel Africa’s VAS nodes, which includes managing the complexities associated with the emergence of multiple technologies, different standards, applications and content.
Manoj Kohli, CEO for international and joint managing director, Airtel Africa, said the company was aiming to “enhance efficiencies in our operations” by handing over management of operations to Comviva, enabling them to “bring a closer focus on marketing initiatives.” Kohli also said that this move will further support brand differentiation by enabling faster time-to-market, enhanced service performance, and greater innovation. Airtel Africa had recently outsourced its core customer service functions including call centres and back office operations to IBM, Tech Mahindra and Spanco, and selected IBM to manage its IT systems to power the mobile communications network across Africa.
A further example is to be found in Globecomm Systems, a provider of satellite-based managed network offerings, which won a contract this year to provide wireless managed services in Freetown, Sierra Leone. Under the contract, Globecomm will provide CDMA-450 switching facilities for voice and data services to wireless operator subscribers and interconnected partners. The network also incorporates a WiMax network enabling connectivity throughout Sierra Leone and provides a 100% IP-based soft-switch architecture with a forward path to LTE.
Despite the emphasis often placed on SLAs, it is widely felt that South African SMEs are not too impressed with service level agreements currently. Fezekile Mashinini, Analyst at BMI-TechKnowledge in Johannesburg, says that “the company on the supply side will no doubt endeavour to commit to an SLA that is easily achievable and the penalties are not punitive. The user of the service will have the opposite view, but less power in the relationship. The empirical view I have heard is that the SLAs are rarely enforceable, just don’t hurt the supplier enough and can be negotiated or brokered through relationships.”
Mashinini says he has discussed these issues with the CEO of a small service provider targeting SMEs, and that the executive’s response “was a bit cagey. Somehow he agreed that SMEs receive the short-end of the stick, but he emphasised the importance of relationships between supplier and customer.” Informa’s own research on the area of managed services has established a “common thread’ from operators, as described by principal analyst Nick Jotischky – the trend to “launch new services within increasingly rapid deployment cycles but at the same time managing opex tightly.” Jotischky acknowledges that this is a challenge for operators and “one that makes the potential selection and management of a managed service supplier an even more strategic decision.”
Another Informa analyst, James Middleton, points out that managed services are becoming more relevant for telecoms vendors internationally as their over-dependence on kit sales becomes increasingly evident. While leading vendors such as Ericsson have established significant services businesses, one of the criticisms aimed at newer arrivals in the market like Huawei and ZTE is that their services offering has not yet been adequately built up.
Last year, Gartner weighed into the debate by emphasising how managed service providers (MSPs) will need a thorough understanding of the markets they plan to venture into. In particular, knowing where an enterprise’s pain-points are, as well as their industry's expectations of what technology can, will be crucial for winning contracts. Gartner warned MSPs that there is now a visible trend of CIOs feeling more comfortable in renegotiating external service provision contracts, with 60 per cent of respondents in its 2010 survey confirming that they had restructured existing agreements in some fashion in the previous two years.