MANAGED SERVICES SPECIAL REPORT: The impact of next-gen technology
SDN, NFV and 5G are just some of the technologies transforming managed service offerings. Agnes Stubbs finds out how the vendor community is reacting.
The best way to predict the future is to invent it,” said technology pioneer Alan Kay. As the next five years ushers in a series of innovations and technologies, managed service providers will do well to heed that advice as they seek to evolve their next-generation offerings.
Historically, the average lifespan of managed services contracts are between seven to 10 years. These days, contracts are notably shorter – between three to five years – reflecting the need for telcos to adapt to the ever-changing needs in the market.
Chris Buist, director at Coleago Consulting, notes shorter contracts mean vendors face a larger challenge in achieving profitable growth. “The market has been going the opposite way to what they need to make a decent profit. The upside is that trends such as the cloud, software-defined networking (SDN) and network functions virtualisation (NFV) are going to help them,” says Buist.
A new generation of telecoms managed services is emerging, driven by several
Managing the cloud
The cloud is chief among them. Lauding it as “one of the biggest opportunities” for vendors, Buist says cloud services can be provided to operators as a white-label software-as-a-service (SaaS). “It’s about having those on a menu for operators to pick and choose from,” says Buist. Vendors have already been making moves in the area: through developing services to meet the needs of a virtualised environment or acquiring companies with capabilities they do not have, or both.
Alcatel-Lucent claims that its suite of managed services – now absorbed into Nokia – is equipped to deliver services to help telcos meet the operational challenges of a more virtualised environment.
By developing a so-called ‘cloud service factory’, the vendor aims to adopt ‘horizontal operations’ that enable the delivery of managed cloud services, such as infrastructure as a service (IaaS) and network as a service (NaaS), while managing network virtualisation transformation for its customers.
“That is where I see managed service providers going – they will become huge cloud-service enablers or white-label enablers. In five to 10 years, the winners will be the ones who can truly enable operators to deliver for their customers,” predicts Buist.
The winners could also be the ones that help enable telcos transition to the new approaches of NFV and SDN. While the operational use of SDN and NFV is still in the early stages, a majority of telcos are already planning their strategies for the deployment of the technologies, with several already conducting proof of concepts in test environments.
Last June, China Mobile announced a partnership with Alcatel-Lucent to conduct what it claimed was the industry’s first field trial of a virtualised radio access network-based architecture based on NFV. The agreement was “an important step in the path towards 5G networks” for the operator, according to both companies. Most recently in February, Indonesian operator XL Axiata selected Huawei to manage its planned NFV-evolved packet core (NFV-EPC) project as it seeks to upgrade its cloud network architecture. “In such cases, these operators are using a multi-sourcing approach and acting as the overall integrator of equipment and services. They are not actually outsourcing the job, but really doing it themselves,” explains Buist.
These serve as crucial case studies and lessons for the telcos. “At this stage, tier-1 telcos want to understand the technologies first. They will outsource it at a later stage – within the next five years – after they have understood the lessons themselves,” predicts Buist. The potential to deliver on those technologies for telcos is a significant one. “SDN and NFV are not short-term opportunities. They are longer term opportunities to transform networks. This is something that is going to go on for the next 10 to 15 years,” he says.
Also on the horizon for vendors is 5G. “The new thing it raises is that you need a lot more small cells in 5G deployment. This is therefore an opportunity for vendors in terms of how you manage and set up all these small cells,” says Buist.
While many technological unknowns remain unanswered in 5G implementation, what is clear is that deploying thousands of small cells will pose huge logistical challenges – “you’ll have that multiplied with 5G,” says Buist.
“Operators aren’t going to want to do this by themselves. It is a project management nightmare. The opportunity here is for MSPs to manage all that as a service,” he notes.
Cost cuts through infrastructure sharing
Gone are the days of the traditional single ownership model of physical network elements and network layers by telcos. Rapid commodisation of equipment, increased competition and soaring data traffic are pushing telcos to adopt multiple strategies to cut costs. Network infrastructure sharing has been considered as a viable way to do so in recent years. As a result, operators – particularly those in developing countries – are then able to achieve substantial savings on capital and operating expenses.
In the last five years, network sharing joint ventures between mobile network operators have more than doubled and active sharing has increased significantly as a proportion, according to research from Coleago Consulting. In addition, joint ventures and sale or leaseback agreements with third-party tower companies have grown to become more than one third of all network sharing deals.
In 2014, the GSMA announced that it was cooperating with eight major telcos on network infrastructure sharing initiatives to improve mobile access across Africa and the Middle East. “We call on governments to support and encourage the commercial infrastructure sharing arrangements that we aim to propose,” says Manoj Kohli, managing director of Bharti Enterprises and chair of the public policy committee of the GSMA board.
Buist believes an opportunity exists for managed service providers to meet that need by stepping in and building open access networks in rural areas through commitment from governments and telcos.
He explains: “Managed service providers should be proactive. Their case should be, ‘This [infrastructure sharing] is something that the ITU, GSMA, Facebook and Google wants – let’s see it through together.’”
Focus on customer experience continues
In the build-up to Mobile World Congress 2016 – and as part of an extension to its Experience Centric Managed Services offering – Ericsson announced the launch of its service operations centre (SOC) and the experience management centre (EMC) functions.
The SOC is said to monitor the performance of real-time services such as video streaming and web browsing while the EMC is designed to monitor consumers’ experience and perception through methods such as customer surveys, social media analytics, net performance score studies and churn analysis. The first is said to focus on measuring and improving service quality while the second is aimed at measuring and improving customers’ perception of their overall experience.
Spanish mobile operator Yoigo, part of the TeliaSonera Group, signed an agreement with Ericsson last October to improve its customer experience through the Experience Centric Managed Services.
“Our aim has long been to ensure our customers experience high levels of satisfaction with our network. We have achieved that and want to guarantee this for the future,” says Mikael Elseus, Yoigo’s CTO. “We see our long-term partnership with Ericsson in managed services supports us in defining what’s needed for us to continue to offer Yoigo’s customers the best service performance.”
Jean-Claude Geha, VP and head of managed services at Ericsson, observes an increasing focus from telcos on end-user experience, specific to the network. “We see that customer experience is becoming more and more on the minds of our customers as they seek to satisfy their end users. On our end, we’re focussing on the end-user experience on the network,” he says. End-user experience may be affected, for example, when a system is overloaded – or when the user is in a certain indoor area or a moving train. “That affects a customer’s perception of the network. At the same time, telcos need to be aware that customers have different expectations – some higher than others. We are helping our customers take a more targeted approach to certain end-user preferences,” says Geha.
Noting the evolution of telecoms managed services in the past decade, he adds: “Managed services has moved from fault fixing and task fixing to providing an end-to-end service on an entire network – from running design optimisation to the implementation of a network. Our customers are seeking help horizontally. Our conversations are centred around an overall outcome based on capabilities, savings and end-to-end performance.”
Ericsson has led the way for vendors in the managed services space.
One of the early movers in the space nearly 15 years ago, the company’s net sales for its managed services portfolio in 2015 amounted to approximately $3.7 billion (31.8 billion Swedish kronar), an increase from approximately $3.2 billion (27.2 billion Swedish kronar) the previous year. Just eight years ago, the vendor recorded net sales of just $1.4 billion (12.2 billion Swedish kronar).
In the fourth quarter of 2015, the Swedish vendor signed 26 managed services contracts – of which 16 were extensions. This is comparison to the 18 contracts it signed in the third quarter, of which seven were extensions.
“I expect overall continued growth in the telecoms managed services market, in as much as operators will increasingly outsource to more vendors,” says Buist.
Over two years ago, Huawei announced that it was evolving its managed network service business to adapt to the changing market environment. “Most, if not all, CSPs will embark on radical operational transformation projects within the next five years,” predicted Leroy Blimegger, global president of assurance and managed services at Huawei Technologies.
The emergence of technologies, along with growing demands across the ecosystem, will require changing mind-sets to existing and future deals between vendors and telcos in managed services. “Managed services have to be viewed not as a supplier relationship – but a partnership,” says Buist.
On top of that, vendors will need to keep a watchful eye on competition.
As an example, Buist points to Cisco’s recent $1.4 billion acquisition of Jasper Technologies, a cloud-based IoT service platform that is a provider of managed services.
“Cisco is going to take a large slice of cloud services from the market. Vendors will have to watch out for companies like that, while monitoring trend and technologies like the cloud, NFV and SDN and how those will impact their business,” says Buist.