Editor's letter

01 November 2009 | Tim Phillips


Twelve months ago the global financial crisis was everywhere in the news: the most optimistic assessment was that we might avoid a depression, and instead experience only a recession.

Twelve months ago the global financial crisis was everywhere in the news: the most optimistic assessment was that we might avoid a depression, and instead experience only a recession. These cyclical downturns have, in the past, been good news for the outsourcing industry, as companies take legacy assets off their balance sheets, struggle to preserve capital, look to cut operating costs or swiftly refocus their priorities.

The speed at which the global economy went into reverse in 2008 had the same effect: whether the business case is being made on legacy networks, applications, the cost of management or back-office processes, the providers of services all report that business opportunities have been strong, even if their access to capital has been as badly restricted as that of their carrier customers. Yet that sudden reversal showed two things: the first that there are some situations where trimming the sails simply will not do; the second that outsourcing contracts often move at a slower pace than the global economy.

If one deal in 2009 shows that carriers are thinking what once would have been unthinkable, it’s BT’s decision to outsource international voice to Tata Communications. A carrier that recently had ambitions to win more wholesale voice business now does not even see a business in handling its own international voice calls. Not every carrier will make such a large deal, but all are being forced into hard decisions about what their business really is – and when cash is constrained, what they need to do to succeed on those terms.

Yet for major deals – network management, large wholesale contracts, sale-and-leaseback or build-operate transfer contracts – the pace at which negotiations proceed can mean that deals are done in months, if not years. That means that not only are many carriers forced into uncomfortable renegotiations, but that those who want to use outsourcing to become faster to market have to look at innovative models and releasing control.

That’s uncomfortable. But at the moment, the alternative might be far worse.

Tim Phillips

Editor
Capacity Outsourcing and Managed Services Business Briefing