Who drives the bus?
01 November 2009 |
More carriers now are taking the once-unthinkable step and outsourcing the management of their infrastructure. What are the implications of this move?
Not many outsourcing deals make national news, but Sprint’s was different. “In its latest move to cut spending and stem continued declines in subscribers to its cellphone services, Sprint Nextel announced on Thursday that it would transfer operation of its networks to Ericsson,” reported The New York Times on 9 July 2009.
It added that Sprint was trying to “overcome a reputation for poor customer service”, and quoted analysts warning about the necessity of the deal for Sprint and its 50 million users. The markets responded, with a 4% bump in Sprint’s stock price immediately.
It escaped no one’s attention that this type of outsourcing would once have been unthinkable for a carrier like Sprint. “It’s a big deal for Ericsson that they’ve been trusted,” said Roger Entner, a telecoms analyst with Nieslen IAG.
Bob Azzi, senior vice president of network at Sprint, accepts the concerns. “It was a move that was different from what’s been going on in the north American market, but we don’t harbour any concerns about that,” he says.
If it is the first deal of its type in north America, it probably will not be the last. Kris Szaniawski, a senior research analyst at Informa Telecoms and Markets, presents a picture of global network outsourcing that shows a dramatic expansion of the market. He says that the mobile operators like Sprint are facing a “perfect storm” – the cost of new networks and services coupled with the demand for flat-rate pricing from users. The response is a growth in network sharing – in EMEA, for example, Informa’s data shows that 28% of operators are already using this technique to cut costs, and 34% in the Middle East, where rapid growth rather than cost reduction is a priority.
Yet whether the outsourcing involves network sharing or simply network management, it raises the same question: in future, who is driving the bus? Does outsourcing the management of your network rob you of control of your strategic direction?
At Sprint, Azzi does not think he has outsourced his strategy: instead, he thinks the decision to outsource has given him more control: “The overall market situation and our position in the market caused us to challenge our preconceived notions, to think how we could serve our customers better,” he says. “We will still be driving the business. Ericsson has to perform, and we monitor how what they do transfers into SLAs. What it does is free up a lot of management cycles around how we align our business objectives. When we have to worry about the details of execution and continuous product improvements it takes a lot of time. We can take the management time we have freed up and it is a huge opportunity to transform.”
On the other hand, it certainly is not business as usual for Sprint, or for the 6,000 employees who have transferred to Ericsson. “There isn’t a Sprint template, but Ericsson has inherited how we do business on day one. But after that, we expect Ericsson to change it, to bring its experience from around the world. I expect Ericsson to be better than I could on my own,” he says.
Achieving the balance between giving up control but setting strategic direction has been a conversation that Janne Takala, head of strategy and business development for managed services at Nokia Siemens Networks (NSN), has had many times. “This is a topic we have been discussing with operators for 20 years,” he says, “We have a capability, but that doesn’t mean the technical planning cannot be done by someone else. There are different possibilities. In some cases, we are only responsible for network operations, not optimisation. Increasingly we are responsible for operations and optimisation, but the operator might want to keep some planning capabilities.”
Whatever the case, he says, it pays to have clear routes to escalate any disagreements, but it is more important to clearly set the expectations of how strategy is decided – not least because these contracts are longer and broader than almost any other type of outsourcing deal.
Some operators worry about the power they are turning over to their network management partner. Takala says that putting artificial restrictions in contracts does not solve the trust problem, and may introduce the inefficiencies that the operator is trying to eliminate. “We had one situation in 2003 when the operator said that we were supplying most of the systems, so we could not be the managed services provider. Then it said to the managed services provider that it couldn’t supply any systems. They tied, but they changed their minds again in the middle of 2006,” he says.
Yet it is undeniably the case that a level of operational management is not just taken away from the executives of an operator, but away from the operator’s facilities. Takala considers this a fundamental part of NSN’s strategy – and of his competitors: “Our approach is to centralise the management. We have two network operating centres in India, and one in Portugal, and from that we get the global scale we need.”
At Alcatel-Lucent, Andreas Herzog, president of managed services, says that the last 12 or 18 months have “seen a complete change in the requirements of our customers”, who either through expediency
or choice are willing to place far more power into the hands of an external outsourcing partner. “You can’t stop at how you change the solution, you need to change the delivery, the behaviour of the customers. Carriers need to change their business model to take advantage of new revenue streams – but the customer environment they see is adding complexity,” he says.
Part of the evolution of the operator’s business is to focus on the customer experience, and for Herzog it makes sense to stop concentrating so much on the network and its KPIs. “Most operators are focussing predominantly on their network, if not exclusively on it, when they need to look at the entire application value chain,” he says.
But if Alcatel-Lucent is tasked simply to focus on those instead, it’s moving the management of the problem rather than solving it. He doesn’t just want to help manage or optimise the network, he wants to bring in applications, and other service providers that may be managed by the outsourcing supplier, to help the transformation of the operator’s business, he explains: “They need to change from a network-centric model to a service-centric model, to a model that is based around the customer, and they are not set up to do that. The ideal scenario from the total cost of ownership point of view is total cooperation among all the service providers. Everyone contributes, and that would be ideal. That doesn’t happen often.”
Decisions are needed
12 months ago Alcatel-Lucent standardised its delivery processes and tools. Just as carriers don’t see a future in trying to make competitive advantage from the network, Alcatel-Lucent doesn’t see a business in redesigning its model to suit the historical requirements of its customers. The message: stop thinking about your network, start thinking about change.
“Customers are at a tipping point, and they need to make a decision. We’re not talking about technology here, we’re talking about brand new processes, and high speed in introducing them,” says Herzog, “In the past our customers expected things to be tailor-made for them. But now they see the service delivery as a set of building blocks.”
While strategically carriers are still driving the bus, their outsourcing partners are gaining unprecedented control over what sort of bus they will be driving.
But for Azzi, that’s entirely the point. “Releasing control has to be a requirement for me. I had to be willing to challenge everything I have been rewarded for in the last 30 years when it comes to building networks. I had to admit I didn’t have all the answers.
“That has to be part of it. If you think that you’re always the smart one, and a lot of operators do, then you’re doomed to failure in a project like this,” he says.