Roundtable: Both sides of the managed services coin

22 October 2012 |


Carriers are increasingly delivering and consuming managed services. Here key players from both sides of the coin share their views and experiences on outsourcing.

The panel:





James Segil
Co-founder and
president of
CDN company
EdgeCast

.................................

Jack Zatz
Head of the managed services portfolio for equipment vendor
Alcatel-Lucent

.................................

Andreas Hipp
CEO and co-founder
of Epsilon Telecommunications

.................................

Alam Gill
SVP for international
managed services at
outsourcing specialist
CSG International 

.................................

A few years ago, it was rare for a carrier to deliver any services which they then managed on behalf of the customer, now it is commonplace.

Likewise, carriers are increasingly becoming consumers of managed services from other quarters, and it is these relationships that are helping them into important new revenue generating areas.

Capacity organised a roundtable with a broad cross-section of industry representatives to explore how such relationships are continuing to evolve.

If carriers want to break into service areas that are completely new to them, like mCommerce, cloud or video conferencing, then who is the best type of outsourcing partner?

Gill: The need for relationships is key. New service areas are all about innovation and creativity, but carriers can be outside that. They should be looking to partner with application and cloud companies, as well as looking to exploit their own strengths, like their dependable and predictable infrastructure and their reach. Carriers need to look at how companies like Twitter, Facebook and Google are introducing services globally.

Zatz: The challenge comes when you choose a partner with an expertise in just one technology area. They may have a very good application for that area, but no ability to integrate that into the overall business, line it up with other lines of business. A larger partner like Alcatel-Lucent brings a bigger picture across different domains. One solution of course is a combination of the two – partnering with a small specialist and an Alcatel-Lucent-type operation. This might be especially the case in an area like video conferencing.

Segil: We can get carriers into content delivery. If they are looking for a way to increase margins, then content delivery is a way for them to uplift from what they do today. It gels well with their existing ‘go to market’ approach. We can offer them synergistic value add, and the chance to enjoy cost savings along with revenue generation. They need a pretty big material investment if they want to move into this area themselves.

Hipp: If you look at the dominant carrier players, they’ve all had time to build the infrastructure they need for these new opportunities. Some are now looking to offer cloud solutions to other carriers on a white label basis as well, but can that fly? Maybe you are relying too much on a customer who might compete with you.

What, in particular, is the appropriate outsourcing strategy for a mobile operator wishing to make their foray into LTE a profitable success?

Hipp: How do operators develop a profitable LTE offer in an all-you-can-eat world? It’s an old problem you get with any new service. You’ve got to spend money on your network, but your revenue is not going to change. Instead you have to understand your customers better. If you can build better servicepackages, then some people will pay more for those. Having an intelligent network is key here. You need to know what the customer is going to do. There’s the instance of Tokyo where a mobile operator could not work out why part of their network would go down at the same time every morning. It turned out that hundreds of commuters were pouring out of the train at the same time and switching on their mobiles, causing a collapse on that network section. So where you need a partner for LTE is in making your network more intelligent. Maybe you can get into bed with some vendor who can provide what you need as a service, with a bit of shared risk and reward. This means you don’t need to throw so much capex at it.

Gill: LTE is a great opportunity, but for carriers it can mean reconsidering their cost base. They tend to see it at a network level, but really they should be asking how they should process and manage customers. LTE is great, but can it make money? It may be a matter of creating new types of service that perhaps aren’t traditional telco services. It’s about innovating.

Zatz: LTE is one of our biggest growth areas for managed services. It can be a profitable one for us and the carriers too. In the Middle East and Africa for example, we are seeing a lot of ‘build, operate, manage’ deals coming our way. Local operators want us to do everything from building a network to running it for them because they don’t have the scale to do it for themselves. In Europe and the US, we’re seeing more ‘build, operate, assist, transfer’. The operator wants to manage the LTE service themselves but because it’s such a new area for them they want an outsourcing partner for the first year or so of the network, at most. We can help them get up and running.

Many economies around the world remain stuck in a protracted slowdown, unable to achieve growth or mired in recession. Other economies are booming. So do carriers need to formulate a global strategy for providing managed services that takes account of this disparity?

Hipp: In developed markets, you’re seeing a fast move towards the cloud, as it’s an obvious opportunity for a cost saving exercise. This is accelerated by economic pressure, as businesses look to cut back on IT spending. MNCs are putting pressure on networking partners. Do we need a private network when perhaps something more ‘best efforts’ is good enough? Can we live with that? From our point of view, we operate in five regions, and we have a different strategy for each. We have different strategies within regions. You can’t offer the same thing in Hong Kong and Japan as you do in Myanmar. One unified global strategy is not going to work.

Segil: We’re global. We carry around four to five percent of global internet traffic on our network. We have 22 PoPs and 32 data centres in 12 cities over five continents. Our direct sales model is confined to the US, and so around the world we have an indirect sales channel of resellers of our service – telcos, cloud service providers, online video companies all selling our products as a managed service to their customers. We need local relationships, like in Germany with Deutsche Telekom where everyone has a contract with them. Our mature markets are North America and western Europe, but Asia too has got maturing markets for CDN services. There’s a buzz in Latin America too, particularly Brazil, and eastern Europe is also growing.

Gill: We have a consistent global operating model so we can say to a customer ‘Let’s converge, for example, application development across your entire business’. Cloud at least allows you to benefit from the same services anywhere in the world. It makes you more attractive if you can deliver consistently all over the world, perhaps at different price points in different regions. You’ll have a different cost base somewhere where there’s low ARPU, if you’re a carrier. With a global model you have to learn to deliver technologies more cost effectively for some customers. Mature markets are different. In a high growth market, it can be hard to keep up with demand if you can’t find the people to let you expand quickly. In a low growth mature market it’s about improving the cost base, and rationalising while at the same time innovating.

Zatz: This global status in a variety of markets only applies to a small number of carriers – people like Telenor, Telefónica, KPN and so on, that are based all over the world. You can be doing well in one location, and be challenged in others. Things can even vary within a country, of course. All sorts of disparity is possible. We do business with many of these companies, and you can see that a lot of decisions are based locally. Someone like Telefónica has some things decided centrally, but much is driven locally with its own P&L. You don’t need to let one region penalise another. It’s probably different in other types of business.

Is there a trend towards shorter and more flexible outsourcing and managed services deals? Is this a good thing for the outsourcing provider? Or is it more about serving the needs of the contracting organisation?

Gill: It’s gone from when seven or 10-year deals were normal, to more like three years. The ability of a carrier to look ahead and see what their cost base is likely to be in the future has got harder than it was a decade ago. A lock in for 10 years puts you in danger of fossilising yourself. As a carrier you need flexibility and responsiveness to change. But sometimes outsourcing can take time to transform a business. Is three years enough to make the transformation you want, and make a return? Can this work, in a complex situation? A lack of clarity on what you want can drive you to shorter deals.

Hipp: This is all about what you can do with existing infrastructure. Amazon realised it had so much server infrastructure that it could easily get into providing a cloud platform because it had the assets there already. If you are getting into that from scratch, then can you manage a development process of several years, not knowing how you’ll get your money back?

Zatz: A true managed services deal needs to be over a minimum four or five-year term, in my view. This is because of the investment the service provider needs to make. It’s hard to do shorter and make it break even. In some cases, customers want to come back to us and renegotiate terms. Things can change very rapidly, leaving carriers wanting to transform their networks in new ways. You need to build this transformation plan in up front for the life of the contract, including some flexible terms at the start. This helps both sides. There’s no such thing as a successful ‘win lose’ managed service deal. Both parties have got to be happy. When you are providing a managed network service, you’ve now got to count things like customer experience into the deal. Customer expectation is complex. A network can be up and running but still delivering a terrible service. This is where a managed services provider can be a big help, because they look at it differently and apply different metrics – outside in not inside out.

Segil: There are two ways we work with telcos. We’re a customer of theirs, buying bandwidth from pretty well all of them. We need a strong partnership with them, because what we do is tough on their networks and their cost base. Then we also work with them to help them achieve new revenues – then they are our customer. This also needs a long-term strategic agreement enabling us to run a content service for them. We’re looking for multi-year contracts that live and breathe on an organic basis. If we work with Deutsche Telekom, we have to recognise that they have a responsibility to their customers to deliver content to them well.

Is it ever wise for a carrier to manage the transformation and streamlining of their own back office processes? Or is this a no brainer for passing on to the right outsourcing partner?

Segil: Where we can find a company that meets out requirements, we’ll use them. Then we can put our development and creative talents to other areas with better ROI. With managing a sales force, billing and so on, I’ll buy that in all day, preferably on a SaaS model if I can. I’m the Web 2.0 generation and that’s my preference. There’s areas though where we have to develop ourselves because no commercial solution is available. We have a lot of intellectual property we’ve developed ourselves.

Gill: For most carriers, the back office is the legacy part of the business. They should be looking more at a ‘lights out’ model. If you were starting a carrier business today, you would be looking to automate, end-to-end. Telcos are often too people-intensive, and need to realise that by giving things to an outsourcer they are driving a leaner set of processes. It brings a fresh eye, better utilisation of staff and better perspective. It breaks down boundaries. If your technology is in stacks, that’s not efficient.

Hipp: We’re an unusual example. When we started, we outsourced everything. Then we brought it all back in-house. Now we’re providing that to others. We looked recently at the possibility of outsourcing things like inventory management through a portal, but decided to develop our own in-house solution. Why? Well, if you’re a retail telecoms company selling a fixed set of products, then it’s probably worth outsourcing all that. But as a carrier’s carrier, there’s no one product on the market that caters for the flexibility we need. We could do it in bits, but if there’s something out there that can cover all our needs then tell me.

Zatz: If you are talking customer management, it can make a whole load of sense not to invest in this yourself but to go to an expert provider of customer capabilities. For a smaller carrier, outsourcing the back office makes all the sense in the world. How does running a 24/7 NOC make sense for a small network? Larger carriers have got the economies to keep this in-house. There’s some areas where there’s never any competitive advantage to keep it in-house. Who does payroll themselves? It’s nobody’s core competency. Certainly not ours.