On June 20, 2003, Telecom New Zealand signed a five-year agreement with three equipment vendors Alcatel, Ericsson and Lucent to operate and manage TNZ's entire mobile network.
The first of its kind deal in the Asia-Pacific region, meant that the equipment vendors would be responsible for operating TNZ's entire network.
That included everything from monitoring and surveillance of the end-to-end services, network performance improvements, hardware support and also managing the field and maintenance staff. TNZ would just looking after key functions like marketing and deciding on tariff plans.
On the same day, another five-year deal was signed between Alcatel and Australian telecom major AAPT which saw Alcatel taking responsibility for managing AAPT's network planning, development and operations services. The agreement involved the transfer of around 100 staff from AAPT to Alcatel in Australia.
Cut to India. On February 9, 2004 Bharti Tele-Ventures, the country's largest mobile operator signed a $400 million outsourcing deal with Ericsson. As part of this deal Ericsson will manage and run Bharti's nationwide cellular network. The three-year contract will also see 250 of Bharti's technical experts moving over to Ericsson India.
The average mobile phone user doesn't care who runs the giant network that allows calls to go through smoothly. Till now it has always been the operator like Bharti Tele-Ventures or Hutch that has looked after the mobile network which is made up of huge base stations, receivers, data servers, cell sites, frequency repeaters.
But now, with increased competition and the need to drive down costs, operators are looking at outsourcing such activities to equipment vendors. The vendors, for a fee, will not just manage the network for the operator but also introduce new technologies as and when required.
Welcome to the new world of telecom network outsourcing. And in the race to grab a pie of the 2.75 billion Euro global market are companies like Ericsson, Motorola, Nokia and Alcatel which are seeing big business coming from telecom outsourcing.
"Outsourcing of network operations is an attractive and growing area of business -- globally as well as in India -- in which Nokia is targeting a leadership position. We're in discussions with a large number of network and service operators regarding outsourcing and managed services for network operations," says Ashish Chowdhary, country head - India & SAARC, Nokia Networks.
Nokia estimates the global telecom network outsourcing market will touch 10 billion euros by 2006-07.
Market analysts point out that most telecom markets are reaching saturation point and there aren't too many new greenfield projects on the cards. Therefore, equipment vendors are now focusing on getting large outsourcing deals.
"Operations outsourcing allows vendors like Nokia to extend their service offering to operators and provide a comprehensive suite of solutions from network design and deployment to management," says Chowdhary. Outsourcing accounted for 25 per cent of Nokia's revenues from its Network business.
For French equipment vendor Alcatel the incentive is slightly different. Network outsourcing is a means to make inroads into the booming cellular infrastructure segment.
The company which missed the bus and hasn't been able to get any significant network deals in India since the first cellular network started in 1995, has big plans to tap the outsourcing segment.
"We want to bring outsourcing to the land of outsourcing. It's not necessary that the operator has to outsource its network management to the vendor which has supplied the equipment initially. In 2003, Alcatel bagged 35 per cent to 45 per cent of the outsourcing deals globally and most of these networks were not running on Alcatel's platform. We are in negotiations with a number of operators and are confident of a sizeable market in India," says Olivier Picard, president, Alcatel (Indian subcontinent).
For the operators too outsourcing is a win-win situation. It allows operators to compete better by focusing on its core areas of marketing and developing new services and tariff packages.
That apart, it improves shareholder value and since the backbone infrastructure is being handled by the experts, it brings in more efficient competence and technology management.
"Outsourcing of selected activities to equipment vendors is a natural evolution for operators seeking to manage their OPEX (operational exports) and technology complexity in an increasingly competitive market. In this new environment, mobile operators can achieve savings of around 20 per cent in network operations expenditures. The trend is clear and so are the benefits," says Nokia's Chowdhary.
A case in point is Alcatel's contract with tele.ring in Austria where it had taken on tele.ring's field force to provide the maintenance to the operator's GSM infrastructure.
Alcatel says that tele.ring's operational costs have fallen by a whopping 30 per cent.
"Outsourcing does three important things for the operator. It improves the cash flow of the company, it improves efficiency in revenue generation and brings down costs. On the downside, however, if the outsourced function is not taken care of properly, then the reputation of the operator is severely affected. But that is unlikely," says Sanjay Mehta, director, Ernst & Young.
Agrees Akhil Gupta, joint managing director, Bharti Tele-Ventures and the brain behind the deal with Ericsson.
"We will not be able to manage our telecom network as well as Ericsson can. The outsourcing agreement with Ericsson is set to redefine the telecom landscape in the country and help us contribute towards a robust telecom infrastructure overall. An initiative of this kind will enable us to focus on our core areas while also simultaneously allowing us the benefits of a world-class network, managed and monitored by specialists."
Globally, network outsourcing contracts are estimated to have increased from just 0.30 billion euros in 2001 to 1.75 billion euros in 2003. And experts feel India too offers similar mouth-watering prospects for the vendors.
"Globally, outsourcing is being accepted as a means to cut costs. In India, most operators have already begun outsourcing parts of their businesses like call centre operations, application-based services and content. Going forward, this may result in bigger deals," says Paul Cardoso, former chief executive officer and president, BPL.
Jan Campbell, managing director, Ericsson India says, "Network outsourcing is a trend that will happen in India sooner than later. We are talking to a number of players here. We expect other operators to work out similar arrangements with equipment vendors."
Banking on this opportunity, equipment vendors are bracing themselves for another gold rush from India. Nokia, for instance, is projecting its NetAct portfolio which is used both for network and service management and is a single platform for automating and centralising operations across 2G and 3G networks.
"The shift (from in-house network management to outsourcing) is taking place now thanks to the developments of the past two years, as mobile operators shift their focus to creating new services. Nokia has several customer cases under serious discussions. We expect to announce several new deals during this year, first ones already during coming few week," says Chowdhary.
Will it be Nokia to first announce India's next telecom outsourcing deal or will it be Ericsson or Alcatel? Watch this space.
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