The Managed Services Post-Mortem, Part 2
We already analyzed six key findings from our August 2010 report "Turnkey Networks: The Future of Managed & Professional Services" to assess the extent of changes that have taken place during the past three years. (See The Managed Services Post-Mortem, Part 1.)
Now, in this second part, we put five more findings under the microscope, with the 2010 findings and analysis in bold and italics, followed by a current evaluation/status.
Key Finding 7: The partnership model among the major players will remain extremely fluid and dynamic. Although telecom vendors, IT outsourcers, systems integrators, process consultants, and OSS specialists will continue to collaborate to win new business, the lines between them will continue to blur, and they will increasingly become competitors.
Status: Correct. As anticipated, a number of vendors made key acquisitions or refocused their strategies to gain access to new sources of managed services revenues and minimize their reliance on partners. Vendors we would include here are Ericsson AB and Amdocs Inc..
Key Finding 8: The managed and professional services model is expanding and evolving. Outsourcing of IT and legacy core networks drove the first wave of growth, but operators comfortable with this model are now looking to expand the scope. As more traditional services begin to plateau, new opportunities such as OSS/BSS managed services are viewed by several vendors as important for driving growth in more established markets.
Status: Correct. The evolution and shift to OSS/BSS managed services was only just starting three years ago, but it certainly has become a mainstream focus since then. (See Amdocs Lands Major IT Transformation Deal and Ericsson Wins SPIT Managed Services Deal.)
Key Finding 9: The notion of the network as a competitive differentiator is outdated. A large number of Tier 1 wireless operators have outsourced, or even share, their wireless infrastructure. Rather than relying on the network, these operators are focused on differentiating at a "customer experience" level. Since managed and professional services can shorten time to market and enhance service capabilities, they are seen as having a positive impact on customer service interaction.
Status: Correct. The term customer experience was still very new in 2010, but it certainly hit stride in 2011 and 2012 and the collateral from managed services vendors were modified to reflect this shift. Accompanying this was the marketing spin that network operators that outsourced were better equipped to meet customer demands since they weren't preoccupied with spending valuable corporate resources on simply running the network. The impact of network functions virtualization (NFV) should also further erode any remaining value proposition of the network as a competitive differentiator.
Key Finding 10: However, many Tier 1 operators also have a clear view of where to draw the line on outsourcing. This typically involves not transferring network assets to a third party, and developing criteria to ensure that strategic functions, including technology decisions and vendor selection, remain within the telco.
Status: Time will tell. But certainly what we have seen in new managed services awards during the past few years indicates that operators are still reluctant to transfer assets to a third party.
Key Finding 11: Professional and managed services contracts are signed for periods ranging from three to five years, with a few even reaching seven years. While three-year deals gained popularity a few years ago as a way to minimize exposure, both vendors and operators now consider five years to be the optimal timeline for these agreements. For operators, this duration provides the best opportunity to recover the business and administrative setup costs that occur in the first few years of an agreement; while for vendors, it provides a stable period to generate revenue, recover their investments, and achieve separation from other competitors active in the account.
Status: Correct. This hasn't changed -- the majority of the new wins and renewals during the past three years still seems to favor the five-year window, although seven-year contracts traditionally reserved for the largest deals are still signed on occasion, with the deal between Huawei Technologies Co. Ltd. and Hutchison 3G UK Ltd. in 2012 an example. (See Euronews: Huawei Lands Major UK Deal.)
So, a number of the projections were correct but there are still a few (mostly from the first blog post) that are in the balance. I will continue to track the developments that are still in flux and report back on the outcomes at a later date.
— Jim Hodges, Senior Analyst, Heavy Reading