Heavy Reading Research

Network Operators: Hollow Be Thy Name

Telecom equipment manufacturers are accelerating their move toward expanding their product offerings to include managed services aimed at helping their network operator customers lower their operating expenses. In doing so, they are reshaping not only their businesses but also the entire telecom industry, creating a new breed of service provider: the hollow network operator.

Telecom managed services contracts are coming thick and fast. Three top equipment suppliers – Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), and Nokia Networks – have announced nearly 20 managed services deals since the start of 2009. Among the latest deals are Ericsson’s maintenance contract with Telefónica O2 in the U.K. and its operations and maintenance deal with Sprint Corp. (NYSE: S), and NSN’s five-year network operations contract with Oi Brazil – reflecting the increasingly common view that network operators should not operate a network.

Under the emerging telecom managed services model, operators will continue to be network owners and service providers. But the tasks involved in basic network operation are falling more and more to technology suppliers, whether it is equipment makers or the giant IT houses that continue to make inroads into the telecom business. The end result is the hollow operator: an entity that still owns the infrastructure and delivers services, but cedes day-to-day operation of the network to one or more third parties.

The latest edition of Light Reading Insider, "Telecom Managed Services: The Rise of the Hollow Operator," charts the development to date of the telecom managed services sector and offers a guide map to what is likely to develop over the next couple of years. Equipment makers, IT outsourcing providers, and systems integrators are all promoting themselves to take over the day-to-day operation of pretty much every system or process an operator might be involved in. And even those IT and telecom vendors not taking on the management of rivals' technology for their customers are swift to promote their ability to operate and maintain their own technologies for their clients.

Eventually, even network ownership may start to wane as a core competence for service providers. Some managed services contracts now include the sale of selected assets to the incoming vendor, which then leases out capacity to third parties alongside the original owner. This is happening first with mobile networks, where shared infrastructure arrangements are becoming more accepted.

Telecom operators are not likely to go completely hollow overnight. But the gutting has already begun.

— Simon Sherrington, Analyst, Light Reading Insider

Telecom Managed Services: The Rise of the Hollow Operator, a 27-page report, is available as part of an annual subscription (12 monthly issues) to Light Reading Insider, priced at $1,595. This report is available for $900. To subscribe, please visit: www.lightreading.com/insider.

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