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Indian Operator Outsources to Finland

Light Reading
News Analysis
Light Reading
1/27/2006

Nokia Corp. (NYSE: NOK)'s managed services contract with Hutchison Essar , announced Wednesday, is the latest in a string of deals for vendors offering managed services to service providers. (See Nokia to Run Indian Network.) It's also a sign of outsourcing -- Indian carriers handing over the management of their networks to foreign vendors.

Under its five-year deal with Hutchison, worth around $350 million, Nokia will assume the planning, operation, and maintenance of nine of Hutchison’s 13 networks –- 16, including its newly acquired BPL Cellular business. (See Hutch Essar Completes BPL Buy.) Nokia will also transfer over 600 Hutchison Essar staff to its Services business unit.

Service offerings are becoming increasingly important to equipment vendors. Ericsson AB (Nasdaq: ERIC) recently snagged its largest ever managed services contract to run Three UK 's network and IT infrastructure in the U.K., while Siemens has signed up with Hutchison Telecommunications International Ltd. (NYSE: HTX) in Indonesia. (See Ericsson to Run 3's Network and Siemens Wins in Indonesia.) Nokia says it’s been awarded 36 such contracts in 28 countries so far.

In many cases, continued pricing pressure and falling average revenue per user (ARPU), have prompted operators to look at cutting the lifecycle costs that come with managing their own networks. Outsourcing those operations to a vendor allows them to concentrate on the services themselves. Those factors are acute in India, where ARPU is just $8.

“It is not surprising that Hutchison Essar has opted for a managed services deal, as this is in tune both with Hutchison culture and telecoms operators in India, many of whom have signed managed services deals,” writes Ovum Ltd. analyst Eirwen Nichols in a note to clients.

The deal is the second largest in India after Bharti Tele-Ventures Ltd. awarded Ericsson a combined $400 million in managed services contracts. (See Ericsson Expands Bharti and Ericsson Manages Bharti Capacity.) Aside from the size of the contract, Nichols writes, “it’s also good news for Nokia, as it was beginning to look as if Hutchison could become an Ericsson shop, after awarding a number of managed services contracts to the Swedish company in the past two years.”

It’s also Nokia’s second managed services contract in India, following a deal with Bharti that was expanded last year. (See Nokia Wins $125M Bharti Deal and Nokia Expands Bharti.) “The new contract with Hutchison Essar helps Nokia achieve economies of scale in the region -- an important factor in making managed services cost effective for the customer and profitable for the supplier,” writes Nichols.

That importance was seen in Nokia’s fourth-quarter results on Thursday as the vendor announced lower profit margins due to growth in emerging markets and the lower-margin services business. (See Nokia Reports Q4.)

Nokia announced last month it will open a new Nokia Global Networks Solutions Center in Chennai to serve the Asia/Pacific and EMEA regions. (See Nokia Plans India Site.) As part of the Indian government’s ruling last year that telecom equipment should be manufactured domestically, it also stipulated managed services should be provided from network operations centers (NOCs) within the country.

— Nicole Willing, Reporter, Light Reading

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