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July 31, 2009
Only a very few vendors are capable of winning the long-term, lucrative managed network services deals that are increasingly up for grabs, claims a top industry executive, and, for once, that select group doesn't include Huawei Technologies Co. Ltd. (See NSN Sees Managed Services as $277B Market, Ericsson, Sprint in $5B Managed Services Deal, and AlcaLu in Line to Win Reliance Deal.)
Rajeev Suri is head of services at Nokia Networks (NSN), one of the companies that has been bagging an increasing number of carrier outsourcing contracts: Its latest win is a five-year managed services deal with Brazilian fixed and mobile carrier Tele Norte Leste Partricipacoes SA (better known as Oi) worth €1.1 billion ($1.57 billion). (See Embarq Outsources to NSN, NSN Wins Orange Spain Deal, NSN Backhauls T-Mobile, NSN Wins in UAE, and NSN Wins in Indonesia.)
NSN now has more than 200 managed services deals, running networks that carry voice and data traffic for more than 220 million end users, Suri tells Light Reading. To achieve that, NSN has more than 10,000 staff in its managed services business.
In total, NSN's services portfolio -- Network Implementation, Care (maintenance), Consulting, and Systems Integration, in addition to Managed Services -- accounts for more than 20,000 of the vendor's staff, and now generates 45 percent of its (shrinking) revenues. (See Services Now 45% of NSN Revenues and Slump Slams Nokia Siemens .)
Building that level of business, and developing the operational models required to run multiple networks around the world, has taken years. And that's where Suri believes NSN and the other seasoned services players have a critical edge over Huawei, which has made itself a strong adversary in just about every other part of the telecom vendor industry. (See Huawei Closes In on Rivals.)
"It has taken a while to transform into a services and solutions company," says Suri. "In terms of some of our weaker rivals, such as the Chinese players, we are three to five years ahead in terms of capabilities and resources."
The key factor in winning deals and then making money from them is in building a template that can be used again and again. "It takes time... to stop reinventing the wheel, and make it repeatable. If you don't have [the model] today, it would take years to build. We can accelerate ahead of the Chinese."
And for deals that involve managing multi-vendor networks, "it will come down to a few companies. It's mostly us and one other [Ericsson] in managed services," says the NSN man.
Being able to maintain and run networks that have been built using equipment from multiple suppliers is key to winning new business, says Suri. "We're building our skills set for multi-vendor integration, and we now manage [equipment from] 70 vendors. Multi-vendor ability is key to us -– that's where we believe we can grow." At Orange Spain , he notes, NSN has supplied only about 30 percent of the network infrastructure it is managing. (See NSN Wins Orange Spain Deal.)
"It's a big trust game –- it's a big ask for the carriers. It comes down to the two of us," says Suri. (See Vendors Scrap Over Managed Services Deals.)
Ericsson clearly is NSN's biggest rival -– the Swedish giant even snatched a valuable chunk of potential business from under NSN's nose by outbidding it for Nortel's CDMA business recently. (See Ericsson Delivers Knockout Blow to NSN, Ericsson Wins O2 Deal, Ericsson Win Zain Deal, VOD UK Outsources to Ericsson, Ericsson Wins MBNL Deal, and C&W Picks Ericsson.)
It's not all going Ericsson and NSN's way, though. Alcatel-Lucent (NYSE: ALU) has also made headway, particularly in India, and, like Ericsson, holds up its Services division as its shining light in the current downturn. (See Asset Sale Helps AlcaLu to Q2 Profit Services Save Ericsson in Q2, AlcaLu in Line to Win Reliance Deal, AlcaLu, Reliance Laud JV, AlcaLu, Bharti Form Joint Venture, AlcaLu Supports BT Global, Sunrise Outsources to AlcaLu, AlcaLu Wins at VOD UK, and AlcaLu Wins Mobily Deal.)
So what of Huawei? And even ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763)? Do they have aspirations in the professional services market?
When Huawei reported its enormous 2008 revenues in April, it claimed to have 45 managed services contracts, adding that the value of deals signed in 2008 had risen by 67 percent year-on-year, though no financial details were provided. (See Huawei Reports 2008 Revenues of $18.3B and Huawei Wins at Mobily.)
At this stage, Huawei is not believed to be a serious threat to the sector's big three players when it comes to significant, strategic, multibillion-dollar managed services deals, though it has been linked with negotiations for a major deal in India. (See Unitech Turns to AlcaLu, Huawei.)
ZTE doesn't show up on the managed services radar -- one minor engagement in Ghana appears to be its highlight -- and it didn't highlight any aspirations when it laid out its main R&D focus areas earlier this year. (See ZTE Secures $15B, Highlights R&D.)
What's next for NSN - more growth?
NSN, meanwhile, is hungry for more services deals. It's currently generating more than €1.4 billion ($2 billion) in quarterly revenues from its services, compared with Ericsson's 20 billion Swedish Kronor ($2.77 billion) and AlcaLu's €873 million ($1.25 billion), and Suri is keen to be the market leader.
So is further growth expected this year? Suri won't provide a forecast, but notes that revenue from services has increased steadily as a proportion of overall sales during the past few years, from about 33 percent during the first half of 2008, to around 40 percent at the end of last year, to about 45 percent now.
Certainly the NSN man is expecting to strike further deals, and he's expecting further traction in Latin America following the Oi contract. "Once you win an initial deal in a market, it sets the others thinking" about the benefits they could see from following suit, he states. "We expect the Oi deal to open up the market, and we're already in discussions with other operators, though these are starting with just some field operations services, but there's an active level of interest."
Geographically, Europe has "the biggest momentum" for managed services deals, while India and Australia are hot markets in Asia/Pacific. The U.S. is picking up too, though deals in the Middle East and Africa tend to revolve around building a network and then handing over the keys to the operator.
Despite the current growth curve, NSN isn't planning to add to its three existing Global Network Solutions Centers -- one in Portugal (Lisbon) and in two in India (Chennai and Noida) -- that support its outsourcing customers, says Suri, though the vendor is doing as much as it can from these operations centers. (See NSN Opens Service Center in Delhi.)
"Whatever we can do remotely, we do, as long as it's underpinned by automation. We want to keep things as centralized as possible. We can manage thousands of base stations remotely from Chennai. A lot can be done remotely, and we see that come through on our margins," says the NSN man.
That's not to say more centers are off limits, though. "If there's business in a large region that builds up, and there's a need to keep things in that region, then we would consider that, but once the customers decide to opt for remote management they want to keep the costs as low as possible," and so opt to be managed from an existing site.
— Ray Le Maistre, International News Editor, Light Reading
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