The Substance of 'Hollow Operators'

Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), and Nokia Networks have announced nearly 50 major telecom managed services contracts between them from January 2008 to July 2009, according to an upcoming Light Reading Insider report. (See NSN Services Chief: Huawei's Years Behind, Services Now 45% of NSN Revenues, Ericsson, Sprint in $5B Managed Services Deal, and NSN Sees Managed Services as $277B Market.)

The report, "Telecom Managed Services: The Rise of the Hollow Operator," will debut on Wednesday at www.lightreading.com/insider and it will describe this growing phenomenon of -- wait for it -- "hollow operators."

Hollow operators are telecom carriers that "continue to own all or most of their infrastructure assets, but they will seek out third-party partnerships to offload more and more operational functions, with an eye toward cutting operational expenditure (opex) costs and freeing up internal resources for more intense business development activities," writes the report's author, Simon Sherrington.

[Ed. note: We haven't, to date, come up with a term to describe a hollow operator being run by a bunch of empty suits, but we're working on it.]

There are a bunch of reasons why operators would want to hollow out and trust the running of some of their networks to companies that have traditionally been telecom equipment suppliers. In developed countries, cost cutting is the main driver, especially as it relates to legacy networks. In emerging markets, carriers want to turn over their network operations so they can focus on growth -- "on branding, marketing, and selling services," the report states.

One growth spot for telecom managed services will be the U.S. Sherrington writes: "As natural market growth slows (particularly in the mobile market), operators will focus on cutting costs." For traditional telecom equipment vendors, this growing practice may be the one bright spot on their balance sheets in the years ahead.

— Phil Harvey, Editor-in-Chief, Light Reading