|Outsourcing saves mobile operators up to 25%
Vendor outsourcing revenue to reach $55.3bn by 2010, but operators still reluctant to hand over network management.
Outsourcing network operations can reduce mobile operator costs by up to 20%-25%, according to a new report from Pyramid Research.
Total outsourcing revenue for equipment vendors is predicted to reach US$55.3 billion by 2010, rising at a 1% CAGR from US$51.5 billion in 2005.
The study, The New Frontier for Vendors: An Analysis of Network Services and Outsourcing, shows that while levels of savings vary – depending on the level of outsourcing – mobile operators are seeing benefits. Additionally, the level of growth rises to 8% CAGR if the so-called "big slump areas", that is network build and deploy, and network design are taken out of the equation.
Ozgur Aytar, senior analyst at Pyramid Research, told that the biggest growth area of outsourcing is hosted applications.
"A growing area of interest is specialised applications, niche enterprise products", said Aytar. Operators can not offer all the applications that some enterprises require whereas vendors can, she added.
"Operators can rent applications instead of buying…[they] will be able to offer more services targeting different types of customer", she added.
But despite outsourcing becoming "an increasing trend, it is early days", Aytar added.
Operators` savings are generated from reduced CAPEX "through network sharing and effective asset management, as well as from OSS and network management outsourcing", said Elizabeth Bramson-Boudreau, the author of the Pyramid report.
Areas that are seeing increased interest from operators include outsourcing network operation centres (NoC) and network service management and performance.
The report also highlights that mobile network operators look to outsource legacy networks or technology that "they know already", said Aytar. However there is a reluctance to hand over control of network management.
Despite Ericsson scoring large deals with Hutchison`s 3 Italy and 3 U.K. last year, these remain stand-alone agreements.
"Generally network operators are very protective over network management. They feel that this touches the customer experience", said Aytar. One interviewee said that the cost benefits of US$30 million was a "drop in the ocean" in comparison to the loss of control of the network, she added.
Operators fear in particular that outsourcing companies will choose to take a different roadmap in terms of technology.
Furthermore, U.S. mobile network operators especially use the quality of their network as a marketing tool.
"Mobile operators still differentiate on the network front, especially in the U.S.", said Aytar. Companies still advertise their services based around the quality of the network, dropped calls etc.
But operators who do outsource part of their operations see real benefits according to the study.
An executive from one European operator said "the [outsourcing] deal got us a clear 20% saving on manpower costs. With additional immediate OPEX savings, our first year savings were in the region of 35%",
Service level agreements play an integral part of the relationships between operators and vendors. "Operators choose to stay on really on top of them [SLAs], as if they were doing it internally", said Aytar.
Vendors such as Ericsson and Nokia are placing a large emphasis on their outsourcing businesses.
Hans Vestberg – executive VP of Ericsson`s global services business – said that current addressable market for professional services will be worth up to US$48 billion this year.
Aytar said that there is a real addressable market for vendors in terms outsourcing within logistics, project management and installation.