How NSN plans to take over US networks

For Nokia Siemens Networks, last month’s news of a deal to assume operations of Embarq’s voice network was the vendor’s first sale to that carrier (whose network contains no NSN gear). It was also NSN’s first managed services deal with a major North American carrier. But the deal’s true value isn’t measured in revenue; in fact, analysts suspect it may be a money-loser for NSN at first, before economies of scale develop in this new market.

Most importantly for NSN (and the rest of the industry -- carrier and vendor alike), Embarq is meant to be a showcase that will help convince North American carriers to hand over the keys of their most sacred possessions: the network itself. NSN has its work cut out for it.

“NSN may find that the North American market is still not ready for outsourcing,” John Marcus, an analyst with Current Analysis, wrote in a June research note. “Both incumbent and alternative service providers in the region are run by executives with a deep network operations heritage, which until now has made them wary, if not hostile, of using supplier partners for managing their networks and services.”

Thus far carriers here have been more hesitant to outsource network operations than their counterparts in Europe and Asia. According to IDC, North America represented just 22% of the $4.8-billion global managed services market last year, though with 26% growth in 2007, managed services is the fastest-growing segment of the telecom services sector. The Embarq deal was by far the most comprehensive for a network its size in North America, and the carrier’s closest peer, Windstream, says it has not been persuaded to follow suit.

“Our network operations center runs very efficiently and provides effective management of the network,” a Windstream spokesman said. “We have no plans to make any changes to its operation.”

What has motivated carriers elsewhere, according to NSN, is the increasing pain of the untenable cost structure of the legacy voice business. North American carriers have felt that pain for a while now, too, and as it becomes less bearable, NSN said, more of them will open their minds to outsourcing -- particularly their legacy voice operations, as Embarq did.

“A set of drivers have led carriers in other markets to outsource,” said Gary Paris, operations head for NSN’s managed services group. “Those drivers, in the last year or two, have been reaching our shores. [For NSN’s customers overseas], operating a network became secondary to focusing on customer touch, getting new services out the door or creating new revenue sources. Their success was going to depend on those things.”

In North America, carriers still think of running the network as their core competency. And it may be, Paris said, but it is not a differentiator.

“Embarq was one of the first [here] to say, ‘I need to differentiate myself, and my network is not going to be that differentiator -- developing new services and business models will be,’” he said.