AlcaLu BT deal precursor to more wireline outsourcing

While the bulk of its network outsourcing deals have focused on wireless networks, Alcatel-Lucent’s recently inked deal to run BT’s non-UK legacy wireline network could foretell other operators handing over the keys to their crown jewels to outsiders.

That’s the take from Andy Williams, president of Alcatel-Lucent’s services business, which has grown to operating 70 networks representing 140 million subscribers for service providers around the globe. Noting that many of the full-scale network operations outsourcing deals are with wireless operators, Williams said BT’s move could represent the start of a trend on the wireline side.

“[Outsourcing] has been principally driven by mobile -- that’s why we think BT is, by example, such an important deal,” Williams said. In general, legacy wireline networks are more complex than wireless networks, meaning “there’s a lot of trust involved” for a service provider to outsource such a core capability, he said. For that reason, Alcatel-Lucent isn’t taking on direct relationships with BT’s customers in any way; that responsibility remains with the service provider.

Overall, the deal represents Alcatel-Lucent’s largest with a wireline service provider to date. It is focused on BT’s non-UK, non-IP legacy network, managing that infrastructure on behalf of BT Global Services group. Alcatel-Lucent will assume operations for five legacy global and domestic networks outside the UK, along with the BT Global Managed Platform legacy transport network. It will transfer “a few hundred” BT employees into the services company to make it happen.

BT, Williams was quick to point out, will retain operations of its core Global 21CN platform, a massive development effort that represents the future of the provider’s network infrastructure. BT hit the “go” button on the type of deal that many service providers are mulling, claimed Alcatel-Lucent’s Williams.

“Service providers are going to have to continue to reduce costs. If things are not a competitive advantage, than why wouldn’t you [outsource]?” Williams said, noting that outsourcing savings can hit 30% or more very quickly, thanks to the economies of scale and process improvements a global service company like Alcatel-Lucent can bring to the operations game.

Network operations outsourcing has proven more popular outside the US, particularly in Western Europe (though Embarq inked a much-noted outsourcing deal with Nokia Siemens Networks earlier this summer). At least part of the reason is that, outside the US, network quality has ceased to be a competitive differentiator, Williams said. In areas where that’s the case, the next step is for competing providers to actually share an outsourced infrastructure, gaining more cost savings while focusing their competitive efforts on new service delivery and marketing, he said, calling such scenarios “the logical endpoint” of the operations outsourcing trend.