Carriers carve out managed services niche

Before frame relay, private lines, asynchronous transfer mode or Internet services, the responsibility for most carriers ended at the door of a customer's building.

But for the past five years, carriers have offered a variety of WAN and LAN managed services that bring them much closer to their clients' businesses.

"Customers are demanding it," says Tom Jenkins, broadband analyst with TeleChoice. "Also, due to competition in basic transport, there is very little differentiation today in basic frame relay services, and one way to differentiate your service is by taking it to the next level and supporting [customer premises equipment]."

Most of the Bell companies and large long-distance carriers now have network integration arms, including AT&T Solutions, Pacific Bell Network Integration, Ameritech Advanced Data Solutions and Bell Atlantic Network Integration. These companies compete with various integrators and outsourcers, including Internet service providers, in a network management services marketplace worth about $1.3 billion and growing at a rate of 26% each year, according to International Data Corp.

Service providers realize that managed services make loyal customers. The end user can easily switch voice providers, but if a company orders managed data services, the provider visits the company's premises occasionally to upgrade equipment or software and deals with the company's applications.

"It will reduce the customer churn as the providers get further into the customer environment," Jenkins says.

Gregory Q. Brown, president of Ameritech's Custom Business Services, segments managed services vendors into three tiers and says that telecommunications companies are finding a niche. The Tier 1 vendor group comprises component sales organizations such as Lucent Technologies, Siemens/Rolm and Northern Telecom.

At the opposite end of the spectrum lies the Tier 3 group, companies such as Computer Sciences Corp, Electronic Data Systems Corp. and IBM Global Services. The Tier 3 service providers are like general contractors that absorb all their customers' non-core functions from the data center outward.

Tier 2 service providers, including Ameritech's Advanced Data Services, have emerged to fill the gap between these groups of outsourcers. Tier 2 players have redefined their business strategies and leveraged their infrastructures to incorporate both network management and outsourcing, Brown sa ys.

"The Tier 2 provider is gaining prominence," Brown says. "It's that tailored, scalable service that addresses customers' unique business needs that helps to differentiate the Tier 2 provider."

This has led many carrier integrators to consider providing solutions that reach all the way to the desktop. But many are finding this expensive-both for themselves and for clients-because of the intense user support required, Jenkins says.

"Many [service providers] are considering going just to the LAN where they might just manage the hub, but not going all the way to the desktop," he says.

However, that is not the approach taken by Pacific Bell Network Integration, which manages about 7000 sites with about 12,000 devices.

"We were set up as a LAN management operation, and the business problem that we are trying to solve is that companies are driven by new enterprise applications to upgrade legacy LANs," says Jim Pflaging, PBNI president and CEO.

Moreover, Pflaging insists that his organization will also operate at the desktop level.

"We decided that [Internet protocol] has won the battle and that we will manage any IP-addressable device," he says. "We are rolling out tools that will allow us to do that and manage on the application level."

Yet carriers may be making their biggest impact by changing how managed services are defined. Until recently, managed services involved managing CPE at the customer's site.

But companies such as AT&T are offering customers more functionality from the network itself, instead of locating people and equipment at the customer premises. With its central office service, AT&T is replacing CPE with network functionality. The customer doesn't have to install new equipment or change LAN configurations to migrate to frame relay, for example. This is important to many clients dealing with legacy systems that make CPE reconfigurations necessary for any technology migration.

"That is the kind of future model that we are going to see," Jenkins says. "It hides the underlying technology from the customers, so [carriers] can migrate and get the benefits of new technologies without getting the hassles at the premises."

Qwest Communications recently announced it will work with Cisco Systems, Microsoft, Sun Microsystems and other companies to add intelligent services to its network to eliminate special devices at the customer premises.

Managed services fees range from $250 to $2000 a month per site, and service providers normally support only one or two types of equipment. U S West !nterprise supports only Cisco routers, for instance. Companies that want a different router can use it with U S West's blessing, but U S West will not manage it.

However, integrators have had to give in to customer demands for service level agreements. Increasingly, customers also demand technology obsolescence guarantees. If a service provider manages a private line network for a client today, that client may want to migrate to frame relay or ATM later.

"[Clients] want some kind of migration plan, or migration strategy, as the network evolves," Jenkins says. "They do not want to sign some iron-clad contract that limits them in what they can grow into, and they want to make sure that service provider can grow with them."