What's a network operator?

The trend of telcos providing managed security offerings to corporate enterprises (see story on page 20) is changing previous notions about what defines a telco service. At the same time, the trend of mobile carriers outsourcing management of their networks to vendors is tweaking traditional perspectives about what defines a network operator.

Carrier consolidation presents network equipment vendors with a whole new set of challenges. Faced with the question of how to build stronger customer relationships and create new revenue in an environment where the overall number of customers actually may be shrinking, many vendors have rushed headlong into the services business. As the logic goes, selling a carrier a hardware box offers a single payoff. But providing that same carrier with services that might include network maintenance, asset management, professional service launch consulting or all of the above could continue to be lucrative for years to come in the form of service fees — and also increasing trust.

The trend is most evident in the international wireless industry where major vendors such as Alcatel-Lucent, Ericsson and Nokia Siemens are stretching their traditional vendor roles to manage the networks and other elements of their carrier customers' businesses.

“This trend is very much about how our customers view themselves,” said Hans Vestberg, executive vice president and head of global services for Ericsson. “The last six to 12 months we have seen more and more carriers asking the question, ‘What is my core business?’ Originally, very few of the large mobile incumbents were doing this, but we have been seeing more of them considering it.”

As evidence of that shift, Vodafone recently announced it was putting Ericsson in charge of managing all of its network spare parts holding in Europe — even parts for systems from competing vendors. Vestberg said Ericsson will provide Vodafone with a single interface through which spare parts located in several European countries can be tracked and managed. The vendor will extend service level agreements to the management of these spare parts, with delivery guaranteed in a matter of hours, rather than days or weeks.

“In the past, they would have had a different interface to each of their vendors and be dealing with a different asset system and a different logistical workflow,” Vestberg said.

Detlef Schultz, global director for supply chain management for Vodafone, said in announcing the deal, “This initiative is another example of how Vodafone is looking for more and more innovative ways to deliver on its cost reduction strategy in Europe. By agreeing to this managed services contract with Ericsson, we will be even better placed to focus on our customers and give them an even better mobile experience.”

Ericsson's Vodafone deal came amid several weeks of increased activity in the managed network space. Alcatel-Lucent won a similar deal from E-Plus Mobilfunk in Germany this spring, and Nokia Siemens announced a contract to operate Qatar Telecom's UMS network.

“Convergence is really changing the service provider business model,” said John Meyer, president of Alcatel-Lucent's services group. “We're moving to a content world. The network core is going to IP, and that allows a transition to a more services-focused business for carriers. A lot of telcos right now feel it's them against Google, and that changes things.”

But managed network services aren't necessarily a no-brainer. The vendors most active in the services market seem determined to succeed at a business that many of them readily admit offers lower margins than they are traditionally used to. And though managed network services seems like an indirect way of positioning to win more hardware business from a carrier, Meyer and Vestberg both disagree with that notion.

“We're not hoping for [Vodafone's] hardware business,” Vestberg said. “This is really a separate business for us.”

Meyer added that in wooing new carrier customers, Alcatel-Lucent often leads with professional services, including a managed network offering, because the vendor perceives that's where carriers might need the most help.

Still, other challenges may become apparent to vendors of managed network services. For example, as part of most deals, the vendor agrees to hire some number of its carrier customer's employees that have previously been involved in operating the network. That's a cost that needs to be offset, but the overall value of the deal, and it potentially could create a human resources challenge for the vendor.

Meyer, said communication is the key to making such actions seamless. “It sounds simple, but we've just got to communicate,” he said. “Managing that network is what they've already been doing so they have a sense of focus, and they're the best ones to be doing that.”