Dark Fiber

Group Editorial Director

In a bid to cut costs, a group of telecom service providers last week announced three separate deals — with three separate equipment manufacturers — to outsource their network management responsibilities.

 

The Wall Street Journal had an excellent overview of the trend in yesterday’s online edition.

 

Among the deals announced last week, Alcatel-Lucent said it agreed to an outsourcing contract with BASE, a wholly-owned subsidiary of Dutch operator KPN, which entails end-to-end responsibility for all network operations and rollout for BASE’s network.

 

According to the announcement, the contract covers the operations of the BASE mobile network in Belgium, comprising approximately 3,000 sites. It also involves the transfer of around 29 BASE employees to Alcatel-Lucent (News - Alert).

 

The decision to outsource operations to Alcatel-Lucent was driven in part by a desire to focus on what BASE does best, that is marketing their service offering and growing their customer base, while leaving the network operations responsibility to an experienced partner like Alcatel-Lucent.

 

Vodafone UK signed a seven-year agreement outsourcing its mobile operations to Ericsson. Under the terms of the deal Ericsson (News - Alert) will provide maintenance and operations for Vodafone UK’s 2G and 3G radio access networks (RAN).

 

According to TMCnet report by Gary Kim (News - Alert), more than 300 different service providers have signed at least one outsourcing contract.

 

As Kim wrote, “One of the primary reasons to use third-party services has been to improve the bottom line. Typically, outsourcers can provide a given function at lower fixed cost than a service provider can do with its own staff. The bulk of third-party services deals have involved the divestment of activities that drive up operational expenses, notably in areas of operations, administration or customer care.”

 

And, Orange announced it would outsource its mobile network operations in the United Kingdom, and fixed and mobile networks in Spain, to Nokia Siemens Networks (NSN). The deal calls for NSN to manage, plan, expand, optimize and provide maintenance services for the Orange UK 2G/3G mobile network for the next five years, while providing similar services for Orange’s fixed and mobile networks serving more than 11.3 million mobile customers and 1.2 million broadband Internet customers across Spain, for five years.

 

The current economic climate is likely an accelerant to the process as service providers seek to boost profit margins while lowering operational expenditures. And the telecom gear makers certainly stand to benefit as they win the outsourcing contracts.

 

The Wall Street Journal article cited London-based analyst at Bernstein Research, Pierre Ferragu, as saying, “The market for managed services, or outsourcing of network operations, was valued at about $15 billion to $20 billion in 2008, up from around $5 billion five years earlier.”