Tuesday, April 14, 2009

Managing our Future

In 2006, several leading industry firms predicted that the market for managed services for mobile networks would become a $50 billion market.  

Their predictions were spot on. This 'quiet' trend is changing the infrastructure landscape for vendors and operators alike. For vendors, the leading managed providers for mobile networks (Alcatel Lucent, Ericsson and Nokia-Siemens with Huawei slowly gaining traction) are increasingly becoming an important part of the selling cycle. Before, they were the vendors. Since 2006, they have emerged as a trusted "partner" (while keeping the hat on as 'vendor') for mobile operators whose vision is to become global communications providers of wireless and wire-line services. Most of the "big guns" (Vodafone, T-Mobile, AT&T) have been acquiring brands and networks for a period of five years and most (almost all) of these networks are indeed managed by NSN, Ericsson and Alcatel-Lucent.

Not counting the Nokia-Siemens merger, the top 5 players made over $20 B in acquisitions related managed network services during 2003-2008 (includes Alcatel-Lucent).  Ericsson posted service revenues of $3.3B in 2005. Last year, 2008 professional services revenue accounted for 25% of all revenue for the company - roughly $6B (doubling in sales). Overall, do not be surprised to find that 'services' account for 30-40% of revenue for many of these companies (and 20-30% margin or more) within the next 2 years. In 2008, Ericsson managed networks that served more than 185 million subscribers worldwide.

It's just a matter of time before China Mobile (world's largest by # of subscribers) decides to make a brand entry into Europe or North America by acquiring networks and assets (brand). Most likely, these networks will be managed by the top three or the emergence of Huawei as a service partner - creating a "4 horse race."

So why this trends of outsourced managed networks for mobile operators? 

We have seen the same trend since 1997 when it comes to managed enterprise networks (first finance and insurance, then the rest of the verticals). Very simply, the savings are tremendous and by outsourcing the communications networks, the company can focus on its core competencies (sell products and services it makes).

  • Customer savings range from 10-40% with outsourced managed services
  • Increase efficiencies for CAPEX and OPEX: Integrate new technologies and application without hiring specialists (multiple radios, network technologies, applications, etc). Simplify integration with networks, billing and outsourced application provider
  • Managed services is strategic to both operators and the managed network vendors: Vendor moves-up value chain from supplier to key partner (gains more control/influence). Vendors can sell hardware/software solutions for lesser margin and make it up with global service contracts
  • Consolidation in the industry secures scarce people resources to 3-5 key players (Operators are able to leverage vendors access to people, expertise and networks)

By outsourcing, operators will focus efforts on marketing the brand and differentiate with customer service in order to hold off price wars and customer churn.

This trend has created a new landscape. You could make the same argument NY Times did in their article last Monday when they raised this question:

"Which two European companies run the biggest wireless networks in the world, with a combined 355 million customers? If you are thinking of the top mobile operators — Vodafone, Telefónica, T-Mobile or Orange — you would be wrong. The right answer: Ericsson and Nokia Siemens Networks." See article  

As NYT's Kevin J. O’Brien puts it 

"...most subscribers are unaware that day-to-day management of their calls and text messages is being supervised not by local engineers but by managers in remote centers like New Delhi, Bucharest or São Paolo. In Britain alone, Ericsson manages significant parts, if not all, of the networks of 3, T-Mobile and O2. In March, Ericsson added Vodafone, its fourth mobile operator client in Britain. On the same day, Nokia Siemens said it had been hired by Orange, the mobile unit of France Télécom, to manage its British network."

This is a very powerful trend which impacts all the players in the infrastructure network. The day could come where operators and enterprise alike says to IT vendors... "Talk to my partner." The operator and the enterprise IT group just stipulate what they need in form of products and SLA (as in shopping) and for an agreed contracts, services are rendered without the customer touching the IT decision. Take this a step further. The operator can become the brand-facing Communications Provider for small, medium and large enterprise customers. The enterprise stipulate LAN-Wan and Wireless service needs and the operators then dictates to the "Managed Communications Partner" what they need to fulfill service contacts with hundreds or thousands of enterprise customers.

Managed Mobile Networks has changed the landscape for all communication, inside and outside. 

The day will come when AT&T, Vodafone, T-Mobile and China Mobile are you all-inclusive communication provider for IP-based video/TV/phone/mobility and e-commerce. No wonder the landline providers are wondering what to do next. BT, Comcast, and others may become part of the network and their brands disappear. Or, they go on the offensive and try to compete on a global scale as a consortium of players.

The managed network space (not just for mobile networks) is worth hundreds of $ billions every year. IBM is already a big player in this market as are many System and Solutions Integrators. The gravy lies with mobile networks. It remains to be seen if Cisco decided to get into this space as well, creating a global services organization for wired and wireless network services. Even Dell got into the SMB space for smaller network services. Managed Network Services is a strong trend for all communication services, for enterprise, consumers and mobile network operators alike. By outsourcing, the brand can focus on its core products and services and allow the infrastructure to be handles by the experts.

My prediction is that managed services (wired & mobile) will exceed $1 trillion in revenue by 2015 where the top 4 players account for 80% of the revenue.

I'm glad to see the New York Times article by Levin J O'Brien. He's on to the big news. I hope the CEOs read and internalize the article and conceptualize the impact on their organization during the next 3 years.


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