Outsourcing: A Valid New Component of Telecom Corporate Strategy

Pressured to deliver increased shareholder value in a rapidly and radically changing marketplace, operators are using outsourcing as a powerful new strategy to provide the best service to their customers at a reduced cost.

To accommodate this change, the nature of the relationship between operator and vendor is evolving to one of partnership, to mutual advantage. This article, based on Alcatel’s extensive experience in the marketplace, describes the process, benefits and success criteria of services integration.

"I am in the services business, not the infrastructure business."
European operator CEO on the decision to outsource with Alcatel

The outsourcing proposition
Not so long ago, it was unimaginable that an operator would be willing to outsource the engineering, operations and maintenance of its network — but that is what is happening today. Outsourcing functions within two basic models: consolidation (or maintenance) and evolution.

Consolidation
In the consolidation/maintenance model, the focus is on efficiency improvements through operational synergies (domestic operations and maintenance) and on operational rationalization (improved homogeneity of international operations). Maintenance outsourcing covers the following types of operations and ordinary administration of the network:

Field services
• Corrective and preventive maintenance
• Network and service provisioning
• Spare parts management, return and repair

Network operations
• Network monitoring and surveillance
• Fault management

Network support services
• Level 2 network support to the NOC
• Management of level 2 and level 3 support from vendors

Evolution
The focus of the evolution model is on managing the infrastructure evolution (design, build and operate the new infrastructure) and on managing the legacy system (ongoing service, migration and phase out). With capacity and basic communication service becoming commoditized, some companies recognize the need for a cultural shift from that of a network-facing operator to a market-facing telco. Each company’s outsourcing decision is based on an analysis of its strategic needs and individual business case. The benefits are universal, however; and in Alcatel's experience, the case for considering them is compelling.

Benefits of outsourcing
Although there is no “one size fits all” telecom outsourcing product, the decision to outsource is usually driven by economic necessity and the potential savings: typically, a reduction in ownership costs of 15 percent or more. For outsourcing to be a success, however, it is important that cost-cutting not overshadow other business benefits that, while perhaps less immediately obvious, can be equally valuable to the operator.

A fresh view
With outsourcing, an operator may find that interest in maintaining the status quo changes almost overnight to interest in delivering better service to the customer — a paradigm shift toward creativity that enables dramatic improvements in performance. As one of Alcatel’s clients put it:

“When you put people in a different work model they look at your business differently. So people who once worked for us are now looking at our opportunities from Alcatel’s perspective, and coming up with some great new ideas about how we do business.”

Personal efficiency
Freed from the day-to-day business of running the network, executives can focus on their core strengths, concentrating on service excellence rather than making complex technology decisions.

Expenditure transformation
Outsourcing can help improve an operator's financial position by transforming CAPEX into OPEX, or vice-versa. For example, capital expenditure is traditionally required if improved efficiency requires the purchase of new tools. If outsourced to a services company, the investment in new tools could be provided as part of the overall service and would effectively be an operational expense. In the other direction, expanding a network using in-house resources requires not just the CAPEX for new equipment, but OPEX for the planning, management, integration and other project related functions. Through outsourcing, such activities can be considered as CAPEX.

Reduced lead times and time-to-market
An operator may not have enough appropriately skilled technical employees to resolve a problem identified by its marketing department. Outsourcing allows skilled resources to be brought to bear in the required numbers, resulting in radically accelerated delivery of new services and products that can help maintain market share. At the same time, total costs associated with the activity can be reduced.

“We've seen our times from concept to delivery of new products and services massively improve over the course of this partnership.”

Scope of outsourcing
Every aspect of the network may be outsourced, including functions and assets; but every operator has different demands and a different set of priorities.
Design
Outsourceable functions
Design
Outsourcing allows operators to evolve their infrastructures without investment in incremental resources and skills.
They can transfer responsibility for defining network architecture and the associated OSS. One operator might elect to leave all technological decisions to the vendor, merely reviewing progress and outcomes. Another might retain responsibility for technology strategy, devolving responsibility for turning this into architecture and managing the subsequent design and project activities.

Build
The detailed planning of network extensions, rollouts, and turnkey implementation delivery all are functions open to outsourcing.

Operate, administer and maintain
Network operations
A comprehensive solutions provider possesses the necessary experience in operating network operations centers (NOCs), both on a build-operate-transfer basis and ongoing, including all associated tasks such as performance and fault monitoring, and services management.

Network and customer field services
Today, few operators consider outside maintenance and provisioning activities to be a strategic part of their business, as it no longer offers a unique selling proposition or added value for their clients. Field services that can be outsourced include corrective and preventive maintenance, network and service provisioning, and spare parts management, return and repair — all the day-to-day, time-consuming but vitally important minutiae of running a network.

Network support services
Behind the first line activities of the NOC are a set of engineering support functions that assist with more complex faults — functions that cannot be automated and tend to duplicate those of the vendor. The integration and sharing of these functions enabled by outsourcing can significantly improve the operator’s efficiency.

Outsourceable resources and assets

Staff
The transfer of staff associated with outsourced functions — a legal requirement in many countries — is the single most important factor in the success of the outsourcing project. It is critical that the integrator understands human resource issues and actively seeks the enthusiastic cooperation of the staff involved.

Operational assets
Spare parts management is usually given relatively little attention by operators; consequently, operations and investment costs tend to rise in proportion to CAPEX, and logistics become tangled. The integration partner should take full responsibility for managing spare parts stock, located so that the contractual SLAs can be met.

Network assets
In a major shift in corporate philosophy, ownership of the network infrastructure is not always seen as offering unique business value. Everything that was once defended as being a core asset, such as the transmission network itself, is potentially available for outsourcing, now that the benefits are clear.

Key success criteria
Several key issues need to be addressed if the outsourcing process is to be successful:

• Definition of scope and objectives. Defining the project is a process of refinement. Perhaps vague and loosely defined at the outset, the project’s scope and objectives are progressively clarified until they are clearly understood by both parties prior to signing the contract.
• Continuous review
  Review, both before and after the contract is signed, helps ensure the services to be provided keep pace with market demands. Scope and objectives also require regular review.
• Length of analysis and negotiation phase
  Time and effort are required for “due diligence” and the time necessary for contract negotiation should not be underestimated. Our experience shows that this can take longer than the operator might expect.
• Exit strategy
  Even the best contract eventually comes to an end. Contract termination terms and conditions must be mutually agreed upon before signature.

Conclusion
Relatively new yet offering proven benefits, outsourcing offers exciting new possibilities for telecom operators. As they redefine their position in today’s challenging marketplace, operators increasingly see outsourcing as an effective way of delivering the best service to their customers. With outsourcing, the nature of the relationship between operator and vendor changes to one of synergistic partnership, to the mutual benefit of all concerned.