Billion-dollar managed services deals shake up Indian market

By Kris Szaniawski

Last week Indian operator Reliance Communications announced a $1bn eight-year managed services deal with Ericsson, transferring network operations and management to Ericsson in Northern and Western states of India.

This follows hot on the heels of a parallel $1bn eight-year managed services contract announced in January with Alcatel-Lucent, transferring network operations and management to Alcatel-Lucent in Southern and Eastern states of India.

Reliance will be a considerably leaner company as a result of these two massive deals given that 4,000 employees will be transferred to Alcatel-Lucent and a further 5,000 to Ericsson.

There are several notable aspects to these outsourcing deals:

1. The first is the size of the contracts. Indian managed services deals are often large-scale – as deals with Bharti Airtel and others have shown in the past – but these two are big by any standard, not quite Sprint Nextel territory but near enough. To get a sense of perspective one needs only compare these two Reliance deals with another Ericsson managed services announcement also made this week, this time with Vimpelcom. In a quiet week this pan-Russian network operations and maintenance deal would have attracted plenty of attention in its own right but in fact only involves the transfer of 400 Vimpelcom employees. Given their size the two Reliance deals will help Ericsson and Alcatel-Lucent to retain critical mass in what is a highly competitive managed services market. There is currently everything to play for in the Indian market because cancelled licences and re-auctions will inevitably impact existing network supplier and services relationships.

2. Second is the multi-vendor aspect of the deals. This is the first time Reliance has outsourced operations to several suppliers rather than just one. The operator previously had a managed services relationship with just Alcatel-Lucent. Outsourcing to multiple vendors is not unheard of in large markets spanning a number of regions, but in this instance it is as much an indication of an increasingly mature market managed services environment where an operator is willing to play off managed services providers against each other to see who can deliver the best network and cost optimization and quality of service.

3. Third is the converged wireless and wireline nature of the deals – a first for the Indian market and also something that is still less common globally than more straightforward wireless network outsourcing arrangements. The Reliance outsourcing contracts involve both national long-distance and access networks, including 3G. Managed services to date have had more traction amongst wireless than wireline operators, but there are indications that this beginning to change, with vendors claiming they are seeing increased interest from wireline and convergent operators. Given the complexity of running multiple applications, platforms, technologies and networks it will become increasingly tempting to farm out the problem to a managed service provider, especially if the vendor promise to achieve synergies by bringing together wireless and wireline network operations into a single management operation.

4. Finally, the announcements are distinguished by their strong customer experience flavor. Some of this of course can be explained away by the current hype surrounding customer experience and CEM, but Reliance executives have also been quoted as saying that a major objective of the deals is to scale up the quality of network management operations and enhance QoS. Network performance and service quality will be targeted with a view to increasing customer satisfaction and retention. Amongst other things the vendors will be expected to work closely with Reliance to identify opportunities to introduce new services and expand expanding businesses to get the most out of the network. There has been no mention of what SLAs have been agreed to monitor these deals but it would come as no surprise if there was a strong emphasis on high-level business objectives expressed through KBIs and KQIs.

Alcatel-Lucent has done well to retain the relationship with Reliance as there was speculation that it could lose out completely to another vendor, but presumably its strong wireline and convergent expertise and increasing focus on service transformation and customer experience helped it out. Alcatel-Lucent has also won network managed services deals in India with Bharti Airtel, MTNL and Unitech Wireless.

Ericsson, meanwhile, is seeking to apply in the Indian market what it has achieved globally since the network managed services market first took off. It continues to be the largest global network managed services player with an estimated 15 per cent market share of the overall global managed services market in 2012. Ericsson has also won network managed services deals in India with Bharti Airtel, Idea Cellular and MTS.

Informa Telecoms & Media expects the developing regions of Asia-Pacific to be one of the fastest growing regions for network managed services, with CAGR of over eight per cent over the next five years, driven in no small measure by the Indian market and more large deals of this type.