Managed network services reach critical mass

In the wake of a flurry of network outsourcing contracts across Europe, analysts note that managed services are reaching critical mass with revenues set to exceed $8bn by 2013.

Telecoms.com parent and analyst house Informa Telecoms & Media notes that running a network is becoming an increasingly optional component of a mobile operator’s business and the European market has reached a tipping point as increasing numbers of mobile operators decide that running their network is no longer their core business.

In the last week or so, Vodafone UK signed a seven year agreement with Ericsson that will see the vendor providing maintenance and operations for Vodafone UK’s 2G and 3G radio access networks; Orange UK has signed a five year deal with Nokia Siemens Networks to manage and maintain its 2G and 3G networks; Orange Spain has signed a five year managed services deal with NSN covering both its mobile and ADSL multi-vendor networks; and BASE, KPN’s Belgian mobile operator subsidiary, has signed an outsourcing contract with Alcatel-Lucent giving the vendor responsibility for all network operations and network rollout.

Vodafone and Telefonica have also struck a ten year partnership to share network infrastructure in Germany, Spain, Ireland and UK.

Kris Szaniawski, principal analyst at Informa, said: “Outsourcing may still be a contentious issue for those who view a mobile operator’s network as its key differentiating asset but an increasing number of European operators are voting with their feet. Of the 30 new managed service deals that NSN won in 2008 50 per cent were won in Europe”.

The global market for managed network services is forecast to grow to $21.4bn by 2013 with Europe remaining the major market although developing markets and Asia Pacific will also grow strongly, according to the analyst. Europe is expected to generate $8.3bn in managed network services revenues by 2013 with the overwhelming share accounted for by Western Europe.

Operators are turning to network management in the face of tremendous pressure to reduce opex and capex while coping with extreme growth in data traffic. Average cost savings of 20-25 per cent over the life of a contract are a strong driver but not the only one. Whereas two or three years ago the more adventurous operators were typically asking vendors to help them run their networks at reduced cost it is now as much to do with helping them transform their networks and business processes.

Informa says that although network sharing and managed services are often presented as two distinct options, that’s not actually the case. Network sharing creates momentum for managed services because once operators make the leap to infrastructure sharing they become increasingly amenable to exploring further options. Derek McManus, CTO of Telefonica/O2 UK, mentioned in a recent briefing with Informa that managed services around planning, building, supporting and maintaining is one of the areas the partnership can explore next although it has not yet done so.