Running a network is clearly becoming an increasingly optional component of a European mobile operator’s business. The last week alone has seen four managed services announcements from European mobile operators:
- Vodafone UK has 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 and will include the transfer of 350 employees.
- Orange UK has signed a five-year deal with NSN to manage, plan, expand, optimize and provide maintenance services for Orange UK’s 2G and 3G networks which will also involve the transfer of 470 employees.
- Orange Spain has signed a five-year managed services deal with NSN covering both its mobile and ADSL multi-vendor networks.
- 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.
“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” says Kris Szaniawski, Principal Analyst at Informa Telecoms & Media. “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% were won in Europe.”
The global market for managed network services is forecast to grow to US$21.4 billion by 2013 with Europe remaining the major market although developing markets and Asia Pacific will also grow strongly, according to Informa Telecoms & Media’s strategic research report Managed Services: New Strategies for Outsourcing, Network Sharing, Hosting & Consultancy. Europe will be generating US$8.3 billion in managed network services revenues by 2013 with the overwhelming share accounted for by Western Europe.
“Managed network services and outsourcing are increasingly popular strategies for operators in mature markets such as Western Europe as they are facing tremendous pressure to reduce Opex and Capex while coping with extreme growth in data traffic. Average cost savings of 20-25% 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.”
“There is a snowball effect to such deals as each additional contract creates increasing economies of scale and scope for the network vendors in that region and allows them to reduce costs, improve network efficiency and improve service levels for end users. The four deals mentioned above alone between them involve the transfer of around 850 staff from operators to network vendors and associated sub-contractors.”
It’s no surprise that Ericsson, NSN and Alcatel-Lucent have been prominent in this latest batch of contracts as they are the major players in the global managed network services market. Between them they account for almost 60% of the global market.
Ericsson was the global market leader in 2008 with 26% market share of managed network services revenues and NSN in second place with 21% and Alcatel-Lucent in third place with 12%. The big vendors will continue to leverage their advantages of scale to maintain their current market position and Ericsson, NSN and Alcatel-Lucent are expected to still retain their existing positions in 2013 albeit with slightly reduced market share.
This week also saw the announcement by Vodafone and Telefonica of a 10-year partnership to share network infrastructure in Germany, Spain, Ireland and UK.
Network sharing and managed services are often presented as two distinct options for operators to pursue but 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 briefing with Informa Telecoms & Media this week 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.
The outsourcing route has already been taken by Mobile Broadband Network (MBNL) the 3G radio access network sharing joint venture between 3 UK and T-Mobile.
