Trend

The coming boom in telecom outsourcing

Telecom players are leaving the technology-related aspects of their business to external consultants as they focus upon providing new services to their customers. Venkatesh Ganesh has the details

The potential of the telecom outsourcing market was highlighted when Bharti Tele-Ventures signed a 10-year deal with IBM worth $750 million (Rs 3,400 crore). While oursourcing activity is catching on across many sectors in the country, the telecom segment, perhaps, comes across as the most lucrative of the lot. Just look at the numbers—mobile phone subscriptions have reached 48 million (Source: TRAI, December 2004). By 2007, this number is expected to climb to 100 million. Add 45 million fixed lines and you have a market that is impossible to ignore.

In this context, the Bharti-IBM deal is the starting point for many more outsourcing deals in the future.

The deal

Bharti's rationale for the deal with IBM was to enhance shareholder value by ensuring a "predictable IT spend, improved cash flow and optimised use of technology resources". Bharti's boss, Sunil Mittal, believes that his company would be better off focussing its time, talent and management attention on processes that contribute directly to shareholder value.

Benefits of outsourcing

With the proliferation of technology, telecom operators are looking for partners who can reduce costs and risk, move assets off their books, reduce their headcount and enhance customer satisfaction. - "Kallol Hazra Practice Principal-Telecom, Consulting & Integration Hewlett Packard India"	The shift [from maintaining an in-house network and an IT management team to outsourcing both these aspects] is gradually taking place thanks to mobile operators shifting focus to new services. - "Tony Nash Head of Strategic Marketing Orient Networks

Although outsourcing by telcos of their IT and IT-related services to India is still a relatively new practice, it's gaining momentum. A majority of Indian operators have begun to outsource parts of their business such as call centre operations, application-based services, and content. Billing and payment solutions outsourcing is a good example of this trend. Another critical area gaining ground is network management. Typically, network management comprises 50-55 percent of the cost of a telco's operations. System integrators expect this space to be among the largest segments that could be outsourced to a third-party.

Avers Kallol Hazra, practice principal-Telecom, Consulting & Integration, Hewlett Packard India, "With the proliferation of technology, telecom operators are looking at partners who can reduce costs and risk, move assets from their books, reduce their headcount and enhance customer satisfaction. The managements of these organisations, then, have sufficient time to focus upon core aspects of their business and plan for strategic initiatives rather than on technology and running day-to-day operations." HP is also eyeing the emerging telecom outsourcing market in a big way.

In the past, Indian telecom operators have outsourced customer care and billing solutions. The Bharti deal has shown that other areas, including information technology management, CRM initiatives, data centre, disaster recovery and even the IT help desk can be outsourced. A key cost factor for the telecom operator is 'billing'. This includes the cost of software licenses and upgrades, operations and maintenance besides printing and posting. In the US, more than 60 percent of telecom operators outsource their billing requirements.

Outsourcing of selected activities to system integrators (SIs) is a natural evolution for companies that wish to manage their operations and technological complexity in an increasingly competitive market. In this new environment, operators can achieve savings of around 20 percent in network operation expenditure. (Source: Dittberner Associates, Inc)

"It is a gigantic and expensive task to manage an internal team to handle the network, train them and keep them updated on changing technologies at regular intervals and then retain them," says Sanjay Jotshi, director, Marketing and Channels, Nortel Networks India.

Simply put, it's not the telco's job to worry about the IT, CRM and a whole host of network issues that can eat into its time. "The telecom market in India is cut-throat and operators feel the need to spend time on core issues," feels Subramanian V, head, Integrated Management Solutions, Datacraft India.

Avers Tony Nash, head of Strategic Marketing, Orient Networks, "The shift [from maintaining an in-house network and an IT management team to outsourcing both these aspects] is being gradually seen thanks to the developments of the past two years and mobile operators shifting focus to new services." Sensing this opportunity, Orient, one of the largest privately-held telecommunications network service providers in Asia recently tied up with NetSol, an Indian product company, to offer traditional telecom products as well as enterprise value-added services, such as network management, security and outsourced messaging. Additionally, companies like Mahindra British Telecom (MBT) are also looking at the domestic market by offering services such as the setting-up of Network Operations Centres (NOCs).

Explains Amitava Dutta, head of Operations-Asia Pacific and Middle East, British Telecom, "Network management services are still at a nascent stage, but we can bring our experiences from BT operations worldwide to the table."

For the moment, telecom operators are evaluating the impact of the IBM deal on Bharti's operations. Avers Puneeth Punja, principal analyst, Gartner, "The dynamics of this deal are being analysed by global telecom majors. Indian operators are tracking the implementation of service level agreements (SLA)." Payments to IBM are based on a revenue-sharing model. Further, Bharti has ensured that it pays only for the utilised portion of the network equipment capacity. Says Dutta, "Deals are going beyond traditional network management. Most telecom operators are looking at a revenue-sharing model rather than a transaction-based one." Apart from the SLA, there's a question mark regarding the feasibility of this experiment. Apart from Bharti, there are examples of small-scale outsourcing deals done by Hutch and VSNL for billing solutions.

Value play

As voice becomes a commodity, telecom operators are depending on value-added services to improve their revenues. The ability to offer these services would depend upon the IT infrastructure of the operator. Says Sanjay Raina, vice president—Services Delivery, IBM India, "By virtue of this contract, Bharti has been able to segment and promote customer self-service while increasing value-added offerings for its customers." Raina says that Bharti will also gain from IBM's strengths in data mining.

The killer application would be to enable customers to personalise their environments based on requirements. But this would translate into more IT investments and management. Says Punja of Gartner, "Service providers not only need to improve existing services, but also offer content and other new services in order to attract and retain customers and improve topline revenues by increasing average revenue per user (ARPU)."

The Bharti-IBM deal tells us the range of services, including everything from desktops, servers, applications, designing of IT infrastructure to even managing data centres, which can be outsourced. Companies are already gearing up to offer content. In a competitive environment, it makes sense for telecom operators to consider outsourcing. Hazra sums up the whole scenario. "The ideal situation is a telco that has a couple of guys running the entire IT set-up with the outsourcing partner doing everything from basic IT infrastructure, procuring newer hardware to application management." It is only a matter of time before other telecom operators follow suit.

venkatesh@expresscomputeronline.com