Outsourcing Opportunities in Global Telecom Industry

Published by MBA Skool Team, Published on February 25, 2013

The AirTel Story

“When the proposal to outsource technology was originally put on the table most of our board members' jaws dropped, and they thought we had gone crazy." A statement given by Bharti Mittal,CEO of BhartiAirtel which showed the world the effectiveness of outsourcing with its business model  “Pay as you grow”.In this model,the network and other utilities are managed by reputed companies which ensures a high quality to the customers. This has enabled Bharti to convert its fixed costs involved with capital expenditure to the variable cost on the rate of usage. This Indian Telecom giant with a limited expertise on technology has managed services with Nokia Siemens Networks  and IBM which has improved its technological prowess and decreased its excess workforce. The core competencies of Airtel have been market planning,branding and identifying customer needs.The net result of this endeavor is that the company can offer mobile telecom service  at one of the lowest rates in the world enjoying an  compounded annual growth rate of 120% in sales revenues and around 300% in net profits between the year 2003-10.

The rise of managed services

In the recent past,the line between core  and non-core competencies has blurred.The main reasons behind this paradigm shift are competency needs,financial pressures,operational efficiencies and the change in the telecom business environment.Thus came the era of managed services where a firm took over the traditional network operations from the operator so that the operator can concentrate on its core competencies.Managed services cover  various functions like planning,designing ,operating and optimizing a network.The field of managed services include CRM, billing, network consolidation and IT systems.Companies like IBM Corp., Hewlett-Packard (HP) Co., Telefonaktiebolaget LM Ericsson, and Nokia Siemens Networks B.V are vying for contracts from telcos.Others like Alcatel Lucent, Huawei Technologies Co. Ltd., Juniper Networks Inc., Motorola Inc., Nortel Networks Corp., Tellabs Inc., and UTStarcom have also started operations in this domain.This business model has realized cost savings to the tune of 20% for the telecom companies.The telcos have found solace from investing huge amounts in improving infrastructure and upgradation of technology.This ideological shift from “Network is their business” to “Let us take care of the sim and them of the network” speaks volumes of the technological advancement brought in by the injection of managed services.

The Big One

The implementation of RFID(Radio frequency identification) in Supply chain technology has grown in the past years.It is a very promising area of telecom outsourcing with sophisticated wireless communication technology and GPS,with expertise provided by prominent players for the installation and maintenance of systems. Still  in a nascent stage, this technology has been adopted by a lot of companies with the technical know-how provided by small and large technological firms.In the embryonic stages it was dominated by HP,IBM,SAP and others but due to a second wave of technology this segment was opened up by new players like Savi,Intellefex and others.This encouraged many companies to adopt this technology which had few chances due to the proprietary behaviour shown by the big firms. Retail gaints like Walmart and even defense organizations have shown confidence in these suppliers and this has increased competition in this domain.

The Cloud

Clouds are remote servers tht host data storage and applications which can be accessed by users on pay-as-you-go basis without the capital expenditure on IT assests.The efficiency,convenience and pay-per-use models from geographically independent third –party suppliers have  attracted Telcos. Huge investments have been made by Orange Telecom(France), Telstra(Australia) and Telenor(Norway) to enhance their cloud computing capabilities.The outsourcing opportunities are huge as players like Ericsson, Wipro,Verizon and others have already spent billions to gain technological expertise. Investment in cloud computing has been predicted to increase from US$55 billion in 2011 to US$130 billion in 2015.

As providers of cloud services, telecom operators can manage connectivity, deliver cloudcapabilities, and leverage network assets to enhance cloud offerings, deliver on-demand applications and computing capacity either throughpartnerships or on their own infrastructure.They can also benefit from cloud computing as users by transferring selected businessfunctions to the cloud to realize flexibility and time savings with operational as well as cost efficiencies. For companies building cloud infrastructure,they can become their own customers by migrating their existing services and support functions onto the shared infrastructure,thus reducing their total cost of ownership.

A Level Playing Ground

The VoIP(Voice over Internet Protocol) has been another emerging trend in the telecom industry where outsourcing has been encouraged.This technology has been adopted by many firms primarily for cost savings, better communications capabilities and to improve productivity. The popularity of VoIP systems has forced many firms to embrace this innovation. Products developed by companies like Avaya, ShoreTel, Nortel and Cisco Systems Inc. give smaller firms  the advantage to monitor their businesses and with the ongoing research and development the larger companies are gearing up to implement VoIP in their business applications.Telcos have outsourced the technical implementation and maintenance which ensures better quality and maintenance of the systems.

The IT Factor

Trends show shifts in IT infrastructure while telecom companies recast their business models . 80% to90% of telecom IT spending will be on consolidating operating structures, minimizing costs and reducing the number of “lead-to-cash” processes — those that go from identifying business leads to collecting payment for services rendered.Technology like Internet Protocol TV(IPTV), regarded as the single largest contributor to growth for telecom which has enabled the internet to transmit multimedia  content over telecom at the lowest of prices.IT firms like Accenture and Belgacom  have bought Nokia Siemens IPTV assets to bolster their video solutions businesses.Bundled services is the next big thing for telecom and IT services have developed different platforms where customers can use a host of services like TV,Internet,healthcare and others to suit their requirements. Business Analytics have developed and helped the telecom providers to understand the customer better and accordingly chalk out their plans to develop services which are tailor-made for them.

The use of IT services to analyze customer customer-usage data can help companies reduce operational costs, route voice and other traffic more efficiently and increase business volume. Machine-to-machine(M2M) services are a new frontier for telecom companies.It consolidates service-delivery platforms with back-end infrastructure which   can streamline processes for both customers and companies.Such device-to-device communications has immense applications and this area has been a favourite hunting ground for many suppliers and vendors for the Telcos. The outsourcing of the customer care,billing,spend management profiles ,back office functions,support and training services have increased  BPO services within the telecom industry.Large scale Human Resources (HR BPO) contracts are being given to reduce operating costs,develop competitive strategies and transform their culture in this business scenario.

Deals with IBM,TCS and other software companies to outsource these activities have increased  and will continue to increase with the advent of more applications and innovations in technological font.With emerging markets and rising competition to retain and acquire larger penetration outsourcing will be the keyword.With services like SMS,MMS getting a setback from mobile internet IM services the competition will become stiff as new brands emerge with varied strategies and content on offer.Regulatory measures have allowed fresh competition in the broadband market with companies coming into the fray with superior technology and outsourcing their operations ,billing and CRM to reputed firms.Infrastructure maintenance has been another area of outsourcing where there is a possibility of growth with superior equipment and software supplied by companies like Huawei, ZTE and others. With the growth of smart phones and advanced communication technology its time for the telecom companies to take the “Leap of Faith” and congregate more value added services collaborating with IT firms. The future looks bright but still he global telecommunication industry has to strive to keep the subscribers happy and outsourcing is the key.

This article has been authored by Sarbojit Mallick from NITIE.

Views expressed in the article are personal. The articles are for educational & academic purpose only, and have been uploaded by the MBA Skool Team.

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