Managed Networks: Is the Fox Watching the Henhouse?

This article originally appeared in the July 2011 issue of NGN.

The rise of managed networks and the managed services providers that support them marks a significant shift in the mobile industry. It is estimated that three-quarters of mobile network operators’ infrastructure worldwide is under the management of just four companies: Nokia (News - Alert) Siemens Networks, Ericsson, Alcatel-Lucent, and Huawei. These same companies also design and manufacture the network equipment that they now manage.

This puts MSPs in a tricky position. Not only do they now have to manage the equipment they manufacture in house – in some cases, they also have to manage equipment that has been manufactured by their competitors. As such, a number of interesting dilemmas present themselves: 

Intellectual Property Protection

Intellectual property (IP) from one equipment vendor can now move freely to other vendors, thereby minimizing the companies’ ability to differentiate equipment on the basis of capability. Along with freely-flowing IP, there is an increased possibility for pricing information to be compromised, eroding the ability of equipment vendors to compete on the basis of price and putting MNOs, as customers, in a disadvantaged position.

Scope Management

The ever-present “in-scope, out-of-scope” discussion between MNOs and MSPs brings to light the realities and tensions of outsourcing deals. Mobile networks are constantly evolving and, as such, no legal contract can realistically and fully codify the breadth of changes that may happen. The MSP’s desire to manage to its scope and maintain or improve its margins competes with the MNO’s desire to showcase increased profitability and improved network performance.

Balancing Resources with Cost

Many MSPs inherit a large number of the MNO’s engineering and operations headcount as part of an outsourcing deal. The challenge faced by both parties is to balance the competing demands of improved profitability, enhanced network performance, and timely network upgrades. More often than not, the easiest cost optimization lever for MSPs to use is headcount reduction or off-shoring. In a stable network that has enjoyed good customer ratings, this may not seem like a drastic change. In a network with faltering performance, however, these solutions often wind up as the straw that broke the camel’s back.

 Solution Bias

 Given that the MSPs are also equipment vendors, there is often a bias to offer the provider’s own infrastructure products as the solution to network problems. With accountability for network performance issues often difficult to assign, it is tempting for MSPs to capitalize on opportunities to lay bare their competitors’ weaknesses and capture a greater share of the network infrastructure dollars for themselves. MNOs need to recognize that while MSPs are partners in spirit, they are vendors first and foremost.

Several elements can help ensure a lasting relationship: 

Contract Rigor

Tight contracts can minimize, though not eliminate, the scope discussion. Contracts need to be structured in a way that does not bind either party, allowing both to deliver on their promises.

Effective Performance Criteria

MSPs must be expected to provide guarantees for network quality – quality that should not be compromised through headcount reduction or misguided finger pointing. Tight service level agreements that cover not only macro-level, but also local and site-level performance expectations, are key to ensuring that the resolution of performance issues remains a key focus.

Sourcing Decision Isolation

MNOs need to ensure that commercial decisions for new equipment happen independently of their MSPs, relying on them only for technical and operational input. New infrastructure purchases should include the MSPs’ equipment in potential opportunities, but should not be limited to them.

The concept and application of managed network services is here to stay. How the MSPs and MNOs interact with one another is a story that is still evolving. 

Harish Nalinakshan is principal for PRTM (www.prtm.com), which has a tech and telecom practice serving more than half of the top 20 global communications service providers, more than two thirds of the major semiconductor manufacturers, and 80 percent of global 500 electronics and network equipment companies.

 


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Edited by Stefania Viscusi
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