Outsourcing balance

In the past five years the case for outsourcing certain processes and management of network elements has been accepted as a viable cost management and efficiency driver. However, what still remains unclear is the most effective way to measure when such gains are maximised, and when diminishing returns begin to manifest, and how to redress the situation

The view that managed services, when utilised properly, are a beneficial component of a network operator’s overall strategy, is pretty much accepted. What is more difficult to define, or at least look to measure, is when such arrangements are at their maximum efficiency and effectiveness.

Hanadi Ayoub, VP of network architecture, delivery and VAS at UAE operator Du is of the opinion that key performance indicators (KPIs) are the most effect measure of the success of managed services deployments, above measures related to customer experience and satisfaction.

Key quality indicators, as customer experience measures can be described, offer a value to what customers experience, and measure whether or not the network operators is engaging with its customer base in a manner that reduces the likelihood of churn and maximises average spend.

“We generate our own KPIs internally, and do not rely on third parties or vendors to produce them,” says Zarrar Khan, CTO designate of Viva in Kuwait. “The customer experience management is a component that is not outsourced by us as it is too important to,” Khan adds.

In light of attempts to balance cold hard KPIs with less quantitative customer experience measures, Kezito Makuni, technical director of Econet Wireless in Zimbabwe says managed services teams are starting to work with marketing departments within network operators in a much more meaningful way.

“Customer experience management is key, as it remains a company’s competitive advantage,” says Makuni. “Network resources should be owned by the operator, and not be outsourced,” he adds.

Airtel’s entry into Africa has placed a new emphasis on the outsourcing and managed services model not just on the continent but elsewhere across emerging markets, given the extent to which the India operator has used the model in its domestic market.

Last October Airtel announced an agreement with Ericsson and Huawei to deploy a network for its Bangladesh subsidiary. The agreement was modelled on Airtel’s managed networks business model in India and Sri Lanka.

Airtel acquired 70 per cent of Warid Telecom in January 2010 and the cellco’s agreement with the two vendors extended to network design, planning, implementation, project management as well as material and services for the base station sites and microwave transmission. The agreement also enabled advanced business applications, more entertainment options and provided a platform for evolved mobile services for a wider area in rural Bangladesh.

Under the contract, Ericsson agreed to deliver and manage the majority of Warid Telecom’s network capacity. Ericsson also signed up to expand and upgrade the circuit and packet core network, amongst other things, supplying its MSC-S Blade Cluster, which supports multiple core network functions on a common blade type.

Huawei swapped the existing radio network in the eastern areas of Bangladesh with state of art of technology that has better quality and performance, is more energy efficient and can be run at lower in OPEX.

This year alone, managed services activities have been hastened and renewed in Africa.

Alcatel-Lucent has been selected by Etisalat Nigeria to continue providing managed services for its expanding mobile network. Alcatel-Lucent will be responsible for managing the network in the south-west of the country including Lagos.

The renewed two-year multi-vendor managed services agreement will aim to reduce operational expenses, while improving service quality for Etisalat Nigeria’s subscribers.

“This new contract further strengthens our long-standing cooperation with Etisalat and highlights its confidence in our ability to create, deliver and manage complex next-generation networks with strong local support capabilities,” said Adolfo Hernandez, president of Alcatel-Lucent’s activities in Europe, Middle East and Africa.

Etisalat Nigeria’s subscriber base has dramatically grown 120 per cent year-over-year to over seven million subscribers in just two years.

In March in Tanzania Vodacom announced it had outsourced network operations and energy management to Nokia Siemens Networks (NSN) as it transforms its network operations to improve performance and service quality for its nine million subscribers.

Hernandez says the extension of the managed services agreement with Etisalat Nigeria highlights the telco’s confidence in the delivery and management of complex next-generation networks by third-parties

Under a five-year managed services contract, NSN will use its strong presence in eastern Africa to manage, operate and maintain Vodacom’s network to reduce operating costs. In addition, the vendor will provide its energy solutions enriched with Managed Energy Services to reduce Vodacom’s energy consumption, improving efficiency.

Under the managed services contract, NSN will provide full network operations for Vodacom Tanzania. The vendor will take over complete responsibility for the existing network management centre and operations across the radio, transmission and core networks, as well as network planning and optimisation. As part of the agreement, 124 Vodacom Tanzania employees transferred to NSN.

NSN will deploy 338 hybrid energy solution sites to help Vodacom Tanzania enhance energy efficiency and reduce energy cost. The operator will also benefit from increased savings in operating costs by applying the vendor’s architecture design skills, and its proven managed service capabilities, such as first line maintenance and remote service delivery for site energy management.

NSN has 300 managed services contracts globally, supporting 490 million subscribers.

Another area of outsourcing that has gained momentum in Africa of late is the complete sale of towers to third parties.

Last October Vodafone signed a 10-year deal with African tower company, Eaton Towers to take over the operations and co-location management of 750 telecom towers for Vodafone Ghana. Over the life of the contract Eaton expects to invest up to US$80 million on upgrading and improving the existing towers and on improving Vodafone’s coverage in Ghana. Eaton will also develop the existing infrastructure and build new towers.

The agreement also enables Eaton to sell co-location and shared-infrastructure facilities to other mobile operators, generating future revenues from separate long-term contracts.

Eaton will assume responsibility for all operational aspects of the passive infrastructure, including health and safety, security and power provision. Upgrades to the existing sites will include new power generation equipment and advanced management systems aimed at reducing diesel consumption and other costs.

In December 2010, Millicom International then announced it had sold 729 towers belonging to its Tigo subsidiary in the Democratic Republic of the Congo to Helios Towers. As a result of the transaction, Tigo DRC received at least US$45 million in cash up front and retained a significant minority interest in Helios Towers’ local holding company.

Additionally, Tigo DRC and Helios entered into a long-term leasing agreement whereby Helios will provide Tigo DRC with access to wireless communications towers and a build-to-suit agreement to support the company’s wireless networks. Helios will seek similar agreements with other operators in DRC.

“The build to suit model offers 25-35 per cent (discount) on the cost of tower ownership over 10 years in present value terms,” says James Gray, country manager of Eaton Towers Ghana. “The advantage is gained through co-location, with the operator being the anchor tenant.”