Carrier Network Outsourcing

A realistic Alternative or a new Hype?

Member of

Content

1. 2. 3. 4. 5. 6.

Lessons learned from lean and efficient Industries The sandwiched Telcos Current Telcos Reactions on Restructuring Pressure Example 1: Out-tasking Business of Detecon Al Saudia Example 2: Outsourcing Deal of Alcatel with One in Austria Out-tasking/Outsourcing Hype or Alternative?

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Lessons learned from lean and efficient Industries

Automotive Industry Highly Automated assembly and integration Just-in-time principles for standard parts Fast, cheap, flexible, efficient Competition on features and brands/image 70%-90% of key parts from external sources Low-cost Airlines Intense use of IT and customer self-service Demand based pricing schemes High load factors Intense use of outsourcing Banking

Significant Lessons:

High levels of end-toend automated process flow Rigorous elimination of manual or ineffective processes Intense use of highly qualified (outsourcing) partners Very high business flexibility Just-in-time capacity management Demand based pricing

Highly automated capital flows Intense customer self service Fast changing financial product life-cycle Elimination of manual back-offices High level of customer oriented interworking

Retail

Highly automated flow of goods and parts Just-in-time stock control and order logistics Management of cost-based end-end Highly flexible product life-cycles

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Source: Inputs from K.J. Willets, Chairman TM Forum

1.

Lessons learned from lean and efficient Industries

Example Smart Roadster Assembly: 95% external sourcing

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2.

The sandwiched Telcos

Telcos are under high pressure because they just started their way towards a lean and efficient industry
CAPEX & buying boom exhausted financials
75

New OverOverCompetechnocapacapacity tition logies city

Regulation

CAPEX Fixed Line Operators US ($bn)

Multiple downward pressure on tariffs

50

25

Tariffs

OPEX remains on high level

Operations costs as % of revenue

The lean & efficient Several Improvement areas Telco at the same time
1990 1994 1998

2002

2006

85%

BT Deutsche Telekom Drive Drive up up customer revenue service Drive up business flexibility Drive down costs

80%

75%

1Q01 2Q01 3Q01 4Q01

1Q02 2Q02 3Q02 4Q02

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Source: Inputs from K.J. Willets, Chairman TM Forum

2.

The sandwiched Telcos

Hot topics on Telcos management agenda
Too much staff expenses Poor time-to-market cycles Low level of customer services Slow growth Slow introduction of new services Low level of economics of scales Low level of automated process work flow Rigid and inflexible business processes Non-appropriate systems, poor system integration level, inaccurate data Processes and systems cannot scale High risks and cost of changes Supplier zoo

Access Netw. Operation

IT Operation

Service Operation

Most Operators have pillar organizations with a low level of process integration
Source: Inputs from K.J. Willets, Chairman TM Forum

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Core Netw. Operation

Sales & Marketing

Network Planning

Field Installation

Customer Services

3.

Telcos current Reactions on Restructuring Pressure

Stabilizing OPEX and reducing cost seems to be main drivers What is the main value of a telecom operator ? The customer base But always differentiate by

Never differentiate by

Telecommunications network technologies IT technologies OSS/BSS technologies Integration & Architecture

Service features Network quality Process optimization Data intelligence Customer service Service packaging

Telcoms is the largest industry with the lowest realization level of outtasking and outsourcing
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Cost reduction, OPEX stability and concentration on customer value are the main reasons why network outsourcing/out-tasking to professional partners is presently under broad discussion and realization

3.

Telcos current Reactions on Restructuring Pressure

Telcos try to get rid of tangible assets, network O&M, tactical network planning and related staff in the network area

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3.

Telcos current Reactions on Restructuring Pressure

Outsourcing/Out-tasking in the network area is a current main stream in the Telco scene

Siemens closed a contract with Brazilian fixed line operator Telemar in 2002 to maintain the network in 6 states. Deal size: US$ 13 million a year. Savings: approx. 10% Ericsson operates and maintains the whole mobile network of Telecom New Zealand Ericsson closed a deal in 2002 with Brazil Telecom to operate and maintain the network in the southern provinces. Ericsson closed a deal in 2002 with O2 Netherlands to maintain and operate the whole mobile network including planning, design and implementation Alcatel continues in 2002 the maintenance of KPNQwest pan-European network Ericsson closed a deal in 2002 with Hutchison Telecommunications to manage the outsourced mobile network in Australia. BT closed a deal with national fixed switched network provider Redstone. The whole network was outsourced to BT for operation and maintenance. Redstone keeps strategic control. Alcatel closed a deal with mobile operator One in Austria. One outsourced the transport network and the technical planning. Alcatel executes planning, operation and maintenance for the whole network. The deal size is 472 million for 7 years. New Zealand Telecom announced in 2003 expansion of relationship with Alcatel by outsourcing planning, development, operations, design, buildings and fault units in 2004
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3.

Telcos current Reactions on Restructuring Pressure

The Telco outsourcing landscape and main areas of activities
System Integrators BPO providers

Core Operation Games, news, ringtones, e-mail, chat, messaging and portals Middleware

Support Project management, forum management and system integration

Applications

Back office

Provisioning, billing, churn management, CRM, office IT, network management, activation, authentication, assurance, roaming and system integration Network maintenance, network build, network planning and design, site acquisition, civil works

Specialized Vendors

Network

MMS-C, SMS-C, core network, radio access network, transmission links, masts/towers and buildings

Fixed telcos
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Telcoms vendors

Construction/support service companies

Source: Ovum 2003

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Telcos current Reactions on Restructuring Pressure

Current outsourcing short-term drivers for carrier network outsourcing/out-tasking

Benefits Economics of scale Convert fixed costs into variable costs Predictability of cost Economics of scope

Application Main driver Not yet important

Back office/Network Main driver Not yet important

Major driver Should be significant, but hard to measure Significant

Major driver Limited

Access to skills

Could be important for smaller operators Important both in operation and future proofing of NT Important
Source: Ovum 2003

Sharing risks

Major driver

Focus mgmt. attention

Limited

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3.

Telcos current Reactions on Restructuring Pressure

Current results on willingness to outsource
Focusing on Core Business
%

Outsourcing

86 66 56

86

2003 Interview Results from 100 Executives in the German Telecom Industry:

More than 50% are interested in outsourcing Specific high interest from mobile operators

14 34 44
All Mobile Operator All

14

Mobile Operator

Planned

No Plans

Source: Mummert Consulting F.A.Z.-Institut 2003

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Example 1: Out-tasking Business of Detecon Al Saudia

Basics of Out-tasking Business

Basis: O&M out-tasking contract

Provisions on number of billable staff, support staff & materials, skills, education, locations, local staff, training

Operation and maintenance of a clearly defined part of the customers network (mainly transport layer): long-distance network, junction network, rural communications network, incl. buildings, maintenance centers, towers Detecon is responsible for repair, spar parts, facilities, buildings, set-up of own car fleet Detecon integrates new network parts or equipments (contract amendments)

Network Ownership is with the customer

Customer monitors network performance Transport Network Responsible for network planning and extension, traffic routing, procurement

Clear reporting (compliance of network performance, billable staff, training, etc. ) and interfaces Payments according to billable staff, compliance with KPIs and SLAs, fulfilment of training requirements, etc.

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Saudi Telecom (Fixed Nework Operator)

Contract package for SLAs and KPIs to operate and maintain the nation-wide transport layer

Detecon al Saudia

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Example 1: Out-tasking Business of Detecon Al Saudia

Network Out-tasking Landscape

Network Development
Network Design Radio Network planning Transmission planning

Network Rollout
Site Acquisition & management Construction Installation & Commissioning

Network Operation

Network Maintenance

Service Provisioning

TAC Maintenance Level 1

NOC

TAC Maintenance Level 2

Network TAC *

TAC Maintenance Level 3

Facility Management Logistics (Spare Parts & Terminals) Central support functions (Quality, Reporting)
Saudi Telecom Responsibility
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Detecon al Saudia Responsibility

* TAC= Technical assistance centre

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Example 1: Out-tasking Business of Detecon Al Saudia

Various client benefits

Client Benefit #1

Client Benefit No 1

Predictable yearly OPEX budget for the contract period (benchmark: 1.2 1.5 US$ per main line/month)

Client Benefit No 2

Contract is based and defined on network performance parameter according to SLAs and KPIs

Client Benefit No 3

Contractor responsible for recruiting, training and skill building of local staff

Client Benefit No 4

Incorporation of best practice experience and results through re-tendering and competition after 3 years period

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5.

Example 2: Outsourcing Deal of Alcatel with One in Austria

Basics of Outsourcing Business

Basis: Outsourcing and O&M contract

Contract package for SLAs and KPIs to operate and maintain core and radio netw., exec. tact. planning Outsourcing of transmission network assets, tactical planning department., O&M department Operation and maintenance of whole core and radio network, incl. facility PCU mgmt., network management centres, MS centres, maintenance etc. BTS towersBSC

MSC
VLR
EIR Size: 472 Mio Deal HLR SCP over 7 years including SMS 200 staff from One

Network (except transmission) PSTN Ownership is GMSC with the customer Core Ntw. Plng.
Radio Ntw. Plng. Site Acquisiton

Alcatel

Alcatel is responsible for tactical planning, Site acquisition Alcatel is responsible for repair and spar parts UE
Node B

AUCCustomer

monitors network Core Ntw. O&M performance

Radio Ntw. O&M Transm. Ntw. O&M

IP RNC SGSN Backbone BG

GGSN

ISP

Alcatel integrates new network parts or equipments (contract amendments)

Responsible for strategic network planning

Clear reporting (compliance of network performance) and interfaces Payments according to compliance with O&M KPIs and SLAs, fulfilment of planning tasks, etc.

Source: Alcatel Austria

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One (Mobile Operator)

5.

Example 2: Outsourcing Deal of Alcatel with One in Austria

Outsourcing Landscape

Network Development
Network Design Radio Network planning Transmission planning

Network Rollout
Site Acquisition & management Construction Installation & Commissioning

Network Operation

Network Maintenance

Service Provisioning

TAC Maintenance Level 1

NOC

TAC Maintenance Level 2

Network TAC *

TAC Maintenance Level 3

Facility Management Logistics (Spare Parts & Terminals) Central support functions (Quality, Reporting)
One Responsibility
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Alcatel Responsibility

* TAC= Technical assistance centre

Source: Alcatel Austria

5. Example 2: Outsourcing Deal of Alcatel with One in Austria

Various client benefits

Client Client Benefit #1 Benefit No 1 Client Benefit No 2 Client Benefit No 3 Client Benefit No 4 Client Benefit No 5
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Predictable yearly OPEX budget for the contract period (benchmark: 2.5 -3.0 per mobile customer/month) Contract is based and defined on radio-, transmissionand core network performance parameter according to SLAs and KPIs. No Alcatel equipments in the network Contractor responsible for recruiting, training and skill building of staff. Focus of management team on customer and services, no more management power and attention on tactical planning and daily O&M issues. Transmission layer outsourcing frees the operator from a burden. Transmission is not an essential part of the production and service platform

6.

Out-tasking/Outsourcing - Hype or Alternative?

Pros Pros Cons
of out-tasking/outsourcing partner could - Management cause a high level of attention (contract adaptations, interface and process tuning, performance assessment, etc.) growth, changes and not foreseeable new - Scaling, network elements could increase OPEX later

+ Operator is refocusing on customers and services

OPEX stabilizes the financials, cost per + Predictable subscriber are going down

Vendors are not used to operate and maintain and vendors could build an ideal partnership + Operators networks. The influence from the operators on because of long common history

utilization of professional tools and methods is limited

+ Operator can rebuild a lean and efficient organization + Quicker introduction of new services

organization is mostly unchanged. Chances for - Pillar improving business flexibility are not taken of outsourcing partner is limited; process - Flexibility flow-through is not optimized

A clear strategy to implement higher business flexibility, high level of process automation and a customer oriented organization is the imperative basis of considering out-tasking/outsourcing Careful selection of the partner and careful contracting are essentials Out-tasking and outsourcing offer operators chances to become leaner and more efficient.

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