This has serious implications for Cisco:
Vendors poised for global network operations role
Major telecoms equipment vendors are taking decisive steps towards becoming principal operators of the global networks they have built for service providers.
L.M. Ericsson AB and Lucent Technologies Inc. are planning separately to build out their own series of operating centers to provide carrier network management around the world.
The move marks a major escalation of their network service strategies, which have previously been confined to piece-meal management of modest in-country national networks.
"[Ericsson] will offer both global network operation and management," said Jan Danielsson, vice president and general manager, managed services, at Ericsson Professional Services, Stockholm. "This is not just [network service] management."
But vendors' moves into outsourced network operation could bring them into competition with service providers, and raise doubts about their expertise in multivendor networks.
"There's plenty of scope for equipment groups to build value in services," said Chris Lewis, principal analyst at the Yankee Group Europe, Watford, England. "But whether vendors can make [this] their major business [is doubtful]. There aren't any third parties that anyone trusts totally."
In the past couple of years, network equipment suppliers have been increasing their range of managed services for operators. They have gradually moved from selling and installing network equipment, to maintenance and service-level support, aiming for a slice of a market in outsourced network management potentially worth $50 billion-$75 billion a year.
Most recently, some have started to build and operate network management centers for new market entrants, typically cellular networks, and either transfer them to the operator after a time or continue to run them under a service contract. In these cases, the vendors have built centers to order, and on a case-by-case basis.
But now vendors are planning and organizing their own network management infrastructures, making them capable of running several operators' networks.
And they are not just aiming at new entrants that need to get to market quickly but have limited financial resources, personnel and expertise to begin with. Although these are initial targets, vendors want to run the big networks too.
"In two to three years I would expect that we will have a large contract with some incumbent operator," said Ericsson's Danielsson. "It will not necessarily be for their entire network - but a substantial part."
Like IT systems manufacturers, which have increasingly moved into systems integration and management, telecoms systems vendors are gradually being drawn to the conclusion they must become network service providers themselves, even if they do not want to compete directly in telecoms services.
Danielsson has been given charge of five new network operating centers Ericsson has built in Dallas, Madrid, Mexico City, Stockholm and Sydney.
Since January he has been talking to operators throughout the industry to convince them he is serious about running their networks for them.
Danielsson claims that whereas Ericsson had 10 customers for which it had built network centers, it already has nearly as many new global operator customers for its own operating centers network.
Like Ericsson, Murray Hill, New Jersey-based Lucent Technologies plans to build a series of network reliability centers around the world.
"It is not just all new startups [that want to outsource network management]," said James Laietta, Lucent's vice president of global professional services marketing, in Warren, New Jersey. "In six months, I have seen [major operators] turn round and ask: 'Why don't you give me a proposal about running my network?'"
Lucent previously operated dedicated centers for two telecoms customers: ICG Communications Inc., Denver, Colorado, and Winstar Telecommunications Inc., New York. Those centers are already handling network services for 26 operators. The company announced in April that it would build a third center in Sophia Antipolis, France. Now the company plans to build 10 more centers worldwide, according to Laietta.
If they get the change right, vendors will meet service providers coming in their direction.
"It is clear that in the future a majority of players will focus on marketing telecoms services, not operating the network," said Laurent Balcon, telecoms analyst at consultancy IDATE, Montpellier, France.
However, some operators already see the vendor strategy as threatening their own prospective business in outsourced network management.
"Lucent and Nortel are potentially my biggest competitors," said Brent Bomer, manager enhanced services at Williams Communications Group Inc., Tulsa, Oklahoma, who has just signed his first two carrier customers for a new network operations center service. "The challenge for vendors is going to be multivendor networks. We are not vendor specific. And we don't sell into the retail market, so we are not in direct competition [with operators]."
Bomer said he had eight prospective carrier customers interested in his new service. He said demand had appeared "just in the last two quarters."
Ericsson's worldwide operation is equipped to support large telecoms operators, and already supports a national cellular network in Brazil.
"Our experts can handle network surveillance, fault management, configuration management and security management, like any normal network operation," said Danielsson.
Some operators might shift uneasily at the prospect that their own equipment suppliers could end up managing competitors' networks for them. But their bigger concern is that vendors do not have the expertise to support networks which span the globe and are being configured to deliver differentiated as well as integrated services.
"What makes [anyone] think that [vendors] can deliver the longer-term service ambitions of a company like mine?" said Ted Rook, director of European operations at voice and IP data carrier Interoute Telecommunications UK Ltd., London, which is using the network management services of Ericsson and Siemens. "Who has the operational experience? Suppliers certainly do not. In the longer term I expect to have in-house network management expertise for the task."
But in truth, the example for moving into the network outsourcing business has been led by operators, which have already seen an opportunity to get more revenues from their own network facilities.
Last year, Norway's Telenor set up a division to market network management services from its own operating center in Oslo. The initial motive was to provide support for its own startup Storm Telecom Ltd., London, a joint venture with IXC Communications Inc., Austin, Texas (CWI, 29 June 1998, p.21.)
Arild Haugen, product group manager at Telenor Nett AS, Trondheim, said his group is now managing networks for Sonera Oy of Finland, Tele Danmark and, intriguingly, for a Somali operator. The Somali contract was made through Telenor's vendor partner Alcatel, the French telecoms equipment supplier that analysts say has been quietly shifting its emphasis into systems integration and outsourced network services.
Some operators already using outsourced network services from vendors say they have no objection to them extending the services, if they are properly managed and do not jeopardize service quality.
"There is a good case for this, provided it's carefully packaged," said Roland Malcott, vice president of engineering at RSL Communications Ltd., New York. Ericsson provides staff under contract to help operate RSL's network center in Australia, but under RSL management. "We have a network operating facility and they populate it," said Malcott. "That to me is a very good formula."
Ericsson's Danielsson said vendors recognize there is a potential conflict of interest over who is really the service provider. However, at the moment that is not an issue because none of his early customers are in competition with each other. But he acknowledged that operators are already nervous about the increasing range of vendor services.
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"Some customers do not want us to design their networks," said Danielsson. "There was a fear we might actually optimize the network to sell more equipment."
RSL's Malcott said the bigger challenge is that while outsourced network centers might work for regional operators, they will be far more difficult to manage for an international operator.
Some analysts say vendors' plans could help meet demand for skilled network staff, particularly with multi-service providers.
"There is a real shortage of management talent [there]," said Virginia Brooks, vice president, networking and telecoms, at Aberdeen Group Inc., Boston, Massachusetts. "The idea I think is attractive if it is going to be more comprehensive than voice. A lot of the older telco guys are retiring and a lot of the young talent has opted for data, where the action is. There will be a need for combined understanding of both."
From Communications Week International
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