Balancing outsourcing

Operators are increasingly looking to outsource in a bid to streamline operations, but how do outsourced and managed services measure up?

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By  Administrator Published  September 18, 2008

Operators are increasingly looking to outsource in a bid to streamline operations, but how do outsourced and managed services measure up?

With competition becoming increasingly tough and overheads rising, telecom operators are  looking at outsourcing as a means of cutting costs, focusing on core operations, and speeding up time-to-market for new products and services.

It is a trend that Mauricio Franca, a partner at Delta Partners, a company specialising in telecoms investment and consultancy, is familiar with. "We are seeing in general the telecom operators in the region are starting to use outsourcing more," he says.

The Middle East is indeed very 'green' when it comes to interconnect issues and consequently there is a current lack of home-grown expertise. Operators within the region readily acknowledge this as a factor. The Middle East is exceptionally receptive to technology and knowledge transfer from different world markets. - Gavin Stewart.

"They are starting to use it mainly in network systems maintenance, things related to IT and even call centres."

For Franca, the trend is a natural progression as the telecom market in the region develops and matures. "It is natural. The same thing happened in Europe and it is happening here."

Before a market starts to mature, outsourcing is far less common. This is due to a lack of outsourced service providers, as well as a lack of demand from operators. "As time passes, you start to have providers you can trust. That is something we are starting to see now," he adds.

But trends do vary between new operators and larger companies that have been in the market for some time. Often, start up operators prefer to outsource because external providers may already be offering services, and it is far easier to take this route rather than establish a new company division, particularly where directors lack the skills or expertise to do so. There is also the fear that non-core operations developed in-house will take too long and run over budget.

This contrasts with more established companies which are far more likely to have developed in-house departments to handle non-core operations, which they subsequently start to outsource, or consider outsourcing, according to Franca.

In terms of the type of operation that operators are looking to outsource, Franca says that decisions tend to be based mainly on strategy and cost. To this end, IT, and even the actual networks come to the attention of directors as targets for outsourcing.

"In many of the cases they start thinking which parts of the business that are not core but have a big cost impact," he says. "So often they think of their network, which is so big and is something that could have a huge cost impact."

However, Franca adds that many operators also often view their network as a strategic asset. "What happens if something goes wrong and the provider doesn't respond?" he says. "Network and IT are the biggest. Besides this call centres are becoming quite big and we'll see a lot of action."

In the coming years, hosted applications such as mobile content are likely to become more popular. Franca points out that these applications are popular in Europe and the US, where markets are more developed and competition is tougher, and so the trend could also take root in the MENA region.

But while there is a general shift towards outsourcing, there are challenges in the sector. Franca points to a lack of good providers as a key challenge. Indeed, he cites the example of one company in Africa which had a problem with its call centre. The company considered outsourcing "but after about four or five months of looking for a good provider they just dropped the idea," Franca says.

But despite these teething problems, Franca expects the outsourcing sector to continue growing. "The expectation that we have for things going forward is changing," he says. "We believe that the telecom operators are going to outsource more and we look for investments in companies who provide this type of service."

One potential problem that operators - particularly smaller players - could face when considering outsourcing is simply a lack of understanding about the process that they are outsourcing.

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