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Network Outsourcing: Industry Norm or Passing Fad?

The benefits and risks of network outsourcing. Issue 22, Telecom & Media Insights.

The number of network outsourcing deals globally has gone up from 10 in 2004, to 33 in 2006. The scope as well as duration of managed services deals is also on the rise, driven by smaller operators and new entrants in mobile markets in Europe.

We believe that operators can save up to 17% on their network-related expenditure, translating into a 5% improvement in EBITDA margins for incumbent mobile operators and up to 20% for smaller operators. However, operators will have to consider associated risks, which range from employee resistance to loss of operational control over network assets.

We recommend that fixed operators in Europe, who have not taken the outsourcing route yet, adopt a “wait-and-watch” approach due to the high complexity of legacy assets involved. Incumbent mobile operators should adopt a phased approach starting with outsourcing non-tactical functions such as inventory management within access network segments, to critical functions such as network optimization. New entrants and challengers in fixed and mobile markets are recommended to consider outsourcing aggressively to achieve cost and scale benefits. In addition to choosing the right deal structure, comprehensive service-level agreements and an in-house team to closely monitor network parameters will be essential to manage service provider-related risks.

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