Users return to the source - Industry Trend or Event

CommunicationsWeek International, April 16, 2001 by Joanne Taaffe

Operators, vendors and integrators are vying for single outsourcing agreements for big corporates. But is this a realistic solution to network overload?

An enhanced IP VPN (Internet protocol virtual private network) is many network operators' idea of meeting the enterprise market's needs. It may no longer be enough. Large corporate users are setting service providers a new challenge: move so far up the value chain that you can provide a single outsourcing contract for all of a company's fixed and mobile data and voice network services.

"There is a significant change in what [users] expect to get in," said Chris Lewis, vice president, the Yankee Group Europe, of London. "They're not looking for a uniform level of IP, but a uniform level of support. The general business community is expecting more and more from service providers. It's been a major change in the last few months," said Lewis.

One stop shopping

The turnaround is stark among end-users. The pros and cons of outsourcing network services to a single supplier are being seriously weighed up by a number of members of the European Virtual Private Network User Association (EVUA), of Crawley, England, which represents 70 multinational telecoms users.

For years, companies have debated the question of whether to outsource part or all of their information technology (IT) and telecommunications systems to reduce cost. Now, the new pressure on telecoms managers to outsource comes from the demands that recent and ongoing business and technical developments are making on internal IT resources.

Escalating mobile use and online application development, for example, are straining internal budgets. By outsourcing network services, companies hope to reduce costs. In addition, skills shortages means that companies cannot necessarily afford to devote resources to cover the development of mobile data, electronic- and mobile-commerce applications, as well as the ongoing management of commodity voice and data networks.

"If...IT knowledge has to focus on other things than the development of the network, then network outsourcing is the only solution [for large enterprises] given the restraints on the IT market," said Ed Vonk, vice-chairman EVUA and leader, enterprise network service special interest group (ENS SIG).

Finally, some companies want to cut out complexity and receive a bill for a comprehensible business service, such as running an application on a PC rather than for a frame relay link or an LMDS connection. In today's environment, outsourcing network services to reduce complexity and focus on business applications can make more sense. "If you were setting up a greenfield multinational you would go for more outsourcing," said Vonk.

This burgeoning trend--two large enterprise members are reportedly negotiating extensive outsourcing deals with Cable & Wireless--follows on from moves by carriers, including Cable & Wireless itself, to hand over the management of their own network services to equipment vendor partners. The demand for network services management from large enterprises is creating new competition for traditional enterprise service providers, such as Equant/Global One, Cable & Wireless and Concert, both from start-ups and, more importantly, the equipment vendors themselves.

Calling all consolidators

At a meeting this month in Mainz, Germany, the EVUA invited telecoms service suppliers to display to what extent they could act as a single supplier of outsourced fixed and mobile voice and data networking services.

Companies such as Lucent Technologies Inc. and Ericsson have set up subsidiaries in order to offer managed data services to enterprises. In this way, the new subsidiaries can remain at arm's length from their parent companies in order to tale on the task of competing with the network supplier's operator customers. "We will soon add end-to-end, including the network, since we are now free to work with network vendors," said George Kendall, director and general manager of international operations, voice, at Lucent spin-off Avaya (see box, right).

Most members of the EVUA currently buy the components of their voice and data networks on a technical or a geographic basis and stitch them together in-house, even though they may outsource certain aspects of their telecoms services, such as router moves and changes.

Perversely, competition has in some ways made procurement harder. Prices are lower and services are more varied, but multi-nationals now buy technical services for which they have to negotiate a swathe of contracts--50 is common in Europe alone among the EVUA's members. Companies juggle contracts and service level agreements for the supply of everything from facilities management and transmission through to handsets, PBXs, lines and applications.

These contracts cost an enormous amount of time and money to manage and the inherent complexity may muddle ah IT department's understanding of a company's total cost of running telecoms services, according to the EVUA.