According to The New York Times, Ericsson and Nokia ­Siemens Networks are technically now the world‘s largest wireless operators thanks to the increasing number of carriers relying on the vendors for network management. The two equipment vendors operate networks covering a combined 355 million ­customers worldwide. Ericsson earned about $1.7 billion from its Managed Services business last year, up 17 percent from a year earlier. That figure is 7 percent of the Ericsson‘s total ­revenue highlighting the growing importance of the services business for the equipment vendors.

The Managed Service providers are now aiming to further evolve this business from a transactional performance of tasks towards full business transformation via Managed end-to-end service operations. This implies the development from Network operations towards Customer experience driven activities with a stronger partnership based on risk-and-reward mechanisms. Will this be for the benefit of the operators or will this ultimately shrink their share of the value chain?

A short look to history of Managed Services

In mature markets operators are faced with two challenges ­simultaneously. On the one hand, their revenues are ­decreasing due to market saturation. Therefore they need to drastically ­reduce operational costs to offset increasing expenditure on marketing and sales. On the other hand, they need to migrate their legacy networks into next generation technology to stay competitive. In developing markets, operators have to invest heavily into network capacity to keep pace with the huge subscriber growth. At the same time they need to carefully ­manage costs to stay profitable despite the low ARPU of sometimes down to 3 US$ in their markets.

These challenges lead to the need to adapt the old vertical business model to take care of the new realities. The operators need to ask themselves what are the activities they are best in and what activities other players can perform better. Managed Services are a central piece in the adaptation of the business model.

Although outsourcing is a well established business practice in many other vertical industries like financial services, utilities and transport, the telecoms industry has been slow to adopt it in activities outside conventional IT outsourcing and call centre off-shoring.