WHITE PAPER: MANAGED SERVICES FOR TELECOMMUNCIATIONS NETWORKS

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1 WHITE PAPER: MANAGED SERVICES FOR TELECOMMUNCIATIONS NETWORKS OPERATIONAL BENEFITS AND OPEX STABILITY THROUGH ENGAGING AN OUTSOURCING PARTNER Engaging a partner to support the delivery of network services provides access to a broad range of benefits as well as delivering predictable economic outcomes. Many large Telecommunications companies have engaged with outsourcing partners for delivery of the Network Services and Operations and avail the economic benefits of having access to large multi-tenated network operations centres, thus changing their accounting structure to an OPEX based outcome rather than needing to invest in OSS systems such as ticketing, performance management and reporting platforms.

2 INTRODUCTION Telecommunications carriers and service providers have taken a view that to further optimize their OPEX they need to engage outsourcing partners for key business areas. Initially, carriers outsourced their construction activities, which are project based and immediate benefits were realized. The next step for the outsourcing of services in the Telecommunications industry was the Network Operations. Network Operations has been outsourced in various forms, from outside plant, field services, network operations centre, customer installations, to full end to end. The successful outsourcing projects are those which are bespoke, not one model fits all. Each carrier/service provider has an individual requirement dependent upon business model, market segment, actual infrastructure / leased capacity, service levels and target products. Carriers who engage with an outsourcing partner have objectives such as wanting to re-focus resources on or achieve: Outsourcing partners, naturally must make a profit from engaging in these ventures and need to be able to execute the service delivery in the most economically optimal manner including technically, financially and organizational. As such, an outsourcing partner may consider off-shoring certain back-office functions to a low cost labour country such as India or Philippines due to the cost of back haul transmission capacity / connectivity being low compared to a full in country resourcing model. 1

3 OUTSOURCING THE PROCESS Outsourcing is a complex process that requires detailed understanding of the actual objectives and business outcomes that are needed. Therefore, before entering into an Outsourcing process, the business owners need to fully understand their objectives for change, the scope which will be outsourced and how to manage an outsourcing partner. Defining the reason for change will result in understanding the business objectives and required outcomes. Many companies see outsourcing as being a panacea to fix a myriad of perceived issues and then are shocked that the outcome was misaligned and therefore a failure. If the underlying compelling event for change is fully understood then the drivers and business objective outcomes will be realisable. However, failure can still occur if the company just tosses the scope over a fence and does not stay involved with the outsourcing project. Defining the reason for change is a complex step. It means that a company needs to be able to define the individual elements of their business, the roles and responsibilities of each group, performance measures and targets. For outsourcing to be successful, each activity must be measurable. Once the area to be outsourced is defined, the problem statement for outsourcing must be defined, this could cover items such as: Cost control; Performance, eg SLAs, KPIs; Technology lifecycle and management capabilities; and/or Staff restructuring. Once the reason for change is defined, the scope to be outsourced can be defined. Typically, a business unit, series of activities such as network operations, customer contact centre, customer site activations, etc would be the scope to be outsourced. Associated with the scope would be a series of performance measures such as time to restore, network availability, answer/seizure ratio; dropped calls, bit error rates, CSAT, customer connection time, etc. Further, there could be people to be rebadged, ie transferred from the carrier to the managed services partner included in the scope. All these elements form a part of the overall outsourcing scope. Engaging a Managed Services / Outsourcing Partner requires knowledge of who in the market offers those services in scope. Generally, issuing an open Request for Information to market will identify potential partners, however, looking to existing suppliers, partners or associates of those parties would be more beneficial. A managed services / outsourcing partner is best selected on capability and trust. The carrier is trusting an outsourcing partner with the cash register, ie the network or end customers and thus ensuring that services are delivered in the form and quality as sold and expected for consumption. If there is no trust with a potential partner, there will not be a partnership, but a contract management focused relationship. 2

4 Company probity may require a competitive process to select a partner, and if this is the case, it is recommended to consider holding a closed tender process, thus ensuring that the tender is only released to those companies who are capable and known to the issuing company. The cycle from issuing the tender to selecting the final partner can take up to 12 months depending on the size and complexity of a project. In some cases, where a project is sufficiently large or the carrier is new to outsourcing, a consultant could be engaged to manage the end to end process. Once the partner has been selected and contracts executed, the transition phase from the current service delivery model to the new model happens. Both parties will jointly define in detail a transition project covering all processes, systems, people, governance, performance targets, etc that will need to be transferred to the outsourcing partner. Timing for such an activity can vary from 3 months to 6 months depending on size, complexity, number of parties involved, systems to be transferred, industrial relations requirements and asset transfer. The Transition Project is led by a representative from each party under the overall guidance of the target managed services partner. Service commencement is when all transition activities are finalised and the services are now operated by the managed services / outsourcing partner. The outsourcing partner and carrier jointly oversee the service delivery and review performance reports, day to day activities and outcomes. Further, working together, new innovations, services, technologies and business objectives are able to be defined, managed and delivered much more quickly than previously due to the structure and capabilities of each partner. OPEX PREDICTABILITY AND PERFORMANCE METRICS Delivering OPEX predictability is one of the key drivers for engaging a Managed Services / Outsourcing partner. Having set a framework of activities, performance metrics and target volumes a baseline cost model can be developed that is able to be used by the Carrier to form long term predictability for OPEX and thus long term profits. Enabling that level of predictability means that Carriers can provide more accurate forecast information to financial analysts and shareholders. Definition of Performance Metrics for service delivery provides a key input into the pricing model. For each layer of service coverage, be it geographic, time of day, delivery timeframe and technical capability there will be impact to pricing accordingly. Therefore, it is required to establish the correct economic balance between Performance Metrics and available budget. Prior to outsourcing, many carriers would not have control over OPEX budgets as these would be spent on an as needs basis and there would not be any predictability as factors such as base salaries, overtime, emergency restoration response, etc could not be forecast, and balancing the performance metrics against costs and performance penalties would not be undertaken in a 3

5 cost centric organisation whereas a profit and loss centric organisation would be evaluating continuously costs, penalties, performance metrics and overall outcomes. The levers which are used to drive the OPEX predictability are End 2 End View of the Operational Environment and Organisation Establish Cost Baseline for Scope of Works and Future projection Focus on staff, motivation, culture, behaviors. Benchmark all processes, practices and operational infrastructure Identify projects to drive cost savings outcomes i.e. reduce activity unity cost Continuous improvement and efficiency program Quality of service culture Grow customer base Through these activities, the actual baseline and future OPEX predictability is established. OPERATIONAL BENEFITS A managed services / outsourcing partner must deliver operational benefits to the carrier. It is a fundamental requirement on which to base the engagement of a partner. In some cases, the benefits may not be monetary, but operational as the key objectives may be performance and quality improvement and cultural change. Through application of the improvement levers, transformation of the services delivery environment is achieved. Typical managed services / outsourcing projects are based on a year on year cost control pricing mechanism. To achieve target price controls, the managed services / outsourcing partner must have the freedom and 4

6 ability to undertake transformational projects improving process and services management, optimisation of resources, implementation of new tooling, etc. PRICING MODELS Applicable pricing models for a managed services / outsourcing project are considered to be: a) Fixed price and variable pricing b) Fixed price and corridor pricing c) Revenue sharing d) Combination of above Fixed Fee Fixed fee pricing provides a base for separating standard activities from those which are variable and non standard. Fixed fee pricing provides the Carrier with a forecast of OPEX and ensures a constant revenue flow to the Managed Services partner for those activities which are clearly defined. Variable or non standard pricing applies to those activities such as customer connections, unforeseen activities or non-standard activities which use a wide range of materials or labor. Pros High volume activities are clearly defined and well known, budget is known Allows for variation of pricing for activities that are non standard or variable in volume, thus ensuring the Managed Services partner is profitable and able to support The carrier long into the future Cons Provides a lower incentive to the Managed Services Partner therefore requires a strongly defined reward system Competitive Risks remain with The carrier Long term relationship is controlled through the contract rather than as a trusted partnership Fixed fee and corridor pricing Fixed fee and corridor pricing is based on a fixed fee dependent upon a known quantity of network elements, activities, customer volume or other agree parameter The fee reflects the known volume of work and is subject to pricing review based on a series of trigger points such as plus or minus 10% variation in customer base, number of network elements or traffic carried 5

7 The pricing is set whilst the parameters remain within the established corridor A separate risk/reward system is required to be established based on performance of the Managed Services Partner. Pros Provides a known level of price for the managed services Reflects the actual variability of managed services costs when parameters vary beyond the corridor Cons Does not incentivize the Carrier to grow market share as growth would impact service pricing parameters and trigger a price change Does not reflect true risk sharing and places most risk on the carrier Revenue Sharing A pricing model based on Revenue Sharing requires that both parties agree to a baseline of costs and revenue and are able to attribute revenue growth to activities supported by the Managed Services Partner/ Pros Cons Based on a percentage of the Annual Revenues collected by The carrier Reviewed quarterly based on the submitted audited financial reports to the shareholders Independent of the number of network elements and connected customer base Establishes a trusted partnering arrangement between The carrier and Managed services / outsourcing partner Fixed fee applies to those activities which are not directly related to revenue assurance such as new network build. An activity based fee will apply to customer connections. Links both The carrier and Managed services / outsourcing partner in a strong partnership Market and Performance Risks are equally shared regarding customer satisfaction Establishes a high level of trust between the partners ie open planning Encourages both parties to drive for operational, service and competitive excellence Revenue Base must be clearly defined 6

8 Must ensure that both partners are profitable in the long term and therefore a review of the % of revenue will be required if forecast activities, customer base growth or other agreed forecast targets are not achieved or are exceeded CONCLUSION Undertaking an outsourcing partner for the managed services of a scope of works requires that there are clearly defined and contracted elements to ensure clarity, responsibility and performance for those activities. Considering the scope of works, it must be measurable, it must be supportive of business objectives and the inputs and outputs clearly defined. Contracting of a Managed Services Partner is recommended to be based on several rules being: Trust Capability Financial Strength Quality Focus Price; and Customer Centricity. Based on the scope and the business objectives, an applicable pricing model defined and the transition and delivery organisation finalised. In all the negotiations surrounding Managed Services and Outsourcing it is critical to ensure that the customer requirements both end customer and carrier are addressed. Selection of a Managed Services / Outsourcing partner is the first step to ensuring the right outcome. Validation of solution and performance metrics allows for healthy and constructive conversations supporting service delivery, finally, open and free communications are needed to enable the continuous development and trust between the parties. Remembering that once the engagement is formalised, it will be in place for the term of the contract as a minimum which will be several years, unlike a project based short term engagement. 7

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