CIO Update: Look at Alternatives to Traditional Telecom Providers

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1 PTP E. Paulak Article 26 February 2003 CIO Update: Look at Alternatives to Traditional Telecom Providers Enterprises should re-evaluate their relationships with traditional telecom providers, and consider professional services providers and network aggregators and resellers. With all the turmoil in the network service provider market, CIOs and other executives have become quite concerned, because of the mission-critical nature of enterprise telecommunications. Consequently, enterprises should re-evaluate their relationships with traditional telecom providers, and consider professional services providers and network aggregators and resellers. The Telecom Industry Has Changed Enterprises have long had to reconcile two occasionally competing aspirations when dealing with network services: the need to obtain the lowest costs and the desire for the easiest management process. In the highly competitive market of the past few years, both desires were met by competitive bidding services and bundling the majority of services with one provider. With the industry in turmoil, however, bundling with a single provider is no longer possible without taking on an unreasonably high level of risk. As a result, it is time for enterprises to start looking at professional services providers and a new breed of professional network aggregators to manage their networks, rather than telecom operators. The New Professional Network Aggregators Telecom aggregators and resellers have been around as long as there has been competition. Their strategy has been to buy in bulk from one of the larger providers (for example, AT&T) and sell to smaller companies, passing on a portion of the discounts that they received. They make their money by keeping a percentage of the discount. When not a lot of competition exists between the network owners, the resellers/aggregators can thrive, because they offer a better value. In a highly competitive market, however such as that of the past three years it is very difficult for aggregators to survive by just reselling network services, because their profit margins are constantly being squeezed. To maintain revenue consistency, aggregators must sell network services dynamically from multiple providers. They also must sell something else namely, network management, which is where the professional network aggregators come in. The main selling point of this class of providers is that they will provide the overall management of ongoing network operations, and they can do it with single or multiple network providers. These Gartner Entire contents 2003 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 providers may or may not procure the network services for the enterprise, but the big difference between them and the independent managed network service (MNS) providers is that they may take over the management of telephone company contracts and relationships. Quite a few of these providers are coming out of the remote access space. Companies such as ipass, Gric Communications and Fiberlink Communications provide aggregation of networks as part of their basic analog dial-up services. Companies like TManage and Axcelerant have a focus on broadband access for remote users as well as remote sites. The companies are evolving their businesses to include all network access. Are Professional Network Aggregators the Right Solution? Enterprises must address several questions to determine if an aggregator is right for them. The first and most important is: Do we have the people and resources to manage our own network? If not, enterprises should consider MNS providers, network aggregators or full network outsourcing. If the enterprise has U.S.-based resources, but nothing on the international side, the responsibilities could be split. The enterprise must then determine how much network control it wants to hand over to a vendor. The greater the control you are willing to concede in planning, designing, implementations and operations, the better the outsourcing solutions. If you want to turn over only operational control, MNS and aggregation make better sense. Finally, the enterprise must consider how many vendors it wants or is capable of dealing with. The more that an enterprise wants a single vendor, the better an aggregator or outsourcer will be. So, the ideal aggregator customer is one that has limited internal resources, yet wants to maintain control over planning and deal with a limited number of vendors. Professional Services Companies to Consider The companies that fit into this new professional network aggregator role come from many different areas. All of the IT outsourcing vendors could be included in this list, such as IBM, Computer Sciences Corp., Electronic Data Systems (EDS) and Unisys. Arguably, they have been in this business for years, although most of them do not do a good job with networking services, and consider network management or network outsourcing only as a service offering within a larger portfolio, rather than a stand-alone business. Of all the traditional IT vendors, IBM has done the best job. EDS has also shown a renewed interest in this market, taking advantage of the turmoil at WorldCom to attract business from WorldCom customers. Some of the professional service organizations within the telephone companies, such as AT&T Solutions or Deutsche Telekom s T-Systems, may also be included, although most of them will not manage network services from telephone companies other than their parent. The third group of companies that may fit in this category are the independent MNS providers, such as AimNet Solutions, NetSolve, Vanguard or INS. These companies have historically offered network management as a service, but not bundled in the procurement or management of the actual telecom provider. The problem with these MNS providers is that they are relatively small and have not penetrated the large enterprise market. New entrants that cross the boundary between MNS

3 providers and IT services include companies such as SchlumbergerSema on a global basis, and Vanco in Europe. Evaluation Criteria Any professional services provider could potentially fit into the professional network aggregator category and they will also certainly claim to do so but not all will be appropriate. Enterprises must fully evaluate the companies to ensure that they are getting a vendor that is truly capable and committed to the market. Gartner s recommended evaluation criteria are: Commitment to the market and viability Independent provider Network services range and segments Geographical reach Performance Service delivery procedures Monitoring capabilities and tools Pricing The first criterion is a commitment to the market and stability. Is the vendor willing to provide only network management, or is it merely using this service to try to up-sell enterprises into a larger IT outsourcing deal? Also, does it have the resources to remain in this market? The second criterion is independence. All professional services vendors must have preferred provider relationships to control their own costs, but they should offer several service provider, hardware and software solutions. They should also be willing to take on management of telecom operators or hardware that are not part of their typical scope, although this will come at an additional cost. The third evaluation criterion is service range and segments. On the service range side, will the vendor cover only wide-area network services, or will it also include local-area networks and metropolitan-area networks? As far as segments, will the vendor manage your voice networks, as well as your data networks? Geographic reach is the fourth criterion. Is the provider local, national or global? If the provider doesn t have its own resources in a particular area, how will it provide support? This is where enterprises have to evaluate the subcontracts that the primary vendors have in place and ensure that any service-level agreements that are offered include the subcontractors. The fifth criterion deals with performance. Enterprises must fully evaluate the vendor s capabilities based on specific customer references, but also the recourses when the vendors do not live up to expectations. This involves the evaluation of service guarantees. It is important to ensure that the vendors guarantees are truly comprehensive and that they cannot play a blame game with the other vendors that they manage.

4 Because problems inevitably occur, the sixth criterion evaluates the procedures that the vendors take to correct a problem. The service providers should have clearly defined procedures and escalation strategies for dealing with every possible contingency, whether it is a network outage or a request for a new line to be installed. The procedures will also define how the work is to be done on-site or remotely. Without the definitive procedures, it is very doubtful that service providers will be able to live up to guaranteed response times or network performance. The seventh criterion relates to all guarantees being meaningless unless you can actually monitor and measure what the vendor is doing. The standard today is real-time, Web-based monitoring and reporting. Improved monitoring will not only include service metrics, but will also have billing information and online trouble ticketing. The eighth and final criterion is price. Enterprises must realize upfront that they are not going to save money by using a professional network aggregator instead of managing the networks and negotiating their own contracts. Enterprises are largely using those vendors because they do not have the resources themselves, or they feel that their people would be best used doing something other than managing a network. The real issue on price is relative. Enterprises must compare the basic pricing for the transport services separately from the cost of the network management, as well as looking at the aggregate cost. That way, enterprises can better decide if they should bundle the network services or buy management services on their own from an MNS provider. Where to Use Professional Network Aggregators First The professional network aggregator market is only just starting to take off in the United States. Western Europe is further along, mainly due to better profit margins on basic transport services. Therefore, those services may not be appropriate for all enterprises in all places. Midsize to large U.S. enterprises should consider using their vendors for remote workers and branch offices. The market is not mature for networks with more than 100 sites. Enterprises whose networks have more than 100 sites should proceed with caution in using these new startups until at least year-end Telephone company self-managed services and larger systems integrators/consultancies are safer bets, but will come at a bigger price. Bottom Line Because the turmoil in the telecom industry will likely not go away before year-end 2004, enterprises that are seeking a higher level of stability as well as redundancy in their networks should consider using professional network aggregators, or taking the full step of outsourcing their networks. Enterprises should not, however, assume that those companies automatically offer more stability than the telecom operators, and, therefore, must fully evaluate the companies for their viability as well as their capabilities. Regardless of what type of vendor is ultimately selected, all enterprises should include the professional network aggregators and services providers in future bids for telecom services. Written by Edward Younker, Research Products Analytical source: Eric Paulak, Gartner Research For related Point-to-Point articles, see:

5 CIO Alert: Gartner s ISP Selection Criteria in a Turbulent Telecom Environment, 29 January 2003 What CIOs Should Know About Network Service Providers, 29 January 2003 Management Alert: 2003 Predictions for NSPs and Services, 27 November 2002