Different drivers

The global telecom industry is embracing outsourcing in a big way. But, interestingly, telecom outsourcing is driven by divergent business conditions in different parts of the world. Companies in mature economies in the US and Europe are outsourcing to tackle cost pressures and saturating markets. On the other hand, telecom is growing very rapidly in developing countries in Asia, Eastern Europe, Latin America and the Middle East. As wireless subscriber growth is hitting newer highs, companies are struggling to retain customers and stay ahead of cutthroat competition and are therefore resorting to outsourcing.

Whichever the geography, the resultant cost-pressures, coupled with rapid proliferation in technology have made outsourcing inevitable for telecom companies. Unlike that in banking and financial services, insurance, healthcare, etc, outsourcing in telecom is relatively less influenced by buyers in the US and Europe. Also, due to the inherently technology dominated nature of the industry, it is relatively easier to outsource certain functions increasing the prevalence of outsourcing, compared with other industries.

 
Vendor specialization is the key

A majority of the contracts have been mega-deals for long durations, as economies are driven by scale in this space. The global vendor landscape is highly specialized, due to the need for domain expertise and technology.

• Network integration, optimization and equipment support is being provided by companies such as Nokia, Ericsson, Huawei Technologies, Alcatel-Lucent
• IT infrastructure functions, data management and software support are being outsourced to large IT outsourcing vendors such as IBM, EDS and Accenture
• Specialized billing support is being outsourced to Intec, Convergys, etc.
• Business process outsourcing work such as billing, customer care, call centers, and even recruitment is being outsourced to the more generic service providers. But even among these, the bigger players are getting a large portion of the pie, dictated by outsourced volumes.

Likewise, Bharti Telecom, an Indian telecom company has signed on Ericsson and Nokia-Siemens in separate contracts for its huge network expansion plans. Earlier in 2004, Bharti outsourced its IT infrastructure transformation and management to IBM for at least 5 years. In fact most Indian telecom companies have outsourced or are looking to outsource network management and IT infrastructure, and the front-running vendors are large, global players with specialized technology offerings like Nokia, IBM and Ericsson. 

 
Future Outlook

The action is clearly in the high-growth telecom markets, where technology and management skills are in short supply. Further, companies in these markets are looking up to the specialist vendors to help spread costs and shoulder some of the risks over the contract duration. Going forward, we also expect a large number of business process outsourcing contracts to be signed alongside technology contracts, as subscriber numbers rise and competition intensifies further.