New entrants into the Asian telecoms markets may find they need to enter into outsourcing agreements if they are to be competitive, according to a new report by the Ernst & Young Global Telecommunications Center.
‘Asia calling – Outsourcing for cost optimization’, a report which brings together the views of 13 senior telecoms executives in key Asian markets, finds that operators in these markets realize that owning every element of the telecoms operating model is not necessarily a strategic differentiator. If they are seeking to grow rapidly and build critical mass, outsourcing can prove to be attractive, with some operators choosing to outsource end-to-end service management, including virtually all network activities.
Rohit Puri, telecommunications director at Ernst & Young in Singapore, says:
“The emerging Asian markets are traditionally low or declining in average revenue per user (ARPU). In these markets operators are facing revenue competition for new services and coupled with the high costs of 3G rollouts, new entrants are forced to really hack down their costs to prove competitive.
“So to enable accurate forecasting of business viability, operators would like the ability to be able to predict their operating cost base with some certainty. This ensures that operators have the ability to be more strategic with service pricing.”
The scope of outsourced activities varies enormously between operators, however, there are three consistent factors in the increased use of outsourcing in these markets: the need to control and predict costs; enabling greater customer centricity allowing for focus on core competencies such as marketing; and, upgrading network performance and exploiting leading edge IT while achieving greater economies of scale, which can be achieved through network outsourcing.
Vendor to Partner
Asian operators have shown a proven ability to formulate and agree win-win, partnership-style deals and contractual Service Level Agreements with their outsourcing suppliers. These agreements often include elements such as progressive cost reduction over time, pay-as-you- go charging for infrastructure usage, shared risks and rewards, and ongoing innovation from the supplier.
One telecoms operator notes: “In the near future, the concept of outsourcing will completely change. The phenomenon of resource combination in both ways will emerge with no clear distinction between an operator and a vendor.”
Puri comments: “This is creating a significant opportunity for vendors to expand into newer geographies, especially the emerging markets. However, success in these markets requires suppliers to develop a ‘partner’ network to support technical and business processes, and to have a robust global delivery model in place.”
While outsourcing brings benefits, some of the inherent risks highlighted by operators were: the increased dependency on vendors for core processes; reduced governance over service quality; and, the lack of strategic control of innovation in technology and processes.
Puri concludes: “Not all Asian operators have fully ‘bought in’ to outsourcing. The research shows clearly that smaller, fast-growing operators are much more positive about outsourcing than the larger incumbents, whose ownership of legacy IT assets and workforces makes wide-scale outsourcing much more problematic, and the business case less compelling. So it is vital for operators to assess the various outsourcing options critically in the light of their own specific needs.
“For new entrants to the market however, the outcome is clearer. Within the next few years, the decision over ‘whether or not’ to outsource will transition into ‘when’ and ‘how much’.”
The full report is available at www.ey.com
