As mobile services hit their "saturation ceilings", the management boards of operators are tackling the key question: How to respond to the pressure to cut costs without compromising the future viability of the business? Regulators, competitors and growing technical complexity are all contributing to an enormous margin squeeze.
To ease the financial burdens, many players have resorted to selling off their non-core assets or freezing investments. This is more of a handy 'quick fix' than the route to a commercially sustainable position. In many cases it simply does not go far enough. So, can mobile operators do everything? And should they be everything to everyone?
The majority of players are already reconsidering their role in the value chain. In most cases this goes as far as asking: does an operator really have to operate? This may seem to go against everything that mobile operators think they stand for, but cost savings of between 15 per cent and 30 per cent through network outsourcing in the Nordic countries, the Netherlands and Australia are difficult to ignore.
A bold step such as network outsourcing could rid operators of several chronic inefficiencies and cost. For example, is it appropriate for large parts of a network operation to be run by highly skilled engineers who need to be trained in new software or equipment every six months? Do mobile operators really need to retain specialist staff for a huge variety of technologies that they have incorporated into their systems over the years? Does the relatively miniscule traffic that passes through GPRS (general packet radio service) and mobile hosting equipment justify such large resources when players in the fixed internet world often utilise infrastructure and assets through much more cost-efficient processes?
Apart from industry-specific benefits, operators can gain larger strategic wins and other benefits from a well designed outsourcing deal, as demonstrated by the new style of outsourcing partnership deals now being signed within the IT industry.
Seizing the opportunity before your competitors do
If outsourcing parts of the network has such potential, why hasn't it happened to any significant extent? Network operators' cautious approach stems from the belief that they should, literally, operate networks. Yet there is little logic in this. Most operators identify their main assets as brand and the ability to build customer relationships, with "the network" increasingly being seen as a commodity. Even so, the operators already outsource other core activities such as IT support, customer care and billing. But for now the network remains the industry's sacred cow, with as much resistance to outsourcing it as there was to outsourcing mainframe computing ten years ago.
This perhaps explains why the industry lags behind the IT community when it comes to reaping the benefits of implementing a proper sourcing strategy that includes outsourcing as an option. Outsourcing that has taken place within the mobile industry is mostly at a fairly superficial level: installation work is easy to contract out piecemeal, but not surprisingly the payback is modest. By contrast, recent outsourcing deals in IT have demonstrated the power of creative partnerships between supplier and customers to deliver major cost savings and debt reductions. There are multiple ways in which these partnerships can deliver value for both parties - reductions in the number and complexity of supplier-customer interfaces, sharing of overheads, volume effects etc.
Learning from the experience in IT outsourcing
Outsourcing must be worth evaluating - so how should mobile operators set about the task? One of the main roadblocks is that mobile operators often do not fully understand where their cost comes from and whether what they spend is good or bad practice. However, even having this knowledge will only help companies to assess the business case for an outsourcing deal. Actually implementing it is complicated, given the multiple implementation routes such as splitting off a separate company, gradually handing over systems to a partner, or buying in standard services.
There is no shortage of would-be providers of outsourced services. Candidates include networking equipment vendors, for whom offering network outsourcing services could avoid the need to lay off staff that might otherwise be temporarily surplus to requirements. IT outsourcing specialists, too, are very interested in this potential new business area.
A recent survey by PA Consulting has shown that the key success factors for delivering business value and making an outsourcing partnership viable lie in a clear overall business strategy and the flexibility in the contractual arrangements. The findings are revealing and should be in the mind of any operator going down the outsourcing route. The survey was primarily carried out within the "IT community", but the main conclusions have a tremendous relevance for mobile network operators:
* "Make it so you can break it": retain a fallback solution that will allow you to take the work back into your own organisation, commonly known as "re-insourcing", or sign up another more suitable partner.
* "Partnership, not contract": manage your relationship as a partnership, not a traditional contract. Stay flexible with the deliverables and try not to work towards a "fixed deliverables" scenario. It is necessary to anticipate changes that the business will ultimately undergo over the time of the outsourcing arrangement.
* "Manage on a benefit-based approach": choose the best contender with the optimal risk-reward ratio for the area you outsource and strike service level agreements (SLAs) that link into your business benefits, delivered via the most appropriate relationship and supporting commercial arrangements, which should be enshrined in the contract.
Outsourcing may not be for every company, but the one thing mobile operators cannot afford to do is to ignore the possibility. Those that neglect even to evaluate the potential benefits of outsourcing will find their investors knocking on the door demanding to know why.
