In response to declining average revenue per user, telecom operators have come under intense pressure to improve service levels, launch new services, manage a bewildering array of technologies and streamline their cost structure. To combat these pressures, many have begun to outsource network operations. Such arrangements can take a variety of forms:

• Out-tasking: The operator outsources key network operations and maintenance processes.
• Managed operations: The operator outsources core design, build, operations and maintenance functions.
• Managed capacity: The network is owned and operated by the vendor, which the operator pays on a variable-usage basis.
• Hosted applications and content: The vendor builds and hosts the operator’s applications infrastructure and is paid on a per-use basis.

Regardless of the network outsourcing arrangement used, many operators are realizing important benefits from such deals, including 15% to 30% reductions in operating expenses and faster rollout of networks. Moreover, this represents a shift from managing the pipe to managing the customer relationship. Yet network outsourcing carries risks, especially for operators with little experience in the area. Exhibit 1 contrasts the benefits of outsourcing with key risks.

As part of their due diligence, operators should also explore other ways of reaping the same benefits promised by network outsourcing. These alternatives include network sharing, in which several operators share infrastructure elements such as cell sites, power and transmission equipment, as well as network operations and maintenance staff. Internal improvements also merit consideration.

For operators that do choose to outsource, how might they maximize the business results from the arrangement? Our recent research suggests the following practices:

• Establish realistic expectations: Define your business case for outsourcing early in the process along the following dimensions: processes/activities being outsourced, network domains being outsourced, assets being transferred, third-party contract relationships, governance roles, post outsourcing organization design, opex and capex benefits, network performance indicators and deal-monitoring indicators.
• Select the right partner: Carefully consider the partner selection. Selecting a partner is a long-term commitment and requires flexibility from both sides. Hence, the criteria are often different from traditional equipment purchases, as illustrated by some sample selection criteria in Exhibit 2. Then use the process defined in Exhibit 3 to rapidly target one-to-two candidates for due diligence.
• Align and communicate: Give your staff with early and honest explanations of how the outsourcing deal will be implemented. Explain what these changes will mean for how people do their work and how you will evaluate and reward job performance.

Network outsourcing by telecom operators is bound to spread, thanks to the cost savings it promises. By applying these practices, operators can sweeten the odds that outsourcing will deliver the expected benefits to their bottom line.

Reuben Chaudhury is a director of Oliver Wyman, a global management consultancy with converged communications clients. Chaudhury can be reached at reuben.chaudhury@oliverwyman.com.