Outsourcing for value

Putting the right mix of non-core IT functions in the vendors basket can drive benefits for both the parties

With over 800 million cellular subscribers, Indian telecom industry is today also considered to be one of the most competitive, globally.
The mobile-led telecom revolution has given the country No. 2 position in terms of subscriptions, but the remarkable growth is also accompanied with its own set of challenges for operators, when it comes to maintaining profitability. With over a dozen operators in the fray, the competitive landscape has become really tough, leading to ever falling tariff rates and diminishing ARPUs.

In order to remain more competitive, operators are finding it important to stay focused on their core business. So they are considering more and more to outsource operations like network management and customer service to players like Ericsson, Nokia-Siemens, Alcatel, IBM, Wipro, and TCS.

According to industry experts, many Indian operators are unable to match the global experience and skill set required for managing IT and network operations internally. More so because in the wake of a rapidly growing telecom market, it is extremely difficult to stay updated on new technologies and frequently changing IT applications, while focusing on new revenue opportunities.

Looking back, it was the $750 million Bharti-IBM revenue sharing deal, where the idea of IT outsourcing took seed for the Indian telecom fraternity. The 10-year deal has recently crossed the $2.5 billion mark and has been hugely success and beneficial for both Bharti and IBM.
Later on, Bharti also outsourced some of its other critical operations to Ericsson and Siemens. Very soon, other Indian operators had also taken the outsourcing route, sometimes even before launching their services.

Experts feel that what turned out to be a fruitful preposition for Bharti and a few others may not necessarily be rewarding for all other operators.
Amit Goel, Consultant at Infosys feels Its not just about outsourcing but how much strategic value is left after outsourcing that one should watch for. Bharti has huge experience of managing the business so they became successful.

Says Amit Ravankar, head - Presales and Operations, VAS, SDP and Mobility Solutions at Tata Consultancy Services, When it comes to outsourcing, the cost advantage will come only if they know what to outsource, how to outsource, whom to outsource and at what costs. If they get the answers to these, they have got the best deal. Telcos will have to maintain team of people who will be overlooking the activities of the outsourcing partner.
This team will have to be at least as important as their core activity operations team, as they will be the ones who will be controlling costs and yet deriving values. Not many players have understood this whole dynamics yet. Whoever has, is deriving profits from the outsourcing, Ravankar added.

No rigid rules
Much alike any other business, telecom companies are also expected to take a holistic view before outsourcing their IT infrastructure. Though it may appear to be an easy way of keeping operational costs low, it is important to see that anything strategic is not outsourced, say billing, for example.

For any telecom company, composing bills and presenting those to customers is an important way of direct interaction between the company and the end-user and hence, the decision of outsourcing the function should not be taken in a hurry. On the other hand, application management and systems are mostly touted as non-strategic and can be considered as perfect candidates for outsourcing.

There are no clear answers under current scenario where entire telecom industry is struggling to retain margins and sustain in the market. A few telecos took this route and created rules and other just followed them, says Ravinder Dagar, Manager, Prepaid Operations at Aircel.
Notably, it was to bring down operational costs that telcos started outsourcing.

We want to have quality vendors but after hiring them we squeeze them year on year under a cost-cutting agenda. This leads to poor quality, bad relation between the company and the vendor, and bad quality of service for the subscriber, says Dagar. However, not all the processes can be outsourced, adds Dagar.

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