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Dec 8th, 2010, Vol:1
 

Editor's Words

By Sridhar Pai, ceo, Tonse Telecom

 

Telecom Infrastructure – permanent Metamorphosis

Last week leading industry publications quoted a senior vice president of Ericsson in an interview with Bloomberg as saying that at some point his company would consider buying networks from operators. Not too much a surprise coming from an equipment provider who now runs over 300 mobile networks or manages a combined potential 700 million subscriber base across continents. Clearly the last global recession blew a hole in the telecom equipment vendor sector. If you notice, some of the billion dollar giants disappeared from the face of the planet: Nortel [broken away into pieces to be acquired by Ericsson, Genband and others], Motorola Networks Division to be merged into NSN, a merged AL LU to possibly raise private equity and go into private holding.

It could be right to say that Alcatel Lucent may have escaped the blitzkrieg thanks to their merger and thus the combined clout but Ericsson somehow managed to hang in there – alone, without a partner. It is probably the only large TEM [Telecom Equipment maker] to stick around unscathed past this consolidation drive. One major transition that all of these TEMS went through was that over the last few years they ended up transforming their own businesses from pure infra vendors to managed services players with significant revenue contributions from services business thus changing the revenue-mix for good.

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It might be recollected that the managed services transition was originally driven by carriers which ended up merging due to competitive forces that prevailed in respective markets. As infrastructure vendors, the large TEMS either enabled the M&A by taking over similar networks under their umbrella or were forced to by operators who were merging and had to shave off the redundancies. Over a short period of time this became a mainstream activity and managed services [MS] became an acceptable part of the TEMs revenue model. In emerging markets with low ARPUs, the operators found it safe and low-risk to adopt the MS model and profitable to pay TEMS for RAN capacity/ BHCA delivered, per circle or Switching Area, measured by SLAs / tightly monitored Key performance metrics. For Ericsson, AL LU, NSN this became a massive fleet of large networks under their MS umbrellas which forced them to become service providers to operators, in a B2B mode – with no retail face, but measured by QoS delivered to the retail consumer.

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This MS now appears to have reached a new level of complexity: as new network technologies evolve – such as TD LTE / .16e and so on, heterogeneous operators are forced to look at new methods to save costs, share network components, maintain transparency in billing, manage exclusivity of service area and still be able to control the user experience, brand and differentiated services. This is simply too much headache now for operators who feel that owning the customer and managing the brand are their top priorities and they do not want to manage RAN migrations from Rev A to Rev B. Best leave this to the experts!

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In this scenario, the Ericssonsand all probably feel it best to buy select networks of select operators in certain geographies where they already manage critical mass of consumers, and manage the entire lifecycle of these networks while benefiting from reduced cost of sharing / operations. Operators will benefit from buying bandwidth, airtime, Erlangs and switching capacity and pay per use or per quarter for a give slab of say, million subscribers. This is akin to carriers' carrier model where large wholesale capacities would be built and smaller operators would use and pay for bandwidth used –for example, on demand. Ericsson and others will thus become 'telecom utilities' not operators – yet own networks and thus not MVNOs, will build and manage networks thus not pure TEMs, design and develop new technologies thus not pure carriers. Increasingly their revenues will come from services but they will never bill consumers or enterprises, and they will be answerable to operators whose networks they will run.

Complex, life changing game for TEMS!. Cannot blame them for looking up at Apple in envy or Google or Facebook – where life appears to follow the simple old rule: build the device, search engine or social site and they will come!

 
 
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About Tonse Telecom

Tonse Telecom is a research, consulting and advisory services organization focusing on the India telecom sector. Tonse Telecom enables telecom equipment vendors, ISVs, infrastructure developers and investors for success in the Indian telecom marketplace.

Tonse Telecom has onboard, a team of reputed senior industry executives and consultants who provide advisory services on specific projects. Tonse covers a broad spectrum of telecom technologies that include Wi-Fi /BWA / WiMAX, IMS, FMC and Triple Play, VoIP, Mobile VAS, End-device Applications and Mobile Content.

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