Managed Services

A new Telecom operating model to extract value in B2B

Content

Executive summary 3

Managed Services takes complexity off the customers’ shoulders 4

Managed Services is an attractive growth opportunity 5

Telecom operators have been holding back on fully seizing the opportunity 7

Telecom operators need to clearly articulate the ambition level 8

Managed Services requires a significant uplift in capabilities 9

A transformation is required to meet the standards of Managed Services 11

Authors:

Dr. Karim Taga Moncef Maghrebi

Global Practice Head Associate Director
TIME practice, CE TIME practice, Dubai
[email protected] [email protected]

Bela Virag Emilio El Asmar

Associate Director Consultant
TIME practice, CE TIME practice, Dubai
[email protected] [email protected]
Executive summary

“Managed Services” refers to managing business customers’ technology environments

on an ongoing basis through offerings that are governed through standardized SLAs.
Managed Services are typically offered to cover business-critical services functions that
are at the heart of a business. They enable customer productivity increases due to
communication and IT advancements while removing the related complexity.

Managed Services are becoming increasingly popular with businesses around the world;
the global market for Managed Services is expected to grow from USD 160 billion in
2014 to USD 286 billion in 2019, at an estimated CAGR of 12% over the next few years.

Businesses are willing to pay for these benefits. Benchmarks indicate that customers are
willing to pay up to five-times-higher prices for Managed Services over their unmanaged
counterparts. By contrast, worldwide prices for unmanaged or best-effort connectivity
are likely to remain under price pressure, as competition between Telecom operators
remains undifferentiated.

We believe that Telecom companies remain best positioned to offer Managed Services
as they possess all the capabilities and processes to manage their networks and assets.
Thus, Managed Services could represent a natural extension to their existing capabilities.

However, providing Managed Services to customers brings its own set of challenges.
The required capabilities, both for go-to-market and for designing service delivery,
represent a significant departure from the traditional best-effort model operators typically
deploy to their customers. Solution-based sales (as opposed to product-based sales) and
delivering services to client specification become the new norm. As a result, in order to
succeed in Managed Services, Telecom operators must open their internal operating
models up to customers and take customer applications seriously when designing their
Managed Services operating models. They will also need to have seamless collaboration
between commercial, technical and operational units.

For many Telecoms this could mean an in-depth transformation of the mental model
currently at work: On the commercial side, for instance, a multi-phase sales process
addressing the needs of the clients’ business, technical and commercial buyers is a
must. Customized solutions need to be planned and built based on standardized delivery
elements. On the technical side, mass customization of highly individual service needs is
required to keep delivery efficiency at a high level. And finally, individual client solutions
need to be monitored end to end and the response and repair times need to be under
control.

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Managed Services

Managed Services takes complexity off the

customers’ shoulders
Adding a management layer to basic services helps Managed Services also entail the ability to manage the
growth beyond best-effort, unmanaged services customer solution “end to end” by offering active-monitoring
and enables tapping into servicing business-critical features to the provided solution and proactively reporting faults
applications and incidents, while ensuring that restoration happens within
the communicated SLAs.
“Managed Services” refers to managing customers’ technology
environments on an ongoing basis through standardized The challenge of maintaining “end-to-end” SLAs that are
offerings designed to deliver on standard or agreed-upon target relevant and beneficial from a client point of view grows
SLAs. Managed Services are typically offered to cover business- exponentially as the complexity of the solution increases. An
critical services – functions that are at the heart of a business. example: It is very different to promise your customer that a) he
Those critical services range from a key-card computer at a hotel and his employees will send and receive emails on their mobile
that is needed to hand out room keys for guests arriving on phones and, b) it will all be synched to their PCs from selling a
weekends (exactly when traditional call centers cannot deliver phone, a SIM and an Office 365 license.
expert support), to SAP modules that control the supply chain of
If you work for an operator, ask yourself the following question:
just-in-time manufacturing facilities, all the way to management
would you trust your own company to supply services securing
of the data center of the stock exchange or flight control
the stock exchange or air-traffic control? If not, what makes
systems. While it is clear that the latter ones must not fail, even
you think you can sell connectivity for payment systems of
the smaller or seemingly insignificant services should not be
supermarkets? Your company is really operating on a “best-
interrupted from the perspective of the respective businesses.
effort” basis, and you are allowing your clients to buy services
Current Telecom offerings for Managed Services can be broken that are not sufficiently secured for the purposes your client
into six main product groups, as depicted in Figure 1. intends to use them for.

Figure 1: Managed Services offerings

Enterprise Data Center &

Voice & Data Security Equipment Applications
Networks Cloud
Managed Voice & Data Managed LAN/WAN Managed Security Managed Mobility Managed Housing/ Managed Software
Co-location
 Managed fixed and  WAN/LAN consulting,  Firewalls & IP  Enterprise mobility  Applications
mobile voice & design & integration concept management  Managed housing management and
broadband  Managed LAN  Managed VPN  Device management  Managed co-location troubleshooting
 Managed VoIP  Managed WAN  Security maintenance (Handsets, tablets,  SAP, CRM, BI and
 Managed audio/video  Managed WAN  Security consulting field force devices.) Managed Hosting/ IaaS ERP consulting,
conferencing (Layer 2–3)  Security policy design & integration
development  Servers hosting
 Unified  FMI data
 Virus and spam  Managed servers
communication  Managed
protection  Managed storage
international
 Risk & compliance  Web hosting
networks assessment  Server virtualization
 Managed enterprise
 Desktop virtualization
routers & switches
Managed Voice Managing Disaster Managed Office/
Systems and Call Recovery IT Equipment PaaS Industrial Solutions
Centers
 Backup & disaster  Managed desktop  Deployment  M2M
 Managed PBX recovery systems  Managed environment  eHealth,
 Managed call centers  Business continuity print services  Runtime environment  Other vertical
 Call recording services  Printing & scanning solutions
 PBX/call centers management
consulting, design & software SaaS
integration  Printer & scanner  Application hosting (software, app store, web
device management shop)
 Reselling  Deployment environment
 Workflow management

Non-standard solutions (e-health, vertical solutions, etc.)

4
 Managed Services

Managed Services is an attractive

growth opportunity
Telecoms, in emerging and mature markets alike, are facing Figure 2: Pricing of Managed Services versus
challenging times as unmanaged connectivity prices have been Unmanaged Services
declining and can be expected to further erode in the future,
1.5x – 5x 1.2x – 2x 1.5x – 4x
driven by a range of global and local trends, including:

a. Capacity is still abundantly available and continues to grow

faster than demand.

b. Incremental cost for the utilization of that bandwidth is

minimal compared to incremental revenue, and incremental
operating costs are often negligible.

c. Technological advances reduce the cost of upgrading

capacity on existing assets for all network asset classes:
Connectivity Computing Applications
copper, HFC, fiber and over-the-air technologies

The transformation of the – once-praised – connectivity

services into undifferentiated commodities makes the case
for Managed Services all the more compelling for Telecom. Our benchmarks of leading Telecom operators indicate that
Businesses depend on constant up time for services such as premiums paid for Managed Services range from 20% to 400%
connectivity (voice and data), security, managed equipment, depending on the nature of services (Figure 2).
cloud and software applications, as all are major lifelines. This is
the core reason that, if they are sold properly, businesses are While demand is growing, supply is still fragmented. The
willing to pay a substantial premium for services that come with competition for Managed Services is still developing; no one
performance guarantees. vertical has yet won the game of delivering business-critical
services to enterprises – a lot of the computing and storage are
still done in self-managed environments.

5
Managed Services

Figure 3: Overview of Managed Services competitive landscape

Others
Hosting service providers Local system integrators
Others 13%
5%
4%
5%
7%
Top players 6% Top players
4% 29%
21% 5%
35% 27%
6%
5%
Top players 5% Top players
22% 28% 4%
4% 17% 22%
4%
4%
2%
7% 15%
Others Others
Telcos International system integrators

Interestingly, the major web-scale companies are not

competing in the Managed Services space. The reason
is simple: Amazon, Google and Microsoft so far are mostly
only available through a best-effort internet connection – a
classic breach in the end-to-end chain of Managed Services.
Furthermore, enterprises are very prudent in trusting
international players. Local suppliers and their own IT are simply
more trustworthy and dedicated than global players.

This, along with the absence of credible suppliers, has forced

clients to build critical applications in house, while selecting
service providers of choice, whether local IT consultants or
specialist service providers and system integrators, to support
them. While SMEs turn mostly to their local IT consultants,
enterprises and governmental entities are more prone to turning
to specialist service providers and system integrators to design
and build the services needed to operate their business-critical
applications.

With robust growth prospects and fragmented competition, the

Managed Services market represents an attractive opportunity
for Telecom (Figure 3).

6
 Managed Services

Telecom operators have been holding back

on fully seizing the opportunity
Telecom operators are actually well positioned to play a leading Now consider that Managed Services reach beyond the
role and deliver on the demanding requirements of Managed connectivity bit. As each service element carries its own risk
Services. Think of how they operate their own network and IT. of failure – not to mention an overarching risk of incompatibility
Also, their capabilities span most of the prerequisites to deliver – the end-to-end solution could indeed suffer even longer
most Managed Services, such as planning, building and running downtime before these standard SLAs carry any meaning. And
ICT solutions. the penalties for these SLAs are typically limited to the monthly
fee, rather than the business impact of the downtime.
However, operators typically keep infrastructure running client
services strictly separate from infrastructure used to run their A recent study conducted by Arthur D. Little surveying leading
own services. Usually, infrastructure used to host cloud services Telecom operators in Europe and the Middle East reveals
for customers is separate from the infrastructure hosting a lack of internal capabilities for selling Managed Services,
the carrier’s own virtualized servers; the same is true for the developing marketable Managed Services products and
operating teams. Although there are teams looking after the maintaining the associated processes. Operators more often
operator’s own mass-market services 24/7, individual client than not lack proper documentation of their network assets and
services are often not supported to the same extent. configurations and incident management, as well as adequate
service definitions. Moreover, the majority are hesitant to take
As a result, client services are run on a best-effort basis only. The commercial risks based on their SLA promises.
SLAs offered by most telecom operators for their connectivity
services – even their “professional connectivity” services – Thus, taking rudimentary connectivity services to a level at
indicate an average SLA of 99.9%. Seemingly high, this means which they can be used to support business-critical applications
an unplanned eight-hour outage every year (Figure 4). or provide end-to-end service management requires a significant
departure from today’s operating model – a journey that we can
only recommend interested Telecom companies embark on.

Figure 4: Benchmark of Telecom offered SLAs for Managed Services

99.99 99.98
1 99.99 99.99 99.97 99.90 99.90 99.90 99.97 99.98
99.90 99.90 99.90 99.90 99.90 Outage time
What level SLA
99.80 99.80 (per annum)
of outage can
your customer
99.99% 53 minutes
afford?
99.50
99.9% 8.7 hours
2
99.8% 17.5 hours
What level of
“commercial risk
taking” does 99.5% 1.8 days
your customer
accept? 99.0% 3.6 days

Source: Arthur D. Little analysis

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Managed Services

Telecom operators need to clearly

articulate the ambition level
The Managed Services strategic option space is complex, Historically, Telecom operators have adopted different
and any decision needs to rely on the company’s overarching approaches towards Managed Services; possible options range
ambition, a careful selection of the playing field and a structured from pure organic acquisitions to big-bang acquisitions across
executional approach. Telecom operators are faced with key wide or differentiated product portfolios. To reach its goals, any
strategic questions in terms of “what and where”, as well as Telecom operator needs to start building credibility and develop
“how”, to address Managed Services offerings. capabilities close to core areas (connectivity) before tackling
further growth opportunities that satisfy higher revenues and
Ambition: What is your ambition regarding Managed margin ambitions (Figure 5).
Services?
ÔÔ What are the strategic guidelines?
ÔÔ What do you want to achieve?

Playing field: What type of player do you want to

become in the next five years?
ÔÔ In which geography do you want to play?
ÔÔ Which business model is your core?

Execution: How do you want your enterprise business

to achieve growth?
ÔÔ What needs to be done to reach ambition?
ÔÔ How have others done it?

Figure 5: Five business models for Managed Services

Value
Business model Benchmarks
proposition

 Focus on several connectivity-related services

Advanced Ease of  Colt in its early days
 Based on secure, flexible & capable network
connectivity integration  Former GTS
 APIs for 3rd parties to leverage the connectivity assets & capabilities
 Deutsche Telekom
 Leverage customer access to cross-sell own & 3rd party services
ICT Customer  Verizon
 Efficient partner integration (back-2-back SLAs) and onboarding
supermarket reach  Google Apps for
 Efficient marketing & sales setup to integrate partner offers
Business
 High customer intimacy and trust  T-Systems
Problem Customer
 Highly skilled in understanding business issues and offering efficient  OBS
solver solutions to them (process & systems consulting) intimacy  NTT Docomo
 BT Global
 Leverage differentiation of self-developed products with global
Global Best in class  AT&T
relevancy
business solution  PCCW
 Requires means to protect such differentiation (e.g. IP protection)
 Amazon

Virtual service  Leverage own products in own online channels Innovation and  Rackspace
provider  Focus on low-cost, high standardization, high self-care services agility leader  Salesforce

Source: Arthur D. Little analysis

8
 Managed Services

Managed Services requires a significant

uplift in capabilities
Numerous audits have revealed that operators do not properly Consequently, operators most likely need to enhance their asset
manage their inventory or configurations. They pay for long- management and configuration management tools, as well as
decommissioned lines; they cause outages due to faulty their incident management and release management processes.
configuration and assume redundancy on non-disjoint or Transforming current approaches into a fully transparent, client-
congested links. For the above reasons, it is not surprising that accessible entity that manages assets, configurations and
network faults due to construction make up only 10–15% of all incidents well is comparable to turning an industrial kitchen into
faults. an open-view kitchen: it first requires some clean-up.

On the incident management side, few operators offer Once the basics have been fixed, a customer-centric operating
accessibility to the client and expose their technical model needs to be established, integrating six key activities:
administrators to a direct communication channel with the product development, campaigning, demand generation,
client’s service responsible (Figure 6). proposal development, delivery and operations (Figure 7).
Obviously an operational set-up dictates dedicated support
functions centered along providing, ensuring and maintaining
strict SLAs and constant quality support.

Figure 6: Telecom operators’ typical capabilities across the Managed Services cycle

Unmanaged services Managed services

Plan & Acti- Strategy & Acquisition Life

Bill
build vate planning & set up & build cycle mgt.

Channel mgt. N/A.

Sales mgt. N/A.

Pre sales /
N/A. N/A. N/A.
project mgt.

Marketing N/A.

Customer
Service

Operations

Established activity Areas where known issues exist Existing methods typically do not suffice

9
Managed Services

Figure 7: Operating model principles along simplified Managed Services value chain

Platform
Service creation Sales Operations
build-out

Incident
Delivery elements Propositions Solutions
management

 How are platform creation  Is there a coordinated  How are client specific  How are client specific
decisions taken? effort in scouting focus solutions being calculated solutions being procured?
and result sharing? & budgeted?
 How are product develop-  How are they deployed
ment decisions taken  Who manages partner  How are solution concepts and/or project managed?
(roadmap and content)? relations? What is the engineered or decided
business model/partner upon?  How are client specific
 Who owns the CAPEX/ value proposition? solutions being operated
how is it assigned?  What unit is operating (incidents/self care/con-
them? figuration-management)?

10
 Managed Services

A transformation is required to meet the

standards of Managed Services
Moving into a Managed Services environment should be ÔÔ Any redundant services confirmed to be delivered are
regarded as a natural progression that adds professionalism to disjointed from other third-party network suppliers to avoid
Telecoms’ operations. Multiple case assignments have enabled single points of failure
us to assemble a list of key criteria to become a Managed ÔÔ Any used network equipment (on operator side as well
Services provider: as client side) is actively monitored, patched and release
managed
Managed Services key criteria
ÔÔ Formal incident/change management is installed and alive
ÔÔ Client services are end-to-end technically planned, including
ÔÔ A formal demand-review process with the client exists
the core
ÔÔ They are built as planned and documented as built, including Integrating Managed Services into an operator’s DNA requires
the applied configuration building up internal capabilities and an extensive internal
ÔÔ The solution is tested prior to going into production and transformation, a topic most operators fear due to legacy, size
formally handed over to operations and processes.
ÔÔ Technical support is available during business-critical hours,
up to third level

Figure 8: Arthur D. Little Transformation Program for a successful Managed Services execution

Step 1 Step 2
Phase

Incubate Streamline

Transformation program office Overarching policy & coherence

Transformation program

Procurement

Network
IT

HR

Finance
Transformation themes

1. Deliver Managed Services products

2. Develop sales power

3. Set up MS proposal factory

4. Set up MS delivery factory

III.
III.

IV
II.
I.

11
Managed Services

The few that have succeeded have: To achieve those goals, a phased approach is often necessary
to successfully implement the new operating model and start a
nn Opened their own technical environments up for customers
gradual shift from core services to Managed Services.
to run their applications on
nn Proactively and operationally manage third parties’ solution Arthur D. Little has devised a cross-functional transformation
contributions program that has helped many Telecom operators facilitate this
transition.
nn Been transparent on any incidents impacting the production
platform, regardless of whether an incident has had client
As with any transformation, full organization buy-in to the
impact
promise of Managed Services is required to give this much-
nn Allowed client administrators to be in direct contact with needed transformation the momentum and energy it needs to
their own technical staff succeed in a world in which Telecom operators are searching
for new areas of revenue that go beyond rudimentary
nn Had transparency regarding their own access networks, the
connectivity solutions. The good news is that this additional
client on-site gear and the end-to-end network configuration
level of professionalism will also reveal numerous cost savings
opportunities and remove internal inefficiencies in production.

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Contacts
If you would like more information or to arrange an informal discussion on the issues raised here and
how they affect your business, please contact:

Austria Italy Nordic

Karim Taga Giancarlo Agresti Martin Glaumann
[email protected] [email protected] [email protected]

Belgium Japan Poland

Gregory Pankert Shinichi Akayama Ansgar Schlautmann
[email protected] [email protected] [email protected]

China Korea Singapore

Antoine Doyon Hoonjin Hwang Yuma Ito
[email protected] hwang.hoonjin@@adlittle.com [email protected]

Czech Republic Latin America Spain

Dean Brabec Carlos Abad Jesus Portal
[email protected] [email protected] [email protected]

France Malaysia Switzerland

Didier Levy Thomas Kuruvilla Clemens Schwaiger
[email protected] [email protected] [email protected]

Germany Middle East UK

Michael Opitz Lokesh Dadhich Richard Swinford
[email protected] [email protected] [email protected]

India The Netherlands USA

Srini Srinivasan Martijn Eikelenboom John Brennan
[email protected] [email protected] [email protected]
Arthur D. Little

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