With experience under its belt, Europe on the cusp of next-gen outsourcing

Thanks to cut-throat competition among Western Europe's mobile operators, the region has become the epicenter of the outsourcing market, accounting for more than 50 percent of the total market worldwide. With first-generation contracts under their belts, Western Europe's operators can offer a best-practices model for more nascent markets such as the U.S.

Major international European carriers such as Vodafone, Orange and T-Mobile have multiple deals that affect the whole regional footprint, and these operators have been largely proactive in outsourcing network operations. Indeed, Europe was the first place Sprint Nextel looked to as it researched its network outsourcing plans prior to signing a massive $5 billion outsourcing contract with Ericsson earlier this year.

"Competition is moving away from competition around the network and toward services and plans," Bob Azzi, senior vice president with Sprint's networks business, observed of European operators. "Explosive growth, technical talent and the need for operators to grow with scale are the reasons why Europe's operators have embraced managed services."

E-Plus in Germany outsourced its network elements such as maintenance and deployment to Alcatel-Lucent in 2007, and enjoyed measurable results early on. Germany's third-largest mobile operator--which operates several brands including Base, E-Plus, Blau, Vybemobile and Simyo--saw growth in service revenue, earnings and subscriber growth.

Orange Switzerland in 2008 outsourced its multi-vendor network to Alcatel-Lucent as well. Switzerland has a mandate that requires operators to provide coverage to more than 99 percent of the Swiss population. The transition involved the transfer of 146 Orange employees who were responsible for network operations and management to Alcatel-Lucent. Without providing numbers, Orange said it has enjoyed improved operational efficiency and service quality through the deal.

Such positive experiences are freeing Europe's operators to allow managed services providers to tunnel deeper into their network operations. Vendors and analysts collectively refer to this concept as business transformation.

"I think telcos in Europe are now moving into the next generation of managed services, and some have grown up in terms of expectations," said Camille Mender, vice president with the Yankee Group. "I don't think they are trying to fix short-term problems."

What Mendler means by "short-term problems" is the propensity early on for operators to look only at immediate cost savings from moving their network operations over to a third party--but essentially ignoring top-line growth going forward. Today, Europe's operators are now viewing their managed services providers as more of a partner rather than just a vendor that must meet certain benchmarks under a rather verbose contract, she said.

What might this look like? It might mean an operator now turns to a managed services provider to rollout, operate and manage the entire network, rather than just farming out maintenance. Instead of paying all capex upfront before realizing any new revenue, the network operator can share the risk with its partner. Managed services partners are also eager to take on services, such as a service delivery platform, said Peter Jarich, vice president with Current Analysis. Germany's E-Plus recently created a separate business called Gettings, and is delivering a mix of push and pull advertising campaigns via SMS, MMS and WAP to all customers of the E-Plus mobile brands. The advertisements are enabled via Alcatel-Lucent's Advertising Selection Server, an ad serving hosted solution, and are tailored to an individual subscriber's opt-in preferences.

Then there's the Holy Grail of managed services, whereby a managed service provider creates a "virtual' telecom services provider by combining network operations outsourcing with a transfer of assets to the managed services provider. The role of the outsourcing partner would be to operate this new "virtual telco" and manage the partnership of what would typically be multiple parties.