Ericsson (NASDAQ: ERIC) and Huawei each hold around 30 percent of the $13 billion telecom network managed services market, according to a new report from ABI Research. However, Nokia's (NYSE:NOK) networks unit is not far behind with 25 percent of the market.
The research firm said the leading vendors have "reaped the benefits from an industry in rationalization turmoil." The companies have improved their execution skills and together account for 85 percent of all managed services revenues.
"Managed services is an industry where scale and execution are everything," ABI analyst Joe Hoffman said in a statement, "and we expect the The Rule of Three and Four will continue to sculpt the landscape." Smaller vendors will find it more difficult to break through with managed services deals because they lack the large economies of scale of the biggest vendors.
ABI notes that Ericsson, Huawei and Nokia are not merely competing on price, though cost-effective performance is "a key metric" in managed services deals. Rather, the research firm notes, they are expanding the portfolio of services that they can take on from carriers.
"Huawei boasts of never losing a managed services renewal because of its focus on execution and total customer satisfaction," Hoffman said, "and Ericsson is relentless with its innovations in creating value adding services which it can manage for its operators." However, Nokia, now that it has sold its handset division to Microsoft (NASDAQ: MSFT) for around $7.5 billion, and is more squarely focused on its networks business, is likely going to ramp up competition in the market.
Managed services vendors are moving up the value chain, ABI said, giving carrier customers more benefits that let smaller operators compete just as effectively as Tier 1 carriers. "All operators are looking for opportunities to increase margin, and managed services vendors are stepping up to the task," Hoffman added.
Indeed, T-Mobile US (NYSE:TMUS) a few weeks ago signed a long-term managed services agreement with Ericsson, which will supply the operator with its Service Agility package, including unified charging, billing, order management, product catalog and customer relationship management (CRM).
Sprint in 2009 announced it would outsource the management of its entire network to Ericsson in a seven-year outsourcing deal valued at $5 billion and involving 6,000 Sprint employees.
- see this ABI release
- see this Billing World article
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