Beware: $145 Billion Boom in Telecommunications Outsourcing is Not a Cure-All

The Yankee Group is warning that the current boom in outsourcing and managed services won't cure all problems that communications service providers (CSPs) currently face. Yankee Group urges CSPs to move beyond bottom-line cost reductions when choosing outsourcing partners. The ability to create service innovation and grow top-line revenue must become key selection criteria as CSPs struggle to monetize digital content and manage the explosion of connected devices.

A report from the research firm reveals that CSPs will spend U.S. $145 billion on third-party services during the next five years. The richness of services available means that CSPs could become almost entirely virtual - externalizing infrastructure, systems and applications with only a skeleton crew of employees remaining. The findings are derived from a detailed analysis of outsourcing and managed services deals since 2002, including 327 CSPs and 160 suppliers across 92 countries.

"The downturn is forcing tough decisions about what remains core. But CSPs should not get carried away," warns Camille Mendler, Yankee Group vice president and the report's author. "Outsourcing can bring rapid balance sheet results, but that doesn't automatically translate into long-term business value. There's a vast difference between externalizing for financial re-engineering versus business transformation."

The report also reveals regional variations in CSP outsourcing strategies:

• Europe will deploy more cloud-based managed services. European CSP expenditure represents 40 percent of the global third-party services market. In addition to major network-centric deals, mobile multimedia and content hosting deals are tipped to escalate.
• Asia-Pacific will embrace network and IT outsourcing. This region will continue to drive 26 percent of global revenue through 2013. The bias toward IT outsourcing will gradually shift to network-centric functions.
• North America will shift to network-centric services. This region will represent 24 percent of third-party service expenditure through 2013. North American CSPs were early adopters of business process and IT outsourcing, but focus will shift to full network-centric outsourcing.
• Rapid subscriber growth will drive third-party service uptake in the Middle East and Africa. Third-party service expenditure will grow from 7 percent today to 9 percent of the global market by 2013.
• Supplier distrust will keep Latin American market small. This region will grow slightly, from 3 percent of the third-party services market to 4 percent by 2013.

Posted to the site on 6th April 2009