Managed Services Models Offer Opportunity for Telcos

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Selling bandwidth is nothing but a race to the bottom. That’s the unvarnished and reluctantly acknowledged truth for network service providers.

“Who can sell bandwidth for the least amount of money and cut internal costs to the absolute bare bones and reduce support levels to where customers won’t fire you? ... That’s a pretty ugly business model,” said Joe Skorupa, research vice president – enterprise communications applications and infrastructure for Gartner Inc. “Essentially, that’s the business model [carriers] have been in for quite some time.”

It’s worsened over the years with increasing numbers of competitors, he added. “You aren’t just competitive with the phone company down the street, but with global organizations that have economies of scale,” Skorupa said, noting the increasing numbers of service providers like AT&T Inc., BT and Orange with global footprints. “You have to figure out how to add value and become more entrenched in your customers’ businesses.”

Getting closer to your customers’ businesses these days means adopting a managed services play.

Managed services includes a continuum of services, ranging from simple managed router and firewall services to more advanced on-demand software and cloud computing services (see diagram, As-A-Service Markets, below).

“Traditional carriers are in a very good position to deliver these [advanced] services because many of them are already providing managed hosting services on top of their connectivity services,” said analyst Jeff Kaplan, managing director for THINKstrategies Inc..

In addition to being well positioned, they also are well incented, or they should be. “It is imperative that they provide these value-added services because customers are seeking strategic sources who can not only satisfy their basic connectivity needs, but also address their more advanced service requirements,” Kaplan said.

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