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  Telecommunications service providers facing a difficult business environment are pursuing outsourcing opportunities more aggressively than ever before.
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According to a recent study from global management consultant Booz Allen Hamilton, more than 75% of North American telecom executives consider outsourcing a key component of their business plans today. Moreover, the study found that service providers are willing to outsource some activities that previously were considered “core” business functions.

Improved financial performance tops the list of reasons that service providers give for outsourcing. All of the respondents (100%) cited operating expense reduction and optimization of capital expenditures as a key driver, closely followed by headcount flexibility, which was mentioned by 77% of wireless and 63% of wireline players. Other reasons, such as exploring new technologies and capabilities, were far less important and primarily mentioned by smaller players.

Booz Allen interviewed senior executives from major service providers to reveal the drivers and trends for outsourcing in the North American telecommunications industry. Study respondents represent more than 80% of the market, including local carriers, long distance carriers, wireless carriers and smaller players.

Although service providers have previously embraced outsourcing support functions such as HR and IT, they generally have not supported outsourcing of core technical or customer facing activities including network planning and architecture, platform development and sales and marketing. However, that attitude has changed – most executives interviewed conceded that they are actively moving towards outsourcing network functions once considered core. In fact, over 70% said they have either already outsourced some network-related activities or would do so in the near future. Among network-related functions, installation (66%) and maintenance (63%) are most likely to be outsourced.

“Telecom companies are turning to outsourcing for the cost savings they need to stay competitive,” said Frank Ribeiro, Principal at Booz Allen. “The move to include network-related activities should help the outsourcing market continue to expand.”

Although many of the findings apply to service providers as a whole, the study also uncovered key differences among the different telecom segments:

Small players outsource more readily. Small players are most open to outsourcing in general, and have the most to gain by outsourcing their network activities. Using large vendors, smaller players gain the technical expertise and scale that they do not possess and level the playing field, while focusing on their core expertise in customer facing functions. They also do not face the workforce obstacles that add to the hesitancy of the larger wireless and wireline players. After small players, wireless companies are next most likely to outsource, and wireline service providers have the lowest propensity to outsource, especially among local carriers.

Different industry segments face different obstacles. All segments are most concerned about maintaining their quality of service around network functions, followed by a potential loss of flexibility. However, 50% of wireline players, largely local carriers, are inhibited by labor issues, compared with just over 25% of wireless players. Local wireline carriers (31%) are also apprehensive over cultural and philosophical issues, which is not the case for the other segments.

Key findings on how telecoms select and hire an outsourcing vendor include:

  • The most important aspect in considering a vendor is assured returns; 10 – 20% savings is a “necessary condition,” but some service providers are looking for up to 50% savings;

  • Most companies prefer short-term (less than 3 years) deals as opposed to long-term contracts;

  • Key outsourcing decisions are taken by the senior management at the corporate level and implementation is passed top-down to functional units;

  • Functional expertise and financial stability are considered the most important criteria in choosing a vendor; 86% of the interviewees ranked technical expertise the number one criterion, followed by 69% for financial stability.
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