Vodafone Netherlands and Ericsson sign milestone managed services deal

Jean-Charles Doineau, Service Infrastructure Practice Leader

Vodafone Netherlands and Ericsson have announced they are to enter into an exclusive managed services partnership.

Under the contract, Ericsson will be responsible for engineering, implementation and operation of the access part of Vodafone Netherlands' GSM, GPRS and UMTS radio networks. Vodafone Netherlands will retain ownership of the network and IT assets, as well as responsibility for the strategic direction of the network and IT infrastructure.

It is now widely recognised that the Vodafone group is going to be under opex and capex pressure over the next few years, as most of the group's historical operations in Europe are likely to face difficulties in growing top-line revenues.

The first step towards addressing this issue is to define what the group's centre of gravity is, and to divest the branches that are too far away from this centre.

Divestment of the Japanese operations certainly means that this gravitational centre is in Europe. But in building up their marketing messages, telecoms vendors should be careful about what customer-centricity could ultimately mean to their clients! If customers are at the centre of the service provider universe, then operating the underlying technology assets is some distance from this centre.

Vodafone's business is not about development of IT systems, so why not outsource these capabilities to people who can do it better? Is the Ericsson deal about operating the network? Vodafone Netherlands says no.

But this move by Vodafone Netherlands actually makes a lot of sense in terms of the managed and outsourcing services markets for telecom vendors. In the face of a structural erosion of the volume of the network equipment business, managing service providers' operations or hosting solutions is often seen as the Holy Grail by telecoms vendors. But there will probably not be enough space for all the stars in this new galaxy.

Through managed services deals, most of the vendors are now building regional expertise pools, giving them expert resources that could represent a compelling value proposition for managing the operations of service providers. These pools are likely to work as "gravitational holes", absorbing most of the non-strategic service provider operations over time.

In other words, the more deals you have, the more expertise you get from service providers themselves, and the more attractive you are. This virtuous circle is exactly what Ericsson is aiming for. With its 3 UK deal, its long-lasting BT relationship and its former Marconi resources, the UK is likely to constitute an Ericsson pool in which one could expect new service provider operations to collapse. Another pool could be rising in the Netherlands, building on the CasaNet and Telfort agreements, and now the Vodafone agreement. Is this the first move towards a pan-European Ericsson pool?

Probably a question to ask Vodafone itself.

Jean-Charles leads Ovum's Service Infrastructure research practice, which focuses on the applications market that enables service provisioning in the telecoms space. His responsibilities include managing and providing guidance to the Service Infrastructure team, as well as delivering research and engagements on the service infrastructure markets.