Managed Services: An Uphill Battle?

“There’s no shortage of managed service offerings, but telco challenges loom large when it comes to winning over a broader customer base to buy them.

For the big IXCs, 2003 brought small changes, but not much new for their highly trumpeted, already comprehensive, managed services strategies. AT&T, MCI, Sprint, and to an extent Qwest’s IXC operations each already had a broad portfolio of customer network monitoring tools as well as outsourced CPE management for IP routers and frame relay gear.

The really big news of the year came with nationwide long- distance regulatory relief won by the ILECs, which offers them a much broader role in managed services. But the ILECs must also overcome a two-part image problem. First, managed services have been the traditional realm of the IXCs, because enterprise customers traditionally needed help managing their regional, national and global networks, not their access pipes. Second, IXC long-haul SLAs trump what ILECs can offer for their access SLAs.

Here’s why: Even though maintaining millions of copper access lines and operating long-haul fiber routes are two totally different disciplines, the IXCs have won a better reputation for reliability than the ILECs have. It will take years to change customer preconceptions, and the ILECs, which just started getting long- distance relief in late 2002, will need patience and persistence. On the bright side for the LECs, winning managed service sales is gravy on top of signing long-distance business customers. The big LECs have also been in managed services for years, and it’s an area in which they were well prepared thanks to their large and mature professional services organizations.

But the biggest issue isn’t winning away business from other carriers, rather it’s in tapping the market’s potential. At the high end, there’s the ever-present squeeze from the big integrators, companies like PricewaterhouseCoopers, Accenture and IBM. Further down the ladder are smaller outsourcing operations (e.g., Norlight and many others) and vertical specialists like SmartPipes in IP VPNs. At the low end, managed services still have a tough time beating do-it-yourself solutions, where a “good enough” inhouse service still trumps outsourcing.

Carrier Strategies

Here’s a summary of some of the overall strategy components and recent highlights by the major carriers:

AT&T: As the progenitor of managed

services, AT&T still has a portfolio that’s second to none. These days AT&T is still pouring its efforts into network automation through its integrated Global Enterprise Management System (iGEMS) platform, where it has sunk $200 million to date. So far, iGEMS can manage VPNs and routers, firewalls, and on-premises servers and applications, and it’s designed to correlate network events, and to predict and prevent potential performance problems before they happen. AT&T managed services customers can use iGEMS to look into the status of their devices and issue trouble tickets. But iGEMS is also still centered around IP, meaning AT&T customers’ frame relay, ATM and leased line networks fall outside of its scope.

MCI: Though MCI’s (formerly WorldCom’s) portfolio didn’t change much in 2003, that in itself was a major accomplishment, as the carrier weathered bankruptcy and layoffs. As MCI, the carrier remains a viable managed services competitor to AT&T in areas such as IP VPNs, frame relay, ATM and various bundled services. MCI continues to work on digesting the businesses it acquired during its peak WorldCom years. It aims to consolidate its OSSs to the point that it can automate functions like service order entry, provisioning and installation. But nothing is fast or easy when it comes to OSS integration, which means MCI’s consolidation goals are probably years from being realized.

Sprint: Sprint has a surprisingly comprehensive managed services portfolio that goes from managed CPE right down into LAN and applications monitoring. On top of end-to-end monitoring gear from Visual Networks (a service that virtually all major carriers offer as part of their managed services portfolio), the carrier added managed CSU/DSU support for services monitoring and management using Paradyne CPE. Sprint shows interesting potential on two fronts:

* It has many mid-market customers, a largely untapped and potentially huge managed services opportunity;

* It has built on its serious international business ambitions, building out a global next-gen IP network that rivals similar projects from AT&T and MCI. Sprint’s managed services portfolio seems mature enough to back its global ambitions, even as it is catching up with its global network presence.

Qwest: In late 2003, Qwest was finally able to reconcile its schizophrenic past, which had been limited to local services in 14 states and long-haul everywhere else. Qwest already had the IXC operations to build up a managed services tradition. Its experience in managed services may not be as lengthy as that of the “Big 3,” but that’s also an advantage, since Qwest doesn’t have to contend with decades of longhaul legacy gear. That lack of legacy helped the carrier launch its Qwest Control integrated customer management interface, for example, without having to make huge upgrade investments first. As with other major carriers, Qwest’s Managed Solutions portfolio spans CPE management, consulting and integration, and professional services. Rut equally important is Qwest’s newly formed integrator alliances division, which looks to integrators as network partners, even as it competes with them on some managed services.

SBC: SDC came on strong in managed services with consistent branding under the SBC DataComm division. SBC’s PremierSERV brand name covers all of its managed services including IP VPNs, ATM, frame relay, security-oriented VPN/firewall bundles and metro optical services. More than any other ILEC, SBC lias shown that ILKCs can build very effective long-term carrier partnerships, and SBC has extended its reach through relationships with partners like WiITel and Level 3, even as these carriers maintain managed services practices, too.

In January 2004, SBC purchased the California-based professional services company Callisma, which builds turnkey applications services for providers and large enterprises in areas such as VoIP, storage, IP-VPNs and IP security. Besides growing its enterprise consulting practice, SBC plans to use the Callisma acquisition to roll out new, complex managed services for its customers.

BellSouth: BellSouth competes across the managed services arena, but it has also made an early push to bring these services down to medium and even small businesses using prepackaged solutions. BellSouth launched a managed firewall service for smaller businesses in 2001, which it followed up last year with a combination managed firewall/VPN service starting as low as $250 a month. In 2003, BellSouth again expanded its focus on smaller businesses, with a prepackaged managed VoIP service for as few as 12 lines. While BellSouth has largely remained a regional carrier, these services show the LEC’s strong commitment to compete for customers on all fronts.

Verizon: Verizon, the biggest and most far-flung of the ILECs, still does a delicate balancing act between massive company resources and equally huge requirements. The carrier’s Enterprise Solutions Group, which provides its managed services, is a $7 billion operation with 13,500 employees that offers managed frame relay, VoIP and voice services, and customer LAN management. Verizon’s managed services still are too often an all-or-nothing affair, whereas much of the industry already offers customers several tiers each with different features and SLAs, usually titled “gold, silver and bronze.” But an interesting recent move by Verizon has been, like BellSouth, to expand managed services to small to medium businesses with entry-level firewall/VPN bundles. Verizon has gone a step further and published generic price lists, starting at $172/month for managed VPN and $130/month for managed firewall. Carriers that have balked at revealing prices for their managed services should consider themselves on notice if they also intend to compete for the potential managed services market among small to mid- sized businesses.

What is a Managed Service?

Managed WAN Services: The carrier sets up the network and monitors and manages traffic traversing it, using techniques like encryption and bandwidth reservation for fast and secure delivery.

Managed Access Services: Often combined with managed WAN, the carrier configures, monitors and manages CPE at point of demarcation to the WAN, like p CSU/DSUs, routers and FRADs.

Managed LAN Services: The carrier monitors and manages customers’ onpremises equipment like LAN devices, servers and individual applications, ensuring availability and acceptable performance.

Managed Security Services: The carrier supplies firewalls, authentication and traffic filtering to prevent unauthorized access.

Managed Hosting: The carrier supplies and manages server resources for web and e-commerce sites, for data storage or for running remote applications.

Managed Network Services Options

Winning Strategies for Managed Services Providers

Four components could help seal the deal:

Package for Mid-market: Fortune 500 business can only be spread so far, which means the midmarket represents a big potential opportunity.Carriers will need to package these services like a commodity, which means a must-have sales pitch, off-the-shelf prepackaging, automation to drive down prices, and published price points.

Aggressive SLAs: Prospective buyers need a high comfort level before handing over the keys to their corporate networks. One way to relieve customer concerns is to hand out tight SLAs that carry steep penalties if the carrier violates them.

Greater Automation: Management systems like AT&T’s iGEMS can pull together information from the network to the customer premises, draw conclusions about what’s happening in the network, and ideally notify both AT&T and its customer of a problem, and its root cause, before it happens. Network automation opens the door to “managed services” that are actually customer self-service, but offer lower operations costs and better customer responsiveness.

Buddy Up: Partnerships like BellSouth-IBM and Qwest’s new integrator alliances division are more beneficial than competitive. Jointly serving accounts and billing customers outstrips any managed services revenue lost; and in many cases managed services will be split anyway, for example the integrator handling design and integration while the carrier handles network and CPE management.

Brian Washburn is senior analyst, Telecom Network Services, with Current Analysis (bwashburn@currentanalysis.com).

Copyright Horizon House Publications, Inc. Feb 2004