BT and Telstra on why CSPs can succeed in the professional services market
During a recent Hard Talk discussion, executives from BT and Telstra explained their approaches to managed services and where they believe communication service providers are best placed to compete.
08 Jul 2021
BT and Telstra on why CSPs can succeed in the professional services market
Executives from BT and Telstra gave details during a recent TM Forum Hard Talk about their approach to managed services and where they believe communication service providers (CSPs) are best placed to compete. While there are opportunities for operators to support business customers as they deploy new technologies that rely on connectivity, there are also significant challenges.
An increasing number of CSPs are looking to professional and managed services as a new source of revenue. “This is an area that has got a great interest at the moment, and the reason for that is that telcos are obviously starved for growth,” said David Ellis, Partner, Bain & Company, speaking during the Hard Talk webinar Should telecom operators become systems integrators?
An increasing number of CSPs are looking to professional and managed services as a new source of revenue. “This is an area that has got a great interest at the moment, and the reason for that is that telcos are obviously starved for growth,” said David Ellis, Partner, Bain & Company, speaking during the Hard Talk webinar Should telecom operators become systems integrators?
Whereas revenues from highly competitive retail services are in decline, the B2B sector offers CSPs hope of new revenues, driven in large part by demand for ICT services.
Telstra, which has been building up its managed service business over the last decade, stresses the importance of providing services linked to network connectivity, such as helping enterprises navigate the complexity of securely managing multiple devices, locations, networks and cloud providers.
BT also sees the shift in how enterprises are buying and using technology, opening up new demand for services that play to CSPs’ core networking strengths.
Bain’s Ellis agreed that CSPs’ have an advantage in services close to the network.
“If you’ve got no hands on the network, and you’re doing an ERP [enterprise resource planning] integration, at that point, you’re competing with IBM and Accenture – and good luck with that,” he said. “But services very close to the network where there’s something that you can provide that is unique and differentiated, because you’re also the network provider, that’s the sweet spot.”
And if CSPs don’t step up to provide services linked to networks, then someone else will, pointed out V.Chalapathi Rao Thati, Vice President at Tata Communications Transformation Services.
One challenge for CSPs is that whereas their core business has traditionally focused on building infrastructure and providing connectivity, offering services is about selling the expertise of people qualified to help customers with issues such as migrating to new services. This requires not only new skills, but also a different approach to managing profitability.
“The disciplines that are required to run essentially a low-margin, people-based business are quite distinct from that of a traditional telco,” according to Bain’s Ellis.
Whereas a telco may not be able to identify the profitability of a product or customer, “in an IT services business, you measure everything to the nearest 10 cents,” he explained. “You know where you spend every dollar, where you spend every hour, or the ratios around how much you’re spending on commercial development versus in delivery.”
It’s a discipline that IT service companies have spent decades finessing.
However, there is also a question of measurement, Ellis added. While a people-business is CapEx light, infrastructure businesses are CapEx heavy.
“We have to think about this against a different measure, which is really operational free cash flow,” he said. “When you look at it in terms of operational, free cashflow, things are much closer.”
Telstra and BT have also been busy buying in expertise. BT has made approximately 10 acquisitions to bolster its services portfolio and expertise, according to Bannon.
Whereas BT initially focused on core offerings, such as managed network services and security and contact center capabilities, more recent investments have targeted cloud services, application development, data analytics and mixed reality capabilities.
“We started quite close and then we’ve driven more and more into the digital and the cloud space,” Bannon said.
“For incumbents or those that are in highly competitive situations within the connectivity space, it’s become an imperative to look at this particular market,” said Ellis. That advice comes with a caveat, however: “Actually doing this well is far from trivial.”
It’s all about the network
Telstra, which has been building up its managed service business over the last decade, stresses the importance of providing services linked to network connectivity, such as helping enterprises navigate the complexity of securely managing multiple devices, locations, networks and cloud providers.
“Our customers are asking for us to help with these services,” said Christopher Smith, Executive Director, Telstra Purple. “[Offering managed services] helps drive adoption and better usage of our networks and our capabilities. It helps customers have a better experience of our services and of us as a business.”
BT also sees the shift in how enterprises are buying and using technology, opening up new demand for services that play to CSPs’ core networking strengths.
“Whereas before customers were often buying stovepipe solutions, they now need convergence between network and security, user experience, network performance, application performance,” said BT Global CTO Colin Bannon. “If service providers can step up…then they have a lot of the core skills and platform experience already to serve customer.”
Bain’s Ellis agreed that CSPs’ have an advantage in services close to the network.
“If you’ve got no hands on the network, and you’re doing an ERP [enterprise resource planning] integration, at that point, you’re competing with IBM and Accenture – and good luck with that,” he said. “But services very close to the network where there’s something that you can provide that is unique and differentiated, because you’re also the network provider, that’s the sweet spot.”
And if CSPs don’t step up to provide services linked to networks, then someone else will, pointed out V.Chalapathi Rao Thati, Vice President at Tata Communications Transformation Services.
“In terms of providing the application…if the telcos do not get into that space, the traditional SI [systems integrator]…would probably take it over, he said. “I think the connectivity would become a commodity service, and I think it will probably threaten the existence of the telco itself, and the stickiness they enjoyed would be in question.”
Measuring profitability
One challenge for CSPs is that whereas their core business has traditionally focused on building infrastructure and providing connectivity, offering services is about selling the expertise of people qualified to help customers with issues such as migrating to new services. This requires not only new skills, but also a different approach to managing profitability.
“The disciplines that are required to run essentially a low-margin, people-based business are quite distinct from that of a traditional telco,” according to Bain’s Ellis.
Whereas a telco may not be able to identify the profitability of a product or customer, “in an IT services business, you measure everything to the nearest 10 cents,” he explained. “You know where you spend every dollar, where you spend every hour, or the ratios around how much you’re spending on commercial development versus in delivery.”
It’s a discipline that IT service companies have spent decades finessing.
“Quite frankly, what we’re seeing is that telcos made about a quarter of the profit margin…of the major IT service players, and it’s because of this operating model,” Ellis said. “It’s a discipline that is not second nature, and that muscle needs to be built over time.”
However, there is also a question of measurement, Ellis added. While a people-business is CapEx light, infrastructure businesses are CapEx heavy.
“We have to think about this against a different measure, which is really operational free cash flow,” he said. “When you look at it in terms of operational, free cashflow, things are much closer.”
Acquiring skills
Telstra and BT have also been busy buying in expertise. BT has made approximately 10 acquisitions to bolster its services portfolio and expertise, according to Bannon.
Whereas BT initially focused on core offerings, such as managed network services and security and contact center capabilities, more recent investments have targeted cloud services, application development, data analytics and mixed reality capabilities.
“We started quite close and then we’ve driven more and more into the digital and the cloud space,” Bannon said.
