Why do CSPs need to insource skills?

In 2021, Vodafone Group received significant press coverage when it announced that it was seeking to hire 7,000 new software engineers. Since then, many other large operators have similarly highlighted the need to insource skills in software engineering and development, cybersecurity, and AI – even while they reduce headcount substantially in other areas, as we explore in this extract from our recent report Finding skills for the future: inside the telco talent revolution.

Ten years ago, Vodafone like most other CSPs outsourced all its OSS / BSS. The company employed procurement and project management specialists whose responsibility it was to implement the systems it acquired. But Vodafone did no software development in-house until it began taking steps to develop its own digital engagement systems.

“The things that actually touch a customer are now all built inhouse – the Vodafone app, the Vodafone website and the chatbot,” says Lester Thomas, Head of Digital & IT New Technologies & Innovation, Vodafone . “And our strategy today is to make a conscious decision for everything we do as to: is this something where we think we can differentiate and drive innovation, or is it something that it’s better to partner on?”

Defining insourcing and how it balances with employee headcounts

The definitions of insourcing and outsourcing are not as clear-cut as they might seem in today’s telecoms landscape. Going into this research, we defined “insourcing” typically as the hiring of talent into a company either by recruiting people from outside to become full-time employees or by reskilling / upskilling people to take on new roles. We defined “outsourcing” as any contract with a third party to acquire the skills needed.

Using those definitions, the arrangements between CSPs and systems integrators would be considered outsourcing. But CSPs often view this as a form of insourcing because the consultants become like part of the CSP family, says Ashish Yadav, Senior Director, Engineering, at Capgemini.

“When our expert goes and sits with the customer as part of their team, the customer considers this more like insourcing,” she explains. “Our employee doesn’t become their employee, but [the CSP] gives that employee a badge and that employee works with them as part of their team.”

Many of the CSP executives we spoke with agree that the lines between insourcing and outsourcing are blurring, especially as telcos forge tighter relationships with suppliers including hyperscalers. Consider the relationship between AT&T and Microsoft. When the companies announced in 2021 that AT&T would move its 5G mobile network to the Microsoft cloud and Microsoft would acquire AT&T’s Network Cloud platform technology (on which AT&T’s 5G core network runs), part of the deal included moving AT&T’s development teams into the Microsoft organization.

The table to the right shows the change in employee headcount at select CSPs. Updated from our DTT 7 report, it was compiled using data in the operators’ annual reports (and in some cases data from Statista). While some companies with operations in developing countries have increased the size of their workforces substantially, most telcos have shed a significant number of jobs, often quietly. Although some CSPs are now adding jobs because they are hiring for new roles (software engineers, for example), we expect the overall trend of job-cutting to accelerate as CSPs adopt AI and automation.

Insourcing is a priority

In a survey for our Finding skills for the future: inside the telco talent revolution report, we asked respondents whether insourcing skills is a priority for their companies, why they are insourcing and which parts of the tech stack they are seeking to bring in-house. Their answers demonstrate that insourcing is becoming an important strategy for CSPs large and small.

Over the past few years, only the largest telcos have been insourcing skills because it’s costly to do so. For example, the average salary of a software engineer in the US is $105,459, according to job website Indeed. And according to CodeSubmit, a German technical skills recruitment firm, it costs typically between $28,548 and $35,685 to hire a software developer.

Our survey found that nearly 60% of respondents consider insourcing an important strategic focus today, and nearly a third more say it will become important. When we filter this data based on company size, we find that both large operators (more than 100 million subscribers) and small operators (fewer than 25 million subscribers) consider insourcing to be strategic (see graphic above).

Indeed, every respondent from large operators said it is either important now or will be. Drivers of insourcing About two-thirds of respondents cite automation and AI, platform development, and the need to integrate multi-vendor solutions, as key reasons for insourcing talent (see graphic below).

Nearly 80% of respondents from large CSPs said that platform development is a key reason to insource talent. This is not surprising, given that most of the companies represented in the survey are TM Forum members. For the past decade, CSPs and their suppliers have been collaborating to develop Open APIs and the ODA to help transition to platform business models. The Open API Program turned 10 years old in December, and the ODA was announced two and a half years after that program in July 2016. Vodafone’s Thomas was instrumental in developing both, and this work has provided a foundation for Vodafone’s techco transformation and its telco-as-aservice (TaaS) platform, which it is now expanding via a partnership with Accenture.

Changing relationships

For Vodafone, one of the biggest challenges in transforming into a platform-based company has been the cultural change required not only internally, but also externally with vendors. This relates to the third-highest reason for our survey respondents insourcing talent: integrating multi-vendor solutions. “The cultural change we need is this culture of experimentation,” says Thomas. “We’ve done work on this in TM Forum – we call it ‘kill the RFP’.”

A decade ago when everything was outsourced, very few people within Vodafone had the software skills needed to address problems or develop new capabilities. “The solution was: Let’s put out an RFP [request for proposal] or an RFI [request for information], and then nine months later you’d have some paper with some responses, which typically reflected the interests of the partner,” says Thomas. “It’s changed a lot, but we still need more cultural change to have the skills to experiment internally and then the platforms on which you can experiment easily with partners.”

He adds: “We are living in an ecosystem. We are not trying to replace all our partners by doing everything ourselves, but we are saying we should have a different way of interacting.” A TM Forum survey on CSPs’ changing relationships with their suppliers and how telco procurement models are shifting, which polled about 80 people working for telecoms suppliers (as opposed to CSPs), finds that nearly 70% of respondents’ companies are participating in CSPs’ Agile software development processes and have established a good commercial model for doing so.

Software as a differentiator

In an open-ended survey question, we asked respondents which parts of their technology stacks they are seeking to bring in-house. The word cloud to the left shows some of the answers we received. “Software is very critical to our business. Software is actually where you can differentiate,” says Ayedime Amadi, Group Senior Manager, Enterprise Architecture & Customer Channels, at MTN Group and Chair of TM Forum’s TechCo Organizational Design (TCOD) Project. “There are some capabilities that when you buy COTS [commercial off-the-shelf systems] it’s like you’re selling the same commodity that somebody else is selling. When you customize and differentiate, that’s the firepower that will give you competitiveness. Hence software engineering excellence is key.”

Customer experience is an area where differentiation is critical. MTN Group is about halfway through a major BSS transformation across its markets. The goal is to “futureproof BSS and put our markets in a state of readiness for future products and services like IoT and other digital products and services,” Amadi says.