network management

Network outsourcing trend grows from operations economics

Sprint is rumored to be looking at outsourcing its network management/operations to Ericsson, another data point in the growing number of management outsource deals. While there are certainly some potential savings involved in this sort of thing, we believe it’s actually pretty clear that savings per se are not the driver.

Sprint and other large operators are more than large enough to reach full operations economies of scale internally with the right tools and support. The problem is they don’t have that, and there’s no prospect of such tools arriving on the scene because of logjams in the standards processes. The outsourcing trend, in our view, is the result of long-standing operator angst about escalating operations costs and risk, and the lack of any systematic vendor support for new options to hold down costs.

By negotiating a deal with an outsourcer, operators can let the outsourcer do what’s needed, defying standards and other factors. In the long run, this may create an enormous advantage for vendors like Alcatel-Lucent, Ericsson, and NSN, which have large and successful outsourcing businesses. After all, while outsourcers don’t dictate network purchases, they are certainly in a position to influence them.

EU telcos weigh economics of network management outsourcing

The EU says telcos there are weathering the economic storm so far, better in fact than most industry sectors. This contrasts with other stories that telcos are outsourcing network management to reduce costs.

We think that the truth of the situation is closer to the EU version. We’ve found no indication in our surveys that telcos see network management outsourcing as a major path to cost reduction, and if one thinks about the issue, it is clear that unless the outsourcer has better economy of scale than a telco, it’s doubtful that such a move could be a win-win.

What we think is happening is that telcos are realigning their business models based on their current conception of monetization opportunities and risks. In some cases, this demands focus on new areas, and in others it suggests that there are activities better outsourced to professionals. We think some of the big players making deals with Alcatel-Lucent and NSN fit this model. There simply is not enough money on the table to make an outsource-for-cost-reduction decision prudent. For Tier 2/3 providers, however, labor availability issues may make an outsource decision mandatory.

Juniper focuses on preparing for economic upturn

Juniper’s analyst event was a tour de force by any standard, and especially good for a company that has had problems communicating its value proposition in this kind of forum. Juniper related its position with confidence, made effective stories of its new programs and projects, showed empathy with the financial crisis but not paralysis by it, and in all, did everything it needed to do.

Juniper’s most significant utterances on the main day with financial analysts present, were focused around a new Network Instruction Set Processor (NISP) and the Stratus Fabric, Juniper’s new architecture for the data center. Juniper presented the new-gen NISP as a quantum leap in performance, a shift that will characterize the new generation of Juniper routing/switching products. Stratus is a concept and not yet a product, so there was no detail, but it seems clear that it is a new interconnect fabric designed to interface with but move beyond such familiar datacenter architectures as FiberChannel and Infiniband.

Juniper clearly realizes that the data center, cloud computing, virtualization, and other trends are all bring increased focus on how networks and computer resources couple among themselves. The timing of Juniper’s revelation, which promises quantum leaps in performance and latency, suggest that Juniper is deliberately moving to de-position Cisco’s incumbency and its aggressive goals in this space. It’s not clear whether the new NISP is part of Stratus, though it seems logical it would be.

Juniper also announced expansions to two product families, SRX and EX, taking both lines to a lower-end model group. In all, Juniper has made it clear that it is not surrendering to market conditions and will continue to move into new areas to prepare for the upturn.

Enterprise management challenges mirror service provider issues

Enterprises may be heading down the same trail to management challenges according to many sources, and our own research tends to bear out the main conclusions. IT organizations have many of the problems of service providers, especially the larger enterprises, but they have been slower to embrace the shift from a labor-and-equipment focus to a service focus.

Of the enterprises we’ve surveyed, only 18% have an explicit concept of “services” within their networks, and while more than half say that they support application-aware network behavior, less than a quarter actually have deployed anything to do that.

We believe that service management is becoming a critical problem for enterprises, not only because of the factors that drive its adoption but because of the barriers to enterprise implementation. Service providers have the wherewithal to create their own solutions through customization and integration, while enterprises almost always try to rely on one vendor.