basic IP connectivity becomes a commodity, service providers who differentiate
themselves with high-margin, IP-based managed services will gain a competitive
advantage says Sudhir Narang*, senior vice president,
SP & Government, Cisco System.
advent of globalisation has seen Indian enterprises and small and medium business
(SMBs) increasingly leverage technology to drive productivity and higher economies
of scale. As India moves towards the WTO regime the pace of ICT adoption will
only increase. India''s total spending on ICT is expected to grow by 17.39
per cent to $26.39 billion this year, aided by higher spending in the consumer
and manufacturing sectors, says a study by World Information Technology and
country''s ICT spending as a percentage of the GDP in 2004 is expected to be
at 3.7 per cent, as per the study. This increasing adoption is giving birth
to a new trend of managed services, where enterprises and SMBs are looking
to out-task some / all of their networks / services. Enterprises are increasingly
focusing on their core competencies and looking to out-task these.
presents a tremendous business opportunity to service providers that already
have a mega network in place and have the experience in managing networks.
Indian service providers are investing in building next generation broadband
networks that enable them to provide superior connectivity and value added
services. Let''s take a closer look into what managed services offers to enterprises.
many enterprises are adopting IP-based ICT solutions to drive down operating
costs, increase functionality and improve quality. Further, outsourcing certain
networking solutions allows them to reassign IT staff to higher-value work
such as developing important new applications, rather than managing the network.
Most service providers have already built out the network so it''s cheaper
if many enterprises or SMBs share it rather than build their own. Every enterprise,
depending on its need, can out-task either the whole or a part of its networking
requirements. So what''s in it for service providers?
for service providers
The managed services opportunity for service providers is projected to be
substantial. In the US alone, Gartner estimates the total managed services
market will be around $31.5 billion in 2006. Managed services provide service
providers a great opportunity to move up the value chain and increase their
revenue streams. It enables them to go beyond providing just the pipe and
basic connectivity services. It allows them to manage the end point of the
pipe the customer premise equipment (CPE) which creates more
stickiness with the customer, reduces churn, and opens the door for more professional
services and higher-margin services.
profit margins on transport continue to plummet, managed services will play
an ever more important role in service provider viability and profitability.
According to a recent report from Gartner, going forward, transport bandwidth
will only be as valuable as the enabling bundles of value-added services and
applications that will increasingly require managed data services for efficient
operation. Managed services will present Indian service providers the opportunity
to drive higher revenues. Let''s take a look at some of the high growth services
the service providers can look to offer.
Though each is in a different phase of its life cycle, IP VPNs, IP Telephony
and Security are promising areas in an enterprise for managed services for
VPNs: The enabler
Indian enterprises are increasingly leveraging IP VPN services. As per a recent
IDC study, revenues from IP VPN services are likely to cross Rs1,100 crore
by 2008 up from Rs230 crore in 2003. Some of the major accelerators are the
small and medium enterprises (SMEs) that have started adopting IP-based VPN
services. For many enterprises, managing VPNs requires a large capital outlay
for equipment and ongoing commitment of human resources. From a total-cost-of-ownership
(TCO) perspective, out-tasking is advantageous because many companies can
share the costs of one infrastructure. Indian service providers have built
next generation MPLS based networks, so it''s cheaper if many enterprises or
SMBs share it rather than build their own.
the idea of convergence is slowly gaining ground as companies see the economic
and productivity advantages of running their voice, video, and data over one
network. IP VPNs lay the groundwork for that convergence by providing a more
robust WAN environment that is secure, cost-effective, and more flexible than
leased lines or Frame Relay. The power of an IP VPN for service providers
is that it acts as a foundation service for other advanced managed offerings,
such as voice, security, storage etc.
telephony: The rise of the IP PBX
Once companies have IP VPNs, they can build multi-service VPNs and deliver
other services including voice and video. An area that is showing great promise
for managed services is IP PBX. Research from Allied Business Intelligence,
Inc., shows that in 2003, the values of shipments of IP PBX equipment surpassed
the revenues generated by legacy PBXs. In India, IDC expects the IP telephony
market to grow at a CAGR of 119 per cent to touch Rs13,000 crore by 2005.
to a Gartner report, IP telephony requires much more external assistance throughout
the life cycle, including planning, deployment, and support services, than
other technologies such as VPNs and WLANs. The complexity of call servers,
unified messaging services, and collaboration tools outweighs the improved
simplicity of plug-and-play moves, adds and changes when it comes to relying
on external providers. This is a prime opportunity for services companies
to deliver comprehensive IP telephony services to enterprises that are entering
the planning and evaluation stages.
Security: Strength in Numbers
Security is no longer an IT issue but has become a business issue. Point products
aren''t enough. A recent Gartner study found that 97 per cent of the cyber
attacks exploited known security flaws for which a patch already exists. So
it''s not enough to invest in security products, manpower resources and have
a security policy. Enterprises need to continuously monitor their networks
and stay abreast of new threats, viruses, patches, etc, which they are ill-equipped
to handle. Service providers, on the other hand, run networks for a living.
From a market perspective, India is the second fastest-growing network security
market in the Asia Pacific Region as per a Frost & Sullivan report. The
market was $29.9 million in 2003 and is expected to be $1.42 billion by 2010.
sum it up, as basic IP connectivity becomes a commodity, service providers
that can successfully differentiate themselves with high-margin, IP-based
managed services will gain a competitive advantage over others. This will
have a positive impact on average revenue per user (ARPU''s) and increased
customer loyalty. Indian enterprises depending on their need will look to
out-task some/all of their networking
to ''capable'' service providers. Service providers on their part need to take
the initiative of driving these services to the enterprises.
author is senior vice president (SP & Government) Cisco System.