Communications outsourcer Equant
has won a six-year, $144 million contract to handle telecom services for Japan Tobacco International (JTI).
Equant will take control of several thousand pieces of equipment and provide services including data services based on Internet Protocol VPN
Norm Bogan, director of networking at In-Stat MDR, says this type of outsourcing contract is a growing business for vendors like Equant.
“More and more carriers are taking over outsourcing of the communications function,” Bogan said.
Yankee analyst Zeus Kerravala agrees. He says recent Yankee Group studies show that when companies manage the network themselves, they are prone to a surprisingly high error rate.
“More than a third of network downtime is related to self-inflicted network errors. In theory those errors should go away when you outsource, so long as the vendor has a strong networking methodology and lifecycle,” Kerravala said.
Kerravala thinks large companies are looking at outsourcing because it puts the management in the hands of the vendor, freeing them to concentrate on their core business.
“Many companies are moving back toward their core competency and certainly running an IP network is not in the core competency of a tobacco company,” Kerravala said.
JTI certainly sees it that way, and according to Martin Braddock, CFO at JTI.
“JTI will certainly benefit from Equant’s outsourcing expertise both in terms of efficiency and cost savings, since Equant is now our single and only telecom provider across more than 240 sites in 47 countries,” Braddock said in a statement.
JTI will have to deal with only one vendor instead of hundreds of smaller ones, both from a business and service standpoint. And, it will optimize its entire telecommunications infrastructure on Equant’s IP VPN platform.
Even though this is a big IP telephony deal, Bogan doesn’t necessarily see this deal fueling the hot softswitch market because Equant has benefited in this and other deals by having a softswitch network they have previously built.
Equant is just utilizing the softswitches in place. This is the payback of investment in softswitches that enables Equant to bid and win this type of business,” Bogan said.
Kerravala agrees with Bogan’s assessment, but he thinks that telecom companies will provide both managed and hosted offerings to suit the different needs of customers moving forward.
“I think the move toward softswitch architecture is under way, [and over time] every major carrier will have hosted IP offering to compliment the managed offering,” Kerravala said.
Kerravala believes telecom companies like Equant face stiff competition for similar contracts from systems integrators because they provide a more complete package and many customers will find this attractive.
“You can go find a telecommunications carrier or you could go to Accenture, EDS or IBM Worldwide Services and have them manage the different vendors. The systems integrators are in the drivers seat because they have shown they can manage systems on technical level as well as understand the business impact and provide a business solution,”
Kerravala says the telecoms are beginning to catch up, but historically their strength was building the network, not business issues.