New opportunities in managed services

28 April 2005

As 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.

The 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 Services Alliance.

The 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.

This 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.

Today, 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?

Opportunity 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.