Leveraging on their strengths in managed connectivity services, telcos are shaping up to be the new competitive force in the managed IT services space.

Speaking at International Data Corporation?s Directions 2005 forum recently, Sandra Ng, vice president, Communications, Peripherals and Verticals Research, IDC, described managed services as technology (IT and network) management services delivered over an infrastructure to multiple customers on a subscription basis. These services, which rely on an ongoing level of monitoring and management, include application management, application service provider services, desktop management, network consulting, integration and management, security, web hosting and Internet data center, business continuity and system management.

According to IDC, the Asia Pacific (excluding Japan) managed services market was worth about US$17.3 billion in 2004. Of this, IT service providers accounted for US$6.7 billion, communication vendors $600 million and telcos US$10 billion. For the telcos, the bulk of the revenue came from managed connectivity services, while managed IT services accounted for US$2 billion.

Jeff Kaplan, managing director of consultancy Thinkstrategies, noted that originally, telecom carriers offered managed services to support their largest customers? complex WAN management requirements. ?Today, managed services appeal to companies of all sizes because they address a wider range of IT/network management issues. Managed services also are more attractive than traditional outsourcing arrangements because they can be acquired on an incremental basis,? he said.

There is thus a strong upside potential for telcos in the managed IT services arena, especially in the small and medium enterprises (SMEs) market. According to Ng, SMEs in the Asia Pacific is a US$30 billion market, in terms of their IT spending by end 2005. This is 1.5 times what the public sector spends, and 2.5 times consumer spending.

Challenges

However, service providers eyeing this market are confronted by several challenges, the first of which is packaging, said Kaplan. ?Many of these companies merely are renaming their maintenance or outsourcing capabilities rather than offering genuine managed services. Others are creating complicated managed service portfolios that confuse potential customers,? he said.

The second challenge is pricing. Rather than provide a simple fee schedule for their managed services, many providers have created complex pricing algorithms that frustrate prospective customers, observed Kaplan.

The third challenge is positioning these services properly. ?In most cases, managed services are simply promoted as a way to reduce staff and lower operating costs. While these benefits are essential, few managed service providers can clearly differentiate themselves or show how they add value to their customers,? he added.

But the biggest obstacle to selling managed services, according to Kaplan, is poor sales skills. ?Many managed service providers rely on traditional, transaction-oriented salespeople to sell managed services. These salespeople generally are good at selling relatively standardized products or services but inexperienced at selling ongoing managed service relationships,? said Kaplan.

?Unlike traditional products or maintenance services, managed services can?t simply be sold and left behind with limited support from the supplier. The fundamental value of a managed service is that the supplier is promising to monitor and mitigate potential risks proactively.?

?Rather than simply selling the cost savings of managed services, salespeople must learn how to convince their enterprise customers of the potential business value of their offerings,? he added.

Despite these challenges, telcos may find themselves well positioned to address the managed services market, especially with the SMEs, because of the direct relationships they have with their customers, said Ng. ?The relationships that telcos have bring a lot of value to the table. No SME is too small for the carrier,? she said. They also have a proven business model and proven practices, and are seen as being financially stable.

Lee Han Kheng (left), vice president Corporate Data & Hosting Services, SingTel, agreed that one of the advantages SingTel has is that as a managed hosting telco, it has an existing relationship with enterprise customers that can be built upon. The relationship helps foster trust and allows SingTel to build up its understanding of customers? business needs and requirements, he said.

Direct relationships with customers have also always been a key part of the customer engagement process for StarHub. ?By working closely with the end users, we understand what their needs are. We believe with the importance of IT in their business outcome, a deeper partnership between customer and provider will result in a more robust and optimized network to help achieve their business objectives,? said Chong Pow Min, AVP, Business Services, Business Markets, StarHub.

The evolution

Most telcos start off with network management, packaging services and software with equipment. Today, that segment is worth about US$840 million in the Asia Pacific. Other areas in which telcos have already established a strong foothold are in data center and security, a US$3.3 billion market, and in converged communications and mobility, which is now worth US$1.1 billion.

SingTel, for example, offers a wide array of managed end-to-end network solutions to meet the global communication needs of MNCs such as Voice over IP, virtual private networks, ATM, frame relay and international private leased circuits.

Running on the ConnectPlus IP backbone, ConnectPlus IP VPN aims to provide customers with a single high-performance connection to the Internet, intranet and extranet. With this service, a company?s customers, business partners and suppliers can gain ready access to its networks through TCP/IP connections across the world.

In the early 1990s, the telco also began providing facility management and data center space.

?We were the first to launch facility management operations in Singapore,? said Lee. ?Subsequently, as the growth of the Internet became more acute, we combined our offering of not only pure space, but also providing huge bandwidth.?

STIX (SingTel Internet Exchange), which is one of Asia?s largest Internet backbone, offers more than 20Gbps of bandwidth across Asia Pacific and the United States, with direct connections to more than 80 ISPs, covering more than 30 countries in Asia Pacific.

Then in the late 1990s the dotcom and e-content type of companies entered the picture. ?It was therefore not long before we decided that we would move up the value chain to provide managed IT services, to enhance our position since we already had our infrastructure in place in the region. It was a value proposition which we felt we could offer to new and existing clients of ours as companies re-looked at their capital expenditure to an outsourcing model,? said Lee. ?Knowing that seamless connectivity will be a key proposition, we began to build and enhance our infrastructure in the data centre business by equipping ourselves architecturally to provide the value added services so that companies will have the scalability they needed as and when they required it, in one country or cross countries.?

In what Lee described as a ?natural progression?, SingTel?s managed hosting business, which involves building, owning and operating 12 data centers in six countries, evolved to an integrated hosting product offering which includes system administration, performance monitoring, database management, data backup services, security services, work area recovery for disaster recovery and system integration.

According to Lee, one of the key strengths that SingTel Expan brings to the managed services space is that its customers can rely on SingTel as a managed hosting telco offering a one-stop IT and network service on a regional basis. ?Our network of 31 regional offices provide customers with in-country support and consistent quality of services across the region. This eliminates the hassle of managing multiple relationships,? he said.

Expan data centers are backed by SingTel?s own pan-Asian cable and satellite infrastructure, which the telco manages end-to-end. ?This gives our customers network diversity and easy access to bandwidth,? said Lee.

Target markets

Due to its regional footprint, SingTel is targeting at the MNCs, application service providers and other enterprise customers who require regional managed hosting presence.

It has also noticed that SMEs are quickly becoming more IT savvy, and have an increasing need for network and system management. ?This is a growing market that we are working on,? said Lee.

StarHub, too, has been moving beyond managed connectivity services into the enterprise IT services market. The telco views managed IT services as ?a natural extension? of its current portfolio.

?StarHub?s strategy is to leverage our core competencies in telecommunication and network infrastructure to provide professional IT services to our customers,? said Chong. StarHub is currently offering 24x7 monitoring and management service for customers? WAN and LAN/IP Telephony network. In addition, it recently launched professional IT services to assist customers in the area of WAN optimization, network vulnerability and IP voice readiness.

?For managed services, a telco?s strengths in the WAN infrastructure and network access are key to deploying such managed services quickly, efficiently and cost effectively,? said Chong.

New challenges

But as they seek to move deeper into the enterprise, telcos may sometimes be hindered by the very success of their legacy in the connectivity space.

As Lee acknowledged, ?Initially, the greatest challenge we faced was making known to enterprise customers that SingTel has also the expertise in managed IT services. However, we have come a long way since we first started. We?ve gained many industry awards and certifications through the years, which marks our capability and strength in managed hosting services.?

Chong of StarHub also noted that in general, telcos have not always been seen as a central and integral part of a company?s IT strategy. ?StarHub will continue to educate the market on our ability as an infocomm company to play a much bigger role in our customers? IT planning and direction,? he said.

The next leap for the likes of SingTel and StarHub, according to Ng, will be in hosted applications, which is estimated to be worth US$3.3 billion in 2004.

For smaller enterprises, especially, the benefits of the hosted applications, such as low cost of entry and short setup time, the pay-as-you-go model, and the elimination of specialized headcount and maintenance costs, are compelling reasons to go with the model.

StarHub, for example, has a StarBiz offering which includes collaboration tools such as workgroups, staff directory, and file sharing, application add-ons such as a leave management system and expense claims, in addition to email and Personal Information Manager applications.

According to StarHub, the advantages of StarBiz, from the enterprise perspective, are that the unified interface provides a single point of access to all business applications; organizations have one bill, one service level agreement, for all contents and applications; and there is a single point of contact for customer service and IT support.

SingTel Expan, too, is extending its range of services to include hosted applications. ?Selected programs and applications will be hosted at our Expan data centers and delivered to customers remotely over the Internet. As they are offered on a pay-as-you-use subscription model, customers do not have to incur unnecessary setup and maintenance costs thus giving them more flexibility.?

According to Lee, SingTel Expan is exploring the possibility of launching hosted messaging and contact centre services.

This mirrors developments in the United States, where companies like AT&T are migrating a host of legacy services IP networks to pave the way for the roll out of applications such as audio conferencing, videoconferencing, IP Centrex and toll-free services.

Instead of developing applications in-house, AT&T is using off-the-shelf software and making it available to customers, said Michael Antieri, product management group executive at AT&T. The carrier said it is testing these services with customers, but would not reveal details.

The carrier will also offer users a hosted IP Centrex service, which will include PBX-like telecom features off-site and over a user?s MPLS VPN. Typical IP Centrex features include click-to-dial, find me/follow me, IP conferencing, call blocking, call forwarding, voice mail and caller ID.

Last year, AT&T also unveiled its WebService Connect service, which creates an online, extranet-type environment in which companies can develop applications and then share them with business partners on an on-demand basis. The service is built on a service oriented architecture platform developed by Grand Central Communications.

Disaster recovery

Another growing segment of the managed IT services space is disaster recovery. Singapore, especially, is positioning itself as a centre for business continuity and disaster recovery.

According to the Infocomm Development Authority, business continuity and disaster recovery fundamentals are strong in Singapore because of its strategic geographical location ? Free from natural disasters such as earthquakes and typhoons, pro-business environment, excellent cable network and data centre infrastructures and its business continuity and disaster recovery capabilities.

Singapore is also the first country in the world to introduce a Standard and Certification program for BC/DR service providers. Developed by the IDA and the IT Standards Committee (ITSC), the standard specifies the stringent requirements for BC/DR service providers. These requirements benchmark against the top practices in the region and stipulate the operating, monitoring and up-keeping of BC/DR services offered.

Service providers who have been certified under the Disaster Recovery Facility category of the new standard include Equinix, SingTel Expan and StarHub.

?Due to new threats to business survival such as September 11 attacks, SARS, Asian Tsunami, volatile economic climate, etc, businesses today place greater focus on business continuity management and disaster recovery planning,? said Lee. SingTel Expan?s current DR solutions offering includes DR work seats, backup and storage, and the telco plans to move even deeper into this space.

Partnerships

As telcos make their way into the managed IT services space, interdependencies in the IT industry will also increase, said Ng of IDC. ?In the ICT industry, partnering is very important.?

Already, alliances are being formed between telcos and IT players such as SAP, Oracle, Salesforce.com, Siebel, Accenture and Right Now to deliver their applications to businesses.

SingTel Expan, for example, has partnered companies such as E-cop.net in Singapore and Hong Kong to offer enhanced security services, and Sun Microsystems to offer utility-based remote storage and disaster recovery services. SingTel?s other technology partners include Cisco Systems, EMC, HP and BMC Software.

StarHub, too, offers a Managed Email Security Service delivered over MessageLabs? global infrastructure. The fully-managed service consists of antivirus, anti-spam and pornography filtering managed services.

In another recent announcement, StarHub announced a long-term partnership agreement with Nielsen/NetRatings to provide real-time Internet measurement analytics in Singapore and throughout the Asia Pacific region.

But for telcos and their partners, it will not always be smooth sailing. By and large, forming the partnerships with telcos can be a challenge, cautioned Ng of IDC. Telcos, especially incumbents, tend to have a monopolistic mentality and a conservative approach, she said.

But with their ability to provide a one-stop shop for businesses which includes connectivity solutions, and to deliver better quality of service because they own the last mile, they are certainly a force to be reckoned with.