Although Ericsson has been first vendor to take advantage of growing sector, Nokia and others following close behind

What would network operators do if they didn't operate networks? Presumably, they would get a lot cozier with their customers, and that's the main idea why a carrier would consider outsourcing management of its network to a trusted vendor. Vendors providing managed network offerings also claim carriers can save at least 10% to 15% in operational expenses, and the combination of factors has persuaded dozen of carriers to seek network caretakers during the last few years.

Ericsson arguably has been the vendor at the lead of the managed network trend, and last week, CEO Carl-Henric Svanberg used a good portion of the company's fourth-quarter earnings call to tout the impressive sales growth from Ericsson's global services unit during the quarter. Svanberg said sales from global services — which combines revenue from managed network services for carriers, as well as application hosting and professional services — grew by 31% compared to the fourth quarter of 2004.

“2005 was a breakthrough year,” Svanberg said on the earnings call. Ericsson has won about 30 managed network contracts over the last few years, and though none of the world's largest carriers are among the takers, the vendor in December won its biggest managed network deal yet from 3 to host the carrier's networks in U.K. The project will require Ericsson to put more than 1000 of its own employees on-site with 3. At the time, Pyramid Research estimated the value of that seven-year contract to be worth more than $2.5 billion.

Although Ericsson has been eager to promote its managed network successes over the last several months, other mobile vendors seemed conspicuously inconspicuous. But now, word from Nokia indicates that the Finnish equipment/handset-maker recently won a five-year contract under which it will manage some of Hutchison Essar's network operations in India. Nokia is putting about 600 of its employees on-site to make it happen.

ABI Research recently released the report, “Managed Services for Mobile Wireless Networks,” and Lance Wilson, director of wireless research, said that Ericsson and Nokia are by no means the only vendors catching on to the managed network trend. “They are all looking at it — Lucent, Nortel, Alcatel, Huawei, ZTE and all the rest. Everyone's getting involved.”

At the same time, analysts who have watched the mobile network equipment market decline for these vendors also are questioning how vendors will be able to maintain healthy profit margins on a business not so dependent on fixed-price assets. A posting in consulting agency Ovum's EuroView Daily Comment service last week noted, “Services tend to depress the gross margin, but improve the operating margin — and the effect is clearly seen during 2005 [in Ericsson's earnings].”