Russian mobile operator Mobile TeleSystems has outsourced the daily operation and maintenance of its entire mobile network across central Russia to Nokia Siemens Network as part of a five-year managed services deal.

In April of 2010, mobile phone equipment producer Nokia Siemens Networks signed a large outsourcing contract with Russia’s leading operator MTS for managing its networks. Industry analysts anticipate that the MTS – Nokia deal may give rise to new trends, and other Russian mobile providers would transfer network maintenance and management functions to large telecom products suppliers. According to Russian analysts, these arrangements would result in major savings to mobile carriers.

Outsourcing will soon become a more widely-used practice not only for operators. Telecom services providers are also likely to resort to similar techniques. In Western Europe, it is a common practice to outsource the task of maintaining communications networks. Proponents of subcontracting the work suggest that service providers would be able to improve the quality of the services because their networks would be supervised by equipment producers. Furthermore, mobile companies would be able to save millions, as they would not need to conduct network maintenance and pay out wages to superfluous employees.

Nokia will manage the mobile networks for MTS in 16 out of 18 Russian regions located in the Central Federal District. According to MTS, the particular federal subjects were chosen because most of the company’s equipment used in those regions was produced by Nokia. Thus, the project’s risk from a technical standpoint is greatly reduced. The only regions within the Central Federal District that were not covered by the outsourcing agreement were the city of Moscow and the Moscow region. In the city of Moscow, the GSM network of MTS was constructed with the use of equipment that was provided by several manufacturers. Nokia’s equipment accounts for a small percentage of the equipment comprising the network.

According to Alexei Kondrashov, executive director of the Direct INFO agency, the outsourcing project has a bright future. Mr. Kondrashov noted that such network management contracts have been widely used in other countries of the world and that Russia is merely following the global trend.

In the words of Mr. Dmitriy Alferov, director of supply and services department of the Russian branch of Chinese telecom supplier Huawei, outsourcing projects in different countries around the world have generally resulted in success, as they reduce extraneous expenditures and enhance network performance. Equipment manufacturers have more experience in optimizing network performance than a mobile service operator.

The management of networks by a telecom equipment manufacturer guarantees thorough network monitoring and well-timed installation of critical component upgrades. Thus, companies that operate any kind of communications network, not only mobile networks, are all potential candidates for seeking to outsource their work. Statistics show that fixed-line service providers that outsourced network management tasks saved over 30 percent of their maintenance expenses.            

Over the course of several years, the agreement made between MTS and Nokia will prompt other communications providers in Russia to delegate the management of networks to equipment suppliers, according to Mr. Yiru Zhong, who works as an analyst with Frost & Sullivan consulting company.

Large mobile carriers are not excluding from their consideration the option of resorting to outsourcing in the future, although they do not hurry to transfer the management of their networks to other companies at the present time. Tatiana Zvereva of MegaFon indicated that the company is worried about the quality of its network and is not planning to outsource maintenance jobs so far. Nonetheless, MegaFon would be prepared to engage in negotiations with telecom equipment makers on the matter.

Russia’s third major mobile provider VimpelCom has decided to outsource special functions that would involve the use of extra licenses and certificates. Additional services that could be outsourced include separate market areas, like the upkeep of electricity supplying systems and cooling mechanisms, fiber optics, and cell towers. The mobile carrier is now looking into the possibility of entering into significant outsourcing arrangements.

At the same time, one should keep in mind that outsourcing is only now starting to gain popularity in Russia. Mobile operators have been reluctant to adopt Western models before. Even MTS has not made the decision as to whether it will proceed with the outsourcing agenda in other federal districts. The decision is expected within one year, and the company will base its ultimate determination on the results of its first test project. The Nokia – MTS outsourcing deal is truly the very first such project in Russia, and other service providers will be monitoring its success. MTS is further expected to decide if the carrier should use outsourcing for managing and maintaining the wireline network of its fixed-line and broadband subsidiary Comstar UTS.

In public comments, however, MTS representatives have already stated that they expect that the deal with Nokia will result in direct benefits to both companies, first and foremost in terms of economic advantages. Indirect benefits will include enhanced network maintenance quality and shorter response times for service failures. Company executives believe that the network’s quality will be improved, resulting in greater traffic and larger revenue to the carrier. As the President of MTS Mikhail Shamolin noted in late April, the outsourcing contract with Nokia will permit MTS to reduce maintenance costs by at least 15 percent.

According to Huawei analyst Mr. Alferov, outsourcing arrangements could lessen the expenses of network operators by anywhere from 10 to 15 percent.

Calculations done by Direct INFO illustrate that MTS would not have to spend several million dollars a year by reducing costs paid for network maintenance and cutting wages to its in-house workers, who were tasked with network maintenance in the past. In accordance with the agreement made with Nokia, 250 employees of MTS will be hired by Nokia to perform network management and maintenance.

The contract between MTS and Nokia by all accounts will allow the Russian carrier to control its expenses in a more manageable way. The contract is also expected to boost the marketing efforts of MTS and allow the carrier to develop new services in expanding the client base for its 3G mobile network.

While large mobile providers stand to benefit enormously from outsourcing, smaller companies should not be expected to derive substantial savings from transferring over their maintenance operations to large equipment makers, noted Mr. Kondrashov of Direct INFO. The solutions that Telecommunications suppliers would offer them will be too expensive. Suppliers give outsourcing services at fixed prices adjusted exclusively for major operators.

Other experts, however, do not share the same view. Mr. Alferov of Huawei thinks that outsourcing could be beneficial for big and small carriers alike. The main advantage to small operators would be the enhancement of network quality. Small companies ordinarily do not have specialized technicians on their staff to handle difficult network maintenance problems.