UK telcos will look to outsource, research says

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The UK telecom sector has historically been slow to outsource IT compared to other sectors such as financial services, but is set to reverse that trend, new research published today has said.

European analyst firm Pierre Audoin Consultants said the latest figures for the UK telecom industry show outsourcing expenditure surpassing that of project services for the first time: outsourcing accounted for £860 million and project services £841 million in 2007.

PAC report author Dominic Trott said this trend was driven in particular by EDS and IBM’s November 2006 applications deal with Vodafone that saw EDS jump from fourth to first largest IT outsourcer to the UK telecom market.

The BT group was already actively outsourcing IT, but 2007 saw a step up in pace, he added. It outsourced infrastructure management to Computacenter in March 2007, financial and accounting processes to Xansa in August and human resources (HR) processes to Accenture in September of last year too.

Other examples include T-Mobile's infrastructure management deal with T-Systems in November 2007 and Thus’ application management deal with Nortel in May 20007.

“This growing appetite for outsourcing results from the saturated UK telecom market,” wrote Trott. “Operators can no longer rely on [new] ‘greenfield’ customers and must fight for the existing market. This requires operators to drop prices to remain competitive, and cut costs to protect their profit margins.”

A particularly strong, emerging trend in the UK telecoms market as a result of these pressures is towards business process outsourcing (BPO), of which the consultant said BT is an example of an operator that has taken the concept to heart.

Its September 2007 Accenture deal was an expansion on an initial deal signed in 2005 and the deal with Xansa showed that it has the appetite for more. “Other telecom operators are likely to follow suit in the hunt for further efficiencies,” added Trott.

The PAC “Telecom Sector in the UK 2008” report also found another key trend was the growing acceptance of offshore IT. Telecoms operators are now keen to make use of the reduced labour costs available offshore. “This is helping offshore specialists like Xansa (now owned by Steria), TCS and Wipro to thrive,” it added.

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