Telcos eye utility model for IT services

Coming soon to your local IS department: more IT services brought to you by an unexpected source.

Communication service providers in Canada are keenly interested in the wealth of opportunity that is apparent with IT services and are driven, too, by a need to broaden business horizons beyond mere voice and data services. Of course, it’s no great secret that telcos have long coveted the market space of IT service and a growing demand by customers for all types of operational activities that might be delivered by external vendors. But they’ve been challenged by an inability to provision traditional outsourcing services. Highly customized deals and close customer relationships simply don’t adhere to the model of delivering mass services.

The advent of hosting and the resulting buzz regarding the delivery of computing, business and application processes, plus IT communication in a utility-like, pay-as-you-go sort of way, is a set of services much more in line with the carrier business model. In fact, most communication service providers are now carefully assessing market demand in order to develop services, which will meet this customer need.

The likes of Bell Canada, Telus, AT&T Canada and others have been working to define the right mix, by trying to understand what are the IT/IS challenges that keep businesses up at night. For example, carriers want to know, what are those activities which most companies typically don’t perform as well as they might like? And what IS activities are those which a company might be willing to give up in order to free staff to perform higher-value activities which align more closely to business imperatives?

Carriers have typically defined their contracted operational activities sold to customers as managed services, which were usually monitored voice and data offerings. A business that purchased a managed service paid for use of the services and some degree of customer premise equipment, such as remote access devices and the like.

However, these days, many managed services are understood to have an IT connotation. These are often described as being IT utility services and would include Web, storage or application infrastructure hosting, disaster recovery and network security services, among many others. Like traditional communication services, customers who buy a managed service pay a recurring fee for things like hosting, based upon the specific set of features and particular functional levels as well as overall usage.

Canadian enterprises, although most continue to manage IT through in-house IS departments, remain challenged by, among other things, issues of technology integration and refresh, plus the usual frustration of day-to-day operations. So there is a need. IT outsourcing, particularly of selective activities, is a high-growth market and increasingly garners more and more interest among businesses and other organizations across Canada.

Outsourcing, however, is but one service option – albeit one that is much better understood than emerging IT utility and other managed services. Outsourcing has evolved into an offering which, because each deal is highly customized, usually involves the entire takeover of application, business or IT processes, is expensive and is most often sold to large businesses. Managed IT or utility services represent an entirely different approach and conceivably have much broader appeal.

Communication service providers currently have some degree of mindshare advantage among current and potential customers who view managed IT as a service typically bought from a carrier or some other communication service provider.

Outsourcers and other traditional IT services companies are painfully aware of this perception and are expending great effort and expense to convince customers otherwise. IBM Canada, for example, recently held a major press conference in Toronto in an effort to explain its “on demand” service approach for e-business infrastructures and solutions and, of course, to bridge the association between its own brand and the concept itself. Sun Microsystems and HP/Compaq have likewise made similar revelations of IT utility provisioning in redefining some traditional IT services.

The advantage for communication service companies in the delivery of hosting and other managed utility-like services is an understanding of managed service pricing and delivery. For a carrier, it’s nearly identical to the delivery of voice and data services. Customer pay for what they need, when they need it, and can layer on all types of additional features on top of a base level offering. There’s a high degree of flexibility in prices and offerings, which are particularly suited for small, medium and large businesses.

That said, however, there’s a world of difference between delivering voice and data, which really only means ensuring levels of performance, reliability and availability, and providing business-critical computing capability as a managed service or utility. For one thing, as IT service providers have learned from experience, customers demand much higher levels of accountability, particularly if things go wrong, and will absolutely not tolerate the unexpected in terms of unavailability.

Successfully delivering IT services also demands rapid customer response, quick problem resolution and a commitment to business success. It’s not exactly something most communication service providers do well. They’ll need to do a much better job of managing customer relationships.

More choice is fundamentally a good thing for buyers. Many will be attracted to managed IT utility type services because these are activity-specific and don’t involve a complete hand-off of IS. The structure of managed service contracts is certainly different from traditional outsourcing. Like communication services, a utility service contract term would typically be much shorter than an IT outsourcing agreement, but with very specific performance metrics hammered out in a detailed service level agreement. It’s a true service alternative.

Communication service providers are keenly interested in entering the fray of IT service provisioning and will focus on delivering managed IT utility-like offerings. The question is, can they deliver the goods?