Cisco aims to help telecom carriers offer IT outsourcing

With enterprise equipment sales slowing to a crawl, Cisco has embarked on a new strategy for selling its networking gear: helping telecommunications service providers become IT outsourcing providers.

Last month, Cisco announced a three-and-a-half-year deal with SBC Communications to provide equipment and services that will enable SBC to develop a range of managed service offerings. The companies did not reveal the value of the partnership, other than to say that is “potentially” worth billions of dollars.

There are many facets to the Cisco-SBC deal, but the bottom line is that SBC wants to become a single-source provider of IT and communications services for business – including customer premises equipment and data networking. But because SBC is weak in global data services such as VPNs – and because it doesn’t make CPE – it will rely on Cisco to provide such equipment and expertise.

SBC isn’t the first telecom service provider to make such a deal with Cisco. In fact, Cisco already has made similar partnerships with Sprint, Cable & Wireless and Bell Canada, to name a few. The providers differ on the outsourcing services they want to offer, but they all need Cisco to provide critical enterprise gear and knowledge that are essential to operating any corporate data network, whether insourced or outsourced.

For Cisco, the managed services boom is a huge opportunity. As the primary provider of enterprise networking equipment, Cisco can be the chief provider to all of the telecom service providers that want to push into enterprise IT outsourcing. If it partners with most of them – and logic dictates that it will – Cisco will clean up, no matter which providers turn out to be the most successful. Cisco is hoping to double the proportion of its revenue that comes from service providers over the next five years, from the current 20% to a whopping 40%. If managed services take off, that seems a conservative figure.

For telecom providers such as SBC, the move toward managed services is less of a sure thing. Over the years, telecom providers have often tried to pry their way into the outsourcing and data networking markets, only to be rebuffed by customers who felt that the providers were too slow and inexpert on data networking issues. Historically, data networking has been either done internally or outsourced to a systems integrator, such as IBM Global Services or EDS. Telecom service providers’ efforts have largely fallen on deaf ears.

With the shift in the economy, however, many telecom service providers believe that these attitudes are about to change. For one thing, most IT departments are straining under the noose of tighter budgets, and might be interested in hiring a provider that offers not only data services, but equipment and maintenance as well. And with the emergence of less expensive data equipment that can also handle voice, there is a much better possibility of telecom service providers making a go of things in the IT outsourcing market.

However, even with Cisco’s help, there are some very real questions about the ability of a telecom service provider to deliver IT outsourcing capabilities to the enterprise. Can a telecom service provider do the maintenance and tuning required for a major corporate data network? Will it be responsive during heavy traffic or problem periods? Can its outsourced services remain cost-effective and predictable over time – and will the provider be willing to pay penalties if service levels are not maintained?

These are some of the questions that enterprises should be asking as they are presented with a new array of managed services derived from the recently signed Cisco partnerships. If they can be answered positively, the enterprise may soon have a whole new range of outsourced IT services available to it. If not, then it may be just another failed effort by telecom service providers to get a piece of the enterprise IT services pie.