Time to focus on value rather than cost in networks

Network managers will have to look elsewhere for budget savings now that communications prices are stabilising

Network managers will have to look elsewhere for budget savings now that communications prices are stabilising

Network managers have been able to face up to reductions in their budgets imposed by boards which want to cut costs by taking advantage of the tumbling prices in network and telecoms services over the past 18 months.

However, there are signs that the downturn in the communications market is coming to an end and connectivity prices are starting to stabilise. Network managers must now consider how much more they can squeeze out of their suppliers and what technologies are available to allow them to stay in budget.

There are a number of areas network managers can focus on, including network evaluation and testing, the use of virtual network operators and outsourcing.

John Holden, an analyst at Butler Group, said, "Networks are supporting more applications and traffic than ever before, and IT goals and technology need to be tightly integrated with business objectives.

"The network must be capable of supporting sustained growth and be flexible enough to react to changes in organisational needs."

Holden said charging internal users by department can also help in reducing costs, as usage is directly linked to real costs.


Outsourcing now seems to be the top consideration among companies looking to cut costs in IT and communications. Although outsourcing in the networks and telecoms field is growing, there are some areas users must focus on to be successful.

Phil Sayer, a director at the Communications Management Association and head of distribution and global operations at Reuters, said, "According to the annual CMA membership survey, one-third of members expect to outsource more this year. However, there are some basic rules for companies to follow. These include not outsourcing as a substitute for having a strategy, and not outsourcing just to get rid of a problem."

Sayer said the main reasons to outsource include:

  • Reducing costs

  • Focusing on core activities

  • Getting the supplier to provide technology refreshes.
The association is establishing a cheap benchmarking service for its members, because of the increase in outsourcing, so that members can make sure they are getting the best deal.

Dave Tansley, a consultant at Deloitte, said, "The chief financial officer, chief executives and chief information officers will all have to buy into an outsourcing deal to make sure it works well."

There are three key areas where network outsourcing is evolving, Tansley said. Instead of companies targeting cost, those that succeed focus on value. And rather than companies taking the view that outsourcing involves abdicating control of their network, the successful ones see ownership as a key management and negotiating tool with their supplier.

In all good outsourcing deals confrontation is replaced with collaboration with suppliers, according to Tansley. Those companies which have outsourced have seen rapid reductions in capital expenditure in the first 12 to 18 months. However, he added, they also experienced some disruption to services and a change to working practices, even after due diligence and before contracts had been signed.

Tansley said, "The middle period sees even those users that complained in the first stage, start to expect nothing less than a perfect service. And then comes the 'old age' period, when even successive 20% annual cost reductions for the user leads to them thinking they could get a better deal elsewhere and considering whether they should re-procure."

Tansley said that in the light of this, suppliers could start to think the same way - in terms of what they were getting out of the deal. But he confirmed that despite the drawbacks of network outsourcing, the market was buoyant.

Ross McKean, an associate at legal firm Baker McKenzie, said among the key reasons why problems surface with outsourcing has been the pressure to complete the contract. He said problems could arise when there were incentives to close contracts quickly rather than well. A failure to understand the other party's perspective and a mismatch of expectations also contributed to contracts failing.

In addition, McKean warned that a failure to face up to problems early, combined with a belief that the other side will not walk away from an agreement, can lead to a legal case when the relationship suffers and the contract is tested.

Network testing

Recent independent research commissioned by BT found that a quarter of all IT departments do not know all the ways in which their corporate networks are being used.

The research was used by BT to promote a number of new management tools. Other companies have also jumped on the bandwagon, with solid examples of why their management tools are needed.

Brittany Ferries, which sails to Spain, Ireland and France from Portsmouth, Poole and Plymouth, needed help with its network after it failed to support remotely-linked print servers used to produce passenger manifests for each sailing. Without a manifest it is illegal to sail and as 50% of Brittany's print jobs were failing, this meant the boats were leaving late - leading to a big loss in customer goodwill.

Lyn Pearce, network manager at Brittany, contacted systems integrator Telindus, which recommended the Netreality band-width management device from Allot Communications.

Pearce said, "Netreality allows the network team to reserve a minimum amount of bandwidth for the printing system as it traverses the network, which has solved the printing problem."

But the Brittany problem also meant the company moved from addressing a basic printing problem to studying the network as a whole. The same system was used to evaluate the existing frame relay network which Brittany suspected was over specified, and the analysis found that only 25% of the existing bandwidth was being used.

Armed with this revelation, Pearce's first move was to start filling the space by axing local internet connections supplied by separate ISPs at branch offices, and using the main frame relay backbone supplied by Cable & Wireless to support such traffic.

Pearce said, "This move alone means we will recoup our investment in Netreality in nine months, with our local managers saving up to £3,000 a year on their internet access bills. Our working relationship with Cable & Wireless has also been enhanced."

Virtual network operators

The emergence of the virtual network operator, which aims to deliver a cost-effective customer service by using different parts of different networks from various telecoms companies, is a natural phenomenon, considering that most operators already only manage to deliver their customers' data by using parts of networks owned by their rivals.

Suppliers, such as Sirocom and Vanco, are now well established in the market and claim they can get the best deal on behalf of users by having the muscle to regularly negotiate the best access for their total client traffic.

Chris Lewis, an analyst at Yankee Group, said, "Through years of carriers trying to sweat their network assets, network managers have found themselves saddled with excessive bandwidth and inappropriate technologies."

Companies are now trying to reduce their costs, said Lewis, by attempting to make modifications to their networks - often by reducing bandwidth in pinpointed areas or choosing more efficient access technologies - but find that the carriers are reluctant to help them. "Often, the carriers are more committed to their own interests rather than their customers'," said Lewis.

This is when virtual network operators promise to help out. Vanco, for instance, claims it can save users 30% on their existing bill with a non-virtual network operator - even if telecom prices continue to stabilise.

These products, among others, should obviously be considered by any company looking to further reduce the costs of their communications.

How to reduce network costs

  • Consider internal departmental charging

  • The organisation's network demands should be regularly reviewed to help pinpoint new trends

  • Automate network management

  • Understand the market to get the best deal from suppliers

  • Make sure contracts are flexible and short term so newer and better technologies can be adopted quickly

  • Implement a billing management system that can check invoices, as suppliers' back-office systems are sometimes not capable of delivering what was offered by their sales people

  • Adopt best-of-breed systems instead of almost totally relying on market leader Cisco - this can save 20% on costs

  • Don't throw bandwidth at a problem - instead, get to know how applications run on the network.

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