From Telco to MSP

You may have noticed that medium and large Telcos are buying Managed Service Providers at a rapid rate. Historically described as Managed IT Companies, MSPs are becoming very attractive to Telcos as channel veteran Mark Whitehead explains

According to Datto the average size of an EMEA MSP is £1-5 m turnover, well within most Telco’s M&A budgets. Telcos are trying to mitigate losses from decreasing call revenues, the depreciation of margins in Ethernet and MPLS, and falling mobile revenues, so buying an MSP to build and grow could make sense.

The fall of Carillion has left a bad tastes in the mouth of those considering outsourcing large contracts and given a boost to small and midsize IT service providers. MSPs tend to have strong verticals such Manufacturing, Finance and Legal and the services they provide like Back-up as a Service, desk top support and security are very sticky.

However, MSPs tend to be less experienced at telecoms and connectivity but very strong in cloud-based propositions such as Teams, Skype and Azure and this is the market direction of travel. MSPs also struggle with annuity of contract, the average in the UK is 12 months where Telcos are great at offering long term contracts of 3 years or more.

There is a huge opportunity in converting traditional PBX to Cloud and Hybrid solutions but many telcos don’t have the in-house expertise to blend backup, security, telecoms and connectivity in a single service. This exposes them to the risk of losing out to competitors who have already invested in building a single fully managed service proposition.

According to Datto’s State of MSP 2018 report the top business challenges for EMEA MSPs are marketing/sales, staffing/ training, ransomware/cyber security, and customer service. Excluding ransomware/cyber security, the Telcos are generally very strong in these areas and can add huge value to an MSPs growth.

Build and Grow or Buy and Grow.

There are a number of considerations to build out an MSP business function such as: does the business have the right skill sets in house and how much would it cost to fill the gaps? How far do we want to go with the offering; desktop support, break fix, 24hr monitoring of apps and network? How realistic is it that you can achieve industry certifications such as Microsoft CSP (Cloud Solutions Partner)? Can the business protect its customers for ransomware and viruses effectively? Can outsourcing provide some short cuts, for example, third party break-fix companies? There are some great Industry bodies like COMPTIA that will give sound advice and support in all aspects of MPS business.

To offer high margin Managed Services you will need to invest in a set of tools. At the base level you may want to consider Professional Services Automation (PSA) software. This is probably going to go beyond any ticketing system you may have already and also handle contract management as well as a lot more. On top of this it’s vital to have real time visibility of your client’s infrastructure. This is where the Remote Monitoring and Management (RMM) software comes in. This lets you see what is happening and resolve issues (ideally automatically) before the client becomes aware.

On top of this, it’s important to build a suite of products that you will use to standardise your offering. Standardisation is one of the key traits of successful MSPs. In this business model, any issues cost the MSP money as they are billing a fixed fee, so standardisation helps keep things consistent and helps with staff training.

The ‘Buy and Grow’ option takes care of a lot of the base line work needed to provide an MSP service whilst allowing the acquirer to focus on adding value in sales, marketing, service, telecoms portfolio and increasing contact terms. I believe this is why it has been a very popular route to take for Telcos as exampled by Intercity, GCI and Solar/Wavenet.

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David Dungay

Editor - Comms Business Magazine