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Could Nokia’s Managed Service Wins Return Its Networks to Growth?

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Feb. 19 2018, Published 12:46 p.m. ET

Enhancing Optus customers’ experience

Nokia (NOK) recently signed a multiyear managed service contract with Optus, a leading telecom company in Australia. Under the contract, Nokia is expected to manage and maintain key components of Optus’s network infrastructure, the company said in a press release.

Optus is hoping that the managed services agreement with Nokia will reduce its operational complexity and enhance customers’ experience. Ultimately, this arrangement could help Optus cut costs, leading to better profits.

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Network sales drop 4.0%

As for Nokia, the company could be betting on managed service contract wins to reverse course in its Nokia Networks segment, where sales have been sliding. In 4Q17, Nokia Networks sales slipped 4.0% YoY (year-over-year), following a 9.0% YoY decline in 3Q17. The chart above offers a snapshot of the segment’s growth trends. Nokia has more than 200 active managed service contracts around the world.

Building from a minority position

Managed service operations are part of Nokia’s Global Services business, which is a component of Nokia Networks. Although Global Services is only a small portion of Nokia Networks, the operation has bright prospects, in that Nokia is currently an underdog in the expanding managed service market.

Ericsson (ERIC) commands a larger share of the managed service market than Nokia, according to ABI Research. Some of Ericsson’s managed service customers are Sprint (S), Vodafone (VOD), and Verizon (VZ). However, Nokia’s minority share of the managed services market implies that it has more room for growth than market leader Ericsson.

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