Analyst house Pierre Audoin Consultants (PAC)'s latest figures for the UK telecom industry show outsourcing expenditure surpassing that of project services for the first time: outsourcing accounted for £860 million and project services £841 million in 2007. This trend was driven in particular by EDS's applications deal with Vodafone that saw the Texan firm jump from fourth to first largest IT outsourcer to the UK telecom market.

The UK telecom sector has historically been slow to outsource IT compared to other sectors such as financial services. However, Vodafone's landmark applications management deal with EDS and IBM in November 2006 set the tone for change. The BT group was already actively outsourcing IT, but 2007 saw a step up in pace. It outsourced infrastructure management to Computacenter in March 07, F&A processes to Xansa in August 07 and HR processes to Accenture in September 07. Other examples include T-Mobile's infrastructure management deal with T-Systems in November 07 and THUS's application management deal with Nortel in May 07.

This growing appetite for outsourcing results from the saturated UK telecom market. Operators can no longer rely on 'greenfield' customers, and must fight for the existing market. This requires operators to drop prices to remain competitive, and cut costs to protect their profit margins. An emergent trend in the UK telecoms market in order to achieve this is BPO, and BT is a company that has taken the concept to heart. It was amongst the first telecom operators off the mark in implementing BPO on a large scale, the deal with Accenture mentioned above being an expansion upon an initial deal signed in 2005, and the later deal with Xansa shows that it has the appetite for more. Other telecom operators are likely to follow suit in the hunt for further efficiencies.

Another key trend is the growing acceptance of offshore IT. Where until recent years UK telecom operators were reluctant to outsource at all, they are now keen to make use of the reduced labor costs available offshore. This is helping offshore specialists like Xansa (now owned by Steria), TCS and Wipro to thrive.