BENEFITS QUANTIFIED: HOW SOME TELECOM COMPANIES SAVED MONEY

Operator	Activities outsourced	Savings said to have accrued
AAPT	Engineering functions, network design, operation and maintenance and third-party contracts with service providers	Ongoing operational cost savings of 15% per year. Review of the asset portfolio and rationalization and optimization of the network led to additional savings
Australian telco	Billing services. Following the collapse of a competitor’s billing system on which it had previously relied, the provider outsourced to EDS	Cost savings of $34.7 million in the first year — a 28% reduction — plus annual savings in operational expenses in subsequent years of over $7.54 million
Priority Telecom	Global NOC services, first-line customer support and fault-management services after normal business hours to Lucent	Reduced its operational cost by 50% compared to the cost of in-house operations by outsourcing out-of-hours network monitoring. The carrier was also able to lower capital expenditure
Redstone	Full outsourcing of the U.K. network, including asset and staff transfer	Underlying gross margins in telecom products line rose from 6%–18%
South American carrier	Operations, maintenance and repair services. Lucent’s global NOC provides preventive, corrective and predictive maintenance, as well as network-element operations. The deal covered switching, transmission, infrastructure and power	Consistently reduced operating expenses by five percent month-on-month
Telefonica	Managed mainframe services. Moved its mainframe-based data systems from a Telefonica site in Brazil to an EDS data center	Saved a million dollars in IT costs within the first two months of the migration
Telefort	Network design and planning, operation and maintenance of its GSM and GPRS networks	An immediate cost saving of approximately 20% on network operations

That prediction is picking up steam as new services are being introduced in the wireless and broadband space. “With each new introduction, the entire system has to be tweaked — provisioning, activation, mediation and billing and revenue re-assurance — for effective service delivery, giving rise to more outsourcing opportunities. Despite buying multiple services, the delivery has to be seamless to the consumer. Subsequently, a lot of development and maintenance work also gets offshored to leverage labor arbitrage,” says Wipro’s Kulkarni.

A major reason why Cingular could outbid Vodafone to nab AT&T’s wireless services in June 2004 was because its IT systems were compatible with AT&T’s.

This synergy brought enormous cost efficiency that justified the three billion-dollar premium that clinched the deal. “Consolidation brings together a number of different platforms — homegrown, off-the-shelf products (with patchwork) — all of which the operator has to run seamlessly as a single system,” says TCS’ Jayaraman.

Last but not the least, the rise of Mobile Virtual Network Operators, especially in the U.S.A., has triggered a spate of outsourcing activities as telecom companies outsource everything in their OSS-BSS system. Often, they go to service bureaus to get end-to-end billing services, although some like T-Mobile did gradually invest in their own systems.

Younger telecommunications firms, agile in global service delivery, make it imperative that older firms adapt to remain equally competitive. Besides the need to offer integrated services entails a lot of integration at the OSS-BSS level, all of which triggers outsourcing to third parties.

PRACTICES TO CONSIDER

Benchmark. The Analysys Report advises operators to benchmark their operations against peers to determine whether they are as efficient as their rivals. If not, they should consider outsourcing.

Review organizational expertise. Review whether the organization has the necessary skill sets to introduce new services and products, and stay in tune with the latest technologies and best practices in key areas. If not, outsource.

Review strategic importance of legacy networks. Operators with legacy networks, particularly former monopoly players, planning extensive network upgrades should review whether it needs to be kept in-house or can be done more efficiently by a third party.

Outsource network management to long-term partners. If handing over your telecom network to a third party gives you the jitters, relax! It will not be as bad if you are going to hand it over to somebody with whom you have had a longstanding relationship. Telecom New Zealand had been working with Alcatel for a long time before it handed over its operations to Alcatel. The deal took over two years to materialize.

Define expectations clearly. With so many elements overlapping at the level of networks and IT applications, the ownership and expectation of each and every service should be clearly defined to avoid confusion and inefficiency later.

Define pricing model. Be innovative in defining your pricing strategy. Fixed price or time and materials may not always be the best model. For instance, Bharti’s network-outsourcing deal payment is on the basis of Erlang. Erlang determines the amount of traffic that is managed on its network. Similarly Bharti has a pay-per-use model for using the IT systems with IBM.

Consider revenue sharing with mobile-application developers. Revenue sharing will trigger a lot of innovation in the mobile-application space. According to Denmark-based Strand Consultants, there have been a lot of mobile applications in the Korean and Norway market, because revenue share with application developers has been as high as 80%-87%, triggering innovation among providers.

Check out partnership/competency of providers. Check out the competency areas of providers, especially in IT services, if you have different platforms in your billing systems. It is a good idea to evaluate service provider partnerships of the systems integrator.

Define an exit strategy: Don’t forget to define an exit strategy, which must be planned right from the beginning. Also define asset ownership in the event of a deal collapse.