Subject: [NEXTEL-1] Telecom's New Attitude -- Carriers, service providers reengineer business processes and outsource

From: Marcel <[email-masked]>
Date: Wed, 12 Feb 2003 04:05:48 -0500

Telecom's New Attitude -- Carriers, service providers reengineer business processes and
outsource

February 3, 2003 2:31pm

INFORMATIONWEEK, Page 45, February 3, 2003

Telecom Italia is losing its HR department,
Nextel Communications is doing away with
customer service, and Cingular Wireless is
trashing most of its billing systems. These
telecom companies and wireless service
providers aren't self-destructing. Rather, they're
outsourcing or reengineering key business
processes in an effort to cut costs, improve
efficiencies, and prosper amid brutal economic
conditions.

Beset by falling prices for conventional
offerings such as long-distance, while under
pressure to build digital networks to gird
advanced services such as voice over IP,
telecom carriers are simplifying operations like
never before. Outsourcing and reengineering
business processes are hardly new concepts,
but the shift represents a fundamental
philosophical change for an industry that has been slow to adopt new technologies and,
some say, new
ideas. "Telco genetic characteristics are very difficult to change," says Allan Tumolillo,
chief operating
officer at Probe Research, which provides research and consulting services to telephone,
wireless, and IT
companies.

Telecom companies outsource less than 10% of key business processes, according to industry
watchers.
But anecdotal evidence indicates that's starting to change. For example, in late December,
Telecom Italia
Group inked a seven-year, $200 million business-process outsourcing agreement with
Accenture, which is
also managing human-resource services for British Telecom and Cable & Wireless. Under the
deal,
Accenture takes over payroll processing for Telecom Italia by acquiring Tess, its
payroll-services arm.

Glenn Davidson of Accenture's HR services group says telecom operators of all stripes are
just beginning to
look at cutting costs through business-process outsourcing. An urgent need to channel
funds to
revenue-generating activities, like the build-out of fiber networks and the acquisition of
third-generation
licenses for high-speed data networks, is in part behind the outsourcing push. "This trend
began in Europe,
but we expect U.S. carriers to do the same because the economic pressures are similar,"
Davidson says.

To be competitive with wireless services, traditional carriers will need to spend more on
creating
next-generation services. At present rates, wireless long-distance traffic will steal 20%
of fixed-line
long-distance by 2006, according to IBM research.

And wireless carriers are hardly standing still. As of January 2001, Nextel outsourced
virtually none of its
operations. A year later, it had outsourced 70% of its IT work, CIO Nick LeFave says. In
January 2002,
Nextel handed EDS the operation of its data center, and local and wide area network and
desktop support.
It also signed an eight-year outsourcing contract with IBM to consolidate and handle its
billing and
customer-management systems. The deal provides $1 billion in savings, partly by reducing
the number of
platforms used in the process, Nextel says.

As a result of all this, LeFave says, Nextel is in a better position to roll out new
services. "When we need to
deploy a project, the resources are immediately available to us," he says. Nextel
maintains control over the
outsourced operations by having representatives from its partners sit on internal
technology committees.
Outsourcing appears to be working for Nextel. IT as a cost of revenue has dropped from
8.5% in 1998 to 6%
today.

Despite the gains that outsourcing appears to be providing, Nextel is keeping some key
operations
in-house. For instance, it will retain control of customer management for several of its
largest business
accounts. "They're more sensitive to how we operate," LeFave says.

Some communications providers are forgoing outsourcing altogether, bent on reengineering
business
processes in-house to save money. Cingular Wireless CIO Thaddeus Arroyo has overseen some
big
changes in the past year. The company-a creature of numerous mergers-has consolidated 11
billing
systems into two, winnowed 1,400 software applications down to 300, and consolidated
data-center
facilities and is now moving to a new enterprise resource planning system. The hard part:
Arroyo needs to
create business processes that will let Cingular Wireless exploit the changes. "Our IT
planning cannot be
disjointed from our business planning," he says.

Thus, the company is implementing business processes that give managers a horizontal look
at the
enterprise. The goal: faster decision making and better, less-expensive customer service.
For example,
Cingular is implementing global call routing, which it says will improve customer service
by virtualizing 20
physical call centers so the most qualified agent is available for any customer regardless
of location.

Cingular is moving to Oracle 11i to form the backbone of its new ERP system. Among the
advantages
offered by the move: The company will be able to integrate procurement and payment
processes,
significantly reducing human intervention. It has also recently wrapped up a major
infrastructure
consolidation project that Arroyo says will cut costs and allow it to more efficiently
roll out advanced
services for high-speed 3G networks. "To introduce a new service, we now have to upgrade
several
systems, not hundreds," Arroyo says.

Arroyo says he considered outsourcing a number of these processes but thought the company
could
operate them less expensively in-house, especially after consolidating systems. Cingular
earlier this year
actually brought in-house billing systems that had been outsourced with Convergys Corp.

Industry consultants say telecom companies need to realize a significant level of savings
before they will
make the decision to outsource, otherwise the complexity and risk of transferring business
operations to an
outsider isn't worth it. "Twenty percent [savings] seems to be the magic number right
now," says Greg
Douglass, VP for telecom and media networks at Cap Gemini Ernst & Young.

Telecom carriers' need to adopt new, more flexible infrastructures is also resonating with
IT vendors. IBM
has developed what it calls its Service Provider Delivery Environment, which represents an
amalgamation of
numerous IBM initiatives tailored to the needs of big telecom companies. It uses IBM's
WebSphere software
and Linux to help carriers connect numerous legacy systems that they have either built
internally or
acquired through mergers. The idea is to eliminate systems that don't communicate with
each other. The
delivery environment is also designed to ease a telecom company's transition from
hardwired,
circuit-switched networks to the packet-based, soft-switching systems that they'll need in
the future.

IBM also thinks a new initiative whereby customers can get direct access to IBM research
could pay big
dividends for the capital-intensive telecom business. IBM research executive Paul Bloom
says telco
participation in the development of automation technologies such as natural-language voice
response could
save the industry billions.

If telecom carriers and wireless service providers can reduce costs through outsourcing or
internal
reengineering, without skimping on new services, the troubled industry could have a
brighter future. An
industry study released in December indicates that telecom business will grow from $1
trillion in revenue in
2002 to $1.3 trillion in 2007.

For now, most carriers are focused on how to transition from old business models informed
by monopolies
and analog technology to more competitive, cost-efficient strategies that will position
them for digital
services. Says Nextel's LeFave, "Right now, we're all under the gun."

http://informationweek.com/

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