Bottom Line: It's Your Choice:Buy, Build or Outsource

Posted: 05/2000

It’s Your Choice:Buy, Build or Outsource
By Faye
F. Henris

The Telecommunications Act of 1996, combined with overall global economic conditions, has provided the impetus for unprecedented growth and increased competition in the telecommunications industry.

Viable options exist for consumers in most metropolitan areas to choose a service provider and a number of service bundling opportunities. While these represent tremendous opportunity for the industry, many companies find that expanding staff and services to keep up with the rapid growth in a tight labor market is difficult and increasingly costly.

The booming “dot com” market exacerbates this issue further, as it often draws from the same labor pool and offers the benefit of grossly multiplied stock as incentive for resource talent.

One strategy frequently employed to alleviate these pressures is outsourcing. The right outsourcing solution should allow a company to leverage an external service provider to achieve reduced internal cost and also gain valuable and necessary services with a high degree of expertise.

The telecommunications industry embraces outsourcing as an option in a number of areas. Common outsourcing functions include billing, sales, order processing and management, customer service and account management, third-party verification and end-user invoice auditing.

A specialty that recently has become a target for outsource service is the management of carrier-to-carrier charges–telco management. For many companies, outsourcing telco management represents an opportunity to save money and maximize resources.

Companies may be interested in outsourced telco management for a variety of reasons. The option is attractive to an organization that does not wish to devote internal resources to this activity. It is also attractive to a company that wants its telephone costs analyzed and “scrubbed,” and methods and procedures put in place prior to bringing the function in-house.

For example, a company with an existing telco management shop, high growth and attrition, and hopes of focusing the management team on other areas such as business analysis, new market strategies, or operations and procedures would be a good candidate.

Most companies weigh a number of factors before deciding whether to outsource management. Some of these factors include availability of resources, required ramp-up time, level of capital expenditure, required maintenance or overhead cost, and availability of data and reporting.

Resource Availability

Typically, telco charges represent 45 percent to 55 percent of a carrier’s expenses. The greater a company’s expertise in telco management, the more it can save. These savings are direct additions to the bottom line. The challenge for many companies is that managing the telephony expenses requires expertise in a broad range of areas.

An effective telco mangement team (whether internal or outsourced) must include expertise and cooperation in telco audit and analysis, network provisioning, network engineering, regulatory, carrier relations, and marketing and sales.

However, building a team with this kind of expertise is expensive and time consuming. In today’s hot job market, recruiting these highly sought after employees is increasingly difficult. Many companies find that developing and maintaining expertise in all these highly specialized areas is virtually impossible.

The right outsourcing provider will have developed a highly competent team of telephony experts with a proven track record of savings for their clients. You should be able to draw on the collective expertise of the group to achieve maximum cost reduction.

In addition, the service provider should be able to aggregate opportunity across its entire client base to negotiate the best possible resolutions on your behalf.

It is important to note, however, that outsourcing this function does not mean entirely divesting your company of these resources. It still will be imperative that you maintain some of this expertise in-house to work with your service provider and to communicate and implement the results of the outsourcer’s activity within your organization.

Ramp-Up Time

In today’s market, speed counts. Perhaps one of the most compelling reasons to outsource any operational function is the ramp-up time associated with getting into business.

While the telco management function is not critical to getting into the business, it is critical to staying in business and being profitable.

Furthermore, there are sunset periods to dispute carrier charges that range from 90 days to two years. Every month lost during ramp up results in more unrecoverable dollars.

Most outsource service providers will bring a new client online within a two- or three-month period. Much of the time will be spent working with underlying vendors to have address and billing media changes made.

Full transition of the process will depend on the size of the outsourcing project, but it ought to be completed within a six-month window.

For new entrants and smaller carriers, this period is dramatically shorter.

Capital Expenditure

The costs associated with in-house operations are not limited to hiring, training and retaining staff. A successful in-house operation will require acquisition or development of an automated platform for the reading, processing and analysis of telephony costs.

Products exist today that can read and process many different billing media including carrier access billing system (CABS), small exchange CABS (SECABS), customer record information system (CRIS) and proprietary IXC formats. The price of these products ranges from the low $300s to well over $1.2 million. These figures can be even greater after factoring in costs associated with integration of the platform into other downstream processes like accounts payable, call mediation and provisioning.

Further complicating the issue is that most of the available off-the-shelf platform options still are under some level of development, ranging from minor to extensive. This is due in part to the recent emergence of these commercial products. While the costs and risks associated with an off-the-shelf option are undeniable, the cost and risks associated with a full in-house development effort can be significantly higher.

Development of a tool that effectively can allow a company to leverage internal resources requires extensive technical and subject matter expertise that is neither inexpensive nor readily available.

Using an outsource service provider will allow a company to benefit from the use of an automated platform without having to make a specific platform decision. Many outsource service providers in this space have selected a specific platform for their operations, while others have achieved platform neutrality and will help a company by using the platform that best meets their specific vendor mix and reporting requirements.

Maintenance or Overhead

Any automated platform will require a combination of internal and external IT resources to keep it up to date and running smoothly. CABS and SECABS changes are made at least twice a year. More frequent changes may be made to some of the proprietary IXC formats.

Each time a vendor changes the billing format, the platform will need to be adjusted as well. In addition, internal or external changes to your overall business may change the way you want to view and analyze your data.

The manner in which the platform was created will determine the effort required to work with the underlying data.

An outsourced option will alleviate much of the costs associated with maintenance and overhead, but it will not eliminate them entirely. Your outsource provider will require some support from your internal IT department to ensure the transfer of data feeds and links into your internal systems.

Access to Data and Reporting

Whether in-house or outsourced, the data collected and analyzed in the telco management process is critical to the overall operation and must be accessible to your company.

In an in-house operation, you want to work with or develop a platform that allows for easy ad hoc reporting and accessibility to the data. In an outsourced environment, you want to choose a service provider
that offers a full range of reporting options and is able to accommodate ad hoc reporting requirements.

For some companies, neither a complete in-house or total outsourced operation represents the ideal solution. Many feel there will be a significant drawback to full outsourcing because the management expertise resides largely outside the company. For these companies, the solution that may afford the greatest benefits involves a hybrid approach.

Starting with a fully outsourced solution affords the company immediate and effective telephony management. As time and resources permit, this company can develop internal staff. With an appropriately structured outsourcing agreement, the outside team can train staff members with the eventual goal of a transition, in whole or in part, to an internal management solution.

The industry is changing in a variety of ways at rates faster than we can calculate. Ensuring you can keep a finger on the pulse of your telephony costs is critical to the success of any operation. Ultimately what works best for your company will be based on where you are today, where you plan to go and how fast you want to get there.

By staying focused on the overall objectives of your organization and trying to be open to new and creative solutions, you will arrive at a structure for telco cost management that fits your needs and budget while providing the maximum return to your bottom line.

Faye F. Henris is the founder and managing partner of TeleCon
LLC. She can be reached at [email protected].