InformationWeek
Defining The Business Value Of Technology
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Sept. 11, 2000 |
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Telcos Aim To Offer More
Telecom vendors rely on IT to help morph into information service providers
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ew industries face the major upheavals that challenge telecommunications. Having sweated through the Y2K conversion, telecom companies in the InformationWeek 500 still have to worry about changes in customer expectations, infrastructure upgrades, increased competition from newcomers, traditional rivals, and consolidation. Much of the pressure to succeed in this environment falls on the IT department."Most telecom companies are moving from [being information] transportation companies to information systems companies," says BellSouth Corp. CIO and E-commerce officer Francis Dramis, "starting with the basic change of networks from circuits to Internet Protocol networks."
Change is needed as the industry expands from traditional plain-vanilla voice service to software, Web-hosting, digital subscriber line, broadband networking, and other services. "Focus on data is key," says Michael Callahan, WorldCom's VP of enterprise systems.
Indeed, carriers face a change-or-else situation. "It's clear that unless a carrier by the end of the decade gets more than 50% of its revenue from nontraditional revenue streams, it won't have a financially viable business model to take into the next decade," says Gartner Group VP Ken McGee. "They won't survive as dumb carriers with fat pipes."
The introduction of services and products stems from increased customer demand, especially from commercial accounts, which are fatigued and confused by the multiple services, service providers (and their sales teams), and billing and order systems needed in the new economy.
"Models have to change," says Christine Harkart, president of consulting firm TeleChoice. "It will be one-stop [communications] shopping, so telecom companies need to enhance offerings with content, hosting, and bigger support services. They should look to partnerships to do this."
Qwest Communications International Inc. is responding to that challenge. It's partnering with IBM and KPMG to sell hosting services. After its merger with US West Inc. earlier this year, Qwest focused on expanding its hosting business as well as its fiber-optic and digital infrastructure in order to compete with other regional Bell companies. However, Qwest is facing a problem many carriers wrestle with: a long wait for a return on its investment.
"From the IT perspective, data has been the product most challenging to integrate," says David Bartlett, Qwest's VP of IT architecture. "We're developing the systems now, and over the next two or three years, our focus will be on determining efficient processes to drive costs out of the business."
For instance, service providers are trying to determine which consumer-oriented data services will be profitable, says Tom Nolle, president of consulting firm CIMI Corp. "Right now, operational staff is groaning under the weight of these new technologies, trying to determine how it will work for mass consumption."
SBC Communications Inc. is betting on broadband. By partnering with Internet service provider Prodigy Communications LP, SBC hopes to evolve into the largest provider of broadband services in the country with the launch of a $6 billion companywide initiative dubbed "Project Pronto." Along with the project's main focus--to offer digital subscriber line service to more than 80% of SBC's customers by the end of 2002--SBC hopes to expand its fiber networking and converge its separate data and voice infrastructures. "It's the most significant initiative that SBC has made in the last 10 years," CIO and executive VP Edward Glotzbach says. "And it's on schedule with a very high acceptance rate." According to SBC, the expense and capital savings will offset the cost of the program.
With the enormous cost piling up from such initiatives, getting them to market is critical. A problem faced by Sprint, says Malcolm Petty, VP of business solutions, is "the cycle of time to market and the implication of cost and quality trade-off. We want to offer the optimal value of the solution and meet user expectations." CIO and technology services president George Fuciu agrees: "Speed to market is key because we're all buying from the same [equipment] vendors."
Sprint executives hope their $2 billion Integrated On-Demand Network, unveiled in June 1998 with service available six months later, will give them a head start against the competition. ION, a public network that integrates applications, Internet services, local and long-distance calling, billing, and networking into one infrastructure, is one of the first to combine voice and data service--and with only one bill.
While expanding Internet services, telecom companies are also increasing their use of the Internet to simplify back-end and customer-focused initiatives. Across the board, carriers are streamlining billing, order entry and management, and other functions by moving them online, while taking procurement processes online as well.
Kamalesh Dwivedi, CIO of ADC Telecommunications Inc., a maker of broadband network equipment, software, and integration tools, wants ADC to move faster than its customers to anticipate their demands. Leveraging the Internet has been critical in the creation of customized portals for all of its major customers, he says. "Currently, customers manage account status with the Internet, and soon our E-commerce options will expand into online order entry," Dwivedi says.
Web sites can add another communication channel, invigorating a telco's commitment to retain customers.
"Our E-store has been very effective, while personal contact is still effective at our [physical] stores and call centers," says David Henry, chief technology officer of Alltel Information Services, a unit of Alltel Corp.
That real-time connection through the Internet can be seen in relationships between partners and suppliers, as well as with customers. In its WorldCommerce strategy, WorldCom has moved all procurement and expense processing online, reducing spending and streamlining the ordering and approval processes. According to Callahan, the savings come from the volume of invoices now handled electronically. "We have 75% of all supplier invoices online currently, and we expect that to be at 100% by year's end," he says.
ADC is launching a supply-chain management project to offer E-commerce to its suppliers. Dwivedi hopes the move online will "drive the demand straight to the supplier, cutting back on inventory and forecasting sales more efficiently."
Telecom companies are taking advantage of technological innovations to speed up internally focused business practices as well. ADC recently deployed a product-development management application, which helps engineers manage and design products. "The [application] has really streamlined our product development," Dwivedi says.
Several companies report saving millions on operations by leveraging new technology. For its remote service workers, BellSouth this year launched Technet, a wireless database application that lets drivers check the status of orders and appointments, update inventory in real time, and communicate with managers. "By automating our inventory, the system has saved us $30 million in 1999 and an estimated $25 million in 2000," Dramis says.
Technology is also being used to improve company communication. A good example is the widespread use of intranets. ADC installed the ADC Broadway for employees to automate expenses and access other business applications. WorldCom estimates its intranet home page receives 70 million hits per month. "Intranets might be old news, but we use it for virtually every function," says Callahan of WorldCom. "We estimated a savings of $58 million a year."
The movement to E-commerce and the use of the Internet will drastically reduce costs and simplify processes, but connecting to the legacy systems that make up the infrastructure backbone is a tricky and tedious matter. The telecom industry's IT domain is populated almost solely by legacy systems, making integration a continuing challenge.
BellSouth is one company that has restructured its IT department to start the integration process. The company recently implemented its Message Broker and Databus systems, which will allow interaction between new and legacy systems during the transition. "We're breaking the logjam of ownership of legacy systems," says Dramis.
Migration problems escalate when acquisitions double the number of systems. "IT is becoming more important because of the merger and acquisition activity," says Yankee Group VP Rob Rich. "Older systems are very hard to integrate."
The IT department at WorldCom has had to combine more than 1,000 systems into 300 because of the acquisitions of MCI and other companies. "Every system is marked 'invest,' 'maintain,' or 'decommission,'" Callahan says.
After SBC acquired Ameritech Corp. last year, Glotzbach had to integrate the companies' systems and cultures, in addition to overseeing more than 17,000 IT employees. "We spent lots of time on systems strategy, enterprise architecture, communication, and project-management culture," Glotzbach says. "And our single-platform initiative is going smoothly."
However, integration takes years to be successful, adding expenses to IT budgets already heavy with the costs of data services, E-commerce, and upgrade requirements. And competition from new names in the service market, such as Northpoint Communications Group Inc. and Lucent Technologies Inc., adds more pressure to IT departments. The telecommunications industry has more challenges ahead.
Illustration by Jeffrey Fisher
Photo of Dwivedi by Doug Knutson
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