Mother Of Reinvention

As they change, companies call on IT to curtail costs.

InformationWeek Staff, Contributor

September 14, 2001

11 Min Read

InformationWeek 500 - TELECOMMUNICATIONSLike many IT executives in the telecommunications industry, Kamalesh Dwivedi is spending less these days. The CIO at ADC Telecommunications Inc. has to make do with an IT budget that grew only 10% this year; he had expected a 40% increase that would fund new technology projects and enhancements to existing ones. Yet Dwivedi is still spearheading implementation of a wireless system and a virtual private network for internal use by the Minnetonka, Minn., manufacturer of broadband network equipment.

"We're working hard to reduce costs and become a more-efficient operation so we can withstand a continued downturn if it prolongs, but be prepared for the upswing when it happens," Dwivedi says.

A wireless system and internal VPN are in the works at ADC, CIO Dwivedi says.

Indeed, telecommunications companies are suffering even more than most businesses in today's uncertain economy. The Nasdaq Telecommunications Index is down 60% from last year as regulatory concerns, consolidation woes, and ever-increasing competition plague service providers. Equipment providers face plunging demand for their products as traditional customers find themselves overextended and startup customers fail because of dot-com closures or venture-capital drought. For all companies in the sector, slumping earnings, slipping prices, and reorganizations--which more often than not include layoffs--create more cause for worry.

The scenario facing Dwivedi and other telecom IT executives this year is far different from the recent past, when companies rushed to complement their existing offerings with Web-based services and products and to wrestle competitors with no concern for costs. "A year ago, companies were spending on everything," independent telecom analyst Jeffrey Kagan says. "The spigot was wide open and IT managers were in heaven."

Now, IT execs are sweating to invest more wisely and to leverage existing equipment and software instead of purchasing new products--all without threatening customer satisfaction and long-term growth.

These challenges come at a time when many telecommunications companies need to reinvent themselves, not so much for long-term growth as for survival. "Voice service doesn't have a financial future," says Tom Nolle, president of CIMI Corp., a consulting firm that specializes in the telecommunications industry. "And no other carrier service has a financial presence yet."

Yet service providers have scored few points over the years in their attempts to make successful transitions to a new service model--one that's heavy on Web hosting, Web development, digital subscriber line, broadband networking, and other services that customers have come not only to expect but to demand.

As a result, IT departments are facing increasing pressure to develop the technologies for these new revenue streams and to create the billing, point-of-sale, and other back-end systems to support them in the most cost-efficient manner possible.

At Sprint, where the ongoing deployment of Integrated On-Demand Network is the IT department's top priority, VP of IT Carol Bussing is focused on making ION and other IT projects more cost-efficient. ION is Sprint's public platform, which integrates applications, high-speed Internet services, and long-distance voice services into one network.

Previously, Sprint had no strategy for mapping IT architecture needs to the company's business goals. With Bussing's help, the company established "blueprints" that analyze what technology is needed for each project. Bussing says the strategy lets the company make better IT investments. "We can now answer, "What technology is needed and when?' and, more importantly, 'What assets are already developed and can be utilized?' " she says.

Today, telecommunications companies are taking a more sustainable, long-term approach to expansion and IT spending, analyst Kagan says. Though spending is curtailed right now, "companies can only hold off on investing and expanding for so long before they fall behind," he says.

Many telecommunications companies are investing in technology that focuses on a key element of long-term business success: the customer. To reach, attract, and retain customers, companies such as ADC, SBC Communications, and Sprint are deploying wireless technology to field engineers and field-sales employees, as well as customer-relationship management software and extensive E-commerce projects.

"The cost to win back customers is very expensive," says Yankee Group analyst Knox Bricken, who notes that it costs almost four times as much to acquire customers as it does to retain them. "On average, it costs $320 to acquire a customer, vs. a cost of $20 per month to retain existing customers." The market-research firm estimates that 23.5% of long-distance customers changed service providers in 1999.

For many telecommunications companies, including Sprint, the first challenge centers on existing technology: For example, it's often difficult to extract information from the legacy systems that store much of their customer data. As a result, BellSouth, Sprint, and WorldCom are among those investing in more-efficient data-mining technology. Sprint's Bussing oversaw the in-house development of a level of middleware, called information brokers, that pulls the different data from each data store in the company's legacy environment into one place. "They make getting data about our customers much more streamlined and cost-efficient," Bussing says.

Earlier this year, BellSouth completed an 18-month-long middleware project that links all its legacy systems. The objective: to improve efficiency in customer relationships and reduce costs. The result is "a service that provides customer information across the enterprise," says Francis Dramis, CIO of the Atlanta company. "We've reduced spending in legacy systems by 60% this year companywide with this process alone."

SBC Communications has even more-pressing reasons to improve customer service. The difficult integration of back-end systems from the San Antonio company's 1999 acquisition of Ameritech caused such major customer-service problems that they received national media coverage. The breakdown in communication from customer-service call centers to field engineers caused many customers in Los Angeles and Wisconsin to wait weeks for repair service.

Edward Glotzbach, executive VP and CIO, recently oversaw the deployment of Ease, an application that provides call-center service representatives "with everything they need to know" when customers phone with inquires or service needs. The application, developed in-house, gives the reps a search-engine function that lets them make queries and receive data in a format that works for them, Glotzbach says. Is it working? "We have better customer satisfaction--that's a sign," he says.

At ADC, Dwivedi is deploying a wireless application that field engineers can access through their Palm VII PDAs or cellular phones to track customer orders. The application is expected to save the company 6% to 10% in inventory and labor costs. Dwivedi also expects eventually to roll out the application to his customers, so they can check the status of product orders from the purchase-order stage to the receiving dock. "All order management will be pushed out to customers," he says. "It helps ADC and helps customers from a service standpoint."

EchoStar Communications Corp., a Littleton, Colo., provider of direct-broadcast satellite TV, streamlined its operations by using the Internet to consolidate multiple customer-facing applications. Previously, customers of the Dish Network, EchoStar's main product, made contact with the company only by phone and through monthly statements. Now, they can access the Internet to view their usage, pay their bills, and change their service plans, "which helps a tremendous amount," CIO Ed Allwein says. By year's end, customers also will be able to order equipment, print certificates for in-store promotions, and schedule installations online.

The Web also has helped EchoStar collaborate with its retail partners. In the satellite division, partners can receive product information, track shipment orders, validate customer status, and get other company information online. Suppliers, too, are reaping the benefits of online capabilities. EchoStar implemented an Internet-based document-sharing and management system that suppliers can access to see the company's latest engineering specifications. As Allwein puts it, "EchoStar is rather relentlessly integrated" to be competitive.

Other telecommunications companies are relying on off-the-shelf technology to improve customer service. In its transition from government entity to private company, satellite-technology provider Intelsat Ltd., in Washington, tapped Siebel Systems Inc.'s CRM software for customer-service support. Before, the company had a separate ground-management center for each of its five types of satellites, and customer service was just as disjointed. "The product helped provide a more centralized place for our services needs," says Missy Siwak, software development department manager.

Intelsat views a new business-to-business Web site, developed in-house and dubbed The Intelsat Business Network, as its IT accomplishment that has the most impact on the customer. That's because the network, which uses multiple layers of security, connects customers to Intelsat and its business partners. By collaborating with business partners, many of which provide services or equipment for the satellite company, Intelsat customers can track their orders, view service status, and see extensive inventory data in real time on the site. "It's the pipeline to our customers, employees, and business partners," Siwak says.

Companies in the telecom industry are experiencing technological innovation and transformation internally, too. At BellSouth, wireless E-mail devices are giving the company's own voice-mail system a run for its money. CIO Dramis hardly ever uses his mobile phone or BellSouth's voice-mail system anymore. He says he prefers Research in Motion Ltd.'s BlackBerry mobile E-mail device. "If anyone needs to get me," he says, "they send me a message. Even my wife."

Closeup Telecommunications



Revenue in millions

Revenue Change

Income (loss) in millions

Income Change

IT employees


Sprint Corp.







Verizon Wireless







ADC Telecommunications Inc.







Scientific-Atlanta Inc.







SBC Communications Inc.







WorldCom Inc.







Cox Communications Inc.







Cingular Wireless







BellSouth Corp.







Alltel Corp.







EchoStar Communications Corp.







Intelsat Ltd.






SnapShot 500/Telecommunications

Inside companies

Average portion of revenue spent on IT

Portion of IT organizations that sell services or IT products to other companies

Portion of companies that say wireless E-commerce will contribute to E-business revenue stream

Senior IT executive is a member of executive management committee

Average portion of customers included in electronic supply chain

How companies divide their IT budgets

New product and technology purchases

IT consulting and outsourcing

Research and development

Salaries and benefits


Everything else

How often companies re-examine their IT spending plans





Twice a year



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