|Europe I 2002
|Eastern European Telecom Growth: The Role of Outsourcing and Billing Systems
Telecommunications is growing at different rates throughout Eastern Europe. To a great extent the differences reflect operators’ ability to invest. International financing is in short supply, so expansion has to be financed by sales-generated revenues. Better marketing, brand recognition, targeted products and pricing can boost sales. Billing systems can accelerate the introduction of new products and pricing, but are expensive and slow to develop and implement. Outsourced billing systems can be installed rapidly, reduce investment and lower costs.
Eastern Europe- The Markets Statistics released by the International Telecommunication Union (ITU) show that countries of Eastern Europe – compared with those of Western Europe – have a significantly lower average Gross Domestic Product (GDP) per capita (2.437,6 US$) than the European average (11.462 US$). In the Eastern countries, just as in the West, companies tend to reduce investments when the economy is bad. The infrastructure investments that telecom operators are still making however, will be for new technology, often several generations more advanced than current systems, which can be expected to greatly benefit both the operators and the subscribers. The following table lists countries in the Eastern parts of Europe, not necessarily the so-called Eastern European countries. The table shows that Croatia, the Czech Republic, Estonia, Greece, Hungary, the Slovak Republic, Slovenia and Turkey already had more cellular phones than fixed lines at the end of 2001. The huge cellular growth rates in some countries show no sign of slowing and one can expect that the remaining countries will soon follow. The table shows that the Compound Annual Growth Rate (CAGR) of main lines, at about 7 per cent, is low compared to the Cellular subscribers’ growth rate of over 90 per cent. Examination of these statistics alone, can be misleading, as investment or buying decisions are obviously dependent upon much broader criteria, including the political, economic and competitive climates of the countries involved and a variety of forecasts. It seems, though, that most telecommunications operators from the countries in the table above have no choice other than to create business plans using a low-budget, low-cost, approach. The Telco Operators’ Dilemma In this environment Eastern European telecommunications operators must work hard to meet their business plan goals. Business is based on attracting and retaining loyal residential and commercial customers. Increased competition and increasingly sophisticated customer demands drive the need to extend airtime usage; to develop and introduce new services and discover new revenue sources. Operators are engaged in an ongoing effort to improve operational effectiveness and to accelerate the order-to-cash process. For smooth functioning and access to the investment funding on which all plans are dependent, operators rely on their shareholder or partnership structures and accessible internal and /or international synergies. A key question for operators is market positioning, within the overall context of the industry. The “market cube” illustration may help to clarify the positioning question. It can be seen that in response to market pressures and opportunities, key market players have been significantly shifting their positioning: o BBC was a TV and radio broadcaster focused on information and entertainment. It moved to the Web, enriching core competency with educational offerings. o Bertelsmann is a media concern, which started by publishing magazines and books, are of Web applications and distribute its own content. o Kirch Group began by dealing in rights to film productions. It tried to push a new standard cable box into the market in order to acces pay-TV but had to withdraw and is now closing down most of its business. o Nokia entered telecommunications as a mobile telephone supplier. It wishes to enhance products and make them into universal media access tools. In addition, Nokia – with Club Nokia – is entering the services and content market. Many fixed-line operators expanded their business-starting ten years ago – into the wireless area. Over the last two years, mobile operators have been trying to discover how to move up the value chain and how to enter and participate in the content area. There have not been many success stories to date. Operators are challenged to do the right things in the market at the right time to assure the success of their businesses. To differentiate themselves in the market, so customers will buy from them, they need to develop a winning brand. Building a brand is a complex undertaking. Brand acceptance is based upon a wide variety of complex financial, market, social and even psychological factors. One way that telecom companies have been able to build their branding, and consequently their customer base, has traditionally been by offering new, differentiated services and or pricing before the competition can react. The story of how MCI grabbed billions of dollars in customer business from AT&T, with agile billing systems offering differentiated price breaks to customers according to individual needs, is a classic case study in telecommunications marketing. Looking at the cube model, it is easy to appreciate the enormous difficulties any company would have if it tried to provide some of today’s and tomorrow’s sophisticated services alone – without specialized partners. The key to providing services targeted at specific consumer groups, or at specific consumers, will be the ability to dynamically form the right combination of partnerships with specialized service providers. This means that sophisticated, efficient and very flexible methods to divide the revenues among all the contributors to the customer’s package have to be in place and ready to roll at a moment’s notice. Today’s billing systems “fit the bill.” Thus billing can be a blockbuster weapon in the operators’ marketing campaign. As competition gears up in Eastern Europe the need to quickly provide newer, better-targeted services will grow and billing systems will become increasingly important. Sophisticated billing systems, however, can be quite costly and time consuming to develop, implement and run. Considering the difficulty of obtaining funds in Eastern Europe, this creates a dilemma for local operators. There are alternatives, however, and outsourcing of billing services is one of them. Outsource Billing? Billing is a prime candidate for outsourcing. What is billing, really? There is no single definition. Taking a very narrow view, billing only includes rating, collections, accounting, payment processing, invoice formatting, A/R processing, bookkeeping and reporting. Essentially billing is a business support process, which communicates with other system components, enables the invoicing of all offered services and assures the operator’s revenue streams. A billing service consists of a data processing system and the people running the system. The IT system itself is divided into the hardware that provides the Infrastructure Hosting and Operations and the software which includes the billing application, the database, necessary licences and the functional application operations. More broadly, billing also includes a subscriber management system, which some solution providers call the Billing & Customer Care package. A total BSS would also provide billing and customer care: service provisioning, order management and problem management. a full back office BSS could offer, as well, human resources, accounting and finance, inventory asset management, management support for sales, marketing and senior Management. Telecom BSSs can support a wide variety of functions: Telecom services and products; customer care, including call-centre operation; self-service components; retention activities; customer and account hierarchies; leads management; event processing (xDRs); multilingual and multi-currency systems; bill calculation and presentment; Interfaces with e.g. OSS, POS, ERP, commissioning. These functions have developed over the years, since they first appeared when GSM was rolled out 10 years ago. The following graph shows how environment and markets have changed over the period. Most billing and customer care software systems are licensed for integration, implementation and use by the client or are outsourced, running at the customer’s site. Some though, available through Application Service Provisioning (ASP) services, are run at the software provider’s site. The operator’s reason for outsourcing or ASP might include: Enabling the operator to focus on core strengths of service marketing and network operation; reduced operational cost, investment needs, and in-house development cost; fewer training requirements, conversion of fixed cost – or long-term investment – into variable, volume dependent, expenses; lack of internal resources; contracted scalability (pay-as-you-grow models; need to quickly offer differentiated & innovative products; accurate and efficient convergent billing; price, quality and service reliability; prevention and/or control of fraud; business unit-based service pricing. Operators need to bring new services to market quickly and cost-effectively. They look to decrease time-to-market and decrease costs and to increase ARPU and client satisfaction. Challenge of Outsourcing Responsibility stays with operator; Service Level Agreement guarantees Quality of Service; Outsourcer must provide emergency plan; Outsourcer must pre-plan change of outsourcer; Service integration costs depend on differences between needs and the standard solution. Perceived downside of outsourcing: Loss of control over updates and changes to existing systems; Loss of control over customer data; Loss of control over infrastructure; Loss of flexibility to incorporate other “best-of-breed” applications. Conclusion: Dependency on Outsourcer There are many risks operators face, which must be defined in the SLA. These include certain sales related risks, operational risks, system failures, emergency procedures and the like. The SLA should also define the service control process, ongoing internal communications and performance measurements. Finally the SLA also addresses the possibility that the operator fails to achieve its business goals and the contract has to be terminated early. Although SLAs are important, the most important guarantee before teaming up is mutual trust between the parties. In the future, billing systems will have to provide real-time operation of many of their functions. As competition gets tougher customers get more critical and more demanding, so “zero-mistake” systems with double-checked processing will be required. Today when few can invest but all must be able to invoice new services, outsourcing and ASP solutions definitely make sense.