In 2001, Bell Canada set up a joint venture with Amdocs, a U.S.-based telecommunications operations management provider, to integrate the telco’s 200 billing platforms into a single system for the convenience of customers.
It was a lucrative deal. At the time one financial analyst estimated it would bring Amdocs, headquartered in St. Louis, US$100 million a year.
But the joint venture, called Certen Inc., didn’t last very long. As its customers stopped spending so much on outsourcing, Amdocs’ stock dropped. After two years it bought Bell’s interest for CDN $89 million and the companies went back to a traditional outsourcing deal, which has been extended to 2012. But Bell kept responsibility over the future evolution of its billing systems in areas such as business analysis and requirements definition, architecture and project management.
The transaction is illustrative of the up-and-down history of the companies that sell telecom operations management services (TOMS) to wireline and wireless providers. The largest include Amdocs, CSG Systems, Convergys and the huge consulting firm Accenture, but there are a number of smaller ones who have a narrow range of services.
“A couple of years ago everybody was talking about outsourcing,” said Norbert Scholz, a communications analyst at Gartner and co-author of a report this month on the TOMS sector. “Many carriers have tried it and they figured out the cost saving and the operational efficiencies don’t really deliver everything they promised initially.” Lately a number have been pulling their business back in-house.
TOMS covers a range of services, including billing, inventory management, network management, provisioning and activation, revenue assurance and fraud management, and online care and self-service. Not all the outsourcers provide all of these functions.
Gartner doesn’t count front and back office service deals offered by network equipment makers, which Scholz describes as more managed services than outsourcing.
Scholz said he believes Bell is the only Canadian customer of these outsourcers. Telus told Network World Canada that it has talked to suppliers, but done nothing more.
Globally, Gartner calls growth in TOMS “anemic,” a relative term for an industry that achieved 15 per cent growth last year over 2006. But most of that growth in spending was by carriers in the Asia/Pacific area. Worldwide revenues were only U.S.$3.2 billion last year and expected to grow to $4.5 billion by 2012, a compound annual growth rate of seven per cent.
The problem, Gartner says, is that despite the possible advantages other industries see in outsourcing many wireline carriers still believe they shouldn’t give TOMS core capacities to outside suppliers. This perception is changing slowly. And as carriers consolidate a number who had been outsourcing some functions are bringing them back in-house.
A number of U.S. virtual wireless providers used outsourced billing rather than buy off-the-shelf solutions. However, many of these providers have since gone out of business.
On the other hand, the research firm says many of the solutions offered lack sufficient maturity.
More threateningly to the TOMS industry, Gartner believes network providers like Alcatel-Lucent, Ericsson, IBM, Huawei, Nokia Siemens Networks who provide managed services will increasingly throw in customer-facing features like billing to become end-to-end solutions at discount rates.
It isn’t clear whether the new Canadian wireless licence winners in the recent AWS spectrum auction will use outsourced management services to save money. Few will talk to the press until Industry Canada has certified they are licence holders.
“Traditionally wireless carriers were more amenable to outsourcing because they didn’t have much cash on hand,” Scholz said, so it will depend how well-financed the new Canadian entrants are.
A number of the licence winners such as Shaw Communications, Bragg Communications and Videotron are well-funded cablecos, while Globalive has funding from Egyptian and Icelandic wireless investors.