Find the buried treasure hidden within your network

In an ideal world, telecoms should already have achieved an efficient and lean operational model by now, especially after years of M&As, spin-offs and transformational levers such as re-engineering, outsourcing and even offshoring. Costs would have been cut and no sacred cows would be left untouched. Right? Wrong. Most carriers have overlooked a major EBITDA improvement opportunity buried in their own backyard: off-net connectivity.

Off-net connectivity is a sizable cost component for many telcos. It typically accounts for 10 to 15 percent of overall external spend for traditional wireline incumbents, but the proportion can be even higher for competitive carriers, resellers and long haul players.

How can this significant opportunity have escaped years of cost cutting and corporate restructurings? First of all, the paradigm has shifted to data transport. Managing off-net spend used to be a lot simpler in a regulated voice-dominated world, implemented by settlement and swap agreements. Nevertheless, the world has become data-dominant, with data revenues and expenses surpassing that of voice. For some carriers this inflection point happened in early 2000, while for others it is about to materialize in the short term.

Increased competition and complexity of new offerings (i.e., IP-VPNs) has triggered the collapse of inter-carrier data settlement regimes, to be replaced with complex wholesale/retail customized billing arrangements. This has made off-net connectivity a more complex business than in the past, with high levels of customization—every circuit being a unique SKU (cost, term, location) that has to be monitored and managed.

Lastly, given the regulated environment some players operate in, there is a common misperception that productivity initiatives in carrier access are a zero-sum game, where carriers will retaliate in kind and erode any benefits—the balance-of-trade argument. This is an incomplete view as there is deadweight loss in the system, driven by waste and inefficiencies in internal back office processes, network planning decisions, and revenue leakage. It’s a positive sum game.

Off-net connectivity management requires more than tuning up the procurement discipline. It requires an end-to-end view of the connectivity life cycle: such as on-net considerations (i.e., the on-net vs. off-net provisioning decision and network footprint strategy), as well as customer and product profitability decisions (i.e., pricing decisions such as discounts, postalized rates, and subsidies when off-net provisioning is required). Look at the “life” of an order, an invoice, a bill, etc., that outlines the maps, players, databases, interfaces, handoffs and choices that define the profit potential.

The key to finding this treasure can be summarized in a few principles. Manage off-net as a commodity. Apply the same rigor that one would apply in the world of moving goods and materials, and ruthlessly implement textbook supply chain concepts such as just-in-time, strategic sourcing, and process reengineering, to synchronize provisioning and decommissioning.

Work smartly around legacy IT systems constraints. Build a data warehouse to gather the required information to link billing records to off-net inventory and payments. Use skilled analysts to query, match and reconcile records with standard off-the-shelf tools. Don’t boil the ocean and fall into the trap of seeking the perfect IT solution.

Realize that data is now king. There is no shortcut to the process of: analyzing spend by individual circuit, vendor, service; billing information by circuit and customer; and provisioning information for on and off-net services. A solid database is the foundation for taking action (for example, disconnect circuit X, migrate circuit Y, bill customer Z), managing the process, and tracking savings.

In an age when carrier executives think they have exhausted all options to extract value from their business, there is still untapped opportunity in network connectivity that requires no layoffs or significant IT investment.

Augusto Morais is an A.T. Kearney principal and communications industry consulting expert. He is based in Atlanta.