Distributing the load: Outsourcing opportunities grow with telecom offerings

As the telecommunications service industry booms, peripheral companies are reaping the benefits of overflowing business from local telcos and interexchange carriers.

But these beneficiaries aren't competing with the carriers. Instead, they are more like partners. These companies are providing outsourced services ranging from operator assistance to switching and network facilities for voice and data, a business that appears to have tremendous upside as carriers try to meet growing demand without overtaxing their internal resources or being forced to build internal capabilities too quickly.

Outsourcing has become an increasingly popular strategy throughout the business world in the 1990s, particularly for human resources, accounting and billing functions. Outsourcing among telecom companies has been growing in those areas as well, but a particularly important driver for telecom outsourcing is just beginning to kick in: the Telecommunications Act of 1996.

Although the act is almost two years old now and has sparked much activity, the industry almost certainly has seen only the first ripples of an impending wave of change in the telecommunications business.

A 1996 Yankee Group study projected five-year growth for information technology outsourcing among manufacturing firms, utilities, state and local governments, insurance companies and communications entities. The study projected that $94 billion worth of information technology outsourcing contracts would be signed through 2001, with $10.6 billion coming from communications companies.

The growth in communications, the study explained, would be a direct result of the telecom act, as carriers evolved into what the study termed "the new integrated telecommunications provider"-a hybrid of wireless, local exchange, competitive access, long-distance and cable offerings.

The challenge of incorporating those business units into a single service offering, especially for companies that for years have been accustomed to focusing on only one of those market segments, will require more sophisticated billing, account management, customer retention, service order management and pricing systems. That will force the carriers-at least for the short term-to pay companies with greater expertise in those areas to set up and manage the new systems, as well as train an in-house work force to eventually take over the operation.

An indication of the growth and growth potential of telecommunications outsourcing lies in Salt Lake City-based Teltrust Inc. The company was founded as an Independent pay phone provider in 1996 and added other services, including operator services. Teltrust eventually divested its pay phone business and now concentrates on offering outsource services, including operator assistance, prepaid calling card, wholesale transmission, switching and billing services.

The explosive growth of data services is another key factor in the outlook for telcos' outsourcing needs.

Newer, high-speed data offerings are creating opportunities for third-party companies, including call centers for sales and support operations, according to Paula Reinman, a TeleChoice senior consultant who comes from a sales and marketing background at Pacific Bell and SBC Communications.

"Their business offices don't necessarily have the expertise to sell more sophisticated data products," she said.

And as the carriers delve deeper into the data services market, other possibilities for outside companies to capitalize on their growth may be unearthed. There was much news in 1997, and certainly much more will come in 1998 about carriers testing high-speed deployment strategies such as digital subscriber line technology. And once the carriers settle on a deployment strategy, many will be looking to provide not only the service but the customer premises equipment as well.

"As people bring out new services, a lot of companies want to offer one-stop shopping," Reinman said. "That will involve installation at the customer site, and the telcos might want to bring in companies with more expertise [in data CPE installation]."