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Time constraints and the complexity of operations are causing more carriers to turn outside for OSS assistance. Can the outsourcing model prove economical over the long term?

You're new to the area. Your business plan calls for accelerated network construction. You have an aggressive marketing campaign that promises availability of multiple communications services to several business market niches. You suddenly realize that the software required to support, control and manage those services will have tremendous financial repercussions on your organization. You don't have that kind of money.

Not surprisingly, that's a typical scenario for many carrier hopefuls that are starting from scratch with little to no operations support system (OSS) structure. But it's also becoming an increasingly real scenario for more established carriers expanding into new areas that need software overhauls or additions to help them get there.

Lucky for both sets, help is out there in the form of outsourcing organizations - also known as service bureaus or clearinghouses. As telecom services have become more complicated in form and function, the corresponding OSS architectures required to create them, activate them and charge for them have become not only more complex but also more expensive. Entire service organizations have arisen to help support emerging carriers and incumbents in their efforts to deliver new services to their customers quicker and cost-effectively.

"Service providers have tried the idea of plug and play, and it hasn't worked," says Beth Adams, president and CEO of the TeleManagement Forum, an industry association focused on carrier OSS issues. "There's a trend toward trying to offload the problem. Time is such an issue, and cost is such an uncertainty."

No distractions

One of the top issues for any service provider these days is time. The overused catch phrase "time to market" is made real by competitive pressures and constantly changing service developments. No carrier can afford to be held up by anything, and OSS issues often present the most vexing and time-consuming barriers.

"It can really sap the time of the chief information officer," says Dennis Jennings, vice president of next generation networks solutions for Telcordia Technologies, formerly Bellcore.

Service bureaus that can supply ready-made OSS applications therefore are appealing to carriers that are in a hurry. For some, outsourcing a portion of the OSS - be it billing, customer care, service ordering or interconnection to other carrier trading partners - could be a step toward becoming what they ultimately want to be: fully self-sufficient network operators.

"There may be companies that go with a service bureau or outsourced approach initially because they don't have everything they want or need to have," says Dale Quick, chief operating officer at software developer Quintessent Communications. "Competitively, they need to be in the market and capable of processing orders. They might look at this as a stopgap measure."

Another trend driving more carriers toward OSS service bureaus is the increasing sophistication and improved performance of so-called "off-the-shelf" OSSs. Carriers of bygone eras created complicated, proprietary OSSs in-house because little else was available. With so many software development houses now devoted to building solutions that can be used to meet many varying carrier needs, carriers appear to have more confidence in farming out portions of their OSSs.

"The industry has really evolved in terms of the maturity of some of the pre-developed OSS plays that are available," says Jason Donahue, vice president of marketing for Cap Gemini Telecom, a professional services organization that provides systems integration services for OSSs. "You can buy a lot of functionality out of the box, so we tend to see less and less desire by carriers to build their own systems."

When it comes to OSS outsourcing, size also matters. The newest of the new on the emerging carrier front generally are perceived by software developers to be easy targets for OSS outsourcing services.

"The ones looking for service bureau operations tend to be smaller players looking for a faster way to market," says Steve Adams, vice president of marketing for CrossKeys. "A small entrant doesn't want to invest in the system or manpower to do it itself."

As a service provider grows, however, its willingness to outsource OSS applications to a service bureau likely will lessen. Even some emerging carriers - generally the more established competitive local exchange carriers (CLECs) that have developed complex and geographically dispersed networks - have grown to the point that outsourcing proprietary OSS applications no longer makes sense from a competitive standpoint.

"With our size, we need to move faster, and the only way to do that is to take control of the operations behind the services," says Dave Baumgarten, vice president of network business systems at ICG Communications. "The only piece we truly outsource is our [local service request] functionality. We're using a service bureau to provide connections to our trading partners."

Other carriers believe that the sheer complexity of their networks and services have created OSS requirements that are too entwined with the carrier itself to lean on outside support. That, however, also could be a sign that the service provider has painted itself into a corner in terms of network openness. Teligent, for example, does not rely on service bureau approaches for any of its OSS applications because it says the expertise about its broadband wireless access networks is so tightly held internally and because the network equipment and technology it relies on changes so quickly.

"We have not chosen to outsource our OSSs simply because there's nobody out there that can do everything we need," says Hamid Akhavan, chief technology officer of Teligent. "Every six months, a new network architecture is being proposed that is better than the previous one. As wireless deployments like ours become more commonplace, we hope we can outsource more of the OSS components."

Applications and methods

Very few, if any, service providers are likely to farm out every function of their OSS to a service bureau because some functions are crucial to retaining a competitive edge. Service bureaus generally are built to support multiple carriers simultaneously, and although some systems and processes are by their nature non-proprietary, certain applications require that certain distinctions be made.

"I would not take everything we do and put it in a clearinghouse," says Carol Bussing, vice president of operations, systems planning and implementation for Sprint. "Where you need to have systems talk to each other, that's where there needs to be a difference. Where you have to extract data and validate ordering, that's where you really have to have something like a clearinghouse."

Many carriers and software developers believe that the service bureau approach can be economical and beneficial for certain portions of the OSS.

"Service providers have been increasingly willing to outsource components like billing and customer care but have not outsourced provisioning or network management," says Mark McCormack, executive vice president for software manufacturer Intertech, adding that the choice primarily is based on time constraints. "We can get a customer up and running faster in a service bureau. It takes a lot to run billing and customer care software on a day-to-day basis."

In addition to answering time pressures, some carriers might outsource some of their OSS functions to ensure an access level to customer information that they might otherwise be unable to acquire.

"The way companies are going to win is based on how much information they have on customers and how to manipulate that information," says James Orr, president and CEO of Convergys, a developer of billing and customer care software. "The world will belong to those who have the most information and can turn it into high value. Two different carriers can run on the same core technology but have a very different look and feel."

A carrier has many ways in which it can combine service bureau-driven OSS functions with its in-house systems - and roll in the services of a systems integrator. All require that the underlying software systems are flexible and open.

"There are a lot of different permutations," says Mark Effinger, executive director and chief OSS architect for Telcordia. "Some carriers want to outsource pieces of their systems. The larger carriers still want to keep the operations in-house. Systems need to be designed in a way that can support all of that - so that they can be tweaked and customized by whomever is doing the integration."

That required flexibility within the software is an important point - whether a service bureau is used or not. While some service providers might not rely on outsourcing in the specific service bureau sense, they do rely on their vendors to customize systems based on their specific needs.

"We need software that can be made to fit our business process as it differs from the way the [incumbent] LECs have done business for years," says Ken Hunter, vice president and chief IT architect for ICG.

Carriers also can use service bureaus as a lower-risk method of supporting new lines of services such as an ILEC putting DSL on trial, says Intertech's McCormack. "There's a lot less risk in the service bureau, and it allows the carrier to get into business a lot more quickly and cheaply."

Service bureaus can have economic implications - especially for newcomers looking to position themselves as acquisition candidates. For them, maintaining a good bottom line is the only way to attract suitors, and any investment that drags that down is potentially threatening.

"There are carriers that are positioning themselves to be sold and want to spend their capital wisely," says Quintessent's Quick. "The CLEC is really running a lean operation and looking to the service bureau for the value-add."

Although OSS outsourcing has its place for certain carriers, over time, the approach actually could prove more expensive than creating in-house systems and expertise, says Cap Gemini's Donahue.

"Service bureaus have been somewhat popular, especially in billing," he says. "The plus is that it really makes the job easier for service providers. The minus is that there's no differentiation and that long-term costs tend to be quite a bit higher."

Economic inquiries

As much as OSS outsourcing decisions are based on issues of time, differentiation and network complexity, the bottom line for any carrier is cost. If business models show that relying on a service bureau for certain OSS functions likely will be more economical without sacrificing the uniqueness of the planned service approach, then it probably will make sense - to some degree.

That's essentially how ICG gauges its options for how it designs and implements its OSSs. Hunter compares it to a mathematical fraction in which the numerator is made up of functions that generate revenue, and the denominator is made up of functions that minimize cost. "Where it makes sense to do outsourcing is in the denominator factor - things that are commodities," he says.

That is the likely driver for all carriers perusing the service bureau option for existing or emerging networks. In evaluating the cost considerations, however, carriers must look far ahead to ensure that heavy hits up front will pay off in the long run - and that they can establish limits on what they are willing to pay outsourcers to avoid getting gouged.

"If the alternative is to pay a pretty high tab for someone to do it for you - but you can put a cap on it - then maybe it's not a bad deal," says Adams of the TMF.

Again, streamlining the overall economic plan of the business is an extremely important consideration for carriers as they consider their OSS options. If new entrants are not seeking a partner or trying to become an acquisition target, they probably are planning to go public eventually and need to make themselves attractive to investors.

"The level of competition has put a substantial cost pressure on service providers to really make their organizations more efficient than they have in the past," Donahue says. "The way Wall Street is valuing service providers is on growth in operational income. They know that having the right operational environment in place facilitates a cost-effective - and therefore high-margin - business."

Because OSS is at the core of a carrier's ability to create, provision, deliver and bill for any and all services, the software decisions it makes directly affect the ultimate quality of services that it delivers to customers. The gauge of whether a carrier made the right decision about building or outsourcing OSS functions, therefore, is the ability to deliver high-quality, timely service offerings.

"Carriers are increasingly focused on quality because of the experiences of some of the CLECs," says Telcordia's Effinger. "You can't afford to not be able to offer a service on a certain date because of your software vendor."

While software developers seek ways to provide operations support system applications to service providers, professional services firms angle to take a more overarching role in the OSS scheme.

These organizations want to apply their expertise to designing a carrier's overall business process. Most of the biggest consulting firms - Andersen Consulting, Cap Gemini, Deloitte & Touche and KPMG - have specific divisions that focus on advising communications carriers on their OSS issues, while some smaller organizations are wholly devoted to the telecom business. Recently, some larger software developers and even some networking vendors that have forayed into the software area are seeking to provide professional services as an accompaniment to the products they sell.

While these different organizations are unique in their approach to providing OSS guidance, the idea of designing and redesigning processes is central to all.

"Carriers need a road map, an overall systems architecture," says Don Tiedeman, senior management consultant for DMR Consulting. "Even though they all seem to be offering the same services, they do have different requirements that will eventually have an impact on the vendors they go to for their OSSs. We have a very good feel for what questions to ask them and a template that helps them identify their requirements."

Many of these consulting outfits position themselves as seasoned OSS veterans that can help carriers sort through the software noise. "Any new company getting into business doesn't want to sort through a hundred [request for proposal] responses from a hundred different vendors," Tiedeman says. "We can help these carriers sort through the ambiguity."

Systems integrators bill themselves as expert decision-makers based on their experience with so many different carriers in different service situations. The fact that they don't develop software solutions makes them unbiased, they claim.

"The same solution isn't right for every client," says Jason Donahue, vice president of marketing for Cap Gemini Telecom. "Being product-independent is very important to the service providers because it means they're going to get a solution that better fits their business needs."

The next step for professional services firms is to help with the integration of the various systems selected, whether they are brought in-house by a site license or farmed out to a service bureau. "We can help you run your systems, and we can run it either at your site or ours," says Jean-Marie Lalanne, director of BullComm, an integrator that is focusing on the competitive local exchange carrier market.

Effective integration of various OSS components often depends on how open and compatible the components are initially. More open-minded software developers - generally those focusing on certain portions of the OSS and not trying to provide absolute solutions - believe systems need to be prepackaged, yet customizable, and based on an accepted reference architecture.

"The people doing that are the big integration houses," says Dan Vermeire, vice president of marketing at Architel Systems. "A lot of our thrust is to work with the integrators."

"We built a graphical user interface that allows a customer to define the workflow, or let a systems integrator do it," says Mark Effinger, executive director and chief OSS architect at Telcordia Technologies. "If you build a system in a way that allows flexibility, they can do all the customization."

Some carriers, however, question the need for systems integration assistance and other professional services every step of the way. Sprint, for example, turns to consulting firms when new ventures such as e-business or Web enablement are undertaken.

"Where I see the need for systems integration is when you really have to change and you need the expertise to guide you," says Carol Bussing, vice president of operations, systems planning and implementation for Sprint. "You have global consulting firms that traditionally come in and tell you what you already know. When you have companies out there that focus on a very niche area where you don't have expertise, that's what brings huge value."