Weighing Your Options

To be or not to be" is more than just Hamlet's lament. More carriers are considering whether to be or not to be in the business of producing intelligent network services in-house or to outsource them to clearinghouses and service bureaus. Like most things involving technology, the choices are rarely obvious or unequivocal.

The issue has become more acute with the advent of wireless intelligent networks (WIN), according to Jim McGarrah, BellSouth Cellular director of network services.

"The beauty of WIN and network-based services is that the network doesn't care whose box it's on or where that box is located as long as it is accessible and addressable over the network," he said. "As a carrier, it gives me different options."

It is these options that carriers currently are addressing. There are many variables to consider when deciding whether to go in-house with intelligent network services or to outsource. And because there are no universal truths, the choice must be made on a case-by-case basis. After all, each carrier's financial situation, market and strategies differ.

CONTROL Control is one variable that every carrier considers to some degree. According to Andrew Dale, Priority Call Management vice president of sales and marketing, many carriers like having control over their own platforms.

"One of the prime advantages of having my own platform in my own network is that I totally control that platform," McGarrah said. "I'm not at the mercy of someone else if something goes wrong."

The minute you outsource something, you give up an element of control and that's a big issue, added Dave Berndt, The Yankee Group program manager in wireless mobile communications.

What's the big deal about control? It gives you more flexibility, said Chris Demange, 360degrees Communications director of network technology. You develop the priorities for developing products and services, he said, not an outside company. He also noted that having total control of the platform gives his organization an understanding of the technology's capabilities that it wouldn't have with a service bureau. When you are responsible for maintaining, operating and upgrading the technology, you get to know it intimately. You understand its potential and shortcomings better than if you rely on an outside vendor.

Also, Demange added, by handling network services in-house, you know your organization is always at the top of the priority list. With a service bureau, you might be one of dozens or hundreds of customers, and you may not have control about where you stand on its priority list.

But with control comes responsibility. You become responsible for developing the services, staffing the various functions, and making sure everything works and customers are happy. These are responsibilities many carriers don't want to deal with. Like other carriers, you may want to concentrate on providing wireless services, not creating them.

"More carriers are going to the service bureau simply because it makes their lives easier," Berndt said. "For example, they're not in the billing business; they're in the wireless service business."

According to Warren Gifford, Call Sciences vice president of research, how you view a service strategically should determine whether you opt for a service bureau or bring the service in-house. Ask yourself these questions as you make your decision: How critical are enhanced services to your strategy? Do you believe you need to try these services to raise average revenue per subscriber? Do you expect enhanced services will lower your churn rate? If you believe in the service deeply, you probably will want to own and manage your own platforms because it gives you more control and gives you the ability to really manage your destiny, Gifford said.

RISK MANAGEMENT You'll also want to consider the risks involved with bringing a system in-house. Outsourcing can limit your risk exposure by eliminating the need to make a major, up-front capital investment, according to Joe Radomsky, Brite Voice Systems vice president of business development and sales for the network services group. By using a service bureau, you can negotiate a usage-based agreement. Although there likely will be a monthly minimum, usually you can negotiate these minimums so they are fairly low.

Outsourcing also helps manage risk because it is a quick, efficient way to test services before fully committing to them. According to The Yankee Group's Berndt, the acceptance of enhanced services has been pretty slow the last few years, making carriers "gun shy because adoption rates haven't been that high."

"The service bureau lets (carriers) ramp up as soon as their customers are interested, as opposed to a make-or-break decision where (carriers) spend millions and have to have so many customers in that first year or two," he said.

For example, Colin Boone, Centigram director of marketing and business development, said that initially many carriers out-sourced prepaid services. But beginning last year, after prepaid proved itself and volume increased "dramatically," carriers started bringing the service in-house because now there is less risk, and they are ready to have control.

Furthermore, outsourcing does not require a large, up-front financial commitment. Therefore, because its cost is purely on a per-use basis, you can afford to stick with a service and let it mature and develop, noted Radomsky. Compare this to a situation where a big financial commitment is made, and penetration levels are not as high as expected. The urge to pull the plug -- maybe prematurely -- is much greater, he suggested.

On the flip side, if you are confident that the service will be a winner, an in-house system will make the most sense, economically.

There is another option: Use a service bureau to introduce a service, and then if the service gains sufficient marketshare, bring it in-house. Several companies such as Brite Voice offer this option. Customers can use Brite Voice as a service provider initially and buy the platform to bring it in-house later. According to Radomsky, the company even has a customer in the Caribbean that bought hardware and software for some of Brite Voice's advanced features and hired Brite Voice to manage the system. This, too, is a way to minimize your risk exposure.

CUSTOMERS AND MARKETS The nature of your customers and markets help dictate whether you should take the in-house route or outsource. Kimberly Tassin of AccessLine Technologies said that if you have a relatively homogenous group of customers, you might do well with a service bureau because there would not be much need for customized services for individual groups. But if you have a customer base that requires extensive customization, bringing the function in-house is probably the way to go because you will need more control over your product offerings.

You also will need to consider the size of your market in relation to service costs. BellSouth's McGarrah said that clearinghouses can spread their costs across multiple carriers, gaining economies of scale unavailable to smaller carriers. In these cases, smaller carriers might not be able to duplicate the services an outsourcer can provide at a comparable cost. Or the potential market may be too small to justify the investment of an in-house strategy. For many larger carriers, this is not an issue.

"To somebody who has multiple markets and a critical mass, it makes more sense to explore my own option because I can get some economies of scale," McGarrah said.

Costs always are an issue, especially for new market entrants with limited capital for investment and operations.

"The new players don't have the money now," Berndt said. "They're saying, 'How can I get into the market the fastest and offer a full menu of services?' In that context, the service bureau offers them the best world."

CIRCUMSTANCES Sometimes, making a choice is just a matter of circumstances. For example, cash-poor carriers may opt for the outsourcing route because of its lower up-front costs. Western Wireless took the outsourcing route for prepaid services because of timing, according to Julie Pollard, director of customer operations and systems.

"We were going through many market launches and some acquisitions, and we didn't have the time (to bring prepaid in-house)," she said. "There were too many other things going on, but we still wanted to provide the service."

Time to market is important, too. Priority Call Management's Dale said it can take months to roll out new services that are handled in-house. Service bureaus that already are operating can hook a carrier up within a couple of weeks.

You'll also want to consider the nature of the service itself. According to Dale, a mass-market service has economies of scale that is relatively easy to use, lending itself to an in-house setup. Sophisticated services that are on the leading edge of technology and require considerable development may be more suited for outsourcing, unless you have strong development resources in-house.

Scaleability is an issue if you expect your market to grow (and who doesn't?). In this case, the best route isn't very clear. Usually, service bureaus can get more of what you need quickly, but as you grow, you may find it worthwhile to make the investment in owning your own and gaining control over services that are increasingly popular in your market.

CHOOSING A SERVICE BUREAU If you decide that outsourcing is right for you, the next step is to choose a provider. Demange of 360degrees Communications warns carriers to do their homework. He found that talking with vendors' customers was a good way to understand how a vendor is to work with, how well it supports past generations of technology, and how well it keeps up with new products and services.

In addition, you must make sure both parties know what is expect-ed. Do not have unrealistic or unexpressed expectations. Also, be sure you understand the relationship.

"A lot of things at face value seem simple to do," Demarge said. "But when you start discussing issues and find this is dependent on that and that's dependent on this, it becomes more complex than you ever thought."

Make sure you discuss these issues before signing the contract.

Also, be sure you have a contact at the vendor for technical as well as account issues. Likewise, provide the vendor with a point of contact in your organization.

"Basically, you must be thinking about it (in-house vs. outsourcing) on a business-case basis," said Call Sciences' Gifford. "How will we make money?"

That's not something you should ever forget when analyzing whether to bring your services in-house or to rely on a clearinghouse or service bureau.

1. How many of my subscribers will want this service? Small numbers usually suggest you should go out-of-house; large numbers suggest owning is the best route.

2. How much revenue will the service generate? How much can I charge? Small amounts of revenue mean you probably should outsource; large revenue streams suggest you should bring the service in-house.

3. How critical is the service to my overall corporate strategy? If you need to boost per-customer revenue and the service in question is supposed to achieve this, then this is a strategically important service and one that you might want to have in-house for better control.

4. How volatile is the service from a technology point of view? If the technology is stable, such as 800 service, it is relatively easy for in-house resources to handle; services that are constantly changing may be too much to handle for all but the most experienced in-house staff.

5. What would it cost me to provide the service internally vs. outsourcing?

6. Do I have the personnel and financial resources to handle the service in-house?

7. If I bring the service in-house, will it be a distraction that could hurt other aspects of my business, or is my staff well-equipped to handle additional demands?

8. Do I have to choose one strategy over the other? Consider using both the in-house and service-bureau strategies simultaneously.

Said Jim McGarrah, BellSouth director of network services, "I would imagine that, over time, we're going to end up with a hybrid arrangement where we'll have some of our own service platforms internally, but that we also will purchase services from external sources."

9. If I go the internal route, will I end up with several boxes and platforms that will prove inefficient and difficult to maintain and upgrade?

10. How many different kinds of services do I want to offer? The more services, the more difficult it is to maintain and upgrade them, suggesting that the service-bureau option is the more desirable one, unless you have an in-house staff with considerable expertise.

11. How important is service branding? You control the branding of a service when you own it. Branding may be more difficult if you outsource. There are options. For example, Brite Voice can brand a service so the end users think the carrier is providing it, said Joe Radomsky, Brite Voice System vice president of business development and sales for the network services group.

12. How fast do I need to roll out service? Often, service bureaus can roll out services faster than an in- house department, especially if the service requires considerable capital or personnel investment.

13. Will the technology be obsolete quickly? If so, outsourcing is a good choice.

14. How fast is the return on investment? Warren Gifford, Call Sciences vice president of research, said it is worth owning a service if the payback is 18 months or less.

15. How much of my subscriber base will want this service? According to Gifford, generally you will want to own a service if more than 10% of your customer base is likely to buy the service.