Network Analysts and Consultants
"We Have the Experience"
ViewsLetter on Provisioning
26 Jan 2003 #15
IN THIS ISSUE:
-- MUSICAL CHAIRS: WHO'S LEFT AFTER AUTOMATION?
THE IMPACT OF AUTOMATED PROVISIONING
ON CARRIER BUSINESS MODELS, EMPLOYMENT
Assume, for this issue, that provisioning has been automated almost
completely. What does that mean for a carrier's business model?
automation affected the telecom labor market? We believe automation
turn the industry upside down, compared to the single, regulated utility
that was the Bell System.
Vertically integrated, AT&T at its peak not only was the monopoly
of service, it also manufactured and installed the equipment used in
central offices, businesses, and homes. To perform all those functions,
the System employed more than 1,000,000 people. They made, installed,
operated, and repaired all the components, from wire to voice switches.
Because of the company's size, they could keep many people busy in every
specialty. Because AT&T did its own work, the independent vendors
similar services had only the smallest phone companies for customers,
making a highly fragmented market.
That situation changed. Starting by the 1930's, electric utilities
independent contractors to install and maintain power lines. Phone
companies found the same crews could string phone cable too. Outside
proved particularly valuable after large regional storms that caused more
damage than employees (even with the help of employees from other Bell
companies) could repair in a reasonable time. Today, contractors
the installation of aerial and buried cable. Several companies each
around 5,000 employees and generate hundreds of millions in revenue
Deregulation, highlighted by the AT&T "divestiture" of its local operating
companies in 1984, completely ended the monopoly on telephone instruments,
PBXs, and other customer premises equipment. With loss of those
functions, the Regional Bell Operating Companies (RBOCs) laid off tens
thousands of employees--each. Because the technology hadn't changed
abruptly as the regulations, most of these people stayed in telecom and
found work with vendors to carriers or enterprises.
Competition and a move away from "rate of return" regulation motivated
carriers to reduce costs, rather than incur expenses that could be added
to the "rate base" and thereby increase the profit allowed by a regulated
percentage of that base. At that same time, phone switches
migrating from analog to digital, simplifying provisioning and triggering
another round of layoffs. As Digital Access and Cross-connect Systems
(DACS) appeared in the transmission network, an operator at a terminal
replaced the wireman climbing over distribution frames with a punchdown
wirewrap tool. The layoffs continued.
As almost always happens in layoffs, they go farther than is good for
organization in the long term. Specifically, most non-cellular telephone
operating companies (local and long distance) have cut back on staff in
--installation: the number of new circuit switches is way down,
relatively minor upgrades to fiber optic transmission equipment appear
likely to satisfy capacity needs for some years;
--equipment testing and certification: they're not buying much that's
new, so see little that needs testing.
That leaves the core function of operating the network to carrier
employees. Even that is under challenge from vendors who want to
the drop in their hardware sales with increased revenue from
services--like operating networks for carriers. System integrators
consulting companies, even subsidiaries of domestic and foreign carriers,
offer turn-key packages to operate as well as install a network.
FACING THE FUTURE
Just as digital switches replaced analog (approx. 1965-1996), packet
switching is replacing circuit switching. The current process probably
won't be any faster than the previous one, but it will be even more
What does the future business model look like? What does it mean to be
carrier when the customer provisions his own services on a network where
EVERYTHING is provided as an outsourced service?
To paint a picture of this future Local Exchange Carrier, imagine that
has outsourced not only the design and installation, but also the
operation of its network:
--system integrator (SI) designs the network with the help of the hardware
--installation performed by hardware vendors as subcontractors to SI.
--SI performs acceptance testing, staffs the network operations center
based on software provisioning tools with web-based interfaces accessible
--billing software tweaked to meet specification written by SI with input
from carrier's financial staff. Billing and payment transacted
--SI subcontracts to national or regional maintenance companies for
outside plant (cables).
The carrier itself is reduced to an office for financial planning and
control, particularly the collection of taxes and fees for multiple
jurisdictions. Disbursement to taxing bodies becomes a major function
This scenario suggests a carrier doesn't need ANY technical people, not
even to manage the SI or make technical decisions. While drastic,
not without precedent: recall that mainframe computer centers have
outsourced to SIs for decades. In many cases, the MIS department
literally sold to the SI, along with all associated employees. Don't
it a layoff.
PUSHING PAST THE LOGICAL LIMIT
Let's push along this logical path to what might appear now as an
illogical conclusion. Let the carrier outsource the financial management
(including accounting), the legal department, and marketing, as well as
the technical and operational functions. Now the corporation that
carrier can shrink to one employee--every corporation needs an officer
sign tax returns, legal filings, and the annual report. (What salary
would be appropriate for such a job?)
Okay, it's not likely that the top brass of any corporation generating
billions of dollars in revenue would give up their retinues, or the
assistants who tend to their perks. But there could be very little
for the employees to do. All the "heavy lifting" is done by vendors,
available on-demand at low-bidder pricing.
The suppliers to this "ultimate Telco" (would, or even could there be
than one?) are played against each other, to keep their prices down.
Telco is a "Microsoft" to the "PC makers" who supply its network.
Subscribers are left to their own devices, with help and support only
the automated OSS interface or the web site required by some state utility
commissions. Or they can buy support from SIs or consultants.
While it's impossible to predict much of anything, one could guess that
fully automated carrier network, completely outsourced, is fairly
profitable. The profit is needed to pay off the debt incurred to
the network. But like the Connecticut toll roads, could the fees
removed when the bonds are paid off? What is the incremental cost
additional minute of connect time? Zero? Is it worth the effort
collect call detail records (other than to satisfy the FBI)?
Where would the money go after the debt is paid off? Would dividends
be subject to income tax so the shareholders could take the money freely?
What public policy should various governments adopt toward such a
If you have views on this scenario, share them by email to
"Flanagan Consulting" and "ViewsLetter" are
Service Marks of W. A. Flanagan, Inc.
Updated: 11 June 2003