The telecoms industry has always been innovative, creative and fast moving, however it is now in such a state of flux that it is difficult to predict what form it will eventually take.
The recent mergers and consolidation in the industry – O2 being sold to Spain’s Telefonica, and the ntl, Virgin Mobile, Telewest amalgamation – all point to massive changes as companies fight to cover all possibilities. As well as moves from the spunky mobile upstarts, the lumbering old fixed-line giants have woken up and are proving unrecognisable as the old state-run monoliths they used to be.
From a technology point of view everything is about competition in the face of a very fast changing business environment. Although revenue growth is not the whole story – cost efficiency has its place too – everything has to be fast and innovative to earn additional business and grow the bottom line. Speed, agility and innovation are key. Getting the product to the customer faster is imperative.
The once darling of the industry Vodafone shows how difficult this can be. In 2000 it was the largest company in Britain by market value.
Today Vodafone has slipped to fourth place and is still in the throws of a nasty boardroom soap opera. With the mobile phone market saturated, margins and revenues are under huge pressure and Vodafone is really feeling it. Again, growth is the key here, and CIOs in all the telecoms companies are concentrating on innovation to provide systems and infrastructure that can support the business and offer ways to avoid the dreaded customer churn.
Customer churn is one of the reasons ntl wanted to buy Virgin Mobile. Following the merger with Telewest, ntl is now able to offer its customers a four-way (fourplay, as Richard Branson would have it) product set – TV, mobile, broadband and fixed line. According to ntl, the more products a company offers the less likely a customer is to leave on a whim. Plus it has secured a youth branded name – Virgin – to pull in younger, higher spending customers. Virgin Movies, Virgin Sport and Virgin Music TV channels are set to follow, bringing in a whole new customer group from the older safer Living TV followers who have cable at home. And ntl has experience in merging companies. Its IT director, Howard West, is from the Telewest stable that has been formed from 37 different organisations, now all merged on a single system. Providing a single customer contact point could win big points for differentiation in the market.
BT is using its resources to pull together its legacy systems and use the value inherent in the data there to win market share. Its CIO calls it ‘mass simplification’ and getting it right will be key to BT’s future in the new telecoms world. It is building flexible, reusable applications, based around a service-oriented architecture. BT believes the market is now about ‘flexibility, communications and even entertainment’. As a result it is looking at product offerings in a different way, for example offering freeview TV over its network.
The thing is, given the right breaks, it could be anyone’s market and there do not seem to be many rules about who can have a go. Tesco has launched a VoIP service for its cash-till customers and San Francisco has given the contract to provide a free citywide wi-fi service to Google and independent ISP Earthlink, rather than an established player.
Here in the UK, The Caudwell Group, which began life as a one-man band mobile phone company, now has a turnover of £2.12 billion – which includes brands like Phones 4U and distributor 20:20 Logistics – and is up for sale. Carphone Warehouse, another former one-man band, has launched a call and internet offering, which it says could cut home phone bills by 60 per cent.
A price war is likely, with many players trying to grab as much of the broadband market as possible. The key is to win and keep customers in all the product sets and then try to grow revenue from innovative services, content and, of course, support. No one is really sure where this growth will come from, most are cautious about mobile TV for example, but this uncertainty breeds a great environment for customers.
For CIOs involved in this world, it is challenging, but exciting. They have the opportunity to use technology and business process innovations to support the fast moving business demands and the prospect of really growing profits.
- Headquarters: Stoke-on-Trent
- Number of employees: 9,500
- Last full-year revenues: £2.12bn
- Head of IT: Iain McGregor, IT director
Born out of Midland Mobile Phones, the £2.12 billion Caudwell Group, which includes brands like Phones 4U and distributor 20:20 Logistics, is now up for sale. This will throw up an interesting future for IT operations at the group, according to IT director Iain McGregor, although he believes IT is as well placed as it could be for a deal. “All the businesses have a common IT platform, but inevitably when the company is sold it will mean huge changes for IT,” he says.
The IT operation is split into two parts, value
add – which includes the infrastructure and interfaces with the business – and non-value add, which includes maintenance and running of systems. It has kept to its plans and spent
much of the last year consolidating and exploiting investments made in 2003/4.
“We are driving key savings and improving the whole landscape,” he says. “The emphasis this year is continuous improvement in the quality of service we provide.”
There has been some investment in new technologies like RFID, and warehouse tools like scanning and printer technologies as well as ‘pick by voice’ and ‘pick by light’ to improve efficiency in the warehouse.
“We are investing in tools that help the consistency of deliverables,” says McGregor.
“For example, our websites are really increasing their traffic, but must be vigorously tested before going live. We are looking at better ways of doing this, with the aim being to improve the overall service.”
Targets to meet
Like all Caudwell Group businesses, IT is treated as a profit centre, with its own targets to meet. McGregor charges out software and applications development to the rest of the businesses, and is aiming for a £1 million profit by the end of the year, 20-25 per cent of which will come from external customers. The IT operation is branded Intellect IT externally and has developed from its internal work.
“The Caudwell Group businesses are not obliged to buy from me, so we benchmark prices and try to offer a better service. Internally the process looks like we are a software house. We scope work, spec it and if it isn’t right for them, they can go elsewhere,” says McGregor.
“It is a far keener way of operating. It makes both us and the businesses more aware of accountability. For me it is also the most effective way to run a department that has to service lots of different group businesses. There is no politics; it is about providing service and value for money. We have to clearly demonstrate better value and service to get the business.”
The one centralised IT function supports many businesses. It is constantly trying to improve its margins and is looking at ways of generating revenue.
“We are working with IBM to look at tools and methods to make us more productive, to help us develop more quality, reusable code and shared services wherever possible,” he says.
McGregor says Intellect IT ‘dipped its toe’ in the external market at the beginning of last year.
“We invested very little, so it was low risk, and at the back end of last year decided to have a go properly.”
It has its own sales structure and is doing proper marketing this year. “It is a hard slog but is another way of the department and company staying on its toes. It also gives IT staff ownership of something else too, a growing, sustainable business,” he says.
“Profit is the key thing for us. But our forecasts are good, so next year we will work from a strong model. We will be selling our key strengths – expertise and a focus on excellent service.”
McGregor’s team across the group comprises 550 people and the Intellect IT team is made up of 130 taken evenly from infrastructure experts and developers across the group.
“We have delayed putting a dedicated Intellect IT team in place until we were sure of its success, although we are beginning to do some small tactical recruitment.”
With a proven profit centre in place, Caudwell Group’s IT operations look in a strong position for when the eventual sale of the company takes place.
- Headquarters: London
- Number of employees: 91,000
- Last full-year revenues: £18.6bn
- Head of IT: Al-noor Ramji, CIO
Agility, simplicity and speed are the main themes currently running through BT Group, as it fights against the threats of increasing competition and more regulatory compliance.
Maria Pardee, CIO of BT Retail, says the organisation is currently undergoing a transfer of business initiatives around core convergence.
“BT is now having to be agile in ways not typified by an old style telecoms company. The telecoms industry is now a lot more than voice – it is about flexibility, communications and even entertainment.”
The move from wire lines to mobiles is really driving the whole industry now, according to Pardee. “The company is not really a network business now – the software is the network. Selling and driving services are vastly different from even five years ago. IP, mobility and value-added services are what are important now, so we have moved to a different model,” she says. “The competition has changed too. There isn’t room for everyone, but communications devices will be all pervasive. Think of the typical executive who has at the very least a mobile and probably a wireless PDA or laptop of some sort. This will increase and BT wants to be at the centre of it.”
It does seem to be on its way. This year BT’s third quarter earnings fell to £1.38 billion from £1.4bn for the same period last year. But the company said that growth was driven by a 42 per cent rise in revenues from ‘new wave’ services that now account for a third of its business. Broadband wholesale connections have reached seven million and BT has between 23 and 24 million customers.
Pardee says from a technology point of view everything concerns competition in the face of a very fast changing business environment: “It has to be fast and innovative to continue to earn trust and additional business. Currently speed, agility and innovation are critical. Everything is about agility now and how to get the product to the customer faster. This is affecting BT’s methodology and means we are looking at closer business alignment, reusable tools and assets.”
Business alignment is key. Company IT departments are either back-office providers or work side by side with the business, according to Pardee. “BT’s IT is obviously side by side with the business. We achieve this by having senior skills, and a good understanding of business, and having a seat at the leadership table.”
Transformational projects include the extensive CRM systems that the team is working on.
“We are adding value through the infrastructure and want the experience for customers to be pleasant and easy whichever service they are using,” says Pardee.
But there is a great deal of legacy work to be done, according to Pardee. “We are working on a mass simplification of a very complex business. We have thousands of systems that are over five years old and simplifying these legacy systems is not for the faint of heart. We have had to make some very hard choices in this, but we must simplify or drown.”
Simplifying the business
BT is building applications that are flexible and reusable, based around a service-oriented architecture (SOA). “The biggest push is in simplifying the business. BT’s history means it is wildly complex. Customers don’t and shouldn’t have to care about all this. It should be simple – like Henry Ford said – the car may be complex but the customer just wants to put the key in and turn it,” says Pardee.
The company is also concentrating on the new Ofcom mandates, which are huge regulatory hurdles, according to Pardee. “They are like Sarbanes-Oxley on steroids and we have invested a lot of energy to demonstrate that opportunities in the business are equivalent to the competition.”
“We are turning the compliance requirements into something positive. Firstly we adhere to the law, but also we get to rethink the way we are delivering service. We are taking a methodical and measured approach to compliance.”
BT is a world-class company, so these changes will be ongoing, says Pardee. “For everything that we put in place today, there will be a better solution in nine months. So the ethos now has to be ‘do it fast’. If it isn’t working well, move on – we are promoting innovation and fast thinking, prototyping has been speeded up, and really this is a new way of thinking for BT, which after all was originally run as a civil service monopoly.”
- Headquarters: Hook, Hampshire
- Number of employees: 18,000
- Last full-year revenues: £3.5bn
- Head of IT: Howard Watson, CTO and CIO
If there is one company that typifies this thriving, but fiercely competitive market it is ntl. The company not only agreed a merger with Telewest in March to create the UK’s largest residential broadband communications company, but then a month later reached a takeover agreement with Virgin Mobile for
£962.4 million, thereby creating the first UK provider of a four-way offering: Cable TV, internet, fixed and mobile phones services.
Interestingly, ntl has also agreed an exclusive 30-year licence for the Virgin brand, which it believes will help attract and retain customers in this notoriously fickle market.
Merging the operations of all three companies to cross-sell their services next year will be difficult but the process is already well underway. Howard Watson, CTO and CIO at the company, is well placed to consolidate the systems and platforms, having already built the one organisation at Telewest from 35 companies.
He believes the mergers will clearly create some challenges for the IT department. “We need to use IT to support our internal customers in the business as they deliver a merged company to the market.”
At Telewest, where Watson was managing director of networks and IT, he was focused on delivering capability to the business through a programme of consolidation of Telewest’s business support systems (BSS) and providing a single customer care system. This will continue at the merged organisation.
“We will now have to balance the needs of the merged business with continuing to provide the single customer system for an additional three million customers,” he says. “We will begin to implement the project this year and aim to complete it by the third quarter of 2007. We will also be implementing a single Oracle ERP system across the organisation covering finance, HR and procurement.” Howard says that because the organisation has emerged from a collection of the 35 companies, he is simplifying the legacy infrastructure. “We turn off more systems than we turn on. Cutting complexity reduces operating costs and improves efficiency.”
The BSS are the organisation’s interface with the customer, handling all activities based on customer care and billing.
“Having a single system will reduce our costs and training needs. We are aiming for our customer support representatives to be able to spend 80 per cent of their time thinking about the customer and only 20 per cent on the systems they need to ‘drive’.”
The single system will be critical as the deal with Telewest and Virgin Mobile means that customers will be able to have cable television, broadband, home phone calls and mobile services all on one bill. This is a major differentiator in the crowded market and a way of keeping customers from switching services.
Another major focus for Howard’s IT team of 750 people over the coming year will be the software development architecture for the organisation’s TV platforms, especially around the user interface. “The look and feel of the interface will need to be the same whether customers use Telewest or ntl in the run-up to the rebranding exercise.”
The TV part of the organisation, dubbed Virgin Television, will be ready to exploit the ‘street cred’ of the Virgin brand.
Howard thinks there will be great opportunities in the future. “The company’s strategy is to grow from our existing cost base and IT is critical in this,” he says. “IT systems will help customers use more self-service, and the BSS will deliver real business benefits. We will continue to use IT to assist the efficiency drive across the whole business.”