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Fred S. Knight
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Issue 42
Carrier Downsizing Continues
Back when I started working at BCR, just a few weeks after A.G. Bell told
Watson how much he needed him, most of the technologies we covered were
cost-justified on the basis of headcount reduction. While technologies like
voice mail, IVR and word-processing software delivered improvements in
productivity and customer service, much of their success came from their
ability to eliminate secretaries and receptionists. Similarly, the first
wave of VPNs--"software-defined voice networks"--helped reverse the trend
toward larger telecom staffs.
By the time the 1990s rolled around, however, the focal point of
cost-justification shifted; instead of headcount reduction, revenue
generation and improving the customer "experience" became the watchwords for
new technology adoption. Indeed, as the Internet boomed, the entire notion
of cost-justification was considered passe by some. It became important to
"plug in," the why and to what would take care of themselves.
But there's nothing like the loss of a trillion bucks in market cap to
refocus the mind; cost-justification is enjoying a renaissance. Reducing
headcount is "in" and, as we all know, heads are rolling. The numbers are
staggering; a recent report by Challenger, Gray and Christmas
<http://www.challengergray.com/>; found that telecom companies had cut almost
166,000 jobs from January to June 2002, up from the 130,000+ positions they
eliminated during those same months in 2001.
The imperative to downsize has hit everyone. The downsizing spread from the
startups to the established equipment vendors and to the ILECs and IXCs.
While equipment vendors probably will go through still more rounds of RIFs,
it's the carriers who are feeling particularly acute pain right now.
Virtually all of the attention on the decline in capex has focused on
hardware, but there's a huge human component as well. According to SBC,
labor costs account for 50 percent of capex budgets ("SBC Communications:
Management Meeting Stresses UNE-P Relief and Wireless Consolidation," by
John Hodulik, in UBS WARBURG TELCO WAKE UP CALL--November 6, 2002).
In short, the carriers aren't just reducing the number of boxes they're
buying, they're trying to figure out how to build, operate and manage their
networks with fewer and fewer people. Automation and reduced complexity are
the key to achieving those goals, a point emphasized during a keynote speech
at last month's NGN Conference <http://www.ngn2002.com>;.
Dr. Hossein Eslambolchi, who holds the dual titles of president, AT&T Labs
and CTO of AT&T, described AT&T's vision of reducing operational complexity
and its long-term plan to automate its procedures for provisioning,
maintenance, billing, service assurance and configuration. He described a
future where software would be "resettable," so cards and boards could be
remotely enabled for a wide range of services--frame relay, ATM or IP.
The theme in Eslambolchi's presentation wasn't subtle; he made it clear that
when AT&T talks about "doing more with less" they're talking about less
employees. Some NGN attendees remarked to me that while AT&T may be talking
a good game, they weren't spending much on new hardware or software that
automate and simplify their operations. But even the cynics acknowledged
that all of the carriers would move, albeit at different paces, toward more
automation and smaller staffs.
In his column for the upcoming December issue of BCR, Tom Nolle amplifies on
that theme. He argues, "...the carriers need to move--and have been trying
to move--toward a future where less is managed than before. Less management
lets the carriers earn a larger margin on what they already sell, it lets
them develop new, lower-base cost services for current customers and then
helps them sell the new services to smaller and mid-sized businesses. Forget
about 'problem determination' and 'isolation.' Forget about 'managing voice
flows over converged networks.' If the network of the future can't more or
less run itself, it's too expensive to build."
There's no doubt that the carriers' payrolls are bloated, even though the
guarantees of life-long employment ended almost 20 years ago, with the AT&T
divestiture. But old habits--and corporate cultures--die hard, and the M&A
frenzy that began in the mid-1990s further swelled the carriers' rosters.
They, and we, are now reaping the whirlwind.
It'll take considerable time before we have fully automated, "self-healing"
networks. The equipment and network management vendors are cautious about
developing new capabilities given the carriers' limited spending plans.
Moreover, there's still almost as much art as science in network operations,
and as new applications like VOIP come online, the requirement for highly
trained people who know how to design, build and manage networks will only
grow.
But that said, there are relentless pressures building--both financial and
technological--for the carriers to automate more network functions. The
transition won't be easy for the carriers, their employees and unions, or
their customers.
What do you think? Drop me a line in the BCR eForum--
bcr.com directly at fred@bcr.com.
--Fred
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