NEW YORK-Look no further than North American borders for the biggest near-term opportunities to provide billing and customer care systems.
In recent years, the focus of procurement contract competition has been on supplying operations support systems, which include billing and customer care, to the green fields of start-up wireless carriers. To a significant degree, the new domestic players that have been ready and able to move from business plan to full-fledged operating company already have made their commitments, said Gerald Belson, director of billing practice for Deloitte Consulting, Washington, D.C.
“In the international world, there still are a number of competitive carriers rolling out, and they are particularly attractive for selling new billing systems.”
Furthermore, the expected useful life of a billing system is about five to seven years, he added. Consequently, “there also is a bright market for replacements, but it is a different market.”
Now, the spotlight is shifting to major, established carriers that must upgrade and/or integrate legacy computer systems in tandem with the new and bundled telecommunications services they are offering to customers.
In tandem with the service bundling trend, year 2000 compatibility also is a major driving force for billing system upgrades.
“North America is still the major prize because of the amounts of money involved, the large number of carriers here, the big volumes of subscribers and (the fact that) applications in North America typically are a few years ahead (in terms of) the speed with which new rate plans and features are introduced,” Belson said.
That major carriers seek to enhance their billing systems is a defensive strategy to guard their most profitable and therefore desirable customers against deliberate incursions from new market entrants, according to Michael K. Agarwala, a telecommunications software analyst for UBS Securities L.L.C., New York.
“In our opinion, the most effective way for a service provider to mitigate this threat and encourage customer loyalty is to upgrade its customer care and billing systems,” he said.
“These systems directly impact the quality of interaction, even if [that] is as simple as an accurate and easy-to-understand bill, and are gating factors to the deployment of new and customized services.”
This stage of the opportunity and development cycle is a whole different ball game than was the case in the very recent past.
“The new entrants have been the real driver for billing companies. While never easy because there’s big pressure to turn on the system, it’s still relatively simple,” Belson said.
“Most of the new sales have been around start ups, which aren’t burdened by trying to build off of old systems.”
By comparison, however, the task at hand is much bigger because of the relative size of the established telecommunications providers involved.
It also is much more complex. To use a metaphorical flight of the imagination, it may be something like tinkering with the major components of an aircraft while it is aloft. The huge and complex systems of a major telecommunications carrier must not be allowed to fail while they are being brought up to date.
“Here’s where the challenge that’s just beginning to unfold will come,” Belson said.
“Let’s say you’re a [regional Bell operating company] with a legacy system for wireline and a stand-alone, outsourced system for wireless. You want to let the wire-based systems do what they do, extract the wireless data and move both to a joint billing system.”
The operations support systems market is divided roughly into three management functions: customer, network and order. Customer management focuses on billing and customer care. UBS projects that the customer management segment of the worldwide OSS market, now about $5.7 billion, will reach $9.8 billion by the end of 2000. For the five-year period of 1996 through 2000, this represents a compound annual growth rate of nearly 14.5 percent.
“The overall outlook for the billing market is bright, to say the least,” Belson said.
“The forecasts are all over the board. Whether it’s a $2 billion market or a $6 billion market over the next several years doesn’t mean much. The question is who will be most successful in it.”
Among the companies Deloitte and UBS have identified as major players are these: Ace Comm Corp.; Amdocs Inc.; Alltel Information Services; American Management Systems Inc.; Andersen Consulting; Cincinnati Bell Information Systems; CSG Systems International; Electronic Data Systems Corp.; International Telecom Data Systems; Kenan Business Systems; LHS Group; SAIC/Bellcore and Saville Systems plc.
“I tend to focus on the top 20. There is a host of smaller ones that were brought in to build a system for a particular carrier, then (go on to) make a few adjustments to hide proprietary aspects, and offer it to others,” Belson said.
“As we move from startups to complex conversions, there will be shakeups and not all will survive.”
Mergers among these smaller companies would be difficult, he added, because their software won’t necessarily be compatible with that of other billing and customer care vendors.
Of the total $14.27 billion OSS market worldwide in 1996, the internal development staffs of telecommunications carriers accounted for just more than 35 percent, and outside systems integrators, hardware vendors and equipment suppliers for a bit more than 44 percent, according to The Yankee Group and UBS Securities.
For the latter 44 percent of so-called captive market segment, “the OSS solution typically is provided as a small part of a broader service or equipment purchase,” Agarwala said in a detailed new analysis of the telecommunications software market.
Companies involved in this part of the captive market include management information systems providers, like AMS, EDS and Andersen. They also include computer hardware and telecommunications equipment vendors like Digital Equipment Corp., Hewlett-Packard Co., IBM Corp., Lucent Technologies Inc. and Northern Telecom Ltd.
“There is no clear winner, outsourced or in-house. Neither is dead,” Belson said.
However, he added that he is seeing among the telecommunications carrier clients he advises a “declining preference for outsourcing (billing) to a (third party) service bureau.”
Last year, the overall OSS market grew by $2 billion to $16.26 billion, with captive market providers accounting for 79 percent, a percentage point drop in market share compared with 1996. This year, The Yankee Group and UBS project the total OSS market will rise to $18.55 billion, with captive market providers accounting for between 77 percent and 78 percent. By the end of 2000, the total OSS market will have grown to $23.4 billion, with captive providers’ share at just more than 75 percent.
This translates into a compound annual growth rate for the five years from 1996 through 2000 of 13.2 percent in the total market, of 11.5 percent in the captive market and of 19.4 percent in the market available to third-party providers.
“We see greater growth in and a shift toward the open market as the relevant trends by which to frame the market and characterize the growth potential of third-party OSS suppliers,” Agarwala said.
