Telecoms Turning to Outsourcing for Survival

Telecom executives see outsourcing as an integral part of keeping their companies viable amidst today's economic turbulence, according to a new study.
Posted November 12, 2003

Sharon Gaudin

Telecom executives see outsourcing as an integral part of keeping their companies viable amidst today's economic turbulence, according to a new study.

A new report shows that 75 percent of executives in the telecommunications industry say outsourcing is a key 'business level', according to Booz Allen Hamilton Inc.,, a global management consulting firm based in McLean, Va. And the industry, battling back against a difficult business environment, are pursuing outsourcing more aggressively than ever before.

''These companies are facing tremendous financial pressures,'' says Frank Ribeiro, a principal with Booz Allen Hamilton. ''Any activities that are removed from the customer -- from selling to the customer, really -- they're getting more comfortable with outsourcing that.''

IT functions are one of the first areas to be considered for outsourcing -- and frequently offshore outsourcing. Ribeiro says jobs like programming and lower end engineering functions are among the first to go. But Ribeiro says it won't stop there. Higher-level jobs are expected to follow.

''I definitely see it increasing,'' he adds. ''It's difficult to pick up a newspaper today without seeing some report on offshoring activities by some big company. I do think it will spread from programming up through other jobs.''

Improving financial performance tops the list of reasons that service providers give for outsourcing. And 100 percent cited operating expense reduction and optimization of capital expenditures as a key driver, Those reasons were closely followed by headcount flexibility, which was noted by 77 percent of wireless and 63 percent of wireline players. Other reasons, such as exploring new technologies and capabilities, were far less important and primarily mentioned by smaller players.

Ribeiro says what surprised him the most is that telecoms are increasingly willing to outsource core technical and business functions.

This move is a new one in an industry that historically has kept its critical networking and technical functions close to home. Today, core technical or customer facing activities, such as network planning and architecture, platform development and sales and marketing, are moving outside of the office.

The study shows that more than 70 percent of respondents say they have either already outsourced some network-related activities or would do so in the near future. Among network-related functions, installation (66 percent) and maintenance (63 percent) are most likely to be outsourced.

The telecom industry is far from alone in this staffing trend.

A report from Forrester Research, Inc., an industry analyst firm, showed that nearly 1 million IT-related jobs are expected to move offshore over the course of the next 14 or 15 years. And that will leave some U.S. IT workers out in the cold if they don't upgrade their skills and move up the ladder away from the work that will be shipped out of the country.

Forrester predicts a temporary slow down in offshoring as corporate managers weigh the effects and economies of the move. And then offshoring is expected to dramatically pick up speed in 2005, and run wild for the next 10 years or so.

Some analysts say offshoring may slow for a while because of increased social and political pressure to not move American jobs overseas in a time of economic and political upheaval.

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