Achieving cost savings and efficiencies are a constant concern for IT/Telecom staffs. While cloud computing (“one to many”) is a relatively new option, more established IT outsourcing arrangements (“one to one”) continue to be offered by entities such as HP. In evaluating the outsourcing option, one question that sometimes arises is whether Wireline services should be part of the outsourcing deal.
What’s the Value Proposition? From a service delivery perspective, the IT outsourcer is a “simple reseller” of telecommunications services. The carriers determine what services are offered, operate and maintain their networks, and set SLAs. Other than enhanced route diversity at its data centers, the IT outsourcer cannot improve nor enhance the quality of these services. When Wireline services are secured through the IT outsourcer, the enterprise still bears the disruption and costs of carrier transitions. Even if not transitioning services, the enterprise and the IT outsourcer must complete a detailed circuit and service inventory for the carrier to “transfer” the circuits and services to the outsourcer’s agreement with the carrier.
Are the Cost Savings Substantial? Securing voice and data services from the IT outsourcer may provide cost savings if the IT outsourcer (i) maintains substantially lower rates from the carriers for the term of the outsourcing deal, and (ii) qualifies for the “systems integrator exemption” to the FCC’s Universal Service Fund (“USF”) program. The potential financial benefit of this exemption is substantial: for example, the 2nd Quarter 2011 USF contribution factor is 14.9%. Our experience has been that IT outsourcers’ rates for Wireline services, while initially favorable, do not remain competitive for the duration of the outsourcing agreement.
The IT outsourcer must also recover staffing costs for (i) reviewing/auditing the carriers’ bills, (ii) billing the enterprise for these services, (iii) placing orders for moves, adds, changes and deletes (“MACDs”) and, generally, (iv) acting as intermediary between the enterprise and the carrier. Yet, enterprise staff typically write checks, review and audit bills, and initiate or approve requests for MACDs.
Does it Otherwise Make Sense? The economics of IT outsourcing agreements often dictate contracts having terms longer than five years. To “refresh” both pricing and technology for Wireline services, enterprises should be in a position to issue an RFP for Wireline services every three years. IT outsourcing agreements tend to be more complex; the services and functions are often customized; and negotiations more time consuming. By contrast, the rates, service descriptions and SLAs in Wireline services agreements are expressed in standard formats.
Weighing All the Factors. If the savings offered by IT outsourcers for Wireline services are not substantial and sustainable, neither the value proposition nor the projected benefits support adding Wireline services to IT outsourcing agreements.