Posted: 10/2001
Lean On Me
Outsourced Billing Pipelines Expand as Service
Providers Face Pressures to Offload Non-Strategic Tasks
By Peter Lambert
Telecom and datacom service providers that have weathered months of ill winds from Wall Street are under pressure to count every penny on both sides of the accounts payable and receivable ledger -- a set of conditions that may be a sign of balmy breezes for outsourcers.
So say billing service bureau and application service providers (ASPs) that claim their pipelines of prospects have expanded since last year's dot-com crash began rippling through the telecom sector.
"As I've seen the bad news grow every day, our pipeline becomes fuller, growing two-and-a-half to five times the return on direct mail, trade advertising and other dollars we were spending 12 months ago," says Don Teague, vice president of sales and marketing for eBillit, the wholly owned ISP billing unit of telecommunications billing outsourcer Integretel Inc.
Other billing outsourcers, including DCA Services Inc., EUR Systems, Metavante Corp. and Profitec Inc., make similar claims.
Indeed, these companies also report a change in the sources of demand, with more mature service and/or diversified providers and resellers joining startups in seeking ways to shed the infrastructure and staffing capital expenses associated with any and all non-strategic functions.
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"We've expanded the types of prospects we can talk to," says DCA Services president Rick Nagel. "We're seeing our traditional new entrants who face capital constraints, but we're also seeing companies with legacy in-house systems but limited back-office expertise and companies that have hit a debacle trying to build systems in-house."
Billing service providers agree the cost for their services may equal or even more than in-house operations if the providers offer:
* Savings on upfront cash outlays;
* More rapid time to market than in-house systems;
* Flexibility to outsource some functions while insourcing others;
* And, better execution through full-time expertise in presentment, mailing, payment processing, collections, call center and other nitty-gritty billing and customer care functions.
However, the price tag must be balanced with the need to replace fixed in-house capital costs with variable outsourced service costs.
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"Outsourcing on a cost basis alone is only of the past, early days of outsourcing," says John Caddell, vice president of marketing and business development for EUR Systems, a turnkey outsourcer of billing and customer care solutions. "The more persuasive argument addresses essential but not strategic functions."
In other words, if an outsourcer partner can execute non-strategic operations better and at near the same cost, then internal energy is better spent on service creation, marketing and other business-growing endeavors.
While billers concede the impact of the tight economy has not yet quantifiably shown up in their own ledgers, suddenly tough times have "certainly exposed the fact that there are existing companies who know how to do billing," says eBillit's Teague. "With service providers downsizing, the in-house builders are back giving us another look, and I think they're here to stay."
Fast Cash
What a different world network service providers face from a heyday only months ago -- when venture capital was spent as fast as it was raised on hardware, software and the assets of acquired companies. Few industries in the past five years have proved more capital intensive.
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In that heyday, a startup competitive carrier "who could attract $30 million in venture capital might have bought a big, in-house billing system as proof to investors they were putting the money to work," says Randy Minervino, vice president of sales and marketing for Profitec. "With a lot less money to throw around, people are making more prudent decisions.
Indeed, with access to that capital drying fast, carriers must consider alternatives to "the build and then grow-into-it model," says EUR Systems's Caddell. "Outsourced services tend to be more variable, since our costs are metered to what you need at a given time. Even if outsourcing costs the same as in-house, the financial structure may save capital -- a key issue for a capital-constrained industry like telecom."
Seconding that assertion, eBillit's Teague says, "The No. 1 hurdle we see out there is lack of capital. Everyone wants to hold onto cash, and even if they find over time that outsourcing is slightly more expensive, they don't want to get caught in a cash squeeze again. You're simply not seeing the half-a-million or million-dollar upfront investments in hardware, software or anything else any more."
For outsourcers, a tight economy "has enabled small customers without as much capital to say, 'I can get out there and establish a presence in the market without a large capital outlay," says Hans Myklebust, vice president and solutions strategy manager for electronic present and payment services offered by the Derivion unit of Metavante. "Others may want eventually to operate in-house, but they can start with ASP and then, over time, bring it inside."
The segment that buys Derivion software for in-house installation is shrinking, he adds, "and even they say they want to retain the ASP option."
While cash savings matter, they must also come with time savings, an equally critical benefit of adopting an outsourcer that has already built and tested the core of its infrastructure, says eBillit's Teague. "The real driver is time to market, because by the time you install software and hire experts to configure and manage it and get it deployed, you're 18 months down the road," he says. "With us, you're up and running in 15 to 60 days, a plus when you're under the gun from investors to show returns."
Economies of Detail
Offloading the "item processing and technology burden has always been the driver" for Metavante, an outsourcer that has for the past three decades provided payment, credit card, deposit, loan, account and other back-office processing services to banks and other financial institutions, as well as custom statement formatting for a billion telecom bills per month.
Indeed, the longer the outsourcer has been in the market, the more plausible its claims to proven methodologies, effective execution and expertise in the item processes that add up to pennies lost or found.
According to the billers, many service providers have hit a wall trying to tackle mounting details that already have been mastered by experienced outsourcers.
"There have been companies that left lots of pennies on the table over the years and still made money hand over fist, and those days are over," DCA Services' Nagel says. "This type of economy has wiped away decision-making based on illusions of control or visibility into profitability, because they're forced to drill down into how many provisioning or support calls were unsuccessful."
In contrast, he adds, outsourcers provide expert people and hardened processes, "so we typically do a better job in speed and success rates in things like provisioning."
According to Nagel, in 2001, local service provisioning has become DCA's hottest demand segment -- an area fraught with complexities including incompatible interfaces to incumbent carrier systems. To provide out-of-the-box interfaces to carriers in every region, DCA has acquired the Mantiss electronic gateway system from Dynegy Inc., helping to reduce new service launch time from a week into 18 hours for DCA customers, he says.
Similarly, eBillit says a relatively distinct value-add in its relationships with banks, utilities, other service providers and the like through which it offers consolidation of bill payments for underserved consumers that are shy about using credit cards.
Pick and Choose
Established practices also add up to a broader suite of available functions, and most outsourcers emphasize the flexibility they offer carriers to selectively outsource pieces of their operations, from front-end customer registration and validation to billing, bundled discount, tax, printing, mail and online presentment, payment and collection processing to customer behavior analysis.
According to Caddell and others, various providers may define strategic functions differently. "I may not be willing to outsource my service creation, marketing, customer retention, network buildout or partner relations, but to concentrate on those functions better, I may be willing to even pay a small premium to outsource my billing, mail, call center, payment processing and collections."
Teased out further, the back office of a residential carrier or switchless reseller may be tilted to collections and customer care, while a facilities-based provider of a broad array of services may put more emphasis on controlling its provisioning, says Nagel.
Even providers determined to maintain control of most billing functions want to offload functions like custom statement formatting, adds Derivion's Myklebust.
Ironically, if the dot-com crash has sullied the Internet's reputation, it is Internet-enabled access to outsourced services that has boosted outsource flexibility, according to Profitec's Minervino.
"When we could provide only telecom billing, customers were slipping away from us, but when, with the Internet as a platform, I was able to come back with a windfall of integrated applications, we can provide any choice of functions while the customer retains others," he says.
Consequently, while Profitec currently serves 165 billing-only customers and 35 companies with other back-office services, the latter opportunity is showing signs of growth. Of 11 active prospects in August, Minervino says, seven were negotiating for billing plus some back-office services.
Wider Target
Although many greenfield opportunities to serve telecom and datacom startups have been detoured into bankruptcy court, the billers say they're seeing a new family of prospects, from mature carriers and diversified companies and resellers.
"Carriers that have been there a long time face new businesses they absolutely have to get into, but they don't have the budgets," Myklebust says. "You'd find both established players and startups in our prospect reports. The telcos and utilities both have not been as strong in Internet presence as the banks, and now they're saying they want that Internet expertise."
According to Caddell, while carrier consolidation has fostered technology vendor consolidation -- creating a "big vendors for big providers" scenario -- the number of outsourcing opportunities has not shrunk.
"There's actually a lot of white space in very layered providers like a consolidated Bell Atlantic and GTE," he says. "Various business units, constituting extraordinarily well-funded IP or voice-over-IP or unified messaging startups, are left to fill their own back-office needs."
Further, Profitec is seeing its biggest prospect increase among computer, utility and other "companies in other industries who are launching internal, well-funded startups but don't have the back-office systems designed to support telecom channels," says Minervino.
A utility company that is entering telecom needs new support systems for a new service that is designed to generate new revenue from existing customers, he notes, "and that doesn't fit into the utilities existing operations."
It may take months to quantify this notion that billing outsourcers constitute actual beneficiaries in a rotten economy, but a few facts appear clear enough.
"The downturn has put telecom in reality mode, where dollars no longer grow on trees," concludes Caddell. "You have to pick the things you're good at, and while in the short term, the pain people are feeling will certainly help us, the lessons learned about picking your battles and sticking to what you do best, I think, will be permanently learned."
The Links
DCA Services Inc. www.dcaservices.com
Derivion www.derivion.com
Dynegy Inc. www.dynegy.com
eBillit www.ebillit.net
EUR Systems www.eursystems.com
Integretel Inc. www.integretel.com
Metavante Corp. www.metavante.com
Profitec Inc. www.profitec.com
