The Implications of VoIP for Service Providers. An Oracle White Paper November 2005

Transcription

1 The Implications of VoIP for Service Providers An Oracle White Paper November 2005

2 The Implications of VoIP for Service Providers How telecoms and cable operators pursue the emerging VoIP market will have farreaching implications for their future subscriber market share and company profitability. EXECUTIVE OVERVIEW While Voice over IP (VoIP) adoption has not yet achieved critical mass, it is expected to grow at double-digit rates for several years. Since many consumers and businesses already have ready access to the IP-based networks needed to deploy VoIP through their existing broadband connections, the technology promises to be a disruptive force for service providers that could significantly alter the competitive dynamics in the telecommunications industry. How telecoms and cable operators pursue the emerging VoIP market will have farreaching implications for their future subscriber market share and company profitability. In this paper, we will first briefly examine the factors in VoIP adoption, followed by how these companies are pursuing VoIP at this point, with some near-term recommendations. However, one of the largest drivers of success and profitability will be how service providers adapt their business support system and operation support system (BSS/OSS) infrastructure to address the different customer and cost structure needs that VoIP entails. Thus, the paper will conclude with specific recommendations for changing customer-facing BSS/OSS processes to better align with VoIP market demands. Factors in VoIP Adoption Two major issues that impact the adoption of VoIP are quality of service and security. Poor quality of service, a major barrier of lower VoIP adoption, is caused by issues such as having multiple connections to the circuit network, not connecting end-to-end over integrated IP networks, and not having tight integration between the network and BSS/OSS systems. In addition, leveraging VoIP causes the voice network to be open to security breaches and attacks, which must be resolved before VoIP can have widespread adoption over traditional voice. Despite the quality of service and security issues, however, the bundling of many add-on features with VoIP service, combined with low, flat-rate pricing, has proven to be a compelling offer that is contributing to the decline of the traditional voice business, most visibly in the consumer segment. This raises some key questions for traditional telecoms and cable operators. For telecoms, how far do they go to stem the losses of customers fleeing traditional voice service? For cable operators, how should they operate to take advantage of the VoIP opportunity? The Implications of VoIP for Service Providers Page 2

3 Competitive Dynamics Telecoms are facing difficult decisions as they look to their commitment to VoIP. For telecoms, VoIP is a mixed blessing, as each new VoIP customer implies a loss on the traditional voice side. In addition, many of the profitable add-on voice features are bundled at a flat rate in VoIP offerings, causing additional profitability erosion. With much to lose from subscriber defection, carriers to date have taken a cautious approach to VoIP. The major carriers are generally not offering VoIP service as an alternative, with BT, Verizon, and Qwest being notable exceptions. Although VoIP will perhaps result in less profitability in the near term, a large-scale conversion to VoIP is inevitable. Investments in circuit-based networks have all but stopped, and carriers and their competitors are rapidly pursing investments in IP networks. With their extensive subscriber base, carriers are perhaps the best positioned in the near term to retain the largest voice market share in this transition to VoIP. To retain this share, however, carriers will need a VoIP offering and will need to leverage it beyond a passive alternative. Telecoms will need to create and market VoIP offers and bundles that proactively move their subscriber base over time to the new technology. In doing so, carriers can ensure that they retain the overall customer relationship in a triple- or quad-play world that is in part based on bundling IP content. Cable companies have the most to gain from VoIP services, since their existing subscriber base allows them to up-sell VoIP service to gain a significant market share in voice. By some estimates, the cable industry will be able to achieve 25 percent to 30 percent voice market share over the next few years. Furthermore, by selectively offering VoIP service in the most attractive markets, cable companies will be able to capitalize on the most profitable segments, thus leaving the more unprofitable segments to the heavily regulated carriers. In contrast to the traditional telecom carriers, many cable companies are offering VoIP service today and are aggressively rolling it out. In the U.S. market, for example, all major U.S. cable companies have rollouts under way, led by Time Warner and Cablevision. Cable VoIP adoption is expected to hit 15 percent penetration by Cable operators should continue to focus on quality of service to meet these targets. While two alternative network approaches have emerged to address this issue, it has yet to be seen which network strategy is most successful in raising quality of service. The first strategy, owning end-to-end network infrastructure, is being pursued at Cox Communications. Companies such as Comcast and Time Warner Cable are pursuing the second strategy, partnering with network access companies such as Sprint and Verizon Business to guarantee service levels. The absence of clear differentiation from traditional voice service beyond price is another major cable VoIP adoption issue. To resolve this, cable operators should offer additional services unmatched in traditional voice, such as providing real-time The Implications of VoIP for Service Providers Page 3

4 call details in the self-service channel and enabling more creative call forwarding and voic options. BSS/OSS Implications and Recommendations Regardless of whether your company is pursing VoIP from a carrier or cable standpoint, there are far-reaching implications of VoIP and future IP services on the BSS/OSS infrastructure. OSS Observer, a market research company, expects VoIP-related OSS spending to jump from $17 million in 2004 to $620 million in However, there is great risk that after the money is spent to enable VoIP, the resulting business will be unprofitable because it will rely too heavily on cost assumptions that were valid in the past but are no longer true. In particular, VoIP and other new services, with different margin structures and customer relationships, require a rethinking of selling and servicing the customer to be successful. Failure to plan for the customer implications of these services will impact adoption, churn rates, and profitability. To ensure success of these new services, service providers should look to the following recommendations in the areas of customer-centric BSS/OSS, managing quality of service, and managing costs. The Customer-Centric BSS/OSS Today, major carriers take six months on average to roll out a new wire line service. Factors in this time line include updates, customization, and integration to the existing fulfillment and assurance systems. In the near term, carriers will make the investments to incorporate VoIP services into their existing OSS environment for provisioning, but they risk creating an additional silo to handle VoIP-specific fulfillment. The result is that provisioning is more cumbersome, services and offers cannot be generated in time to react to the market, and the customer service experience suffers. In addition, with future IP-based services on the horizon such as Internet protocol television (IPTV), there is also a risk that these OSS investments will need to be re-evaluated for additional IP services as well. Instead, carriers should move to a BSS/OSS infrastructure that, instead of supporting individual network products through separate system stacks, is flexible enough to cover many services in the same stack regardless of the underlying networks. In short, instead of network-oriented BSS/OSS silos, the BSS/OSS infrastructure should be optimized for customers. In a customer-oriented BSS/OSS, new and existing services can be readily bundled to respond to market conditions. Agents can readily observe customers existing services and the best upsell/cross-sell recommendations in a single system. Agents can take proactive steps to prevent churn by considering the entire customer relationship, not just the service in question. In taking these steps, the carrier or multiservice operator (MSO) will also be well positioned for the future as additional IP-based services and offers are constructed. The Implications of VoIP for Service Providers Page 4

5 Managing Quality of Service The packet-based nature of IP services makes quality of service a significant issue. In particular, while latency may be tolerated in small amounts for data services such as a broadband connection, latency is intolerable for voice or television services, where a real-time stream of content is expected. Beyond capital investments in network infrastructure to improve quality of service, service providers should also investigate how BSS/OSS systems can help better manage the impact of lower quality of service for their customers. Service providers should consider the following three primary quality-of-service recommendations for the BSS/OSS stack. First, improved troubleshooting tools are needed, embedded on the common agent desktop, to enable agents to evaluate latency and other factors firsthand, give direct feedback to customers, and take corrective action at the point of first customer contact. In so doing, agents can avoid many costly escalations in this low-margin service as well as improve time to resolution. Second, improved service-assurance capabilities are needed in technical support and in the network operations center (NOC) to identify quality of service issues on a larger scale, automatically correlate network and customer troubles, take proactive action, and notify affected customers as needed, or resolve the issue before they call. In so doing, much manual work today would be streamlined, allowing troubles to be resolved faster as well as improving the overall cost to serve. Improved service assurance is especially important due to greater difficulty in identifying and correlating IP-based network issues and the critical impact of quality of service to customer retention. Finally, in the event of a truck roll, technicians must be properly equipped to resolve issues in these more complex services quickly, as unnecessary technician time can quickly turn a VoIP customer unprofitable. Managing Operating Costs While managing costs is always important, the issue is particularly acute when VoIP margins are as thin as we see today. We may see prices rise somewhat as the full implications of customer acquisition, churn, and infrastructure are realized for this service, but for now even minor customer interactions can quickly turn a VoIP customer unprofitable. Let s look at two areas affecting customer care costs: selfcare adoption and truck rolls. First, strong self-care adoption is a must with VoIP service. Service centers cannot afford to routinely answer billing and other inquiries to the extent done today with traditional voice. Thus, especially if your self-care adoption is under 20 percent today, you should evaluate solutions to improve both the adoption of self-care and the types of customer interactions that can be managed in the self-care channel. Packaged electronic billing presentment and payment (EBPP) solutions allow service providers to deploy a wide range of billing, payment, and other customerinquiry capabilities in an online format that generate much higher customer adoption than those built in-house, generating millions of dollars in annual savings. The Implications of VoIP for Service Providers Page 5

6 One caveat is in the area of troubles and quality of service. If a customer is experiencing low quality of service, this should be managed aggressively with technical support to prevent the churn of that customer, leveraging new tools to streamline the trouble interaction and resolve the issue quickly. Second, with the cost of a truck roll easily erasing customer profitability for several months, the decision to initiate a truck roll must be made judiciously. For example, a $30-per-month VoIP service with 25 percent margin would generate $7.50 per month for the carrier. Conservatively estimating a truck roll at $70, a single truck roll would eliminate profitability for seven months. There are several strategies to impact the truck roll ratio. First, where possible, technicians should be equipped to install and service multiple services at the site, such as phone and television service. Second, where possible, customer premise equipment (CPE) devices should be selfupgradeable and capable of receiving remote diagnostics, to improve first-call resolution rates and further reduce truck rolls. Finally, technicians should be trained to identify potential up-sell/cross-sell opportunities at the premises to further drive adoption of new services and offset truck roll costs. SUMMARY VoIP promises to cause significant change in the competitive dynamics of the telecommunications industry. While some issues remain, customers have shown a willingness to move to VoIP technology to reduce costs and gain access to additional services. While the upside opportunity is strongest for cable operators, carriers also have significant opportunity to reduce churn and build a profitable VoIP business as they shift their customer base over time from circuit-based to packet-based networks. In this shift, the winners will be those that have not only met the market demands for network quality of service, but who have also rethought their BSS/OSS infrastructure to adapt to a more customer-centric model and found additional ways to reduce the cost to serve. In so doing, they will separate themselves with profitable IP services compared to those who do not make the necessary transformations, who may face less profitable or lower market share in IP services going forward. References Yankee Group, Paul Hughes and Joseph Levine, Carriers Must Carefully Select Billing Systems for Emerging IP Services: From VoIP to IPTV and Beyond, October 11, Yankee Group, Sanjay Mewada, Optimizing OSS Strategies for New Service Deployment, April 13, Billing World & OSS Today, Dr. Jerry Lucas, Editorial: Understanding the New Residential Voice Business, October Billing World & OSS Today, Michelle L. Hankins, VoIP Strategies Emerge in Cable Industry, April The Implications of VoIP for Service Providers Page 6

7 The Implications of VoIP for Service Providers November 2005 Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores, CA U.S.A. Worldwide Inquiries: Phone: Fax: oracle.com Copyright 2005, 2006, Oracle. All rights reserved. This document is provided for information purposes only and the contents hereof are subject to change without notice. This document is not warranted to be error-free, nor subject to any other warranties or conditions, whether expressed orally or implied in law, including implied warranties and conditions of merchantability or fitness for a particular purpose. We specifically disclaim any liability with respect to this document and no contractual obligations are formed either directly or indirectly by this document. This document may not be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without our prior written permission. Oracle, JD Edwards, PeopleSoft, and Siebel are registered trademarks of Oracle Corporation and/or its affiliates. Other names may be trademarks of their respective owners.