Putting Humpty Dumpty Back Together
The telcos are taking themselves apart, but can they put themselves back together again?
P> AT&T CEO Robert Allen recently said in a speech that the telecommunications industry used to be a lot like the Swiss banking system: Lots of reliability, but few surprises. "But that's changed," he said in a great understatement. In fact, now that telecommunications legislation has finally passed, the industry is about to go on a repositioning binge.
Facing the first massive deregulation since 1934, competition from newcomers in the cable and Internet fields and constantly changing technology, telecom companies have embarked on a succession of mergers and acquisitions, restructurings and grand-scale layoffs.
Basking Ridge, N.J.-based AT&T's tri-vestiture last fall and subsequent firings set the scene. But that is only a taste of what's to come. The telecom market is beginning to quake, and no company wants to be buried under the rubble. Aggressive forms of business process re-engineering have emerged as a survival mechanism.
In the new age of open competition, telcos must adjust their businesses to amass war chests in three ways, according to Forrester Research, Cambridge, Mass.: cutting dividends, increasing debt and laying off employees. Forrester predicts the Baby Bells will cut yields to 3 percent as the investment community sees them shift from protected utilities to high-growth technology firms. Because the telcos don't carry much debt, the firm believes the telecom carriers safely can increase debt to $11 billion. And if telcos lay off staff to reach a productivity level of $225,000 per employee, they could save $9 billion during the next three years.
"You're seeing market forces beginning to work on an industry that has never had to deal with market forces before," said Blake Swensrud, president of International Technology Consultants, Bethesda, Md. Accustomed to regulated rates of return, telecom companies now face a more liberal market, and must learn to compete in a new arena. "The new competitors are lower cost survivors," warned Swensrud.
One sign of the changing times was the launch in September of a new employment publication geared specifically to the telecom industry. People looking for a job in the field can send their resume to Telephony Works Bi-Weekly, published in Azle, Texas, which lists an abbreviated version free. The magazine is sent to 300 employers around the country.
The publication was started by Leslie Farrell, a 16-year telecom veteran. She knew from personal experience that the industry's consolidations and re-engineering were creating havoc in the job market. "We are transitioning from a civil service atmosphere to a competitive business environment," said Farrell.
The response to the magazine has been overwhelming, she said. Much of the attention on the employee-seeker side, however, has been from contract placement or temporary firms rather than big companies. "The telecommunications industry is experiencing an evolution from traditional, permanent employment opportunities with large corporations to a variety of alternative career options for those who have acquired technical and managerial skills," Farrell said. Some employers save money by hiring contract workers and not paying benefits. "AT&T folks who have found themselves in the job-seeking market may actually offer their services back to their previous employer as contract workers or consultants," said Farrell.
Another employee problem that results from re-engineering goes straight to the top -- there can only be one CEO. Bigwigs, who are used to being in charge, suddenly find their division no longer exists. They are demoted or fired, and in many cases can't find new jobs that match their previous salaries.
There is another problem. When companies offer employee buy-out plans, the employees with the most initiative and independence often take the plan. "There will be a lot of bleed from these companies.... You often lose some of your more creative talent," said Swensrud.
Stamford, Conn.-based GTE Corp., which is in the throes of implementing an overall re-engineering, has eliminated 12,000 jobs over the past two years and plans to get rid of 5,000 more this year. But the telecom company expects the vast re-engineering to save $1 billion a year starting in 1996.
One of GTE's toughest challenges has been explaining to investors, customers and employees why a company with a strong financial performance must be restructured, said Elizabeth Lenz, assistant vice president for re-engineering implementation at GTE.
It's not a question of doing well, she said, but of doing better than the competition. "Our competitors are growing at a faster pace than anyone can follow," Lenz said. "Overnight, we'll be able to get into intrastate and video services. We need to improve our cost position," added Sheldon Danto, business manager of GTE's federal sector. So the company now has 350 active re-engineering projects. GTE's BPR was singled out recently in Michael Hammer's new book, "The Re-engineering Revolution," as an example of a successful program.
One of the most concrete victories of GTE's restructuring has been improvement in how customer calls are handled. "This element has become our rallying cry," said Lenz. In the past, a customer with a problem could be handed off to 30 different people. GTE has reduced that number of contacts, and by 1998, 70 percent of calls will be handled by the first and only representative a customer reaches. Now about 40 percent get their problem solved through the initial contact.
A large part of any company's re-engineering involves acquiring new technology and training employees how to use it. One GTE plan equips field technicians with laptops that give them access to internal information while at a customer's home or business.
Integrating computers and telephone systems is one of the greatest challenges of telecom re-engineering. Telephone companies are preparing for competition by depreciating billions in old computer systems, according to a recent study by Insight Research, Livingston, N.J. Mainframe systems are increasingly being replaced by client/server open systems computers based on international standards, the study said. New management and operating system tools for telecom systems, otherwise known as operations support systems, or OSS, are expected to become a hot new market for equipment manufacturers and computer sellers alike.
"Right now, the telecom carriers are being forced to re-engineer their businesses," said Robert Rosenberg, president of Insight. "The successful carrier will not only offer services, but they'll install them quickly, send the customer one consolidated bill and provide superior customer service," he said. While the systems most telecom companies now have in place won't make that happen, the new OSS will, Rosenberg said. OSS, which was a $500 million market in 1995, will grow 26 percent every year through the end of the decade, according to the study.
Kenneth Czajka, vice president of information systems re-engineering at Ascent Logic in Dallas said he expects the need for new technology to translate into a boom in telecom re-engineering consulting. Although only about 5 to 8 percent of his consulting business is now in the telecom field, he expects it to jump to one-third in the coming year. One of Czajka's current projects is helping Motorola of Schaumburg, Ill., re-engineer its ambitious $3.3 billion Iridium satellite program.
"We are just beginning to leverage computers and telecom," said Czajka. Throw in the regulatory changes, and the fact that some of the most successful telecom companies have grown bigger and therefore unwieldy in past years, and you have an industry in need of major change, he said. The largest telcos are the worst off because they are more likely to have ancient technology lying around. "The bigger the company, the more they are struggling," Czajka said. AT&T's split in three makes it a much stronger company, he noted.
Ascent Logic has a computer tool that determines where a company is and where it needs to go. According to Czajka, the human mind simply can't wrap itself around the complexities of re-engineering the kind of technology telcos need to be competitive today.
"Telecom companies will never again have the luxury of understanding information technology the way they did with the mainframe," he said.
According to Czajka, telcos better get used to constant change. "My philosophy is that on the same day companies plan to start implementation they should plan to unplug and replace," Czajka said.