Related Expertise: Telecommunications
“In four years, we have completely changed our operating model in IT.”
Like many telecom operators, Milan-based Fastweb has significantly changed its operating model (and infrastructure) in recent years— outsourcing more processes, consolidating providers, and investing in technologies and improvements that can better serve, and attract, customers. Paolo Valvassori, Fastweb’s manager of financial planning and analysis, talked to BCG about the company’s transformation—and lessons learned along the way.
Fastweb mainly offers fixed-line services, but also serves some mobile clients. From the IT perspective, what challenges does this present?
We started our mobile business about six years ago. From the start, the goal was to have an integrated approach to IT, trying not to differentiate between fixed and mobile. For example, at the beginning we needed to develop a new order management system for the mobile business, but we chose a system that we could move the entire fixed-customer base to, as well. One thing I should add: even if our revenues from mobile are low compared with our fixed business—and we sell mobile only to our fixed customers—the introduction of mobile was quite disruptive with respect to IT. That’s because no matter what your mobile customer numbers are, you now have to face all of the problems of an integrated operator.
Looking at the survey data, we saw significant customer growth for Fastweb. What impact has that had on the IT organization?
All things considered, the growth of customers does not actually impact the IT organization very much. We have increased some of the IT infrastructure (such as servers and storage, as well as application support) because there are more customers to manage. But this is a minor challenge compared to what really brings complexity: technological evolution in both the telco business and IT. What drove expenses for the IT department in the past year was not the increase in customers, but decisions to launch a next-generation access network and to begin our IT transformation.
Traditionally, the TeBIT data has suggested that high degrees of outsourcing correlate with high IT spending—though the link was weaker this year. Fastweb follows a strong outsourcing model in selected areas. What has your experience been?
Our experience has been quite good, though it can be very tough work. One thing we learned is that outsourcing works best when the processes are already well defined and understood inside the company. When we outsourced processes that had not yet been well defined, we had to manage unexpected costs and issues on service quality. The key, then, is to know a process and optimize it before you outsource it. If you try to do the outsourcing and the optimizing together, it is much more difficult.
Fastweb is owned by Swisscom. To what extent does this influence IT activities?
Swisscom’s decision was to leave Fastweb very independent. The two companies serve two very different markets, and while Swisscom is an incumbent, Fastweb is an alternative operator. So there are a lot of differences in the way we need to work. That gives us a lot of autonomy. Still, there is very strong collaboration. Swisscom is much larger than we are, and we can draw on, and share, technological knowledge. For example, we have gained a lot from Swisscom’s experience in data centers as we build our own.
Our 2014 survey finds that, on average, IT opex was managed in line with ARPU and revenue loss, and IT capex increased. Have you experienced a shift from savings to investment?
Four years ago, we launched a cost-reduction project, and today we can see the good effect it had on opex and efficiency. Last year, we began an IT transformation project—a main goal being further efficiency, but we also needed to reshape the IT infrastructure and application environment to be more future-proof and better support the business units. So we are spending much more capex now on a set of projects. We anticipate continued spending on this transformation over the next few years.
Our analysis of the TeBIT data concludes that new investments in IT will likely continue and seem to be necessary for future differentiation and growth. What is your point of view on this issue?
We will probably see capex going up in next year’s TeBIT benchmark—and going up for a couple of years more. In our case, we have a transformation project that started with the core IT applications and business intelligence; it has moved on to CRM and will involve portals and so on. The goal is to put the customer more and more at the center of the company, and this, of course, has a deep impact on IT structure, organization, and cost.
The TeBIT data suggests that external head count, degree of outsourcing, and (to a lesser extent) the service model drive IT spending. What has been your experience regarding complexity drivers for your IT operating model?
In four years, we have completely changed our operating model in IT. Where we used to have a very fragmented set of suppliers, now we look to establish long-term contracts with a smaller set of providers. Where we used to directly manage all parts of the processes, today we manage contracts and projects. We have always had a lot of external resources, but now we have an end-to-end process that makes them easier to manage. We have been quite satisfied with the choice we made.
What do you see as the most important technology and investment trends for telcos in the coming years? Which IT trends do you adopt?
Compared with other alternative operators, Fastweb is unusual in that it has its own fib er infrastructure and a significant share of enterprise customers. We are embracing trends that let us build on this—for example, by investing in a next-generation access network. Between last year and next year, we will have invested about €400 million in ultra-broadband access development. We are also transforming Fastweb into a customer-centric company. In every mature market, the number of broadband users has been flat. It is now a substitution market. You have to keep your users and keep ARPU as high as possible, and there are two ways to do that: give users the best technical solution (such as next-generation access) and provide the best customer experience via improved CRM and new services. To that end, we are investing in the cloud and in advanced services such as security, enterprise support, and so on.
How do you align with the business to ensure that IT can deliver high business value?
Our focus is to have increased integration between the commercial business units and the technical side of the company—both IT and network. In the past, each group concentrated on its own topics. Now we try to make sure there is integration on everything, from the customer experience to the technology. For example, in IT we do not just develop what the commercial units ask for, but also try to propose new ideas that leverage the technical point of view. We do not want the business side and the technology side each optimizing separately, we want them optimizing together, because that creates a better product and better service for the customer.
How do you ensure innovation and adoption of IT trends within your organization?
The first step is to do our own homework within IT: embrace long-term partnerships with suppliers, reduce costs, and increase efficiency. Now that we have made good progress there, the next step is to turn to the market side—to do more than fulfill requirements from the business units, but also to offer recommendations leveraging the technical perspective.
How would you summarize the challenges for telcos today?
The main challenge is compensating for ARPU loss by offering new products and improving customer satisfaction. In Italy, there is also the issue of increasing broadband penetration, which lags behind much of Europe. That challenge is not unique to the consumer market. We see very low penetration within the public sector, too, and expect to see the government pushing broadband and digitization there.