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Yankee Group OSS Buy or Build May 1998
Yankee Group OSS Buy or Build May 1998
Exhibit 1
The Operational Support System Market
Source: the Yankee Group, 1998
7.48 0.84
60 18.19 Market
4.29 4.79 Management
6.64
16.12
7.48 0.84
3.83 Order
50 5.90
14.30
6.64 18.19 Management
5.24 3.43 16.12
12.67
3.07 5.90 Network
11.23 14.30 18.36
40 Management
5.24 16.56
12.67
14.94 18.36
11.23 Customer
13.48
30 12.16 16.56 Management
14.94
13.48 Business
12.16 16.96
15.35 Management
20 13.89
11.38 12.57
16.96
15.35
13.89
10 11.38 12.57
0
1998 1999 2000 2001 2002
Table of Contents
Exhibit 2
Long Distance Churn and the Local Markets
Source: the Yankee Group, 1998
Medium
Business 5–6% 10,000* 5,000–6,000
Large
Business 3% 10,000* 300
From this data, the Yankee Group concludes that churn-based orders from residential
customers will be a primary driver of OSS transactions. A secondary, but significant,
driver will be simple growth in residential lines. These events include orders that
involve CLECs providing service to customers through resale and unbundled network
elements (UNE) as well as through their own facilities. For orders to move customers to
a CLEC that involve resale or unbundled network elements, there will be a fairly
substantial set of intercarrier transactions. Moreover, each service-related event will
spawn a variety of OSS transactions that span carrier boundaries. For facilities-based
CLECs, each order will involve the initial transfer of the customer and little or no
subsequent intercarrier OSS transactions. The OSS transactions spawned by these
orders will execute on new OSSs installed by the newer entrants and modified OSSs in
the ILECs.
Exhibit 3
Forecast of Orders for Service Changes
Source: the Yankee Group, 1998
Residential
13.53
Business–Less
20 than 25 Lines
Business–25
8.70 Lines or More
15
6.14
Orders to
Change
Local Service 10
1.75
Provider
.56 2.18
.27
1.68
.77 1.16
5 .30 .48
.01
.02 .04 .06 .08 .10
0
1997 1998 1999 2000 2001 2002
Intercarrier residential orders also represent better automation candidates than business
orders. Residential orders invariably involve fewer lines and less complex combinations
of features than business orders. This difference has flow-through implications. Most
carriers want 100% of orders to flow through their OSSs without manual intervention in
order to minimize cost and avoid delay in the provisioning process. BellSouth claimed
in its Louisiana long-distance application that 97% of its residential orders flowed
through its OSSs without manual intervention. However, 81% of its business orders
flowed through without manual intervention. Presumably, the intricacies of business
orders exceeded the functional capabilities of BellSouth’s existing OSSs. The Yankee
Group suggests that investment in OSS for residential markets can provide a better
return for carriers. A carrier that achieves a 1% increase in flow-through for residential
orders will save more than if it achieves a 10% improvement in flow-through rates for
business orders. Growth in OSS investment will be a function of growth in residential
transactions within and across carriers. For the foregoing reasons OSS vendors should
be interested in the development of healthy competition in local residential markets.
Regulation continues to have a profound effect on the way that the RBOCs think about
and use their OSSs. Currently, the New York State Public Service Commission is
conducting a study of Bell Atlantic-New York’s (BANY) OSS interfaces for new
entrants. This study will test whether BANY can provide access to its OSSs for CLECs
that is comparable to the access it provides its own retail operation. This effort is seen
as a roadmap for other BOCs seeking to enter the long-distance business. One certain
outcome of this effort is that BANY will have to modify its OSSs, perhaps significantly.
The extent of these modifications will be a harbinger of the opportunity for new OSS
solutions in the ILECs.
scale. Notwithstanding the antiquity of the Friends and Family anecdote, faith in
custom developed solutions is unshaken.
The lesson of Friends and Family is not only that information technology can enable
effective marketing campaigns, it also teaches that information technology can prevent
timely implementation of new marketing campaigns. MCI’s competitors would have
introduced a similar program immediately but their billing system could not be changed,
tested and deployed quickly enough. Part of the motivation for carrier’s preference for
custom developed OSS solutions is the belief that these solutions are more flexible than
purchased solutions. This belief persists in spite of the lack of reliable evidence to
prove or disprove it.
Exhibit 4
Comparison of Enterprise Applications Vendors and OSS Applications Vendors
Source: the Yankee Group, 1998
Enterprise OSS
Application Application
Criterion Vendor Vendor
R&D Expenditure as a Percent of Total Expense 10–20% 5–15%
Sales and Marketing as a Percent of Total Expense 20–35% 5–15%
Services as Percent of Total Revenue 20–45% 75–85%
Exhibit 5
Market for Billing Solutions
Source: the Yankee Group, 1998
6 Outsource
1.17
Services
5 1.14
3.14
1.12 Software
Revenue 4 3.14
Mix for Billing 1.10 2.51
Spending 1.00
(in Thousands) 3 2.01 2.51
1.61
2.01
1.34
2
1.61
1.34 0.93
0.62
1 0.31 0.43
0.24 0.93
0.62
0.43
0.25 0.31
0
1998 1999 2000 2001 2002
Exhibit 6
Billing Products Architecture
Source: the Yankee Group, 1998
Services
The bill database is a record of bills and billable events. This database will often
contain CDRs and a complete history of billing activity for each customer. It is also
frequently used by customer service representatives in their interactions with customers.
Billing solutions derive their flexibility from their data model. To the extent that a
vendor can provide a flexible data model, the vendor can provide a flexible billing
solution. Customization for each carrier is accomplished by modifying the data model
and by modifying the business rules. While the ability to customize the way service
offerings are reflected in a billing system is a desirable characteristic, the billing system
is but one part of rolling out new services. First the carrier must recognize a market
need. A billing system can help carriers identify unmet needs by providing a
comprehensive record of interactions with customers over time. However, the carrier’s
marketing organization must be market focused and attuned to customer requirements
and competitive offerings. Few large carriers possess these characteristics or have any
incentive to develop them. Wireless carriers or facilities-based CLECs, on the other
hand, possess the proper market focus and are more likely to exploit this advantage.
Second, the carrier must have the network infrastructure to support changes in its service
offerings from a functionality and performance perspective. The carrier’s network must
be able to deliver the new products and it must be able to perform acceptably. While we
agree with many billing vendors that rapid implementation of new products in the
billing system is a great feature, this enthusiasm must be tempered by the fact that many
large carriers have fundamental impediments to successful usage of such a feature.
The most important characteristics of a billing system are scalability, accuracy of
finished bills, and throughput. A billing solution should be able to scale to large bill
volumes without disproportionate resource requirements. For instance, the databases
should be able to accommodate a growing customer base. Splitting the workload among
multiple systems adds administrative overhead. The accuracy of the finished product,
the bill, is always a paramount concern. Finally, the product should be able to create the
required number of bills in the time allotted.
Billing products are not “packaged applications” in the same sense that the term is used
by enterprise application vendors. The customization provided by either the billing
system vendor, a systems integrator or an internal development staff is so significant that
it dwarfs the investment in the software. Exhibit 7 gives the Yankee Group’s estimate of
the breakdown of external spending on billing solutions. This exhibit does not include
the costs of internal development organizations.
The significant customization performed by internal or external development resources
can result in a complex mix of internally developed and externally supplied software.
Carriers who invest in billing systems should approach the acquisition differently than
other kinds of application acquisitions. The Yankee Group recommends that no carrier
purchase a billing system from a vendor who does not provide source code and ongoing
source support. We believe that the absence of source support will create obstacles to
effective maintenance.
Exhibit 7
Billing Systems Spending Mix–1997
Source: the Yankee Group, 1998
Software - 8%
Service Bureau
Facilities Management - 35% Professional
Services - 57%
compete by moving traffic from the existing network infrastructure to more efficient
wireless or IP networks. Established carriers will have to replace existing OSSs in order
to compete. The new carriers will have to install more capacity. The last factor could
actually contract the market for new OSS solutions.
In the first section of this piece, we talked about the importance of competition and
churn to OSS vendors. Many industry observers, including the Yankee Group, believe
that Bell Atlantic will be allowed to enter the in-region long-distance market in New
York State in late 1998 or early 1999. Other BOC long-distance applications will likely
be approved soon after. The Yankee Group believes that this will have negative
implications for software and service providers. Recent testimony before the FCC by
the United States Telecommunications Association (USTA) and the Association for
Local Telecommunications Services (ALTS), lobbying organizations for the ILECs and
CLECs respectively, suggests that competition in local markets is flourishing. The facts
belie this testimony. The justification for stating that competition exists in local markets
is based on the presence of a fairly small number of facilities-based CLECs that cater to
business customers. In residential markets, there is virtually no competition. Other
factors undoubtedly motivate both USTA’s and ALTS’s belief in the existence of
competition in local markets.
The Yankee Group suggests approval of BOC long-distance applications before the
development of viable competition for residential local service will strengthen the hand
of the incumbents. Incumbents will be able to leverage their very strong brands with
consumers to sell local, long distance and wireless bundles. This will create obstacles to
successful penetration of residential markets for CLECs. Lively competition for
residential customers will consequently develop over decades rather than the several
years envisioned by Congress in 1996. CLECs that become established in business
markets will gain market share in residential markets over a prolonged period.
The consequences of ILEC entrenchment go beyond diminished consumer choice and
higher consumer prices. It will result in a smaller total addressable market for vendors
of software and services for OSS. First, barriers to entry of residential markets will
mean fewer CLECs will achieve sufficient revenue to make large investments in OSS
product and services. In other words, there will be fewer buyers. Second, entrenched
ILECs will have no incentive to change existing OSSs; without competition there is no
need to innovate. The absence of competition will also favor using internal resources
for maintenance of existing OSS portfolios rather than buying third-party solutions.
Third, with fewer carriers competing for customers there will be a diminished need for
OSS interconnection solutions.
From a software and service provider perspective, the principal benefit of local
competition is the establishment of more carriers willing to use third-party solutions.
Software and service providers will not benefit from the opportunities presented by
competition in the local market until that market is completely open.
Further Reading
Analytical Applications and the Integrated Carrier, Yankee Group Report,
Telecommunications, May 1998.
“Unbundling and Interconnection of the PSTN: Attending the Infrastructure Dance,”
Yankee Watch Telecommunications, Vol. 12, No. 6, August 1997.
Convergence Billing Systems, Yankee Group Consumer Communications Planning
Service Report, November 1996.
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