Email a colleague    

January 2012

Telecom Merger Juggling Act: How to Convert the Back Office and Keep Customers and Investors Happy at the Same Time

Telecom Merger Juggling Act: How to Convert the Back Office and Keep Customers and Investors Happy at the Same Time

Telecom M&A can be hazardous to your reputation.  Years after FairPoint survived its New England “perfect storm“ conversion problems and Hawaiian Telcom got clobbered by a wave of public anger over inaccurate bills, the legends of those post-merger integration disasters live on in occasional press stories and word-of-mouth tales.

Yet here’s the irony.  Prior to its New England adventure, FairPoint was fairly successful at the M&A game.  In fact, it reached its 330,000 access line point by buying and integrating 27 properties across many states.  Not bad.  Unfortunately, nobody remembers those successes.  Instead you’re labeled a Bill Buckner, the first baseman who fumbled a simple ground ball, costing the Red Sox the World Series.

Here’s a proof point: How many of you readers knew about Frontier’s recent successful conversion of four Verizon states (over 1 million access lines, by my estimate) that completed in October 2011?  If you knew that factoid, pat yourself on the back for being well-informed.  There was little publicity about that conversion, beyond SEC filings, probably because the conversion went cleanly.

One company that’s been a keen participant at Frontier and focuses much of its business around post-merger integration for communications service providers is Atlanta-based ProCom Consulting, a 120-person firm.  Over the last 18 years, ProCom has helped its clients convert about 8 million access lines across a variety of systems and scales of operation.

I first ran into ProCom at this year’s B/OSS Live conference where they co-presented a case study with Frontier.  But it was only two weeks ago that I got a chance to speak with the firm’s founder/president, Curtis Mills, and strategic advisor, Al Burgess.  Curtis and Al originally hail from Accenture.  In fact, Curtis used to work for Al when Al was — for 10 years — lead partner for Accenture’s global telecom practice with 6,000 people on staff.

So I’m sure you’ll enjoy this interview with these two industry heavy-hitters as they explain what’s driving telecom M&A in North America and how carriers can substantially improve their odds of succeeding at both B/OSS and business post-merger integration.

Dan Baker: Curtis and Al, I’m curious what you make of today’s merger and acquisition scene in the U.S.  Where do you see future mergers occurring?

Curtis Mills: For a decade or more, Dan, AT&T/SBC and Verizon have been eager to shed non-strategic properties.  Their aim has been to collapse to major metropolitan areas where they can take advantage of high-density, wireless/wireline areas with fiber-based overlays.  That’s why Verizon has unloaded so many non-NFL cities.  Although AT&T has not sold non-strategic properties yet, they are rumored to have considered it numerous times over recent years.

In the future, we may even see the copper infrastructure inside major metro areas being sold while the fiber assets are retained.

Interestingly enough, as the Tier 2 players (CenturyLink, Windstream, and Frontier) acquire more properties, it will be interesting to see whether they lose their appetite for smaller acquisition targets that are less than 50,000 access lines — whereas before they eagerly gobbled them up.  CLECs, Internet service providers and cable companies may use those as a way to build their telecom presence in certain markets.

We’re also liable to see added interest from Tier 3 carriers.  Mergers can be very profitable, especially if the acquired territories are contiguous to what you already own.  Plus a new category of acquisition target has come to the forefront — telecom data centers — which are key to the growth of cloud computing.  The valuations are actually higher on data center properties — in the range of 11 times EBITDA versus six or seven times EBITDA for traditional telco properties.

Al Burgess: Acquisition synergies and financial performance are the topics that get high-profile attention at the board level and on Wall Street.  The synergies and higher EBITDA for enhanced free cash flow are all-important to merger success.  And the reason why there have been so many acquisitions in recent years is to enhance growth and profitability.  Great savings can be realized by combining systems/processes and reducing redundancy.

Bottom line, it’s about share price.  To grow in the mature wireline space, these guys really have to be in acquisition mode all the time.  That’s why you saw CenturyLink do the Embarq and Qwest pickups in rapid succession.  There are other sources of revenue growth for these companies, as well, such as broadband; however, these companies will also be under pressure to keep stuffing the pipe with acquisitions.  Plus the telecom market has become far more competitive in recent years, so organic growth in margins becomes very difficult to attain.  You rely on the skill sets of your managers to deliver on that.  That’s why there’s so much focus nowadays on business process and leveraging your IT resources to operate the company efficiently.  These days, if your EBITDA and free cash flow drops, you will definitely be punished by the market.

At what point does a carrier need to turn to a telecom post-merger integration expert?

Curtis Mills: Ideally, a service provider will involve a specialist even before the transaction has occurred.  Because of its deep experience in the guts of B/OSS systems and processes, a firm with a focus on this area can help the deal team estimate the operating synergies it can expect to gain.  Then there is implementation once the deal is in play.

To make telecom acquisition goals a reality requires knowledge and best practices in the highly specialized area of wireline post-merger integration.  The stakes are high.  And it’s infinitely more complex than it appears.  You would never go to a family doctor for open-heart surgery.  Post-merger integration at a telco is definitely open-heart surgery.

While it’s true that a Tier 3 or 4 carrier can often get by doing small integrations on the proverbial “back of an envelope,“ once a carrier reaches critical mass, even as a Tier 3, its operating complexity rises to the point where it needs to employ a more formalized and structured approach.  Yet many times, I’ve seen senior executives misunderstand the complexity of integration work.  They wonder why it’s not simply a matter of exporting the data from one system into another.  This is understandable, because the devil is in the detail; the systems aren’t as straightforward as they seem.

Likewise, executives coming from the cable or wireless industries — where integrations are simpler — are sometimes unaware of the complexity involved on the wireline side.  Aspects such as regulations, plant, provisioning and product diversity are just a few examples of where wireline differs.

The hard part of post-merger integration is tedious technical stuff, but your main focus must still be on customer satisfaction and the strategic objectives of the deal.  If you do that, you’re less likely to get lost chasing side-shows.  Not getting the technical conversion right can certainly get you in trouble.  However, even if the technical conversion is successful, you could fail because customers are irate or the business synergies are not there.

So how would you know that your conversion is troubled?

Curtis Mills: The starting point is a methodology that allows you to monitor progress and manage risk along the way.  You want as few surprises as possible at the actual conversion, so you rehearse, correct, learn and rehearse again.  Next, you want to know what constitutes conversion success and look for its telltale signs.

For instance, scanning call-center logs and performance metrics two days after the first bill hits will give you some very valuable intelligence.  And it’s also about asking key questions: Are my order backlogs going up?  Are call-abandonment rates rising?  Are call-center volumes on the rise either from service or billing problems?  Are call center average call-handle times workable with volume and staffing?

You also have to know how to read the tea leaves.  For example, average call-center handling times will also typically go up, even if training has been executed properly.  Experts know how to dig to find out why handling times are higher and whether that’s a good thing or a bad thing.  The key then is to look at the conversion process in a holistic way as it affects business operations.  You should be monitoring the operational reports even more than the system performance metrics.

If the business operation doesn’t go well, it doesn’t matter how elegant the conversion was.  The FairPoint conversion in northern New England is a case in point.  Rightly or wrongly, the Public Utility Commission (PUC) complaints were high.  That forced FairPoint to fight PUC fires, which took manpower away from its effort to work out its operational challenges at a more methodical pace.

So at ProCom, we feel that a thorough understanding of the overriding business concerns gives focus to the B/OSS effort and allows you to plan implementations to avoid undue risk.

What should carriers be looking for when they choose a consulting partner to help guide merger/acquisition conversion?

Al Burgess: Experience and a methodology — the right kind of each — is what makes the difference.  For example, the project team may be highly skilled in large-scale telecom integrations on the enterprise customer side.  However, that’s very different from the experience needed to integrate a telecom that’s operating in high-volume, residential markets.

Average call-handling times for a telco serving large enterprise customers might be 10-20 minutes, but in a high-volume, mass-market call center, 5-8 minutes is more realistic.  The technical conversion aspects of integration — the products and volumes — will also be completely different across retail vs. enterprise sectors.

Tier 1 wireline carriers in the U.S. have really not done major customer conversions on the retail side; scale, complexity and regulatory variations across states have limited their ability to move away from legacy systems like the CRIS billing system; therefore, the consulting firms that work exclusively within Tier 1 probably don’t have situation-specific, post-merger integration experience.  In fact, only the Tier 2 guys have done conversions repetitively over the last two decades.  So, regardless of size, carriers should seek out consulting firms that have significant and repetitive Tier 2 experience.

Curtis Mills: The level of complexity here can be daunting.  For instance, the data-element comparisons must be rationalized from both IT and business perspectives.  In many ways, it’s the complexity combined with the seeming simplicity that causes problems.  This has been the cause for many unsuccessful initiatives.

But telcos still need experts to help them do these conversions with minimal risk, because, given the competitive climate, there’s no longer any room for error.  In addition, all CSPs’ internal staffing is leaner than prior years due to cost reduction efforts, and these integrations require significant, dedicated effort.

A primary method for maintaining control over conversion success is through a heavy metrics focus — comparing comprehensive source and target system outputs for conversion counts, rating, billing, ordering, customer care, etc.  You heard Frontier say at the conference that it is a big believer in that philosophy and it’s one reason they are doing mergers/acquisitions so well.

This article first appeared in Billing and OSS World.

Copyright 2012 Black Swan Telecom Journal

 

About the Experts

Curtis Mills

Curtis Mills

A widely respected communications industry expert, Curtis Mills is president and CEO of ProCom Consulting LLC.

Curtis began his career with Accenture, where he became one of the first executives in the firm to focus on BSS/OSS for the communications industry.  For over 25 years, Curtis has helped communications service providers (CSPs) improve their mission-critical customer, billing and operations support processes and systems.

Working with CSPs of all sizes and service types, his clients have included SBC/ATT, Frontier Communications, CenturyLink, Windstream, Verizon, and Amdocs, among others.   Contact Curtis via

Alan Burgess

Alan Burgess

Related Stories

Related Articles

  • Taking the Fraud Fight Directly to the Enterprise PBX: An Automated Service Does Deep Dives of PBX Data by Arnd Baranowski — Analyzing the call patterns and hacking attempts of fraud-pumping PBX machines is a new line of fraud detection.  Now a new line of enterprise fraud managed service is focused on that principle.
  • BT Americas Security Chief: Security is No Longer Just an IT Problem, It’s a Major Board Room Concern interview with Jason Cook — A global expert on security explains six key motivators that are driving enterprises and telecoms to strengthen their security protection.
  • Webinar: From Wholesale Settlement  to Global Partner Management by Dan Baker — A 40 minute webinar providing a sweeping view of the challenges and opportunities service providers face as they try to manage a far more complex wholesale and partnering scene.
  • Nine Simple Strategies for Protecting an Operator or MVNO from Telecom Fraud interview with Jim Bolzenius — An expert in telecom fraud management explains essential strategies for aiming a carrier’s or MVNO’s fraud prevention program in the right direction.
  • A Sweeping 239-Page Research Report on Fraud Management Solutions & Strategies by Dan Baker — TRI has released a comprehensive  analyst report on fraud management solutions.  The study is based on interviews with three dozen leading FM consultants and solution experts.  Download the free Executive Summary.
  • Protecting 900+ MVNOs around the Globe from IRSF Fraud Pirates interview with Colin Yates — Telecom fraudsters are seeking a new, more vulnerable path to riches.  Their target: 900+ MVNOs around the globe who generally own no mobile networks, but sell mobile service virtually.  This interview with a fraud control expert explains what steps MVNOs must take to protect themselves from IRSF fraud.
  • Solution Vendor & Integrator Partnering: The Key to Enabling an Operator to Meet its Strategic Goals interview with Kirill Rechter — Working with strategic partners is an essential component to the success of any on-going billing project.  In this interview, a billing vendor CEO explains how a software vendor, systems integrator and service provider can best work together to drive the service provider’s business strategy.
  • CABS Revenue Assurance: How Rural LECs can Recover $284 Million in Revenue Shortfalls interview with Kelly Cannon & Darrell Merschak — Independent rural LECs in the U.S. still rely on the AMA/EMI billing formats for CABS billing, even as that format has proven to be highly inaccurate as a source of inter-carrier records.  This interview includes an analysis and discussion of revenue recovery techniques ILECs can use by leveraging SS7 probes.  Also discussed are billing strategies, traffic dumping threats, and the possible fallout from the FCC’s bill-and-keep mandate.
  • Make Business Assurance Progress Every Day: How to Set Goals, Automate, and Energize Your Team interview with Kathleen Romano — Business assurance (BA) skills have wide applicability outside the revenue assurance and fraud mangement domains.  In this article, a telecom executive explains how she’s applying her BA skills in the Payments area.  In addition to discussing the key operational challenges in Payments, the interview also provides keen insights on setting goals in business assurance, leading a team, and making critical decisions.
  • Make Business Assurance Progress Every Day: How to Set Goals, Automate, and Energize Your Team interview with Kathleen Romano — Business assurance (BA) skills have wide applicability outside the revenue assurance and fraud mangement domains.  In this article, a telecom executive explains how she’s applying her BA skills in the Payments area.  In addition to discussing the key operational challenges in Payments, the interview also provides keen insights on setting goals in business assurance, leading a team, and making critical decisions.
  • Partners in Carrier Management: The Success Story Behind T-Mobile’s Fiber Rollout in Wireless Backhaul interview with Bryan Fleming — Wireless backhaul is the unsung hero of the smartphone’s success.  This interview with T-Mobile’s carrier management architect for backhaul reveals the behind the scenes game plan for one of the most ambitious wireless interconnect programs ever.  You’ll learn about: the reasons for adopting a full-scale fiber strategy; the challenge of finding carrier partners; the clever techniques T-Mobile used to simplify and cut costs; advice on building great relationships with suppliers; and the key role that analytics, assurance, and visualization software played.
  • Revenue Assurance: The Magical Market Cap Multiplier by Van Howard & Curtis Mills — Many operators today consider revenue assurance yesterday’s opportunity.  But this article shows why significant revenue and cost leakage can still go undetected, even in companies with dedicated RA departments.  Also discussed are the benefits of a broader or more “forensic” approach to revenue assurance, an approach that boosts the bottom line regardless of the automated tools already in place.
  • Telecom Merger Juggling Act: How to Convert the Back Office and Keep Customers and Investors Happy at the Same Time interview with Alan Burgess & Curtis Mills — Billing and OSS conversions as the result of a merger are a risky activity as evidenced by famous cases at Fairpoint and Hawaiian Telcom.  This article offers advice on how to head off problems by monitoring key operations checkpoints, asking the right questions, and leading with a proven conversion methodology.
  • PwC on the Business of Revenue Assurance Consulting & Mentoring interview with Tim Banks & Dan Stevens — Revenue assurance consulting firms offer a broad range of services to clients these days.  The article explains the practice of mentoring RA mangers and providing a CFO with visibility on the status of an operator’s business controls.  Perspective is also offered on the value of RA software and the opportunity to broaden the RA practice scope.
  • Is Your Company Penny-Smart and Dollar-Foolish in Auditor Productivity? by Peter Yelle — Operators who fail to automate their invoice reconciliation process could be seriously undermining the morale and efficiency of their most valuable auditors.  This article explains the many subtle ways that manual auditing process can cost operators money.  Also presented is an analysis of the typical returns achieved by CSPs with mature cost assurance programs.
  • An Automated Self-Audit Approach to Telecom Cost Assurance interview with Jim Buttafuoco — What’s the value of an automated approach to invoice validation?  This article explains the power of the SaaS model where the vendor supplies the data-processing expertise, relieves the operator of tedious manual work and boosts auditor productivity so more money is saved.