Talking shop

Many operators outsource their retail presence to cut opex, but the strategy can pose significant risks.

Tags: Delta Partners
  • E-Mail
Talking shop Josep Que stresses that there are risks with outsourcing deals.
By  Josep Que Published  February 20, 2011

On top of that, monitoring is always part of the operator’s role in any outsource model to ensure that all guidelines are complied with and that nothing happens in the branded shops that can harm its image and brand equity.

Threat 2: Outsourcing does not imply cost savings

Telecom operators look at outsourcing as a perfect way to increase coverage of branded shops with minimum capex/cash requirements.

However, when part of the roll-out costs are supported by external partners, the commissions and subsidies demanded will also be higher. At the end, potential partners will factor all estimated revenues, costs and investments into a business plan that will have to generate positive NPV. Operators are therefore reducing short-term capex by adding long-term opex, and even covering high rates of return demanded by shareholders in the retail business.

Threat 3: What about customer service and retention?

Outsourcing models are intrinsically linked to periods when telecom operators are concerned about fast roll-outs and focusing on the key areas of their business, very common in stages of growth and subscriber acquisition.

In this situation, there are two key questions that arise: What happens when the focus of the operator moves from acquisition to retention? Will the partners be able and willing to provide quality customer service when this becomes “the rule of the game”?

This is always a challenge in mature operations as acquisition levels drop and most of the revenue streams for external partners are linked to sales of SIM cards, with the exception of revenue sharing and few other service commissions or subsidies. Despite many efforts to change this, it seems that partners always see more value out of acquisition rather than retention. We must not forget that the retail industry is mostly about selling and this is what partners are experts at doing.

To cover the lack of service-oriented operations in shops managed by sales partners, operators try to include commission elements linked to quality of operations and apply service commissions, in a similar model to outsourced call centers. However, this is “easier said than done” and implementation of such models has so far been a challenge that not many have succeeded to overcome.

Threat 4: Back-end support and choosing the wrong sales partner

Finally a common question that comes after the decision to follow the outsourcing route
is “which partner to bring in?”. Most of the times this is the cornerstone for success of the model. Any outsourcing model will inevitably fail if an operator cannot attract the right partner.

Telecom know-how, retail expertise and the ability to put a dedicated structure in place are some of the fundamentals that partners who will manage and operate branded shops should have. At the same time, even the most professional and capable partner will perform below standard if it does not have the right support from the operator.

When McDonald’s Corporation decided to expand its retail footprint through an outsource model and implement a franchise concept, it invested heavily in designing all the processes and created the full back-office support that would ensure success
for its franchisees.

Today, any new McDonald’s franchisee acquires a complete turnkey solution and is ensured total support during the length of the contract. This is where telecom operators many times fail to deliver and partners are left totally accountable for most operations in the channel. On the other hand, even if a perfect model is achieved, it might still not work out as wrong partners can always be selected and operators need to account for this.

For those situations, as in many others, the only protection is an effective exit clause that allows operators to break the marriage without being dragged into a painful litigious divorce.

Reaping rewards

Relevant benefits have been captured by operators that have outsourced their own shops in terms of efficiencies, roll-outs and costs, and although challenges exist, identifying and realising them is the first step to reap the benefits of the model.

Ensuring the success of outsourcing an operator’s own shops requires being aware of the several threats that may arise and implement effective mitigation actions, for example, setting metrics for customer service, creating the support structure for the external partners while following a thorough process for selection of new partners.
The current level of competitiveness in telecom markets is making this an increasingly attractive option for operators to consider, thereby following a currently popular trend worldwide.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code