Article

Web Works Wonders

The Internet offers a huge opportunity to cut costs and increase revenues, an opportunity that most telecoms companies have yet to seize.

By Vikki Tam with Gregor Matthies and Bo Zheng

Published on July 01, 2001
min read


The Internet offers a huge opportunity to cut costs and increase revenues, an opportunity that most telecoms companies have yet to seize. At Bain & Company, we estimate that the typical telecoms company can expect to save 5-10% on operating costs if it puts business processes on the Web instead of relying on the telephone. This translates to US$400 million for a firm like Telstra, and US$6 billion for NTT. Take Cisco Systems for example. Last year, it projected US$825 million in savings because it operates business online. Ninety percent of Cisco's revenues come from orders on its fully automated Web site, which includes a shopping centre, a technical helpdesk and an order tracker. There is a separate portal for suppliers. You can think of it as a self-serve operation. The customers design their own products online and enter detailed orders that were once filled by paid sales agents. In fact, online ordering has cut down its order clerk staff by two thirds, from 900 to 300 people. The benefits play out on all sides of the business. Allowing customers to buy online significantly cuts a telecoms company's costs-whether you are buying handsets or dealing with regulators. On the inside of the company's operations, it enhances investor relations, billing, customer care, and purchasing. On the sell side, it makes the biggest difference. In fact, doing business online helps every aspect of the sell side of the telecoms business, such as: - Saving money by lowering the cost of the channel to customers; - Offering new revenue streams by giving the company access to new customers; - Lowering the churn rate by giving customers better information; and - Potentially increase revenues from high-value accounts by globally consolidating services. But where should you focus first? The typical telecoms company can get three-quarters of the potential benefit by converting three parts of the business to online operations: international purchasing, customer care, and retailing. Take customer care for example. It eats up about 7% of the typical telecoms company's operating costs. Yet the cost per call handled can be reduced 97% through Web enablement. Retailing on the Internet offers another big opportunity for the company that switches to the Internet for selling. Only 2% of purchases of telecoms devices like handsets are expected to migrate to the Web by 2005, partly because European customers still like to try out a handset before buying one. However, the slim percentage of customers buying online is no reason to ignore the channel. One should remember that the real asset for a telecoms company is not the network or the spectrum. It is the telecoms company's relationship with the customer. By selling handsets on the Internet, you are establishing a valuable proprietary channel to the customer. That channel allows you to solidify the relationship with your most valuable asset. There is another big opportunity for the wireless group: set up your own wireless portals. Telecoms companies should seize the opportunity to set up portals for the wireless market. The key is to control the customer. Do not let others do it and gain the opportunity to steal your customers. If telecoms companies allow third parties to command the portals, they will be demoted to tube companies, a mere commodity, like the highways. Converting a company's buy-side, sell-side and inside functions from the telephone to the Web is major challenge, which must begin with an integrated vision and a clear idea of the key initiatives most appropriate for the culture of the company and the region it serves. But the potential savings and increased revenues that such an exercise offers are so great that they should induce telecoms companies to give up the telephone-at least for key business activities. Vikki Tam is a manager with Bain & Company in Hong Kong; Gregor Matthies is a VP with Bain & Company in Munich; and Bo Zheng is an associate consultant with Bain & Company in Beijing.

The Internet offers a huge opportunity to cut costs and increase revenues, an opportunity that most telecoms companies have yet to seize. At Bain & Company, we estimate that the typical telecoms company can expect to save 5-10% on operating costs if it puts business processes on the Web instead of relying on the telephone.

This translates to US$400 million for a firm like Telstra, and US$6 billion for NTT. Take Cisco Systems for example. Last year, it projected US$825 million in savings because it operates business online. Ninety percent of Cisco's revenues come from orders on its fully automated Web site, which includes a shopping centre, a technical helpdesk and an order tracker. There is a separate portal for suppliers.

You can think of it as a self-serve operation. The customers design their own products online and enter detailed orders that were once filled by paid sales agents. In fact, online ordering has cut down its order clerk staff by two thirds, from 900 to 300 people.

The benefits play out on all sides of the business. Allowing customers to buy online significantly cuts a telecoms company's costs-whether you are buying handsets or dealing with regulators. On the inside of the company's operations, it enhances investor relations, billing, customer care, and purchasing. On the sell side, it makes the biggest difference. In fact, doing business online helps every aspect of the sell side of the telecoms business, such as:
- Saving money by lowering the cost of the channel to customers;
- Offering new revenue streams by giving the company access to new customers;
- Lowering the churn rate by giving customers better information; and
- Potentially increase revenues from high-value accounts by globally consolidating services.

But where should you focus first? The typical telecoms company can get three-quarters of the potential benefit by converting three parts of the business to online operations: international purchasing, customer care, and retailing.

Take customer care for example. It eats up about 7% of the typical telecoms company's operating costs. Yet the cost per call handled can be reduced 97% through Web enablement.

Retailing on the Internet offers another big opportunity for the company that switches to the Internet for selling. Only 2% of purchases of telecoms devices like handsets are expected to migrate to the Web by 2005, partly because European customers still like to try out a handset before buying one.

However, the slim percentage of customers buying online is no reason to ignore the channel. One should remember that the real asset for a telecoms company is not the network or the spectrum. It is the telecoms company's relationship with the customer. By selling handsets on the Internet, you are establishing a valuable proprietary channel to the customer. That channel allows you to solidify the relationship with your most valuable asset.

There is another big opportunity for the wireless group: set up your own wireless portals. Telecoms companies should seize the opportunity to set up portals for the wireless market. The key is to control the customer. Do not let others do it and gain the opportunity to steal your customers. If telecoms companies allow third parties to command the portals, they will be demoted to tube companies, a mere commodity, like the highways.

Converting a company's buy-side, sell-side and inside functions from the telephone to the Web is major challenge, which must begin with an integrated vision and a clear idea of the key initiatives most appropriate for the culture of the company and the region it serves. But the potential savings and increased revenues that such an exercise offers are so great that they should induce telecoms companies to give up the telephone-at least for key business activities.

Vikki Tam is a manager with Bain & Company in Hong Kong; Gregor Matthies is a VP with Bain & Company in Munich; and Bo Zheng is an associate consultant with Bain & Company in Beijing.