Consider the firms like Cisco, Oracle or Dell that make the best use of the internet to transform the way they do business —thereby outgrowing their markets and becoming more profitable. You won't find too many telecom service companies on that exclusive list.

Surprisingly, Europe's biggest providers of internet access have been fairly slow to move their business to the web. Most of them still rely on telephone and fax to buy and sell products and services and deal with their customers and suppliers or even communicate internally.

But telecom companies can increase their market share and squeeze a lot more profit out of their operations if they start deploying the internet to improve and accelerate internal processes; work with their suppliers and customers online; share information and knowledge internally and externally; and make better and faster decisions.

In fact, the internet offers a huge opportunity to cut costs and increase revenues, an opportunity that most telecom companies have yet to seize. At Bain & Company, we estimate that the typical European incumbent can expect benefits in the order of 5-10% of operating costs if it puts its core business processes on the web. For a company like BT, that could equal up to E1.9 billion ($1.67 billion), for Deutsche Telekom, as much as E2.6 billion.

Look at one of the companies that leads the pack in being fully "web-based"—Cisco Systems. Last year, the internet backbone provider projected $835 million in savings because it does business online: 90% of Cisco's orders are placed via its fully automated website, which includes a shopping centre, a technical help desk and an order tracker. There also is a separate portal for suppliers.

You can think of it as an almost complete self-serve operation. The customers design their own products online and enter detailed orders that were once filled by paid sales agents. Cisco is an almost paperless operation with most transactions being done over intranets and extranets.

So, it's not just about having a website. Rather, the web can change the whole way a company operates. Putting your business online breaks down geographic and functional barriers.

It makes internal processes quicker and more efficient, and people more productive. It makes wide sharing of information and knowledge so simple that for the first time companies can really make use of what they know and take advantage of their scale. Most important of all, an online channel allows a far richer understanding of customers, driving high standards of service, channel control, and loyalty.

The benefits play out across the whole business. Getting employees to buy online significantly cuts a telecom company's costs - whether you're buying major network equipment or office supplies. Inside the company's operations, the web enhances every function from investor relations to regulatory management to product development. It also enables more nimbler and quicker management decisions to be taken based on up-to-date information.

Cisco, for instance, can close its books daily. But the internet can impact the sell side even more. It can:

• Cut the cost of ordering and customer care - and improve customer satisfaction;
• Offer new revenue opportunities through access to new customer segments;
• Lower the churn rate by getting better information about customers to allow for a more personalized and targeted service offering and higher customer intimacy;
• Increase revenues from high value business accounts by offering better service.

But where should you focus first? Our experience shows that the typical telecom company can get three-quarters of the potential benefit by converting three parts of its business to online operations: purchasing and supply chain management, customer care, and retailing.

BUYING ONLINE

Online purchasing and internet-based supply chain management are straightforward opportunities for any corporation to lower costs and increase efficiencies. For Europe's major telecoms the annual savings would run from ?500 million to ?750 million. How so? Consider the following.

For a typical mobile division of a European incumbent, 75% of purchases are in network infrastructure, handsets, IT, and international interconnection, where supply is largely consolidated.

Using the internet to integrate forecasting with the few key suppliers of handsets and infrastructure can drastically reduce order-driven shortages and sidestep suppliers' across-the-board cuts when their component makers suffer shortfalls.

Meanwhile, developing web-based logistics for equipment like handsets and SIM (subscriber identity module) cards can increase efficiencies throughout the supply chain. And migrating the bid process to electronic exchanges, or using online catalogues for purchases of standard IT and other commodity items can lower purchase prices between 10 and 20%.

CUSTOMER CARE

Now, let's look at customer care. It not only eats up to 40% of operating costs, but it also involves large numbers of people in call centres, which are difficult to scale as the customer base grows.

Yet the cost per call can be reduced by 97% handling standard requests on the web in a self-service environment. That would mean for every 10% of customer queries France Télécom moved online, it would save about $25 million. What's more, call volumes are on the rise in response to the many new services telephone companies are offering.

Bain's client work revealed that this area offers an enormous cost-saving opportunity, because at least 50% of calls are standard queries and could be answered online.

Our experience in the US tells us that customers will appreciate it too. No more long waits on the phone for information or dealing with poorly programmed touch-tone controlled computers. We estimate that for a $10 million investment to set up a customer care operation online—plus annual costs of $2 million—a company could make annual savings of at least $20-50 million.

SELLING ONLINE

Online retailing offers another big opportunity to improve margins, despite estimated migration to the web of only 2% of handset purchases by 2005. The low online usage is partly because European customers buy their phones as they do their cars. Touch, feel and test drive first. Then pay.

But in our view, the slim percentage of customers actually buying phones online is no reason to ignore the channel. You need to build an appealing online presence as more and more customers gather information on products, services, and prices on the web.

Remember that the real asset for a telecom company is not the network or the mobile spectrum. It's the relationship with its customers. By selling some phones and services and providing useful information over the internet, you are establishing a valuable proprietary channel to the customer, which allows you to solidify and intensify your relationship with your most valuable asset.

What's more, selling online offers a quick way to increase revenues and decrease costs for the mobile phone divisions. The sale of cellphones in Europe, which grew 60% to 151 million handsets in 2000, is the key driver pushing up revenues in Europe's E200 billion telecommunications market.

And most of growth in the mobile phone market has been fueled by pre-paid phone service, which has captured 50-75% of the subscriber base in most major markets. This kind of service requires the customers to visit a dealer to buy more pre-paid minutes, and the dealer would then get a substantial commission of between 10 and 30%, depending on the country and the operator.

But if you could pre-pay for telephone calls online, that would increase convenience for many customers; lower distribution costs; and avoid dealer commissions and the physical distribution of SIM cards.

When it comes to new data services in the 3G world, it's even more likely that these will be sold online. At Bain we expect the online share for pre-pay to go up to 20% and for data products and value added services to 35% by the year 2005.

There's another big opportunity for the wireless group: Set up your own wireless portals. Don't let others do it and acquire the opportunity to disintermediate you from your customers.

Think of how the telecom companies in the US allowed Yahoo! and AOL to take control of the portals and make them the internet brands everyone knows.

If telecom companies allow third parties to command the portals, they will be demoted to tube and access companies, a mere commodity, like the highways. The third-party portals will effectively drive customers to the portal's choice of highway. The key is to control and manage the customer relationship yourself. Don't cede the brand.

Converting a company's buy-side, sell-side and inside functions from telephone and fax to the internet is a major challenge, which should be met 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.

The exercise typically involves a major change management programme to ensure the whole organization is "net-ready".

Another key component is leadership, as proven by Cisco's John Chambers or Oracle's Larry Ellison, who are clearly "walking the talk" in their respective organizations. But the potential savings and increased revenues at stake should induce telecom companies to give up the telephone—at least for key business activities.

Neville Hargreaves and Michael Haenlein of Bain & Company assisted with this article.