Offshoring to save telcos $14.5 billion

The telecommunications industry is set to save $14.5 billion in the next four years through offshoring 5 percent of its work force to countries such as India, Estonia, and Argentina, according to a Deloitte & Touche survey published last week.

Free IT resource Hear how top CIOs turn change into a competitive advantage. Sponsored by HP Free IT resource Try Sun servers, workstations and storage products free for 60-days. Sponsored by Sun Microsystems

The survey's respondents -- telcos which account for 30 percent of industry revenues -- are all engaged in some form of offshoring already. Despite their concerns about losing control of the labor force, Deloitte projects that, by 2008, 275,000 of the industry's 5.5 million positions will have been sent overseas.

So far, telcos have been reluctant to take advantage of the dramatically cheaper wages and high levels of technical education in countries such as India, leaving industry sectors like finance and IT to pioneer the trend. That attitude now appears to be changing, Deloitte said, with survey respondents saying they expected to reduce costs, by 20 to 30 percent, by 2008.

Another shift: communications companies have found that offshoring can not only save money, but can also deliver better support for the cutting-edge data services now arriving on the market. A mobile operator, for example, said workers in its main domestic call center, who generally have a low level of technical skills, struggled to address questions about data products like WAP and GPRS. A fixed operator found that call center support for broadband self-installation ate up most of the company's profits on those services, mainly due to the cost of hiring domestic staff with sufficient skills.

Telcos also expected offshoring would reduce the amount of time needed to bring data communication services and applications to market, because workers located in multiple time zones meant development could continue around the clock.

Deloitte found a two-tier system at work for telecoms offshoring, with more routine and established tasks going to cheaper overseas workers, and more advanced jobs remaining in the home country. "Application designers absolutely have to remain in the country they are serving to ensure they always have a current understanding of the latest trends," said one respondent. "An off-shore worker would never have the capability to track local idiosyncrasies."

The top processes being offshored were IT services, call centers, accounting and finance, operations and application service development, Deloitte said. India remained the top offshoring destination, with Estonia and Argentina emerging into the market.

Offshoring is an increasingly contentious political issue, but for the telcos participating in the survey, the biggest concerns were increased operational complexity and loss of control, with 66 percent of respondents citing these fears.

Other problems included language barriers, cultural differences, and protection of intellectual property. Deloitte noted that cultural difference can crop up even when the same language is used. "Staffers in India sometimes agree to a deadline -- even when they know it is unreasonable -- because they do not want to offend the customer," the report said. "They would rather deliver late and then apologize."

The firm said that with unions, employees and anti-globalization activists protesting the loss of local jobs associated with offshoring, companies should be ready to revert to local sources if needed. However, companies shouldn't be left behind by the offshoring trend: "Be an early mover, but not a first mover," Deloitte recommended.