Telcoms IT is coming of age

The good news is that, according to PricewaterhouseCoopers, CEOs in the communications industry are bullish. The other good news is that that it’s technology they believe will provide much of their competitive advantage.

PwC, one of the world’s ‘big four’ accountancy firms, conducts an annual survey among the chief executive officers of leading companies, and analyses the results by industry. In 2011 communications sector CEOs put the sector well ahead of average in terms of revenue confidence, putting CIOs in the sector in a strong position.

“With technological innovation and shifts in consumer behaviour advancing apace, operators face an array of issues around customer retention, service and revenue models, operational excellence, regulation and innovation,” the report claims.

More than four-fifths of CEOs say their IT investments are made primarily to support growth initiatives and leverage emerging innovations, while almost half see the development of new products or services as the main opportunity to grow their business over the next year. Both statistics far outstrip those seen in other industries.

For CIOs and CTOs in the communications sector, this presents many challenges – but the fact that CEOs are bullish about top-line performance does not mean that they should take their eyes off the bottom line.

“I’ve always been one for taking care of the bottom line first, and the rest will take care of itself,” says John Berney, co-founder of consultancy CIO Plus and the former CIO of Scottish and Southern Energy and Hungarian telecoms company Zrt. “Revert back to basics, and that’s delivering value for money and making sure you’re not spending too much money on technology. It’s an old chestnut, but it’s still valid today.”

Berney’s sage words will apply to some communications CIOs more than others because a further trend to come out of the PwC research shows that the industry is polarised, with greater overall confidence than average but a clear split between those who are very confident in revenue growth and those who are not so sure.

And for those who are not so sure, the real trick is to manage budgets well – to invest in those technologies that will provide competitive advantage, while chasing efficiencies in the more pedestrian categories of spend.

“We were on a classic 70:30 ratio, where around 70 per cent of the budget went on operating the infrastructure and 30 per cent on new projects,” says David Doherty, CIO of Easynet, the private-equity owned network and communications business that was sold by BSkyB in late July last year. “What I’m trying to do is get that closer to a 50:50 split, so we’ve got more money for new projects and development, but at the same time the total budget continues to fall.”

It’s these dual priorities; where the huge technical demands of operating within a technology-focused industry mixed with the need to operate within tight financial constraints that blend together to form a powerful cocktail; to some unpleasant but, to others, an appetising challenge.

“A lot of what I do on the board is to help with investment decisions, rather than technology decisions,” explains Doherty. “Clearly, there’s technology behind it but I tend not to talk about the pure technology but whether it’s a good investment.”

Supporting this, and Berney’s comments, is another PwC finding that CEOs see IT investments as a vehicle to reduce costs and improve efficiencies. “As well as using innovation to help drive customer revenues, CEOs are actively leveraging technology to enhance their organisations’ effectiveness,” the report says. “The majority of communications CEOs (77 per cent) say that a major objective of their IT investments is to help their business reduce costs and become more efficient operationally, compared to 69 per cent of CEOs across all industries.”

It’s a trend expedited by the huge amount of structural upheaval the industry has been through over the past few years. The merger of the T-Mobile and Orange networks in 2010 is one recent development, the divestment of Easynet from BSkyB another, while TalkTalk Group’s sale by Carphone Warehouse, also in 2010, is another good example.

What this means is that a large amount of operational transformation is taking place within the industry, which has fundamental implications for CIOs. According to PwC, communications companies are more likely to have outsourced a business process or function (49 per cent versus 37 per cent of the total sample); to have implemented a cost reduction initiative (92 per cent versus 84 per cent); or entered into a new strategic alliance or joint venture (57 per cent versus 40 per cent).

TalkTalk Group is a case in point. “Earlier this year, we did a fundamental reorganisation of the group after Dido Harding, our new CEO, implemented a programme to look at our structure, vision and values,” says Jonathan Stone, the communication company’s group change director. “It’s a project that I came out of my day job to lead. In January this year, we implemented a new structure which made us more of an holistic, single organisation.”

Stone, who previously was the CFO of TalkTalk Technology, describes how the company grew very quickly to become the £1.7bn business it is today, both through acquisition and through organic means. It meant the focus was firmly on growth, with integration put on the back burner – and, naturally, this included IT.

Neither is TalkTalk alone. More and more CIOs will be tasked with contributing efficiency savings through synergies, as Easynet’s Doherty attests. “Internally, we’re doing a lot of the things that other communications companies will be doing – rationalising the number of servers we have, making sure we’re more efficient,” he says. “For instance, in the past 12 months we had about 10 different email systems and we took the decision to build an internal cloud and migrated all of those systems on to it”

However, as the PwC study illustrates, CEOs are a demanding bunch, and the need to differentiate themselves through technical innovation is a key current requirement, supporting Doherty’s move to a 50:50 budget split as well as his board-level discussions about investments in technology.

Of course, the telecoms sectors is slightly different to other industries in that the chief technology officer will often have an equal, if not more senior, role to the CIO. In the case of Easynet, it certainly seems to be the former and both Doherty and CTO Justin Fielder have a seat on the executive board.

“[An important part] is not just being reactive to our product people and supporting new systems,” argues Doherty. “But understanding why we’re going that way so that when I’m talking to my vendors I’ve got half an eye on where we need to go and understand what opportunities there are to introduce new features and functions in the toolset.”

For CIOs in the telecoms sector, this is key. While Berney’s comments about ensuring a beady eye is kept on the bottom line is as valid today as it has ever been, thinking innovatively in order to create value has never been as crucial. That can be achieved through synergy savings and rationalisation, but, equally, it can be achieved through getting closer to the both the customer and the CTO, so that both have the ultimate objective of improving the customer experience.

As Doherty says, “Making sure that, at a management level, we are not dislocated from what’s happening at the front line is key.”