FUNCTIONAL SEPARATION - A positive split
With the aim of giving users greater choice and flexibility, a number of European 
countries are looking to create a more competitive telecoms landscape, along the lines of the UK model. Dominic Smith looks at the best approaches to ensure success
‘Functional separation' is currently a hot topic of discussion in the telecoms world. The approach requires incumbent operators to separate their retail division from their network infrastructure and enable competing service providers to access the infrastructure on equal terms.
The UK went through this process in 2006, when BT created Openreach, a new wholesale business unit, which is required to give the same level of access to the local network to third-party service providers as it does to BT Retail. The UK is now widely regarded as a benchmark of just how successful functional separation can be, and EU telecoms commissioner, Viviane Reding, has cited it as a model for the rest of Europe. In line with this, Poland, Italy, Ireland, Sweden and the Netherlands are all now considering the introduction of functional separation.
The primary objective is to create a more competitive landscape, leading to more choice and flexibility for the end-user, greater service innovation and ultimately growth in the marketplace as a whole. There remains a risk, however, that the achievement of these goals will be jeopardised by the greater complexity of the back-office infrastructure.
The success of functional separation will largely depend on the circumstances surrounding its implementation. If it is imposed by the regulator, the incumbent telco will most likely become resentful and may even deliberately obstruct the process by making it difficult for other companies to integrate with its network.
By contrast, if the incumbent believes that functional separation is inevitable, it may choose to pre-empt any regulatory move and implement many of the key elements proactively. In this latter situation, operators will be more open to moving beyond the role of wholesale network provider and taking the opportunity to launch a range of complementary value-added services themselves.
Whatever the scenario, as and when they are faced with functional separation all operators will have to manage the complex process of dividing their infrastructure in two. Many existing automated procedures such as provisioning and order handling will need to be split. Rather than having one fully integrated end-to-end system, operators will now have to offer integration with multiple retailers' systems and will therefore have to manage a ‘break in the chain.'
This becomes even more difficult because of the intrinsic differences between the types of support systems required to conduct wholesale and retail activities. While the retailer will invariably be dealing with a large number of individual subscribers, the wholesaler will typically be interacting with a much smaller number of customers, each with a wide range of connections. This will often have a significant impact on the underlying rating and billing systems architecture and on how CRM is managed.
One of the major challenges wholesale providers face in delivering equal access is in creating a suitable interface for their new retail partners for ordering and service provisioning.
Interacting with the underlying network is inherently complex. However, for true ‘equivalence', the wholesaler must provide equal access to all retail partners. If this new interface has a complex ‘telco' configuration, however, the operator will effectively be making it difficult for any non-telco retailer to interact with the wholesale network.
It will be harder and more expensive, for example, for a supermarket chain offering telecom services to interact with this type of wholesale interface than for a retailer with a telecoms background.
Smaller retailers tend to suffer most in this respect. Large organisations with a business model that projects high subscriber numbers may not be unduly concerned that there is a significant cost to set-up and maintain that interface. By contrast, smaller companies with fewer customers, who may be looking to add new services to an already diverse portfolio, are likely to be discouraged by the prospect of incurring high costs in supporting such integration.
Bridging the gap between the wholesale and retail functions of a telco operation is clearly a challenge in itself. One potential solution is that the wholesale telco offers a ‘white label' service, incorporating everything from ‘bill on behalf of' to order management, so that the retailer no longer has to develop its own support systems infrastructure.
Another objective of functional separation is the delivery of service innovation. If this simply means repackaging existing services, then this can easily be carried out by the retailer, who can develop suitable pricing schemes for bundles of fixed, mobile, broadband and TV offerings. The retailer might also want to bring in pricing per event, cross-service incentives or flat-rate fees, for instance, and these can all be achieved when equipped with the appropriate business support systems.
However, when it comes to new service innovation there is an inevitable dependence on the underlying network. If you want to support a 20MB broadband connection for example, you need to have a network in place that can provide this service.
To become more innovative, therefore, the retailer will need to rely on the capability of the wholesaler's network. If the wholesaler is reluctant to launch new services - for example if the investment required is outweighed by the returns expected - then the whole process may stall.
This gives agile Internet companies an opportunity to bypass the telco by making effective use of IP networks and by launching dynamic new services ‘over the top'. In other words, if the wholesaler is not innovative in creating network capability that the retailer can use, both risk being compromised by third parties.
Of course, service innovation is of little value if it does not benefit the customer. The main objective must always be to provide the best possible service.
In the traditional telecoms model, the customer should never experience an extensive time-lag between ordering a new service and receiving it. However, when the retail and wholesale functions are separated, the process can become significantly more complicated. Service level agreements will typically need to be put in place and the time taken to activate the customer's account and services can increase significantly.
Customers may experience anything up to a 30-day window in which the set-up of service takes place. While the regulator may dictate such a time period, from a systems and order processing perspective, it is desirable that orders that transfer across the retail - wholesale divide are processed much more quickly than this. In short, installed solutions need to deliver straightforward customer service and ensure that both wholesale and retail parties generate revenue quickly and efficiently.
As a result, operators will increasingly want to work with business support systems (BSS) providers that not only have expertise in both wholesale and retail areas but can also provide a service that spans both types of systems and have experience of working in an environment where this sort of process has taken place.
After all, if the end goal of functional separation is to provide enhanced choice for the user and improvements in customer service, then the provision of equal access to the wholesale network and effective services to subscribers must be simple to manage.
Operators should look to partner with BSS providers who can deliver high-quality, pre-integrated solutions which can be easily linked to the surrounding wholesale and retail infrastructure. By offering this level of functionality, the solutions provider can reassure the operator that no data will be lost between systems, that processes spanning both sides of the functional divide will be carried out seamlessly, and that the end customer will benefit from streamlined customer service.
Incumbent operators may be less than enthusiastic about the drive for functional separation and claim that it is not in the best interests of end customers, but with EU commissioner Reding actively looking at this issue, the decision may well be out of their hands.
They need to be fully prepared not only to face the consequences of functional separation but also to ensure that they maximise the benefits both for themselves and for the customers they serve.
Share this article with others
Post to del.icio.us
Printed from http://www.eurocomms.com/features/112314/FUNCTIONAL_SEPARATION_-_A_positive_split.html
Comment on this article
Skip to comments
We encourage users to analyse, comment on and even challenge European Communications's articles, including the one above - 'FUNCTIONAL SEPARATION - A positive split'
User reviews and comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site.
Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. We will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site.