Challenge

The Local Service Access Management (LSAM) organization of a major international long distance service provider was responsible for managing leased access costs. The access costs paid to the various ILECs and CLECs by the company were approximately $9 billion annually. The LSAM organization was challenged to reduce lease expenses by $200 million annually in the current year and $400 million annually in the following year. Additionally, it was to reduce head count in the current year by about 50%. TMNG Global was brought in to provide an industry perspective on how access is provided and to assist in developing and validating new methods of operation.

TMNG Global Solution

TMNG Global began by looking at several business functions and establishing several projects in order to address the client’s needs. The first project was the re-engineering of LSAM to address the force count reduction. TMNG Global recommended that the force be reduced by 15% rather than the targeted 50% in 2003. To do otherwise would jeopardize the critical cost cutting initiatives that were being undertaken.

One method of reducing access expense is to extend the carrier’s network and roll the service from the leased facility to the owned fiber. The client’s current expansion plan did not realize the sorts of savings desired. TMNG Global analyzed the core business market as an overlay to the client’s existing network footprint. Taking a holistic approach that looked beyond simple engineering economics, TMNG Global developed a strategic plan that addressed not only costs, but bulk leased service agreements, current revenue and potential revenue on a building-by-building basis.

After reviewing TMNG Global’s plan, the client decided to implement the aggressive fiber expansion program as quickly as possible so as to reap the benefits of the resulting cost reduction. It was limited however in its ability to actually expand the network and effect the physical “rolls” from leased to owned facilities. The problem was multifaceted. Several organizations were involved in the related processes and resources were not dedicated to this specific program. Further complicating the situation was a lack of established methods, systems and practices to handle the volumes that were an order of magnitude greater than previously experienced. The process just kept “breaking down” therefore reducing productivity from several hundred rolls a month to just a handful. TMNG Global used its experience in management processes to map the functions, interfaces and needs of the various organizations. TMNG Global was able to break the process into two segments—a pre-processing step and a production line. Pre-processing enabled TMNG Global to remove potential roadblocks and stage the target rolls in such a way as to eliminate “fall-out” (i.e. removing a target from the production line.) TMNG Global improved the production line by setting up a dedicated multi-department steering committee and providing management and tracking systems/processes to ensure the required throughput. As a result, the number of rolls was increased one year to the next by five times. The payback for the executed plan was less than two years and yielded more than $200 million in recurring year-over-year leased cost savings.

Another key component of cost reduction is accurate cost accounting. TMNG Global recognized that to implement new processes to make the client more cost efficient, TMNG Global needed accurate metrics to track progress, indicate needs for “course corrections” and report on the ultimate results. To this end, TMNG Global analyzed key user group requirements for business management and mapped them against existing report generation and data available. Using TMNG Global proprietary audit tools, TMNG Global determined errors in the data dictionary and other functional inaccuracies. TMNG Global recommended a data restructuring, database cleanup and functional enhancements. By eliminating ad hoc reporting and manual intervention, this project paid for itself in less than 18 months and provided additional value by assisting in other cost savings initiatives underway.

Data network errors can often result in paying for leased facilities no longer in service or cause the leasing of additional facilities where capacity is already available. Recognizing that inaccuracies in various network databases can be costly, TMNG Global began a review of current practices being used to remove them. Although the client was addressing the process, it had not changed in many years and was primarily manual in nature. TMNG Global reviewed the manual processes being completed on a circuit-by-circuit basis and synthesized them on a process-by-process basis. TMNG Global developed and implemented a plan to mechanize the processes on a bulk entry basis thus increasing productivity by nearly two orders of magnitude. For example, research activities that previously took approximately 167 hours now could be completed in two hours. This reduced the staff in this area by 30% and resulted in additional access cost savings estimated at $20 million per year on a recurring basis.

All major carriers take advantage of bulk service contracts offered by the ILECs and CLECs. They come in many different flavors and often overlap in their stipulations. For example, one might specify a minimum number of circuits while another with the same ILEC may specify a minimum amount of revenue. If TMNG Global’s client desired to reduce its leased costs, it needed to consider both sets of stipulations simultaneously. There are inherent penalties in not adhering to the various stipulations, but the penalties for individual contracts varied significantly. For some it was better to cancel early in the contract, for some later, and for a few–never. As a result, the scores of contracts significantly complicated any related cost reduction initiatives by the client. TMNG Global analyzed the existing contracts and modeled the impacts of cost reduction initiatives across all pertinent variables. TMNG Global then developed the prioritization of leased savings opportunities as a return in value to the firm and delivered recommendations for restructuring new contracts and/or extensions with the various providers to improve the client’s position in the future. In one case, the client was able to reduce its dependency on leased facilities by approximately $30 million more, on a recurring basis, in the first year of the engagement than previously anticipated.

Benefits to the Client

As a result of TMNG Global’s various engagements, the client was able to identify methods that could potentially reduce access expense within the target window by approximately $250 million annually. This, in conjunction with other client initiatives, would meet the client’s stated objectives.

Overall, TMNG Global’s work provided concrete methods to meet the client’s cost-cutting objectives. It allowed the client to mobilize the workforce and develop capital and operational plans to achieve the cost savings required.