TeliaSonera prunes outsourcing partnerships

Nordic telecommunications provider TeliaSonera AB has slashed the number of outsourcing partners it works with amid efforts to reduce costs and improve the quality of its IT services for business customers.

The company recently cut the number of partners it will work with in 2006 and 2007 to 14, from about twice that number. In the process it shed big names such as IBM Corp. and Hewlett-Packard Co. and brought in its first East European partner, Latvian IT services company Dati Exigen.

The strategy is part of a wider effort to reduce IT and other costs, partly in the wake of the merger that formed the company three years ago. While TeliaSonera doesn’t disclose its IT budget, observers estimate it to be about 1.6 billion Swedish Krona (US$203 million) per year.

TeliaSonera also aims to make its IT services to work by “telco standards,” meaning they have to be available around the clock and work uninterrupted through equipment and software upgrades, said Ingmar Jonsson, the company’s chief information officer.

IDG News Service talked with Jonsson at the company’s headquarters in Stockholm last week. Following is an edited transcript:

IDG: TeliaSonera has reduced the number of partners it uses for various IT services. Why?

Ingmar Jonsson: These were the framework-agreement vendors that we used to do our IT integration projects, but who also maintained our services. We have quite a large IT environment in our wholly-owned companies in Sweden, Denmark, Norway, Finland and Omnitel in Lithuania. We started with a lot of suppliers when the merger took place. We had a lot of legacy systems and suppliers with knowledge of them.

IDGNS: So you had both Telia and Sonera’s partners?

Jonsson: Yes, and there were our activities in the other fully-owned companies as well. We had a scheme of frame agreements for the last two years. We started with agreements with over 30 vendors, which is what various profit centers said they needed to work with. From the beginning we had a plan to reduce that to fewer, but to still maintain competition (among the partners). There was a plan to reduce those to around half, and we ended up with 14. That’s all we need.

We used strong players with a large local presence and a mix of companies that are based offshore, in India and the Baltic countries. Companies have emerged there (in the Baltics) of a sufficient size to work with us.

IDGNS: A lot of what your IT vendors have installed and are maintaining are classic back-office and administrative solutions — billing, customer care and the like. But with telcos deploying new services like IPTV and wireless broadband, and applications for business customers, what are the IT challenges you’ll face in coming years?

Jonsson: The general requirements are for us to be a service company and to make things simple for our customer, and IT plays a key role. So everything that automates and allows self-service is needed. The customer should be able to activate services anywhere, whether through the reseller or the mobile phone.

The other thing that affects IT heavily is that it has to be real time, it has to be open 24 by 7. If you upgrade a telecom system, you have to do it without any disturbance, and we are now putting exactly the same requirements on the IT system suppliers.

IDGNS: The Swedish telecommunications business goes back to the 19th century, and the industry is competing with cable TV and broadband companies that are a few years old and have no legacy systems. Is this a problem?

Jonsson: Legacy is an asset. We have some very competent and experienced people. We also have very efficient old legacy systems that have been trimmed and streamlined. There is no way the most modern systems can do these things more efficiently. Take the fixed network in Sweden. The way we activate a fixed line is very fast and efficient, but it is legacy.

On the other hand, the large amount of legacy is a challenge because it increases complexity.

IDGNS: One of the specialties of your new Latvian partner, Dati Exigen, is maintenance of legacy systems and COBOL.

Jonsson: COBOL actually isn’t an issue. What we need Dati Exigen and all the others for is continuous efficiency improvement. Dati Exigen is now a company of significant size. Price is a very important element, but that applies to all suppliers, who have to have off-shore and nearshore outsourcing competence in their offers. For us, that competition is important.

We at TeliaSonera are already very outsourced, we have outsourced more than 3,000 IT people and have less than 1,000 left in the company. We are dependent on integration, maintenance and development from these vendors, in full competition. The strategy is also to put our IT needs in bigger packages, instead of having many small companies, we create a bigger package and the companies on the list came compete for it.

IDGNS: So it is better for the companies, who get a bigger piece of the action…?

Jonsson: Absolutely. And it is also a long-term relationship. Our environment is complex and understanding us, understanding telecoms is very important. It’s a mutual thing.

IDGNS: But aren’t we heading for a time when telecoms and the telecoms environment will simply be part of the Internet?

Jonsson: That’s a difficult question. I believe there will be different models. You have to transmit the bits on networks, fiber optic is very efficient, and you will have a lot of forms of wireless. Then you will have a variety of services, and some will be integrated with the network, but it will be open. There will be an ability to provide content through the networks together with our services, so you will have variety.