Bulk buyers, guaranteed payers

Intercomms talks to Daniel Kurgan CEO of Belgacom ICS about New Challenges and the Impact of Outsourcing on Telcos in a Fast Changing Environment

Born September 1965, Daniel Kurgan graduated from Solvay Business School of The University of Brussels in 1987 and from 1988 -1991 held various international sales and business development positions in 3 SME's. From 1992 - 1996 he became Contracts Manager at SABCA, Belgium's biggest aerospace company, where he negotiated and managed major industrial sales, subcontracting and purchase contracts with customers like Boeing, Airbus, Aerospatiale (EADS) and several Asian governments Daniel Joined BELGACOM's Carrier Division in January 1997, coinciding with the start of carrier commercial operations, as International Account Manager and became Head of International Relations and Sales in 1999. From 2000 Daniel was Sales Director for domestic and international wholesale and in 2002 became VP International Wholesale. In 2005 he was appointed VP Commercial of Belgacom International Carrier Services SA/NV, a spin off of Belgacom's international carrier business responsible and led the integration of all commercial operations with the similar activities of Swisscom, which merged on 1 July 2005. In 2006 he was promoted to COO of Belgacom International Carrier Services the eighth largest carrier worldwide with annual revenues of 1billion. Later that year he became CEO of Belgacom International Carrier Services.

Q: Why go to a company like Belgacom ICS?
A: The proposal is the result of two major considerations. The first is the usual make or buy decision on whether you should do in the back office what others do in their front office. The second is scale. Most fixed telcos and incumbent operators have carrier activities of some kind for historical reasons. The fact of the matter however, is that in many cases, they do not have a clear view on the real Profit and Loss of the activity. In most cases if you don't reach a sufficient scale in this high volume, low margin business your activity is certainly negative from a P&L standpoint.

Q: What are the financial benefits of outsourcing that activity?
A: The real question you have to ask yourself is: is it core to my business? Is it profitable against a backdrop of general decreasing margins and increasing expenses? Do we do it ourselves or outsource? There are really two angles to this. Firstly the new operators that need to manage both incoming and outgoing international voice and data traffic: should they do this themselves when there are specialists, like Belgacom ICS, that are doing this as a core business? And secondly there are the more established firms already undertaking carrier activities: Does it make sense for them to continue doing this as they could make significant OPEX and future CAPEX savings should they choose to outsource this to a much larger operator that can then pass on the economies of scale associated with the larger traffic volumes.

This journey starts with the voice business which is, from a volume standpoint a much bigger ticket than international data traffic. For carriers, the retail price is falling and the wholesale price is falling too. Big carriers like us can monitor the quality, fight against fraud and other bypass activities, and also deploy network level NGN and other new technologies. The list goes on.

Q: What are the 'Four Pillars of your Proposal'?
A: We base our proposal on transparency which is absolutely key. We give the customer a transparent view of the overall costs and also our costs. We then agree on the margin we will make and we provide them with regular reports to show transparency on the costs and margins. Additionally benchmark mechanisms are being provided. So on top of the cost plus approach we agree on benchmarks to ensure that the prices that are applied are always market compliant. To me this is a key fundamental of an outsourcing relationship. The second pillar is quality whereby we not only deliver the product that meets the top quality requirements but we sign the relevant Service Level Agreements (SLA). This may all appear pretty standard but it's not. I can tell you that amongst voice outsourcing carriers there are very few that are ready to sign SLAs and pay penalties if they don't meet the quality requirements. At Belgacom ICS however that's exactly what we do. Once outsourced we provide quality reports on a regular basis to the customer. In point of fact, an integral part of our customer care is that we appoint dedicated service managers for each of our outsourcing customers. Following transparency and quality, the third pillar is simplicity. This is in terms of simple pricing schemes and a single and simple Point of Contact. Carrier voice is a commodity, to outsource it, you need to keep it simple. It appears to be a buzzword but when you have to run this as we have already done with a series of operators, it makes a big difference. The fourth is competitiveness; through 'cost plus' based pricing and continuous benchmarking.

Q: What is your relationship with MTN?
A: What we do with MTN is that we are the intentional network extension of the MTN affiliates in the various countries where they operate which is quite specific to the operation. We have effectively become the main international gateway into the MTN networks. We have set up extensive redundant capacity between each of the operating companies to be able to offer the rest of the carrier community a seamless, direct interconnection with these MTN affiliates through our facilities. That is the very basic principle of the outsourcing agreement. We offer direct connectivity from MTN to MTN affiliate operations in Uganda, Rwanda and elsewhere to the other telecommunication operators in the world, through our own facilities. That support also includes guarantees of the Quality of Service, the network efficiency ratio, CLI, roaming and all of the other aspects of operations. Instead of building their own international network, Belgacom ICS has become their international extension.

Q: Are there any additional benefits?
A: There are of course additional benefits to MTN. A major one is that we secure the revenues for them, so they don't have to collect the interconnection charges. Belgacom ICS guarantees payment and we collect from our partners all over the world. As we are an alternative to the local incumbent in many countries and because in a few cases the incumbent is in financial trouble and often does not pay the interconnection charges, working with us for our customers means always getting their money. There are some countries within the MTN operation that, when shifting from the local incumbent to ourselves for overseas traffic, found that they multiplied the interconnection revenues by a very large factor. That is just one example of an additional benefit that you will not find elsewhere.

Q: Is this an exclusive relationship?
A: We are the primary gateway for their outbound traffic; we are also the official gateway into the MTN network. From a regulatory perspective, they are not in a position to cut other connections nor would they want to for other reasons, as in every country where MTN affiliates operate they have other local connections. Our mission is to collect and attract all the possible traffic from anywhere in the world to these MTN operations, increase their volumes, increase quality and secure their revenues. They chose to outsource the carrier function. The result is shared value and the ability to both focus on our core competencies.

Q: With a high volume low margin surely the Devil must be in the details in areas such as traffic consolidation approach, traffic routing, arbitrage and rogue partners?
A: Where is the Devil? The Devil is actually in the increasing business complexity, related to for instance the numbering plans, new networks, breakouts with different costs, number portability. This all requires you to manage ever increasing data to maintain control of the real cost of the traffic routed. The business complexity keeps increasing so you need huge databases with large numbers of reference data to keep track. Something small carriers are just not capable of. Managing these activities correctly will denote whether you are going to make money or not. Margins are so thin so if a carrier cannot route with the required level of granularity in their routing table, they can't make money. Either your average cost is too high so you sell without a margin, or your cost is so high you cannot sell and hence not be competitive in the market place. If you want to build up and maintain the ability to manage this increasing complexity, and get the right level of granularity in your routing tables, you need scale. Doing this any other way you won't get a return on your investment. Essential when managing 15 billion minutes, not so crucial if you only run a million of course.

Q: How does you relationship with Swisscom?
A: The swiss had an existing carrier business, so this relationship was all about the consolidation of existing carrier operations and merging the two carrier operations to derive significant savings on the OPEX line. Commercial synergies were low but in HR, networking and IT systems there were synergies in the order of tens of millions of Euros. With Swisscom we took over an existing business against shares in our companies. At the end of the day, Swisscom has completely outsourced the management of its international traffic to Belgacom ICS. That is quite a reference, knowing who Swisscom is.

Q: Omantel is another important partner?
A: With Omantel the partnership is about really leveraging on eachother strengths. Omantel is a rather small operator, while we at Belgacom have a worldwide footprint. They asked whether they should keep entertaining relationships and traffic flows in all these countries and regions where their volumes were really quite small. They concluded that they should outsource this to an expert. Belgacom ICS on the other hand needed a partner in that region to support its growth so we agreed to use Omantel's facilities and capabilities to build a point of presence in the region. The relationship worked both ways, we leverage on each others strengths whereby they outsource a big part of their traffic and we strengthen our foothold and capabilities in the region.

For more information visit:
Belgacom website at www.belgacom-ics.com
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