Why Does the Telecom Management Industry Exist?
A Conversation, Series of Recollections, and a Slew of Acronyms
Many years ago, when I was planning on entering college and, more specifically, having to choose a college major. Unsure of what direction to take my life, I simply began at “A” in the University course catalog. The list started with “Accounting” and I pondered the possibilities; thinking of the working conditions, pay, career path, and imagining myself in each particular career scenario to see if I could picture myself there. Quickly, I came to the decision that sitting behind a desk working numbers for long hours, while perfectly suited for others, was definitely not my cup of tea. One-by-one, I continued to scour the list and continue this “role play”. As that method yielded no luck, I changed my strategy and decided to speak with my uncle, a successful sales and marketing professional at Xerox, whom I always admired. As we explored his personal career path, I became very enamored with the idea of “business development” and all that it entailed. That conversation was the initial “spark” that led to declaring a major: Marketing. (At that time there were no business development or sales degrees.) 4 years later, I graduated and accepted my first job in Sales and Marketing at Xerox; following in my uncle’s footsteps. In my first month at Xerox, I packed up and headed off to its training center in Leesburg, Virginia, filled with excitement. On day one – session one, Xerox brought in a VP ‘from the field’ to instruct. She was well-dressed (sporting a Rolex on her wrist), well-spoken, and I thought to myself, “This is great! I made the right choice!” And then an ironic thing happened. As the presentation began and the screen lit up, the first slide was titled, “It’s All About the Numbers” (I thought I wasn’t going to have to work with numbers!). My head began to spin as I questioned what I was getting into.
Now, fast-forward a few decades to just a few weeks ago, when found myself in a conversation with Chris Skubic, CEO at Ruby Solberg, (a west coast-based telecom management firm), that started out around numbers and some acronyms. Ruby Solberg had posted impressive year-over-year revenue growth (YOYRG) in their telecom expense management business (TEM). Chris is a smart guy who runs his business ‘by-the-numbers’. This conversation brought back memories of interactions I had with Charlotte Yates, Board Member of Telesoft, years ago, and how impressed I was by her business development skills – and equally impressed by her drive and focus on key performance indicators (KPIs).
As it relates to the Telecom Expense Management (TEM) market, I started to think more about numbers, in general, and more specifically about investments being made and the expectations around return on investment (ROI). I wondered why there is this level of interest among Private Equity firms (PEs) in this market segment. I ran into yet another acronym: “TAM” or Total Available Market (TAM) is the total annual revenue, expressed in dollars, that a business would earn if it achieved 100% market share or, in this case, 100% of the TEM market – or for our purposes let me call this the “TEM TAM”. I think this PE investor interest comes from a couple of generally accepted market assumptions:
- First, it is generally accepted that the annual global spend by enterprises on fixed and mobile telecom services is in the range of $1.5 trillion.
- Secondly, the waste, errors and/or inefficiency in the enterprise fixed and mobile telecom environment is 10% to 15% of annual spend.
A quick calculation for the low-end of the TEM TAM and it rolls in at $150 billion. $150,000,000,000 (that is a lot of zeros!). On paper, for most any investor, the potential exists for a very large and seemingly attractive investment opportunity. With this top of mind, let’s go back to the numbers and draw a rough high-level conclusion that indicates in the successful capture of just 1% of the total available market, there exists the probability of growing a very significant $1.5 billion annual revenue business. As Tim Colwell, SVP of Efficiency First® Adoption at AOTMP (not an acronym), might say “I need to get me summa that”. This highly attractive market has attracted many competent companies. The largest TEM provider, by a very substantial amount versus the second largest company, is Tangoe. Tangoe’s total annual revenue is in the ball park of $200 million. Even for the market leader, this represents a very small percentage of the TEM TAM and huge untapped opportunity.
AOTMP is an information services and advisory firm that serves the telecom management industry. While we don’t compete in the TEM market, we have research and insight via hundreds of global enterprise and vendor relationships as well as tens of thousands of database contacts. If we size the current TEM market (including Tangoe) at $200 million in annual revenue, the estimated total annual revenue for the overall industry comes in at less than $500 million. Why only $500 million from a TEM TAM estimated at $150 billion? I’ll apply AOTMP insights and years of industry experience to offer an opinion after I provide a little background positioning:
The TEM industry is fairly mature. It essentially began a couple years after the 1982 agreement to the Consent Decree and Judge Greene’s decision in the United States V. AT&T to break-up up the “Bell System” with AT&T relinquishing control of the Regional Bell Operating Companies (RBOCs). In the early days, prior to the TEM acronym being applied, I remember sitting with a yellow legal pad, a highlighter and a pencil in front of a 2 ft. long carrier invoice identifying potential billing errors for corrective action and customer refunds. Over the last 20+ years, this industry has evolved and expanded, but nowhere close to the pace computing power/technology as generally defined by Intel co-founder, Gordon Moore, with his coined “Moore’s Law”. Currently, we have more computing power in a SmartPhone than we had in a roomful of computers when the TEM industry started to gain market traction. IBM Watson IoT and Visa just announced a business partnership which, among other things, will soon allow us to order and pay via a SmartWatch or other connected device; and just 10 minutes ago, I simply called out “Alexa, please send me a box of Pilot Precise V7 pens” and in two days, Amazon will have them at my door. Yet with this amazing advancement in technology, almost every TEM company is still to some degree manually keying in invoice data for validation and cost allocation. Technicians are still dispatched to a ‘phone closet’ to check RJs and MUXs with T-Birds in an attempt to confirm the accuracy of telecom circuit inventories. Today, the vast majority of global enterprises continue to manage their fixed and mobile environments with their own employees versus outsourced or out-tasked to a telecom expense management company. It does not seem to matter if the solution provider calls themselves a telecom expense management company (TEM), technology expense management company (TEM), communication lifecycle management company (CLM), enterprise mobility management company (EMM) or other variation of naming convention or acronym. The majority of the total available market remains unavailable within the enterprises.
Now, back to the question at hand: why is this industry, by whatever chosen name, only a small fraction of what the Total Available Market (TAM) would indicate it should be? In general, it is and has been the same enterprise TEM customers who over the years have made the decision to outsource to or contract with a TEM vendor. These enterprises have either stayed with their existing TEM or they have cycled through multiple TEMs via RFPs or other selection processes, and along the way attempted to drive their costs down while squeezing out profit margins for the vendors who have “won” the business. The available market has not expanded and, in general, the industry has not expanded. With armies of salespeople, it has not grown to the expected or projected levels that the numbers would indicate. Given the potential market size, the net-new addition of enterprise customers has not occurred at a pace that shows any real progress toward capturing a reasonable portion of the TAM. The TEM business model has not evolved and the focus, for enterprise customers and their vendors, largely remains on percentage of spend pricing, reaching a ‘set-it-and-forget-it’ state to control service delivery margins along with the attempted delivery of ‘savings guarantees’ which are creating an immediate lack of alignment for the vendor and their enterprise customer.
The telecom expense line item is one of the largest cost categories in any corporation. It is a big and important number requiring proper attention and management. It has become and continues to gain traction as a strategic asset in most companies. From the Board of Directors, to CEOs, CTOs and CIOs on down, telecom – unified, software defined, cloud-based, mobile, machine-to-machine, etc. — is transformative, surrounded by risk, and strategic to nearly all corporate initiatives. At its formation, the alignment between enterprise customers and TEM vendors needs to be elevated. If it is not, enterprises will continue to cycle through TEM vendors yielding no real market growth (and perhaps contraction) for the industry while the overwhelming majority of the total available market remains under management within the enterprises with no compelling reason to change their business model of handling these services and expenses with internal resources.
Let’s go back to those numbers I once dreaded: the current TEM market is less than $500,000,000 and the estimated total available market is $150,000,000,000. My opinion, in the category of “easily said” (I get that), is that enterprises need to recognize the TEM or EMM (if mobile is stand-alone) vendor as a tactical and strategic business partner. The vendor needs to lead this discussion defining delivered value with every data point extracted or produced being scrutinized for its application in key and supportive decision-making processes: Why does this matter to my customer? How does this impact their business? Do they clearly recognize the value we bring? (rinse and repeat). If the enterprise is not at all on that page while continuing to push forth percentage of spend pricing and asking for on-going savings guarantees, it’s important to recognize there is a $150 billion market that remains available.
My second opinion is that the majority of the enterprise market is waiting on the vendor who effectively delivers a software-as-a-service (SaaS) solution providing very clear delivery of complete and accurate data with multiple format, output and interface options and a fixed monthly pricing structure with deliverables and cost pointing to high reliability for the removal of internal departmental headcount with a distinct and acceptable ROI. The enterprise customer is focused on centralizing, consolidating and standardizing. The vendor needs to include a relentless focus on strategic alignment, productive dialog, delivered value and tactical decision-making. There are big numbers in play. Enterprises, globally, need assistance engaging a best practice solution to efficiently manage these growing numbers so they can drive key corporate initiatives.