North American ILEC cost transformation

Incumbent local exchange carriers (ILECs) around the globe have struggled to maintain revenue growth and EBITDA margins, as new cable, wireless, and internet-based competitors offer an expanding suite of lower-cost communications services and bundles. These marketplace challenges have led many carriers to attack their legacy cost structure, rethink operating models, and turbo-charge company-wide transformation on a number of dimensions.

A major North American telco, with fixed line, wireless, high speed internet, and entertainment businesses, required such a wide-reaching cost transformation program.

Challenge
The challenges (and opportunities) to tackle the cost transformation program, were multi-fold:

• Need to identify initiatives that could drive in excess of $1 billion in impact
• Large, attackable cost base but few meaningful "business transformation" cases in play and few internal champions
• Little sense of urgency to take action, in many business units and functions
• Highly-conservative business culture, incremental thinking, and focus on quarterly results to the exclusion of broader change agenda
• Unwillingness to challenge status quo, including unions, management spans/layers, and existing supplier arrangements and contracts

Approach
A.T. Kearney worked side-by-side with the company's cross-functional team to design, plan, and launch critical programs over a two-year period - with broad scope and bold targets. The approach was centrally-led and fact-based, with well defined program governance, both steering and project management. Stretch financial targets were determined jointly with finance and operations, for both operating expenses (opex) and capital expenditures (capex).

Programs included:

• IT cost transformation – billing services, IT services, system integrators
• Supply chain integration and optimization – wireline and wireless, network, enterprise, and mass market business units
• Restructuring of all major supplier deals, encompassing network infrastructure, direct and indirect spend categories
• Integrated outsourcing and offshoring program – IT, call centers, network, and BPO/shared services
• Carrier services and spend optimization
• Wireless retail store transformation
• G&A restructuring – real estate, fleet, HR, corporate services, and finance
• Management spans/layers and value-add

Results
The teams achieved approximately $800 million in cost reductions in the first year and in excess of $1 billion in run-rate benefits over 18 months. These savings exceeded the company’s targets and timeline, and established the credibility and momentum to embark on Phase 2 of the multi-year transformation agenda, which will focus further on people, process, and footprint restructuring.

The company's cost transformation program was commended by external financial analysts and recognized publicly in the media as a key factor of the company’s success in the last few years.

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