Testing

Category: Capex Optimisation

  • How to enhance accuracy and efficiency of Network Analytics for 5G

    How to enhance accuracy and efficiency of Network Analytics for 5G

    As 5G gains traction, CSPs will look to unearth its potential benefits. However, what 5G will also bring in is a compound effect of the challenges that CSPs face already.

    The Three Challenges CSPs face

    The first of these challenges pertains to the increasing capex intensity which is plaguing the telecom industry, which currently stands at 16%, the highest among any other sector in the world. The second challenge comes from the growing network complexity which is quickly as CSPs continue to pursue network-wide densification and virtualization. The final challenge comes from the fact that customer expectations, as it historically has, is rising in multiples, and with the number of connected devices and subscribers being added to the mix increasing, and leading to the an increase in data volumes, the expectations of customers is rising manifold.

    The above challenges are ones CSPs need to deal with in a 4G environment, and the 5G landscape is only set to accelerate these trends further.

    How will 5G change things

    One of the better-known advantages that come with 5G is the fact that it opens up CSPs to operator in a new arena beyond the usual consumer space: Enterprises. With 5G CSPs will play an integral instrument for driving newer use cases around IoT, industrial automation, smart cities, autonomous vehicles, robotic surgery and a lot more. What this means is that, for CSPs, 5G use cases will now bring in 3 larger use cases:

    1. eMBB (Enhanced Mobile Broadband) – which is designed for better user experiences on consumer devices, providing extreme network speeds and capacity

    2. mMTC (Massive Machine-type Communication) – which aims to provide connectivity to a huge number of devices whose traffic profile is typically a small amount of data (spread) sporadically.

    3. URLLC (Ultra-Reliable Low Latency Services) – which focusses on low latency, high reliability and high availability aspects

    With a focus around these three overarching use cases, 5G promises to deliver superior experience to not just subscribers but enterprises also. From a consumer angle, for close to 60% of smartphone users, the highest expectation for 5G is to deliver speeds faster than current mobile networks. Across the globe, data consumption is increasing by more than 40 percent every year. Video in particular will account for 75 percent of network traffic by 2024, up from 55 percent today. Networks will need to adapt from Standard and High Definition video resolution to 2K and 4K, placing higher requirements on speed and quality. Further into the future, services like AR/VR applications will put even higher requirements on network performance. This demand for better customer experience means that operators must continuously adapt and expand network capacity.

    From an Enterprise standpoint, with 5G having the capability to reduce latency to sub-milliseconds, businesses can start to consider the nexus between cloud, mobile and enterprise applications. More features and functionality can be extended to the mobile fleet and frontline employees. The use cases for ultralow latency apps can be vertical specific. This can include the financial services for high-frequency trading, as well as mining and energy companies rolling out autonomous fleets that are highly responsive to their environments. Moreover, 5G complements other emerging technologies such as AI/ML, robotics and IoT to further drive enterprise digital transformation both internally within an organization as well as externally in customer engagements.  Of course, at the end of the day, 5G is a telecom technology, and hence CSPs will be at the heart of driving 5G within the enterprise. However, this will also mean a new area where CSPs will need to direct capacity.

    What all the above add to is the need to build Superior experiences, which will be the main driver to generate new revenue stream in 5G era.

    The Need for Intelligent Capacity Management

    The main enabler to provide a superior experience will be an   approach based on Artificial Intelligence and Machine Learning. With capacity as the main enabler for raising speed to the 10x Gbps mark an Intelligent Capacity Management approach will in-turn help to meet the future growth requirements of massive device volumes.

    In line with this, an accurate capacity management process will help CSPs to differentiate themselves from the competition. Why Accuracy? Accuracy is key in any capacity management process as it directly impacts the Capex and ROI. An Intelligent Capacity Management solution built on Intelligent Data Management, Advanced Automation, and Domain-Driven Data Science, can help network planners achieve accuracy in each phase of capacity management process of Assessing, Planning and Optimizing capacity augmentations.

    Intelligent Capacity Management for Better Network Planning

    To succeed in the 5G journey, CSPs will need to make the right investments to gain competitive advantage and enhance end-user experience. However, such investments are highly cost intensive, both in terms of Capex and Opex. Any inaccuracies in the overall network investment planning can lead to unintended impacts on company financials and can create significant network inefficiencies. Hence, an Intelligent Capacity Management can help ensure accuracy to make the right Network Investment Plans.

    Intelligent Capacity Management for Better Customer Experience

    5G will also enable CSPs to increase revenues due to its potential of not only transforming mobile communications, but also completely replacing broadband internet. Considering most 5G deployments are focusing on FWA (Fixed Wireless Access) as the first use case, this is clearly the intent among most telecom operators. However, this will demand a dramatically broader capacity than CSPs are generally used to providing. This can only be achieved through an Intelligent approach to Capacity Management.

    Business Benefits of Intelligent Capacity Management

    An Intelligent Capacity Management Approach can bring about a:

    • 70%+ Increase in Accuracy
    • 80%+ Increase in Operational Efficiency
    • 7%+ Increase in Capex Efficiency
    • 10%+ Increase in ROI

    Read a case study on how we helped a Tier-I telcos increase their revenues by over 12% through intelligent network investment planning.

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  • ¿Por qué los operadores de telecomunicaciones necesitan una gestión de contratos basada en ia?

    ¿Por qué los operadores de telecomunicaciones necesitan una gestión de contratos basada en ia?

    Existe un adagio bien conocido de que las empresas funcionan con la confianza de las personas. Sin embargo, en el mundo práctico real, los acuerdos contractuales siguen siendo el último elemento de confianza. Los documentos del contrato brindan la garantía necesaria a las empresas de que ciertas obligaciones son legalmente vinculantes y, por lo tanto, los negocios pueden realizarse con total confianza. En ese sentido, mirando el contexto más amplio, los documentos contractuales son la fuerza impulsora que permite a las empresas funcionar sin problemas y de manera eficiente.

    Valor añadido

    En el caso de las empresas medianas a grandes, es casi imposible rastrear todos los contratos activos manualmente. Atrás quedaron los días en que los administradores de contratos indexaron manualmente todos los contratos dentro de los archivadores, actualizaron las hojas de Excel y rastrearon las copias en papel en correos electrónicos aleatorios. Imagínese como un administrador de contratos respondiendo a todo tipo de consultas provenientes de diferentes partes interesadas (como cláusulas legales, daños por responsabilidad, sanciones por incumplimiento, cronogramas de pagos, notificaciones de renovaciones, calidad del servicio, aclaraciones de reembolso, cláusulas de penalización, matrices de escalada, etc.) por miles de contratos. Teniendo en cuenta que los gerentes de contrato son los custodios de todas las solicitudes de contrato, imagínese ser responsable de este tipo de consultas día tras día. ¡Qué agotador podría llegar a ser!

    Hoy, el tiempo y las habilidades de los gerentes de contratos son más valiosos para agregar valor al negocio, en lugar de apresurarse para algunas de estas rutinas administrativas. Si bien la digitalización parece ser la respuesta más obvia, es más fácil decirlo que hacerlo. Incluso si uno puede digitalizar y llevar todos los datos del contrato a una base de datos de búsqueda, la complejidad de la contratación no termina ahí. De hecho, todo comienza cuando se crea el contrato.

    Redacción de contratos

    La redacción de un contrato es a menudo una actividad tediosa y compleja que involucra a múltiples partes interesadas. Pocas organizaciones han encontrado una forma de crear plantillas para ciertos tipos de contratos como un paso para reducir las complejidades involucradas. Sin embargo, cuando una organización típica de mediana a gran escala maneja una gran variedad de contratos, el proceso de redacción se convierte en una red larga y compleja de tareas interrelacionadas. A menudo, no hay flujos de trabajo uniformes cuando se trata de redactar un contrato, colaborar, capturar metadatos y otros detalles esenciales que lo acompañan.

    Tómese un momento para reflexionar sobre un nuevo mundo, donde usted, como administrador de contratos, puede iniciar un proceso de redacción de contratos con unos pocos clics. En este mundo, puede elegir una plantilla de contrato basada en el tipo de contrato, adaptarla e invitar a otras partes interesadas a colaborar en línea. Imagine que, de principio a fin, lo guiará, paso a paso, un sistema que realiza un seguimiento de todos los elementos necesarios, mientras el documento del contrato está en construcción. El sistema en cuestión tiene todas las características integradas necesarias, como líneas rojas, seguimiento de cambios, hilos de comentarios, referencias a otros documentos, comparación de notas, etc. Además, el sistema puede revisar contratos o cláusulas similares redactadas en el pasado, y tiene una capacidad de búsqueda todopoderosa que extrae información del repositorio. ¡Qué liberador podría ser! Como administrador de contratos, podrá contribuir a tareas de mayor valor una vez que se le “quite la mano” del tedioso proceso de redacción actual.

    Operadores de telecomunicaciones y contratación de IA

    En grandes organizaciones complejas, como los operadores de telecomunicaciones, el volumen y la variedad de contratos que se manejan a diario suelen ser altos. Los operadores deben gestionar acuerdos contractuales y establecer contactos con diversas partes, como proveedores, clientes, propietarios de tierras, arrendadores de propiedades, agencias, etc. No todos los tipos de contratos pueden ser modificados de acuerdo con el gusto del operador. Al mismo tiempo, los gerentes de contrato deben manejar cientos de variantes que abarcan diferentes regiones de operaciones. ¡La vida no es para nada simple!

    En tales casos, es importante equipar a los administradores de contratos con herramientas de automatización que puedan manejar nuevos contratos o documentos de renovación de manera más efectiva. La idea es automatizar la ingesta de contratos, indexar ciertas cláusulas importantes, generar alertas contra las líneas del contrato que se están desviando, contextualizar cada tipo de contrato y finalmente insertar los datos en un gran almacén de datos.

    Con los avances en potencia informática y almacenamiento rentable, las aplicaciones basadas en IA se están convirtiendo en una realidad en muchos dominios, y el dominio de contrato no es una excepción. Los modelos IA / ML especialmente diseñados pueden extraer datos específicos de los documentos del contrato con niveles razonables de precisión. Con el tiempo, a medida que los modelos IA / ML entrenan en nuevas variantes de contrato, los niveles de precisión mejoran considerablemente. En términos de ahorro de costos de Opex, la contratación de AI puede liberar una buena cantidad de mano de obra que se puede aplicar a otras actividades centradas en el valor en el negocio. Además, al reducir las entradas manuales y automatizar todo el proceso, la contratación de AI puede mejorar la precisión de los datos del contrato y, por lo tanto, mitigar los riesgos. Mediante la capacidad adicional de integrarse con otros sistemas, se pueden evitar posibles responsabilidades y pérdidas. Además, los gerentes de contrato pueden tener una visibilidad clara del desempeño del proveedor, lo cual es tremendamente útil durante las renegociaciones.

    Muchos operadores de telecomunicaciones ahora buscan incorporar varios niveles de automatización al aprovechar tecnologías como IA / ML y avanzar en su viaje de transformación digital. IA Contracting es uno de esos pasos importantes hacia el futuro digital.

    Para saber más acerca de cómo nuestra solución ROC Network Asset Management puede ayudar a su organización.

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  • Videos still loading? They don’t need to anymore

    Videos still loading? They don’t need to anymore

    Video continues to exert its sway as the most popular digital medium, quickly becoming the new storytelling norm, over text and still images. However, the consumption of high-quality video through mobile devices – which happens to be the most popular viewing option – is dependent on advanced technologies such as 4G, which is the prevailing streaming mobile technology for today, and the years to come. With 5G on the horizon, the technology holds promise for lightning-fast data speed which will leverage on the foundation built by 4G.

    The sheer volume of online video content has witnessed an exponential increase in the last few years and is only expected to skyrocket in the near future. Consider these statistics:

    • 82% of total IP traffic (both business and consumer) will be video by 2022[1]
    • Consumer Video-on-Demand (VoD) traffic will nearly double by 2022[2]
    • Mobile video will increase nine-fold between 2017 and 2022, accounting for 79% of total mobile data traffic by 2022 end[3]

    It’s a no-brainer that video is now the norm and the coming years will only witness burgeoning consumer demand for high-quality video content consumed on mobile devices, including in 4K and 8K formats (in soon-to-be-released mobile devices). Growing demand for seamless and consistent viewing experiences across multiple devices and platforms will lead to an increase in the need for advanced mobile technologies supporting higher speeds, seamless connectivity, and sufficient capacity.

    Industry sentiment is that 5G will be the powering factor for true seamless, high-definition video delivery.  However, I believe that 4G, provided it is smartly planned and managed, will be able to deliver as required. This comes with a caveat that CSPs need to overcome challenges that have emerged from their current network investment planning processes.

    Challenges Faced by CSPs in Offering Quality Video Content over Mobile Devices

    Though technological advancements in live video streaming continue to proliferate, content providers are faced with certain critical challenges when it comes to providing seamless experiences to consumers. Some of the top challenges include:

    Communication intensity growth: Communication intensity can be defined as: The ratio of the amount of time users spend on their devices, as compared to the absolute number of digital customers (unique subscribers, smartphones and devices). In today’s ecosystem, both metrics are increasing exponentially, and according to Ovum, communication intensity will grow by 63% over the next ten years. This trend is being fueled predominantly by video-related content.

    The dramatic increase in demand has really challenged CSPs to maintain high benchmarks for customer experience while mobile subscribers consume copious amounts of streaming content. 

    Lack of ubiquitous 4G availability

    As described above, 4G can offer more than the required bandwidth to have videos stream in real-time. However, speed is of little benefit if it isn’t accessible. There have been improvements made in terms of coverage, however ubiquitous 4G availability is still far away. This is a struggle which even the most developed nations deal with most of the time.

    To elaborate further, when I say 4G availability, it means the proportion of time users with a 4G handset have a 4G connection. To put it into context, 4G availability of 80% of a tier 1 CSP means that on an average their subscribers are connected to 4G services 80% of the time.

    So, what exactly happens during the remaining 20%? When subscribers lose their connection to a 4G network, their smartphone usually gets handed over to a legacy technology such as 3G to maintain service continuity. In such a scenario, continuing to stream a high definition video will likely be up to 4-5 times slower than 4G, resulting in an extremely poor video streaming experience.

    Lack of intelligent future proof planning

    4G technology, which can offer a truly superior mobile broadband experience, has witnessed an extraordinary surge in usage resulting in exponential data growth. If this growth is not managed intelligently then it will lead to network congestion, degrading end-user experience. For this reason, CSPs must understand their current state of the network in terms of end-to-end QoS, radio conditions, and capacity requirements. Based on this, CSPs can establish strong mechanisms to measure QoE from encrypted video content streamed into their network and leverage advanced analytics to establish actionable correlations between QoE, QoS, radio conditions and capacity. Only then can they be truly future-ready to meet the demands of consumers of video content and handle the forecasted exponential growth of video traffic seamlessly and efficiently.

    Moreover, a powerful analytics solution enables CSPs to have a 360o visibility into the network impact and consumer trends of video data growth to improve revenue and gain competitive advantage.

    [1] https://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/white-paper-c11-741490.html

    [2] https://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/white-paper-c11-741490.html

    [3] https://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/white-paper-c11-738429.html

    To learn more about the factors that enable a seamless video streaming experience, Watch our on-demand webinar : “The essential ingredients to gain competitive advantage in the mobile video era”

    Watch Now!

  • Network Capacity Planning – it’s time to stop getting bamboozled!

    Network Capacity Planning – it’s time to stop getting bamboozled!

    Network capacity planning is not a piece of cake! It’s a complicated effort that demands several considerations – not just the capacity of the network, but also the type and volume of the traffic at different periods. Network planners should also be able to estimate the current and future capacity needs and make investments wisely.

    Capacity planning involves identifying the areas of network congestion and underutilization and distributing the traffic evenly across the available networks. Considering the sheer number of users across the network, it would require considerable effort from the operators to achieve the results. This is important because the ROI from your network investments depends on how efficiently you utilize the resources. Not just that, it also depends on how accurately you estimate future capacity needs.

    Well, abnormal traffic scenarios crop up out of nowhere. A catastrophe, a sensational video or a political upheaval can be the cause of a sudden increase in network traffic.  In such cases, all your network planning strategies can go haywire. As you know, it is utterly impossible to predict such situations, but unfortunately, the likelihood of such instances is also very high. The only way out for Telcos is to prepare the networks to confront such challenges before they impact the customer experience.

    On the contrary, there are scenarios when the networks remain underutilized for several hours a day or night. This pattern is often cyclic and driven by user habits. For example, network utilization is minimal during nights for almost all customers. For business users, the usage is less during weekends. For network planners, these idle hours translate into a significant business loss. Though they are aware of these facts, many Telcos are still not able to drive strategies to optimize the network during the idle hours.

    Let’s now think about the investment. One of the major concerns for an operator is to identify and prioritize the investment areas. Well, you must have identified hundreds of coverage holes where investments are urgently required; however, you may not be able to throw money in all of them at one go, right? How do you prioritize them and pick the best area suitable for your budget? How do you ensure that these investments will yield immediate returns?

    It’s a well-known fact that capacity constraints severely impact the customer experience. Today’s on-the-go customers do not compromise quality. Any network issues can result in customer frustration. Hence, identifying the potential areas of capacity constraints becomes a priority in network planning.

    Come to the case of VIP customers. They are the elite group not just due to their social status but also because of their relevance in your business. With several thousands of followers, they make an impact with everything they speak or do. If the poor network affects their day’s activities, it will turn out to be a disastrous deal for you. Think how they will directly or indirectly boost your customer base if things happen as per their wish.

    Next, is your capacity planning strategy designed in line with your marketing goals? Why should it be so? Well, the first and foremost goal in any marketing strategy is to identify the potential customers. Before launching a promotion, you should first determine who are the best targets for the products. This requires a proactive marketing approach, which means that you should have the products designed with these customers in mind. For example, before launching a 4G offer, you should understand the availability/affordability of 4G phones among your target group. How will you achieve this?

    Gaining insights into network traffic, customer usage habits, marketing metrics, and market pulses require a dedicated network planning.

    Stay tuned to know how Subex’s approach to capacity planning helps Telcos address these challenges.

  • Does a Digital Lifestyle offer Operators opportunities, or is the path more ominous?

    Does a Digital Lifestyle offer Operators opportunities, or is the path more ominous?

    It stands to reason that the Digital lifestyle of consumers will dramatically impact how operators generate revenues over the next 10-15 years. Transformations are taking place that will move activities, entertainment, commerce, healthcare, transportation, and most other aspects of our lives into Digital modalities. This has invited thousands of micro-providers of applications and networks into the mix, quickly marginalizing the value of the operator to merely an “enabling pipe.” This puts the operator into a competitive situation, ultimately impacting margins. But that’s only on the revenue side of the equation… the story could become far more complex.

    For an operator, the days of 25%-40% EBIDTA are waning, if not almost gone (in many regions). Pressures on pricing remain downward, with new product offers being the primary method to sustain acceptable revenues and margins. This has opened the door for some impressive creativity by many operators, especially in developing markets. In many cases no market appears off limits, as seen by the offerings by progressive organizations like MTN in Africa: Who would have anticipated an operator would offer personal transportation services rivaling Uber?

    These seemingly odd moves are, in fact, brilliant moves by operators to seek new sources of revenues as their businesses are being redefined by the digital services we are quickly becoming reliant on. The impacts on revenue models due to this change in the business are stunning: Traditional billed services like voice, and even data, are fading in importance. Revenue models are instead focusing more on casual services, pay-per-use services, marketplace services, etc. Put more simply, the “pipe” is no longer where the earning potential lies for the operator.

    So now a previously non-agile, large operator business is finding itself competing with, and in many cases partnering with, literally thousands of aggressive, hungry micro-entities that provide products and services accessed by the networks. There is less reliance on monthly guaranteed revenue; the battle for revenue very often resides in millions of micro-transactions.

    All of the discussion cannot focus entirely on revenues, however. Margins are also sustained by costs. Agility, therefore, must exist on the cost side of the operator business. In the old world of monthly recurring and predictable revenues, costs could be managed and allocated more confidently. Opex and Capex planning and forecasting practices were based on budgeting with a high degree of certainty. But as revenues models are changing, so must cost models. Where possible, operators will need to employ similar creativity to curbing costs, as they are with earning revenues.

    How can operators, therefore, modify cost models in the business to be as aggressive and variable as the revenue models they rely upon? This is where the opportunities for SDN/NFV networks can shave significant costs, while changing operator cost models in ways that were not previously achievable.

    Software-Defined Networks (SDN) and Network Function Virtualization (NFV) will allow operators to provide Network-on-Demand and Service-on-Demand models to consumers, while effectively minimizing, if not eliminating the need for human intervention. The costs associated with truck rolls, call centers, and expensive specialized network equipment will be dramatically reduced, resulting in decreased Opex and Capex burdens on the business. The savings need to expand further, however.

    In current cost models, operators must deploy and maintain network services around the clock, which consumes significant and ongoing expenses. However, if a network is based on SDN/NFV architectures, the deployed services are no longer in a fixed position in the network, simply because they are now software-defined and/or virtualized. This means an intelligent network can move assets where needed, and when needed. These assets are capitalized as licensed instances; so now an operator can have a pool of 1,000 licenses for a virtual service, and deploy them only as necessary.

    This type of dynamic deployment model should allow operators to negotiate dynamic cost models as well; imagine only paying for a license when you have it deployed (and it is generating revenue). While this idea may seem far-fetched, consider that now the network functions we are discussing are no longer controlled by a few network equipment and function providers; micro-entities (application developers) can now produce those functions, often at far less expensive price points.

    The business transformations taking place in operators globally are forcing entirely new ways of addressing margin pressures, as the revenue and cost variables operators have historically used are no longer the same. Looking beyond margins in consumer-facing products and services, new network cost models must be explored, especially since those models were based on what is now an outdated means to earn revenues.

  • Telcos CAPEX is here to stay. Optimizing it is the way to go.

    Telcos CAPEX is here to stay. Optimizing it is the way to go.

    “A lot of people have been talking about how capex is going to come down with SDN and I’ve said, ‘No, it’s going to stay the same for Verizon’  – Fran Shammo, CFO, Verizon. May 2016

    This comment right from the head honcho of one of the largest Telcos in US cannot be taken lightly. Despite lot of talk in the industry about SDN / NFV CAPEX reduction benefits, we’re seeing skeptical questions around smooth transition to virtualization. But I will keep SDN /NFV discussion for some other day. Let us focus on the topic – CAPEX spends. Verizon’s CFO has confirmed its CAPEX spend going to stay, despite network virtualization!

    The CAPEX focus could be different for different Telcos. For some Telcos like Verizon, their CAPEX spend mainly focused on future technologies, leading the market, greater customer experience etc. For some other Telcos, their budget constraints force them to think hard and do delicate trade-off between strategical “revenue-growth” projects and tactical maintenance projects to keep up with network growth, retain customers, improve quality of experience etc. With this hard balancing at hand, what if Telcos are equipped with smart tools & methodologies that could help in optimizing their on-going CAPEX? But, is such thing exist? I will get there in a moment. Please bear with me.

    First, let us go through few industry trends.  In our recent study from Gartner, we got few interesting insights.

    Here is short summary on the insights:

    • On an average Telco spends 15% – 20% of annual revenue on yearly Capital Expenditure
    • Increase in Capex spends w.r.t revenue (CAPEX Intensity = Capex / Revenue) is not translating into equivalent increase in revenue growth
    • Correlation between CAPEX Intensity and Revenue growth is a weak factor for Telcos mentioned in the regions. This means revenue growth is not linearly correlated with CAPEX spends
    • 5-year flat growth in revenues across geographies is not encouraging. Max 20% 5-year top-line growth in North America region and deep negative for Europe region (-11%)
    • Cost of capital over last decade is higher than RoI on an average across the industry
    • Notable positive point is the margins are maintained in 25 – 35% range across geographies. And it is imperative to maintain this margins to generate free cash to fund next CAPEX cycle but if not completely.

    The above stats where CAPEX spends are not reaping substantial revenue growth indicates two major viewpoints:

    1. Strategic capital investments have a slightly long gestation period but not comparable to capital cycles of traditional industries like manufacturing industry.
    2. Bulk of CAPEX go into maintenance projects. That is, to keep-up with current network demand juggernaut, customer retention, quality of service etc.

    For instance, a good chunk of leading Tier 1 North American operator’s CAPEX goes into wireless network for densification and getting future ready for 5G deployments. This could be a case for many big Telcos – investing on future technologies. On the contrary, we have also seen majority of Telcos’ CAPEX going in for second type of investment – meeting current network data growth. This is nothing wrong as such and very much required to keep customers happy.

    However, if one looks at this fact in light of recent market research findings from one of the big four audit firms, it gives a different perspective. The research reveals that majority of the Telcos not equipped with enough tools or industry best practices to assess the CAPEX spends on projects, evaluate ROI for each such investment and perform sustainable capital allocation. This is a surprising revelation. It simply means that many Telcos are servicing on-going CAPEX without rigorous assessment on actual RoI vs planned RoI, are not taking forward lessons learned from previous CAPEX cycle. Even the Telcos who do have rigorous processes, right incentive structure, accountability of results etc. actually misses a critical point.

    What Telcos underestimate?

    The critical point is – generally the assets, especially the network assets are viewed from monetary value perspective only in this whole CAPEX scheme of things. The value that can be derived from un-lit or under-used network asset capacities for the CAPEX planned is not given deserved thought or action. This is because of the fundamental reason that financial and network data of assets are lying in silos. This data is never used together to gather useful insights to put the network assets to sweat to furthest possible aligning with ever growing network demand and broader strategic CAPEX – RoI goals. Telcos can do more with their data. It would require collaborative efforts with right partner to unleash the power residing underneath the siloed systems.

  • The Steady Decline in Operating Cash Flow for Telcos

    The Steady Decline in Operating Cash Flow for Telcos

    How does one gauge the financial performance of a telco?   Earnings growth, commonly measured using EBITDA, is favored by many analysts.  But how much of the story does this metric tell?   For a telco, OIBDA (Operating Income Before Depreciation and Amortization) may be a bit more insightful given that it generally excludes income and financial events outside of the core business.   Of course, there are many secondary metrics that often get attention during earnings calls and we know them well: ARPU, postpaid vs. prepaid mix, subscriber growth & churn, etc.   I’m going to make my case in this space for another metric that should be top-of-mind for executives, corporate boards and analysts: Operating Cash Flow or OCF.

    Let’s start with a key component of OCF which is Capex Intensity.  This is simply the ratio of Capex to Revenue.   Ideally, it should be normalized to exclude one-time significant events like investments in spectrum.   Subex conducted a study of financial results for 44 large tier operators between 2011-2015*.   One of the interesting, if unsurprising, findings is that Capex Intensity has been rising steadily.  Consider the following chart.  In 2011, the average Capex Intensity was 15.9% for the operators in our study.   In 2015 it was 18.9%.   We also have data going back to 2008 which shows an industry average of 13.3%!

    The chart shows Capex Intensity for Americas and Europe are slowly tracking upward.   In 2015, there was a huge spike for the big groups while there was a dip for APAC.  This is largely explained by inclusion of the big Chinese operators (China Mobile, China Telecom and China Unicom) in the “Groups” category provided by Gartner due to their scale.  Capex Intensity for these three was over 38% in 2015 as China scrambles to build out LTE infrastructure for all those folks using WeChat and shopping on Alibaba!

    Now consider the five-year trend for OIBDA.

    Between 2011 and 2015, for the operators in the study, OIBDA margin declined an average of 2.2%

    This brings me back to Operating Cash Flow (OCF).   Anyone who runs a business will tell you that free cash from operations is their most watched number.   I ran a commercial kitchen with 5 employees for several years and, believe me, I lost many nights sleep over our cash position.  Then I got back into telecom.  What was I thinking?  But I digress…

    My argument is that the influence of Capex tends to get buried in financial statements.   Certainly telcos have to invest in networks to fuel subscriber growth and deliver a rich customer experience.  But the trends in Capex Intensity (up) and OIBDA margins (down) are unmistakable and they compound each other.  Take a look at the next chart.

    OCF = (OIBDA – Capex)/Revenue, or equivalently, OIBDA Margin – Capex Intensity.    So it is a fairly complete measure of the operational health of an operator because it considers Revenue, Opex and Capex.  Anything left over can be used for debt service, taxes and dividends.   Between 2011 and 2015, OCF among operators globally fell 5.3%.   This is a significant observation.

    What can reverse the trend?  In the long term, business models that better compete with OTT players is certainly a hot topic of discussion.  Perhaps SDN and NFV will tilt network economics back in the telcos’ favor.   In the near term, it is clear that better Capex governance and controls can at least slow the trend.  Keep in mind that 100% of Capex savings flows to the bottom line, while an incremental dollar of revenue only contributes the margin amount.

    I see these industry numbers as a call to action—managing and reducing Capex should be an imperative at the corporate board level for every telco.   Capex governance includes:

    • Giving commercials and finance teams some of the same visibility to asset utilization as the network teams.
    • Aggressively exploiting cases where assets can be reused before purchasing new
    • Proactively selling off excess assets while they still have value to other telcos
    • Keeping financial and technical records of assets fully aligned
    • Placing better controls on high-risk assets at the edges of the network such as CPE, set top boxes, access points, small cells and handsets

    I’ll close with this observation— while SDN and NFV bring the promise of reducing Capex via virtualization and commoditization, the economics are not yet proven and the transition will take years.  Early adopters of NFV have found, for example, that it may take multiple Virtual Network Functions (VNFs) to replace the same function performed by one instance of legacy software on dedicated hardware.  This erodes Capex savings from virtualization.  The lesson is that exploiting approaches to reduce Capex in the existing network should not get lost when chasing the promise of virtualization.

    If you would like more background on the methodology used for our analysis, and the operators we included, please write to me.

    *Raw financial data supplied by Gartner.  Analysis by Subex.

  • Operational Insights lead to CAPEX savings

    Operational Insights lead to CAPEX savings

    Telecom companies across the board often crisscross their blades with OTT players. While it’s true that Telcos are trying to find sustainable new avenues – few are succeeding, their current-state CAPEX keeps growing at an ever faster clip. This is mainly due to exponential data demand from customers resulting in increasing investments into network to keep up quality customer services. With ubiquitous mobile connectivity and video traffic demand spiraling-out, it puts enormous amount of stress on the networks. Telcos need to continue investing in this consumer trend [current-state CAPEX] and at the same time figure out alternative growth areas [growth CAPEX].

    To invest in new avenues with better ROIs, Telcos need to keep close tabs on their CAPEX that goes into network for present growing customer demand. And follow the traditional mantra – keep the current cash flow as cushion and invest for future. But for many Telcos, the worrying part is large chunk of the cash flow generated is ploughed back into network to meet current demands. This leaves little room to focus on new growth areas. Telcos are forced to raise money via debt or other means, resulting in further stress on balance sheet and reduced returns to investors.

    Let’s take a look at a snapshot of financial summary of a public listed global telecom major:

    [Figures are normalized]

    On a closer inspection of this summary one could observe,

    • The CAPEX has increased significantly (50%), but contributed only marginal increase in operating income (2%) and revenues (10%) over a year.
    • At the end of three year period, the CAPEX investment grew nearly to 20% of annual revenue but the corresponding incremental revenues seen marginal uptick only.
    • Return on Assets came down to single digit despite spending cumulative CAPEX of nearly half of average yearly revenue for this period.

    Without undue speculation and with publicly available data, one could do an educated guess: during this period, most of the CAPEX went into supporting & enhancing existing network infrastructure to keep-up quality services.

    This picture is not much different from any other typical Telco in the developed or emerging markets. While Telcos try to figure out the next wave of growth, it is equally important to keep a check on the current-state CAPEX.

    Telcos have no dearth of information in their siloed systems. It is just that few of these system’s data need to be unleashed to discover insights that can help in reducing CAPEX. For instance, reusing stranded assets in the network, warehouse and spare stores during purchase decisions would reduce CAPEX drastically. This would require deeper analytical insights generation, with collaboration among operation teams within the Telco towards achieving a common goal.

    Telecom operators with better equipped analytical tools to gather operational insights and actionable work flows can reduce their on-going CAPEX, draw more mileage from the pan-network assets and derive better return on assets in the network.

  • ..but that’s not my responsibility!

    ..but that’s not my responsibility!

    Now that’s something that we’ve all heard at our workplace at some point..and believe it or not, its not entirely incorrect.

    Traditionally most organizations have been created with a vertical structure having clear demarcation of responsibilities and identified handoff points for communication and information interchange between verticals. This was thought to be the most optimum way of assigning limited resources within the organization while allowing for specialization within verticals. Think of this organization as an architectural structure with three key layers:

     

    • Apex of the structure represented by executive management and strategy layer of the organization
    • Pillars represented by different verticals within the organization
    • Strong base represented by organizational infrastructure which acts as a common foundation

    While efforts are made by every organization to eliminate ‘silos’ in functioning, the inherent nature of this structure results in unidentified hand-offs, ineffective information sharing during hand-offs and compartmentalized view of processes leading to challenges in measuring, improving and most importantly identifying ownership of cross-functional processes. In many instances, different verticals end up shifting accountability of such cross-functional processes at the expense of progression. The pace at which technology, markets and customer demands are changing in present times demand a level of agility within the organizations to respond and keep pace with the market and competition. This places an enormous stress on the organizational structure, particularly on the handoffs between verticals.

    Managing millions of dollars’ worth of Network Capex within a Telco is a cross-functional process which experiences similar issues of ownership, handoffs between verticals and lack of a common, centralized view leading to ineffectual Capex tracking much less calculating effectiveness of these Capex investments or return on investments. Typically, Finance is the identified owner of Capex investments in a Telco but most Finance teams struggle with deployment of Capex in the network and more importantly tracking and calculating the return on network Capex investments as they are heavily reliant on Operations team for this information.

    Solving this Network Capex conundrum calls for a two-pronged approach, creating a cross-functional Network Capex Assurance team and enabling a supporting technological component to create a Network Capex Control framework. Lets have a closer look,

    Network Capex Assurance Team

    A cross-functional team which acts as the owner of Network Capex investments within the Telco – typically lead by the CFO or CTO. This team delivers critical insights and drives actions to enhance capital management practices in all phases of the business and comprises of representation from Finance, Planning, Procurement & SCM, Deployment, Operations and IT. The key responsibilities of this team would comprise of,

    • Custodians of Capex management processes
    • Capex planning and validation
    • Ensure data integrity across supporting systems
    • Capex tracking and analysis
    • Standardization & Reporting

    Network Capex Control Framework

    An enabling technological component which supports the Capex Assurance team in delivering their responsibilities by providing a centralized end-to-end view enabled by Network intelligence. Key insights from the framework would cover,

    • Centralized view
    • Standardized processes
    • Utilization and effectiveness
    • Capex & Opex optimization
    • Insights & Analytics

    Enabling strong capital management practices is much more than operational or process changes in the organization; it is a fundamental change in the outlook of an organization. Embracing this change will enable agility, data integrity and measures for optimization, better equipping Telcos to respond to the rate of change in the industry..and that should be everyone’s responsibility!

  • The legacy network is dead, long live the legacy network!

    The legacy network is dead, long live the legacy network!

    I was recently asked by a Tier 1 client in North America if Subex can use our network discovery technology to retrieve information from D4 channel banks.  I honestly had not crossed paths with these relics of the voice network since my days doing central office engineering in the late 80’s.  So you may be wondering, in a day-and-age when the buzz is about SDN/NFV, IoT and everything in the “Cloud”, why is someone worried about the humble channel bank?

    As it turns out, there’s plenty to worry about.  End-of-life technology can be a significant Opex drain.  Operators incur costs for energy (power, HVAC), maintenance and real estate to keep such equipment in place.  Compounding the problem is that much of this old equipment typically sits racked, stacked and powered… and idle (no traffic).   Channel banks are just one example.  Arguably, the entire fixed-line TDM network is retirement-age (I’m talking about SONET/SDH DACs and ADMs, voice switches, local loop equipment, etc.) and needs to yield to IP/MPLS and VoIP.

    In a previous blog post, I wrote about what operators need to consider when planning a transformation from legacy technologies to future state.   For this post, I will stay grounded in the present and focus on this question: What strategies can operators employ to reduce their Opex and Capex burdens when operating a legacy network?   For starters:

    • Use network discovery techniques to determine the operational status of your actively deployed network assets.
    • For all unutilized assets, apply a deliberate strategy to disposition everything.  Too often, because operators don’t have adequate visibility to operational status and utilization of assets in the legacy network, they default to what I call a “rust-in-place” strategy.  Since they lack the visibility, they ignore the problem.  Equipment sits idle or underutilized and costs add up.  My suggestion is to proceed with purpose—if an asset is carrying adequate revenue-producing traffic, fine.  If not, do something about it!

    For assets with reuse potential, then the options include:

    • Harvest and reuse elsewhere in the network.  Benefit: Avoid Capex for new purchases.
    • Perform grooms to more densely pack some assets and free up others for reuse or end-of-life monetization.
    • Allocate as spare.  Benefits: Reduced maintenance costs when spares are optimized in terms of count and location.   Customer experience is improved and exposure to SLA penalties is reduced when spares are well managed.

    If there is no reuse potential, then consider:

    • Reselling on the secondary market if there is still industry demand for the asset.
    • If not, then recover and sell for salvage value.
    • In both cases, remember that the NPV of averted monthly energy and real estate costs may actually exceed any direct cash received when the asset is sold or salvaged.
    • Don’t overlook other possible financial benefits from disposing unneeded assets such as tax write-offs and reduced insurance premiums.

    Most importantly, seek an asset management and logistics partner who can help you squeeze the most value from legacy assets.  Elements of a legacy network cost reduction program include:

    • Automated audits via network discovery
    • Asset evaluation and disposition recommendations
    • Capacity utilization trending and related analytics
    • Asset tracking
    • Turnkey asset recovery services
    • Resale valuation and brokerage services
    • Eco-friendly recycling
    • Analytics for sparing level optimization
    • Spares management
    • Warehousing and related logistics services
    • Warranty and annual maintenance contract management
    • Test, repair and engineering services

    Subex provides industry-leading asset management solutions and services.  With our forward and reverse logistics partners around the globe, we can help you to establish a turnkey and highly effective legacy network cost reduction program.