Last week the who’s who of the Telco zoo gathered in herds at the 16 th annual Africom Event in Cape Town. Yours truly moderated the keynote session : COST EFFICIENT NETWORKS which highlighted the requirement for increased investment in the networks, to cope with the data explosion and identified strategies for increasing the quality of the network to the highest standard without excessive spend. Delegates in the stream focussed in how to reduce capex and opex in a data hungry environment since pressure on prices and margins is a situation faced by almost all operators. The telecom scenario shows a world going “flat” with abundant voice and data volumes while the cost of promotional discounts to attract new customers increases : the disconnect between traffic and revenues !!
In MEA , fixed and mobile Telcos have not fully realized the cost-reduction potential provided by lean tools and techniques, which not only can generate savings of from 10 to 15 percent on the addressable cost base, but also simultaneously improve overall operational quality levels.This process should start with a diagnostic phase that covers network planning and implementation, operations, and management infrastructure. There are also a broad range of new OPEX saving possibilities which can be leveraged through a new generation of technologies, e. g. in the area of software defined radio networks (SDR) and self organized networks (SON).
Several speakers from the satellite industry made impassioned presentations without really explaining how satellite fits into the creation of a cost efficient network in Africa. Unfortunately vendors get myopic in their desire to punt technology solutions instead of anchoring their presentations on the theme of the stream and deliver presentations that have educational merit. Atleast the panel discussion elicited useful points such as Green Telco initiatives as well as concrete ways to reduce capex/opex. Going green is in many ways similar to going lean, since both strive to reduce energy usage and eliminate waste.
Several Telcos have gone public with energy efficiency,power reduction, and carbon footprint reduction objectives. Verizon has established an objective for its vendors to achieve 20 percent greater efficiency by January 2009, as compared to today’s equipment. France Telecom is planning to reduce the greenhouse emissions per customer by 20 percent between 2006 and 2020 and British Telecom claims to have reduced its carbon footprint by 60 percent since 1996, and has an objective to reach 80 percent by 2016. Fixed and mobile operators can foster green networks by improving network energy and cooling infrastructure, and by installing energy-saving network equipment.In terms of energy operating costs, operators must initiate active programs to identify sites with higher-than-normal power consumption and adopt specific measures to reduce it. This can include adjusting air conditioning settings, making productivity upgrades to batteries and A/C systems, and adopting low-energy designs. Companies must also investigate the transfer of expensive third-party energy contracts to players that offer better terms and conditions.
The Gurus at McKinsey believe that even that fixed-line infrastructure players will outsource network infrastructure and operation to contractors in order to optimize operating and capital expenditures (opex and capex). Making this outsourcing a success requires companies to explicitly split roles and responsibilities with the chosen contractors, establish clear reporting and interface models, and prepare, negotiate, and execute specific contracts and service level agreements. Telecoms players can employ proprietary analyses and techniques to improve the amount of value their products deliver to customers, while at the same time, creating cost-efficient designs and calculating target costs.While personnel wages and benefits represent a major network operating cost, other high potential areas for cost cutting include site rental and energy costs. As a consequence, some operators are aggressively pursuing the renegotiation of rental contracts with an eye toward moving or eliminating those sites with the most expensive rental contracts. Considering network optimization, some operators are exploring base transceiver station (BTS) “hotels.” These BTS hotels group the electronics from a number of base stations for antennae up to 20 km away.
According to the luminaries at Arthur D Little ,full cost transparency must be established in order to identify, prioritize and optimize saving measures. For this reason the first phase of the cost reduction project needs to focus on establishing a stringent OPEX/CAPEX analysis. Operational saving measures are considered as activities which render saving benefits of typically in the range of 10% p.a. These measures include obvious examples like the change of maintenance service level and backhauling optimization or reduction of product portfolio. Less obvious cost saving measures include the introduction of QoS concepts for optimized bandwidth management, reduction of room temperature in local exchanges or the ceasing of 3rd party hardware maintenance for stable legacy infrastructure where better maintenance know-how is often already available in-house.
The network operations centers of many telcos face a variety of challenges, including having to deal with technology silos, unclear ownership of network issues, lack of institutional memory that forces teams to “reinvent the wheel” time and again, and others. Given the breadth of opportunities available, operators can often capture reductions of 15 to 35 percent in NOC-related costs. Potential actions include developing a clean-sheet NOC redesign, integrating NOC services on an end-to-end basis, and instilling a problem-solving, high performance mindset within the center. By introducing optimized governance models, best-practice vendor relationship management techniques, and better negotiation and deal strategies, operators that revisit mobile outsourcing typically identify the potential for an additional 5 to 10 percent in cost reduction, representing 2 to 3 percent of total costs.Mobile operators can make use of the rich variety of customer data they have on hand to improve their network quality and target investments on a site-by-site basis. Taking this type of highly granular review of network performance metrics, site utilization, and commercial performance will enable leaders to pinpoint spending requirements.By using techniques such as network caching and CDN, operators can reduce one-on-one network downloading and hence, network load and form partnerships with broadcasters to share investments and build a large-scale, secure, single network infrastructure.
Revisiting the organization’s zero-based budgeting decisions using the latest insights and business priorities can reveal new opportunities to reduce investments andcosts in areas where an operator’s market share is below critical thresholds. Competitive pressure is eating into revenues and causing a spike in subscriber acquisition and retention costs (SARC). The e Channel is an opportunity in cost reduction since it enables signing up higher ARPU subscribers at lower cost of sales and cost .Key success factors for an effective e channel strategy include : create a compelling channel experience ( exclusive offers ) ; build a solid IT infrastructure ( SOA ) and revamp the organizational structure (self-contained empowered eChannel teams ). Customer self-care has been shown to reduce costs in customer contact centres by as much as 20%. This sector has evolved to become a full set of self-service capabilities that includes customers researching and buying through self-directed channels. Buying via these means has been shown to increase the revenue per user by as much as 18%, when the Telco provides an effective self-service interface for the customer.
A basic cost reduction mechanism and culture across all staff must be in place (e. g. personal target setting, cost transparency, etc.). The challenge is to embed an organisational discipline that will constantly challenge the existing cost basis. The benefits of creating a performance-driven culture within Telcos come from its capacity to amplify subsequent improvement initiatives – in effect, supercharging them. However, as with most transformational approaches, “getting there” requires strong, visible commitment from company leaders, solid organizational planning and training, and communication clarity. One thing for sure : solving the cost/efficiency puzzle requires a wholistic mult facet approach that will target the right levers to optimise cost even as capex is injected into building high speed IP based broadband networks.
Sadiq Malik ( Telco Strategist )