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All posts by Sai Thilak

My tale of the Mobile World Congress 2018

I attended the recently concluded Mobile World Congress 2018 in Barcelona, representing Subex. At Hall 5 Stand 5F10, Subex had put up an elegant booth focusing on analytics, insights and IoT security, and set the stage for many back to back meetings with customers, partners, media, new connects and more, over the span of four days. The Conversations we had focused around IoT, Analytics and Insights with discussions revolving around live honeypot attacks, IoT secure stack, B2B business models, web scale applications retail billing, Capex and Opex optimization, customer experience management with edge computing, network investment modeling, innovative analytics & insights offering, telecom frauds using machine learning, big data scale stacks and many more. Overall, it was an engaging, invigorating and truly a great learning experience.

Among the various keynotes, the one which stood out was by Turkcell CEO Kaan Terzioglu, who swept the audience with his inspiring speech making a strong pitch for the optimistic Telecom future. During his keynote, he shared all the stats about what he and his team were delivering on the digital frontline over the last year – music apps, cloud services, instant messenger, TV+ apps – all topping the charts on their own turf.

There were a lot of expectations on big OEM vendors to put up a jazzy 5G show. However, with exception to Huawei, and to some extent Ericsson, most OEM vendors pulled off monotonous exhibits. The remarkable thing was that many operators had come up with exceptional messaging to market. For instance, Orange had put up many 5G demo use cases on IoT, V2N2X, Ultra low latency use cases; Vodafone launched an out-of-the-world 4G lunar project in collaboration with Nokia labs and displayed demos on connected vehicles, IoT and edge computing use cases; Docomo showcased robotic arms; and China Mobile demonstrated use case around 5G manufacturing robots. This clearly shows that operators have started driving towards innovation and digital services.

The other set of players who left a deep impression were semiconductor players. Intel showcased its autonomous car, along with its machine learning capabilities and showcased its low latency automobile use cases. At the same time, it showcased its next-generation chipsets for 5G. Qualcomm showcased its AI chipset and an array of applications on automotive use cases. But the winner among all was Huawei, who came out with all guns blazing with all possible 4G/5G/Fiber access use cases including 4K/8K video streaming, array of innovations around small cells, cloud computing, network slicing, edge computing and the attention grabber 4G connected flying taxi (drone)!

MWC-collage

One key takeaway for me, personally, is that MWC is an important networking event. You have a superb setting to meet your customers, network with potential clients, partners, media, competition and anyone who is remotely interested in your products! This opportunity is an unmatched and unbeatable one!!

If you look at this actioned packed event with an open mind you will be truly left with an assortment of emotions. The kind of competition in your space will spook you, the pace at which the technological landscape changes will awe you and the time, energy and money spent behind the bleeding edge / cutting edge technologies will simply numb you with a realization of your own relative position!

There is so much to experience here within such a limited time!!

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.

Embrace Cloud Based Solutions

Telecom operators generally procure IT software in silos. This procurement process gets entrenched into weeks of discussions to arrive at the technical solution required as it needs to go through multiple steps like:

  • Agree upon professional services costs
  • Internal approvals from chain of commands
  • Hardware procurement, solution UAT
  • Finally end up structuring the internal teams to handle projects – commercials, execution, support et al – all coming out of one solution offered by a vendor.

This is how traditional businesses has been running in OSS/BSS space for a while. It gave a lot of opportunities to vendors to flourish and establish themselves. Unfortunately, it has also led to zoning of Telcos’ own data in proprietary systems which can’t communicate or freely share data among the systems to generate deeper insights or to leverage for specific business purposes.

On one hand, Telcos started to look for solutions or platforms to unify the data structures across the silos, derive customer centric insights – operational or strategic –  in order to generate much needed growth, customer retention and operational costs control. On other hand, Telcos are grappling with issues in solving specific business problems with vendor provided solutions which may or may not bear expected result at the end but consumes very bit of time, energy & money.

Many modern enterprises want to quickly evaluate and leverage low cost solutions to solve specific problems, transfer the accountability for the solution and at the same time partner with established vendors to bring value on the table. More importantly, enterprises are looking for low cost evaluation of the solutions and disown them gracefully if things don’t work eventually.

In this software driven world, agility in businesses are getting stressed upon in every business cycle. In the same sense, Telcos need to embrace this change and tryout innovative solutions offered that can bring value propositions, assimilate the value in day-to-day operations with appropriate checks and balances and reap benefits without worrying much on big upfront costs, vendor lock-in, in-house support processes and so on.

There’s way to do this. Many progressive enterprises across industries have already started doing it.

Embrace Cloud based solutions.

Imagine a vendor coming up with structured offering in a specific vertical – Telecom Fraud Management – on a secured cloud platform. Telcos who already have FM systems in place could evaluate new solution offered by the vendor based on new Industry trend without getting into long trenched contracts, evaluate the value quickly and either assimilate the new offering or disown it, with minimal pay-as-you-go monthly costs. For specific solutions like for instance Bypass fraud, Telcos can establish the business value proposition with agility using cloud offering.

Many innovative solutions are coming up in the market for which many Telcos are not sure how to bucket them in the traditional tool book. Such solutions not only promise significant operational cost savings but also influence in CAPEX savings, revenue generation and whole lot of other business drivers. Telecom operators need to be more agile in trying out these solutions, establish the business case with low TCO, lower overheads using cloud offerings and reap benefits on a continuous basis.

 

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.

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