Maximizing Telecom Profits: The Strategic Advantages of Cost optimization and Margin Assurance

Abstract

Telecommunications service providers worldwide are grappling with shrinking revenue margins amid fierce competition. For both wireless and wireline operators, cost management has become essential. Achieving significant cost reductions necessitates profound changes in the business and operating models, along with a shift in mindset to embrace innovative, “outside-the-box” thinking. In regions such as Europe and the U.S., the telecom industry risks transitioning into a low-profit sector, with global profit margins potentially declining from 12.5% to as low as 5% within the next five years.

The situation in the Indian telecommunications industry over the past decade has been particularly challenging. The entry of new competitors into the market has severely impacted incumbent operators. These new entrants often trigger price wars by offering substantially cheaper data plans, with voice and SMS services included at no additional cost disrupting the traditional revenue streams of existing operators who relied heavily on voice services. This dynamic has substantially benefited prepaid and postpaid subscribers, who now enjoy unprecedented low prices and attractive offers.

Existing operators have struggled to manage their capital and operational expenditures while being forced to lower tariffs to remain competitive. The challenge intensified with the advent of 4G services, as many incumbents were still limited to offering 2G and 3G services despite having invested heavily in their respective spectrum licenses. To compete, these operators needed to upgrade their networks to support 4G, a move that was both costly and complex, particularly as they continued to service debts incurred from earlier 2G and 3G investments, with banks growing increasingly concerned about loan recoveries.

Amid these challenges, one critical internal strategy that can help maximize revenue is cost optimization across all organizational functions and departments. This approach not only addresses immediate financial pressures but also positions telecom operators to better navigate future market disruptions.

Cost Optimization and Its Importance: Unlocking Efficiency and Profitability

Cost Optimization and Margin assurance is a field that draws on many streams to balance costs and spends. It includes handling a complex mix of service offerings, defining a holistic view for cost allocation, enabling real-time visibility, margin automation, etc.

The strategy of cost optimization remains vital and can be implemented in various areas within telecommunications. Here are several detailed opportunities for reducing expenses:

1. Network Cost Optimization: This involves replacing outdated and expensive legacy technologies with newer, less costly alternatives. By adopting more efficient and modern technologies, operators can decrease maintenance and operational costs, thus optimizing the overall network expenditure.
2. Outgoing Call Routing: Implementing Least Cost Based Quality Routing (LCBQR) for international outgoing traffic is another effective cost-saving measure. LCBQR algorithms select the least expensive route for each call without compromising on quality, significantly reducing the costs associated with international traffic.
3. Disconnect Unused Telecommunications Circuits: Often, telecommunications circuits that are no longer in use still incur costs, especially in jurisdictions where fixed costs are levied on circuits provided by public limited companies or government-operated telecom entities. Actively identifying and disconnecting these unused circuits can eliminate unnecessary expenses.
4. Adjust Bandwidth and Trunks to Match Traffic Consumption: Operators often scale up their network infrastructure to accommodate expected increases in traffic during special events like festivals or the New Year. However, after these peak times, it’s essential to reassess and realign the network capacity. This involves reducing the bandwidth and the number of trunks to better match the normal traffic levels, thus avoiding the costs of maintaining unutilized resources.
5. Carrier & Vendor Contract Optimization: The terms of carrier and vendor contracts can have a significant impact on costs. It’s crucial for operators to regularly review and renegotiate these agreements to ensure they reflect the best possible terms. Factors to consider include pricing, rates, discounts, and credits. If it has been over a year since the last contract review, if the company’s usage of vendor services has increased significantly, or if minimum revenue commitments with carriers have been met, it might be time to renegotiate these contracts to secure better terms and potentially significant cost reductions.

By focusing on these areas, telecom operators can effectively reduce their operational costs, which is essential for maintaining profitability in the highly competitive telecommunications market.

Benefits of Cost optimization and Margin Assurance

• It improves profitability computation

CSPs can derive and report profitability accurately. They will also maintain operational margins (cost + basic margin) as per industry best-practices.

• It leads to better decision-making

CSPs can devise more effective strategies for cross-selling to clearly defined profitable customer groups. They can also target prospective customers having similar characteristics as their profitable ones, thereby achieving higher customer satisfaction scores.

• Effective Margin evaluation against competitive pricing

CSPs will be better positioned with the market intelligence to compete effectively against challengers by understanding their subscriber behavior and evaluating margin trends leading to better competitiveness, customer loyalty and retention, and even special margin products.

• It elevates productivity across the organization

Transparent customer identification and margin analysis helps departments channelize efforts to deal appropriately with different customer groups (profitable, prospective, low margins, etc.).

Conclusion

Cost optimization and margin assurance involve a comprehensive approach to managing the complex mix of service offerings by defining clear metrics for cost allocation, real-time assurance, and margin automation. This structured approach allows for precise profit computation, flexible cost allocation, and streamlined cost modeling. Such methods enable operators to expand their scope of work significantly, accommodating a broader range of cost line items. By implementing these strategies, operators can enhance their financial performance, making it easier to adapt to market demands and improve profitability.

Maximizing telecom profits through strategic cost optimization and margin assurance!

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Martand Singh Chawda

Martand, an experienced professional in the Global Delivery function at Subex, boasts over 15 years of expertise in various facets of the Telecom industry. His extensive background encompasses Revenue Assurance, Team Management, Business Consulting, Customer Risk Management, Billing Operations, and Business Assurance. He has collaborated with leading Telcos in the APAC, Middle East, US & Canada, and Africa regions, delivering his expertise both on-site and off-shore. In his role as a Subject Matter Expert, Martand takes on the responsibility of Solution Design, Business Delivery, Customer Success & Satisfaction, and Project Management.