Tag Archives: cost management

“Roam like Home”: Cost Optimization for Profitable Margins

Before I begin my story, let’s go back and revise some elementary school math concepts on profits and losses. I would often wonder why Mathematics would be right before the break and our bellies would often be rumbling with hunger and curiosity over what was packed for lunch……. Sigh! Those good old days…well coming back…

Profit = Selling Price – Cost Price

Easy wasn’t it? Well guess what, this formula does hide great secrets to being sustainable in business. Now, getting back to my story…

Last year, in September one of the larger and popular global telecom service providing giants from APAC introduced the concept of “Roam like home” where the international roaming was almost made free for incoming calls while the prices for out-going local and international calls were kept very nominal. The introduction of this concept was after the realization of the fact that international roaming was no longer a profitable revenue stream. It was a huge opportunity loss to the telco when its customers procured SIMS with local operators at the international destinations to use data or make calls. Data usage, which otherwise is quite expensive at international destinations was a dominant driving force for procuring local sims at international destinations.

This operator leveraged on its multi-national presence and introduced multiple plans with base prices of less than 10 dollars a day, which provided unlimited data usage. The plans instantly became a hit with the consumers, and the utilization of home sim-cards at international destinations grew exponentially. However, we must not forget that to have pulled off such a successful offer it did take months of planning on restructuring the costs to maintain an optimal state of profitability without compromising on the Quality of Services.

If one were to decode the CSP’s margin assurance strategy from a cost perspective, to ensure continued sustenance of the offer made, the telecom service provider must have restructured and optimized the costs under the following cost heads:

  • 1. Incremental Cost Optimization:
    This cost head includes all the fixed and the variable costs that go into the conception of a product. While not much could have been done to the fixed costs, the operator played around with the variable costs such as labor charges or the costs associated with transmission. Introduction of shared & centralized services for revenue management of international roaming for various subsidiaries can really play an effective role in optimizing the workforce-related costs which majorly contribute to the cost addition of services.
  • 2. Joint and Common Costs (JCC) Optimization:
    These costs have a compliance aspect associated with them and occur when the costed item is produced efficiently only in combination with other items. The sum of each item’s allocated JCCs cannot exceed the total of all items’ JCCs. To optimize on this aspect, on some home-like roam packs, the CSP, with consent from the end consumer, by default, deactivated some Value-added services and third-party costs like CRBTs, VOD, access to premium content and other high bandwidth services. Re-activation of these services at international locations were made on advance payment of add-on fees over and above the base pack activations.
  • 3. Fully Distributed Cost & Historically Embedded Cost Optimization:
    Services like Last mile connectivity, equitable service distribution through efficient route optimization, cost of laying of infrastructure are some of the contributors to the FDC component while all hardware maintenance and replacement costs contribute to the HEC component.

The operator took advantage of its presence at international destinations to restructure the revenue sharing model by enabling international customers to latch onto the subsidiary’s network to enjoy the full band of services available at home. For areas where the operator did not have its subsidiaries, it tied up with local internet service providers that provided public & private Wi-Fi hotspots for seamless data connectivity through Wi-Fi offloading or revenue sharing with preferred local and regional CSPs through its well-placed steering strategies.

For optimization of Historically embedded costs (HEC), the CSP planned for traffic load balancing through intelligent route optimization while simultaneously looking for technology alternatives where the cost of replacement was nominal when compared with the benefits provided. The operator indulged in asset sharing for signaling optimization. As per sources, the service provider of late has been seen entering into an agreement with vendors who could deploy SDNs and support NFVs for load balancing over the cloud infrastructure to reduce the impact of additional long-distance traffic over underlying network and systems.

While cost-optimization is one of the many techniques to maintain a healthy bottom line for sustainability, it indeed is of paramount importance. As Clive Humby rightly puts it – “data is the new oil,” we will continue to observe many such systemic changes in Telecom players regarding the perception of margins soon. For more insights on what Margin Assurance holds for telecom providers of the future, do check out our Point of View on Margin assurance.

Arnab Mohapatra

Arnab started his career with Subex, almost a year back as a consultant and is a part of the MS Consulting and Advisory services team. He has been instrumental in setting up consultative services for the function and researching on newer fraud and business assurance areas. Arnab enjoys reading new articles and writing fiction at times of leisure.

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.

Vice President – Product Management – John Brooks serves as the Vice President of Product Management in Subex. He has over 26 years of experience in Telecommunications, spanning Fixed, Mobile, Data, and Video technologies. Within the industry Mr. Brooks was a board member for the GBA, founded the TM Forum Fraud team (authoring the first International Fraud Operations and Fraud Classifications guides), and now leads the TM Forum Network Asset Management team, focusing on transformative best practices for SDN/NFV operations. Over the years Mr. Brooks has served as an Advisory Board member for a prominent technical university, and has spoken at over 50 industry events and authored numerous papers on topics spanning IoT, Digital Disruption, Big Data, and Enterprise Risk Management. With Subex (formerly Connexn/Azure) since 1999, he has directed over 40 successful Cost, Revenue, and Business Optimization engagements at over 24 top-tier carriers globally, including AT&T, America Movil, BT, Vodafone, and Verizon.

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