Cours

1. OPEX Reduction in Telecom
Industry
Qarib Raza Kazmi
SP-2010/M.M/205
Telecom Business Management

2. Introduction
 The ability to “communicate” has enabled humans to
make a paradigm shift from tribal based
communities to information
based societies.
 While comparing the novel
means of communications,
telecommunications
would probably stand
as the „pioneer technology‟,
giving birth to variety of
communication means like
PSTN, Mobile Telephony,
Broadband networks, the
Internet and so on.
 The 16th largest economy of Asia and 2nd largest
economy of South Asia; Pakistan.

3. The Plight of the Pakistan
Telecom Industry
 According to the Economic Survey of
Pakistan 2011-12, total investments in the
telecom sector stood around $495.8 million
in fiscal 2010-11, as compared to $1,137.5
million in fiscal 2009-10. These statistics
show that fiscal 2010-11, total investments
in the telecom sector fell by 56.4%.
 But Still total revenues generated by the
telecom sector during fiscal 2010-11 were
around Rs363 billion: an increase of 5.4%
as compared to revenue generated in fiscal
2009-10, which was around Rs344 billion.

4. FDI Chart

5. Contribution to Exchequer

6. OPEX Reduction Strategies….
 Manage the product Portfolio Carefully
 Effective and efficient marketing
strategies
 Focus on productivity/efficiency and
policies
 Effective Asset management
 Site Lease Pre-payments
 Multi-dimensional Planning

7. OPEX Reduction Strategies….
 Manage both labor and non-headcount costs
 Keeping costs as variable as possible
 Tower Sharing (Indian Industry research)
 Compact BTS Technology
 Solar Powered BTS

8. Manage the product Portfolio
Carefully
 Few industry executives would
disagree that product
proliferation is the prime enemy
of cost management.
 In a recent survey, 4 of 10
executives said that their
company‟s product portfolio grew
by more than 50% in the previous
five years.
 For the telecom industry, this
growth in products creates
problems across functional areas
– sales, marketing, customer
care and billing – where the
number of products is a key
driver for complexity, and
subsequently, cost.

9. Portfolio Management
 One of them is that the companies have difficulty
phasing out older products.
 The difficulty stems
from a fear of churn,
 lack of incentives to
eliminate products
 lack of pruning culture
among the telecom
industry in general.
 In addition, they
sometimes launch products without a true
understanding of customer needs. (Using market
research companies before product launch can be
an area of interest here)

10. Portfolio Management

11. Effective and efficient
marketing strategies
 Tough economic times lead to increased scrutiny and cuts
to marketing spend. Although research suggests that brands
should maintain or increase marketing spend during
recessions.
 The first task is to understand the
effectiveness and efficiency of
marketing spend across all channels,
products, geographies, marketing
objectives.
 The impact of spend can be quantified
through careful analytic modeling
using available data, such as spend
across various levers, and relevant
outcome metrics such as sales, new
customers added, share of wallet, and brand equity.
 Profit improvements of at least 5% through a combination
of tactics: squeezing more sales out of the same overall
spend by reallocating spend, cutting spend, and/or
increasing spend for certain levers.

12. Focus on productivity/efficiency
and policies
 Any good cost reduction program cannot ignore the
tried and true productivity levers, and a good
starting point is the demand side.
 For example, rather than
trying to cut the cost
of a customer service call,
managers should do tier best
to prevent the call in the
first place.
 A case in point is the Ufone
call center. They have a daily
call load of around 250,000 of
which they are only able to answer around 175,000.
 Reducing the time of the call is a fine strategy.
But why not eliminate the call in the first place?

13. Productivity/Efficiency
 Preventing the call might be as easy as simplifying
or streamlining the instructions that customers
receive when they purchase
their phone SIMS.
 Most successful telecoms
automate calls where it
makes sense. The automation
must match the customer
service demands. Otherwise
the company risks frustrating
customers and in the end
driving up the call volume.
 For instance some complex
technical questions are difficult to answer via
interactive voice responses, but can be easily
answered in videos that can be made available on
the handset or the internet.

14. Effective Asset Monitoring
 Cell site is one of the most expensive physical
assets of a mobile
operator considering
the CAPEX that goes
in every site.
 Around 5% of sites needs
re-work and another
5% would need special
maintenance due to
poor implementation.
 If an operator have an
effective asset
monitoring platform
such as ADaM (Amanzi
Data Management) then it is possible to achieve
around 10% savings in OPEX.

15. Site Lease pre-payments
 Site leases are the second highest cost for any
network operator next to payroll.
 Site leases don't reduce
over time, they actually
increase based on factors
such as inflation, raising
value of property, etc.
The challenge is how do
you reduce this cost?
 The answer is simpler than
you think it‟s pre-payment
of site leases.
 Site lease pre-payment can reduce the cost of
leasing sites from 20% to 40% considering industry
standard site lease escalators.

16. Multi-dimensional planning
 Good planning is always essential to the
success of any operations.
 It is more a strategy for
revenue assurance than OPEX
reduction, how big is its
effect to the overall picture?
 Consider a network with
5 million subscribers having
a monthly ARPU Rs 300 of which
has a churn rate of 5%, now
with an optimized network the
churn rate can be reduced to
2.5% thus ensuring annual
revenue of Rs 37.5 million.

17. Manage both labor and non-
headcount costs
 A headcount reduction can be one of the most
painful events in the life of an organization.
 Most Companies ignore the fact that the bulk
of expenses in some departments – marketing,
for example – is non-labor in nature.
 Advertising production is an area where the
costs can be very high.
 A rule of thumb here for telecom industry is
that media buying costs should be about 75% of
advertising costs. If you are too far off this
bench mark then you should focus on ad
production cut and not too much on media
buying.

18. Manage both labor and non-
headcount costs
 There are other areas, too, where non-headcount
spend should be closely watched. Like for
instance, dealer commission and handset subsidies.
 An effective way of reducing handset subsidies is
to join a purchasing consortium and saving up to
10%.

19. Manage both labor and non-
headcount costs

20. Keeping costs as variable as
possible
 Outsourcing is one way to
achieve variability, though
it can be tricky to execute.
Moreover if it is not
managed properly,
outsourcing can result in
costly re-work that
overshadows savings.
 Areas where outsourcing has
traditionally been effective
include information
technology, customer care,
and billing.

21. Keeping costs as variable as
possible

22. Tower Sharing (Indian Industry
research)
 The Indian wireless industry, with a
32% penetration, is only second after
China in terms of sub-scribers at 325
million.
 Most of this growth has come from
urban India Where penetration is
close to 60%, but in rural market
it‟s less then 15%.And it‟s here that
the industry sees the largest
opportunity for growth.
 The challenges, though, for Indian
telecom operators is the average per
user (ARPU), which, at less than $7,
is one of the lowest I the world.
This figure drops significantly when
one moves into rural and semi-urban
areas, and is estimated to be as$2.

23. Tower Sharing (Indian Industry
research)
 According to an E&Y report titled 'Wireless
Infrastructure Sharing in India', "CAPEX (capital
expenditure) savings across the industry are
expected to range between $7-12 billion over the
next four years, till 2012
 Ongoing OPEX (operational expenditure) savings are
estimated at $1 billion a year.

24. Tower Sharing (Indian Industry
research)

25. Tower Sharing (Indian Industry
research)
 The growth in the domestic telecom industry
has largely been concentrated in the Metros
and Class A circles in the past decade, with
coverage reaching around 90% and
35%, respectively.
 However, coverage in the Class B and Class C
cities is still low at 15-25%.
 Moreover, within these circles growth has
largely been concentrated in the urban areas
while penetration in the rural areas remains
lower. Thus future growth is likely to come
largely from Class B and C circles and rural
areas.

26. City wise Mobile Panatration

27. Compact BTS Technology
 Compact base transceiver stations (BTSs)
are the latest base station design to be
introduced in the market. They bring
WiMAX operators flexibility and cost
savings while retaining the performance
of macro BTSs.
 Compact BTSs can be installed in single-
sector or multiple-sector configurations
as alternatives to distributed BTSs with
remote radio heads (RRHs).
 Unlike traditional macro BTSs, compact
BTSs do not require ground shelters and
cooling equipment. Yet they support high-
performance features such as multiple
antennas per sector with multiple input,
multiple output (MIMO), and beam forming.
 With a smaller footprint, lighter weight
and lower power consumption, compact BTSs
cost less to install and to operate. Our
analysis shows that operators can save
38% to 47% in CAPEX and OPEX over a five-
year period.

28. Compact BTS Configurations

29. Compact BTS CAPEX
Comparison

30. CAPEX Year 1

31. OPEX Year 1

32. Solar Powered BTS
 The IFSP solutions offer
up to 60 percent or more
in operating expenditure
related power savings.
 Alternative power solutions
are not commonly used in
telecommunications systems today, but are
being actively evaluated for difficult
locations and limited deployments have been
made.

33. Target Configuration

34. World Solar Radiation Map

35. BTS Power
Consumption
 On average, a fully loaded GS/3G
BTS using traditional PAs is
estimated to need 3 kW of power
at peak draw.
 Hence our targeted configuration
will be for the worst case
scenario in terms of energy
consumption i.e. the 3.0kW peak
power draw BTS.
 Studies have also shown that
this BTS will consume an average
of 12,500kWh of electricity in a
year.

36. The Solution
 An IFSP designed solar-
powered system, which
consists of solar panel
modules, deep cycle battery
arrays and charger
controller.
 The battery array will have
a backup capability of 2
days, while the solar
modules are designed in such
a way that it only needs 4-5
hours of sunlight to
recharge the batteries.

37. Economic Payback
 The cost estimate for the fully functional IFSP
designed solar powered system, which consists of
solar panel modules,
deep cycle battery
arrays and charger
controller for a fully
loaded 3kW BTS is
$30,550.
 In comparison, a fully
loaded BTS is typical
powered by twin 15
kilo volt ampere (KVA)
or more diesel
generators which
consumes over 2.5
litres of diesel every hour up to 20 hours daily
will cost about $12,026.00 in diesel fuel per
year(assume 0.66cents/litre)

38. Comparative price on 10 year
basis for 10,000 BTS
 A typical telecom
operator with about
10,000 BTS would have
spent well over $1.2
billion on diesel fuel
and generator within a
ten year period.
 while the solar option is
estimated to cost $306.50
million over the same
period.

39. Global Telecom Deals

40. Etisalat outlines major CAPEX
and OPEX reduction initiatives
 Already undertaken a number of major CAPEX
and OPEX reduction initiatives such as co-
location and hybrid power and was actively
considering others like transmission
sharing and sales and leaseback of towers.
 Identified tower sale and leaseback as an
excellent way of releasing capital to
invest in core activities such as customer
acquisition, management and retention as
well as increasing the number of
significant tower deals by African tower
companies.

41. Recommendations: Compelling
case for 3G
 Due to an increase in revenue generation this
year, the telecom sector contributes Rs117
billion in taxes to the national exchequer –
the highest ever.
 Pakistan is among the few countries which have
yet to adopt the 3G/4G technology. Even
countries like Nepal, Sri Lanka and India have
already adopted these technologies.
 Experts in the telecom sector believe that
increasing broadband penetration leads to
economic gains: a 10% increase in broadband
penetration contributes by a percentage in GDP
growth, while around 80 new jobs are created
for every 1,000 new broadband connections.
 Pakistan must now join the 159 countries that
have already adopted 3G/4G technologies