The Delta Perspective
October 2009
Customer Value Development:
A fresh perspective on emerging
markets’ telecom economics
Authors
Customer Value
Development improves
commercial practices and
generates benefits regardless
of the operator’s level of
sophistication: 5-15%
EBITDA improvement, with
immediate payback
Introduction
Until very recently, telecom operators
in emerging markets had a clear, single
strategy: customer acquisition. Relatively
low penetration in most markets and
benign competitive environments
meant that all players were focused on
the expansion of their networks and
the capture of market share as fast as
possible.
Today however, the situation has
changed dramatically. Many emerging
markets are reaching saturation,
competition is fierce and ARPU is
under pressure. Creating returns on
significant investments in network
deployment seems more difficult than
ever. Increasingly, operators have
realised that they do not sufficiently
understand the real drivers of value
creation – “Are my new acquisitions
profitable?”, “How does churn affect
company value?”, “How do different
segments contribute?” and “What is the
Delta Whitepaper Design-07.indd 1
Rogier van Driessche – Partner
Maurício França – Partner
Christophe Costers – Manager
Adriana Salabert – Head of CVD unit
KEY HIGHLIGHTS
• “Customer Value Development”
(CVD) is a process that puts rigorous
customer data analytics at the basis of
all major management decisions in a
Telecom Operator
• It is an essential capability that helps
operators in emerging markets to
deal with the challenges of today’s
market reality: declining growth, ARPU
pressure due to multi-SIM behaviour
and rotational churn.
• CVD develops a new set of KPIs and
operational metrics that fundamentally
alter the way operators go about their
business
• It further helps to optimise marketing
and sales practices and puts in place
the foundation for the definition of
micro-segmented marketing campaigns
• To fully unlock CVD’s potential, specific
capabilities need to be built in the
network, IT and marketing functions
• The benefits of CVD are accessible
to all operators, regardless of their
current level of sophistication: Several
operators have reached EBITDA
improvements of 5-15%, with
immediate payback.
11/9/09 9:28:46 AM
 true bottom line impact of marketing
and sales tactics?” are questions often
heard.
These questions reveal the reality of a
structural lack of well organised and
insightful management reporting that is
present in many operators and also the
uncertainty that comes with a change in
paradigm.
Two industry trends require operators to
shift their approach to ensure success
under this changed paradigm:
First, operators have gradually realised
that they no longer have an accurate
picture of what was once called “the
subscriber”. Clients have lost their
exclusive loyalty to the operator, and
use multiple SIM cards or more than
one network operator simultaneously.
This means that they take advantage of
arbitrage on pricing schemes, or they
benefit from the best offers by switching
from promotion to promotion. As a
result, operators should shift their focus:
from mainly acquisition and sometimes
retaining “subscribers” to retaining and
maximising ‘share of wallet’.
Second, as current market maturity
means that the segments at the bottom
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of the pyramid are being addressed, the
concentration of value contribution in
a few “high value segments” becomes
increasingly clear. This means operators
should adopt a highly segmented and
targeted commercial approach to ensure
return on investment and positive
bottom-line impact.
To adapt to these changing rules of
the game, operators have two main
challenges:
• New KPIs are required. These are
more complex and present the need
for greater analytical sophistication
than the ones operators used to
apply. A key question is how to
organise and process data in order
to produce insightful metrics?
• Newly acquired insights need to
translate into effective actions.
Here the main challenge is how to
revise previous practices in both
commercial and technical areas of
operation.
Customer Value Development is our
answer to these new challenges. In this
paper we will try to illustrate what CVD
is all about and how it can impact the
way operators conduct their business.
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 What is Customer Value
Development?
“Customer Value Development” introduces a new
set of KPIs and operational indicators based on
rigorous customer data analytics. It fundamentally
alters an operator’s outlook on the economics of the
business, which facilitates improvement on ongoing
commercial practices immediately
At the core of CVD is the idea of
leveraging customer data to drive
better business decisions. As such,
CVD aims to optimise three core
value drivers (see Exhibit 1) for telco
operators: churn reduction, ARPU
stimulation and cost efficiency/ROI
improvements. The drivers are not
new, but the context of each of them
has changed significantly in emerging
markets over the last year:
• Churn is no longer just
concentrated on counting
disconnections. Firstly, it is difficult
to define a disconnection due to
the high percentage of prepaid
users. An inactive line may be a sign
of a customer that changed to the
competition, or just a lost SIM-card
that was replaced in the market
(i.e. rotational churn). In addition,
churn may also mean partial value
loss – as customers shift part of
their traffic to another provider.
As a result, churn reporting is now
focused on understanding value
loss and driving targeted actions
that remedy this loss at the source.
• ARPU stimulation is also no longer
about just cross-selling and up-
selling. This remains of course a
key challenge, and especially new
revenue streams like data or VAS
provide excellent opportunities in
Delta Whitepaper Design-07.indd 3
this sense. However, more than
this, the ‘A’ in ARPU (which stands
for ‘average’) hints at the greatest
driver of ARPU stimulation: more
effective acquisition and retention
of high value customers in the base,
in order to skew the customer mix
towards the high end. Lastly, ARPU
stimulation is about share of wallet
optimisation.
• Cost efficiencies are no longer
about the generic benchmarking of
OPEX. There is now a requirement
for a greater focus on below the
EBITDA line. ROI is the new area
of emphasis and analysis of the
customer profiles and revenues
generated by specific investments
(e.g. BTS level) will provide insights
into the type of profitability path
operators are on.
Customer Value Development provides
the analytical underpinnings to dissect
all of these drivers. It provides new
ways of measuring and observing
these trends, on a customer by
customer basis. It introduces new
dashboards and reports that provide
fact based and enhanced insights as
to how value in the customer base is
developing. This generates immediate
commercial improvements in two
ways:
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 1. It offers a better understanding of
the relationship between a whole
range of commercial actions and
the value they create (or actually
destroy). This indicates how to
optimise commercial tactics.
2. It provides highly granular insights
into the customer base and how
different segments contribute
value. This allows the design of
micro-segmented campaigns that
are highly effective and cost-
efficient.
EXHIBIT 1: HOW CUSTOMER VALUE DEVELOPMENT CREATES VALUE
Source: Delta Partners analysis
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At the start of the CVD
implementation, the operator embarks
on a journey of capability building,
which is not completed overnight.
Understanding the requirements is
key. The main challenge however is
to develop these capabilities while at
the same time reaping the benefits of
CVD as early as possible.
The subsequent sections will further
illustrate both of these areas, as well
as the capabilities required to effect
them.
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 Optimise commercial tactics
based on fact-based insights
CVD focuses on different types of
analyses that consistently produce
valuable, actionable information to
improve commercial tactics. Both
the analyses and resulting actions
span a wide range, including price
plans, commission schemes, customer
care models, network deployment
adjustments, regional go-to-market
strategies, loyalty programs and
commercial KPIs.

The section below provides some

illustrative examples of how CVD has
brought new insights that changed the
way operators approach the market.

1. Update of churn and

retention tactics after
understanding the true
value-impact of churn

CVD reports allow for a detailed profile

of churners. After segmenting churners
by value and lifetime, operators better
understand the difference between
true churners (clients with a long
relationship with the operator that
leave) and so called “rotational” churn.
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 In many emerging markets, up to 70%
of all churn is generated by customers
that either “leave” the operators,
just to buy another SIM of the same
operator, or buy SIM-cards that were
fraudulently activated. Once such an
understanding is established, the focus
of the operator on churn reduction
changes dramatically. Reducing churn
in this context is not only related to
customer satisfaction, pricing or brand,
but very much linked to the optimisation
of certain processes and the termination
of dealer fraud.
2. Increased localisation of
marketing efforts after
BTS based customer
analysis
Through the use of CVD analysis,
operators obtain a far better
understanding of the geographical
distribution of their segments. While
operators previously turned to BTS
utilisation to drive regional marketing
and sales efforts, CVD mines the CDR
based data to actually pinpoint the
location of a customer and profile
customer segments on a BTS level.
This allows “broad-stroke” regional
marketing and a highly segmented
local approach with offers and
communication messages specifically
tuned to the customers in the target
area. Thus, greater segmentation means
more relevance and more effective
adoption of the marketing message.
3. Adjustment of an
operator’s handset
strategy after
assessment of IMEI data
Analysis of links between IMEI number
(unique for a handset) and MSISDN
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(unique for a SIM) over a period of
time and per BTS generates insights in
handset sharing patterns. For example,
in an African operator, this analysis
allowed the company to identify
geographical areas characterised by high
ratios of full-time handset sharers. This
information was used to target these
areas for the sale of Ultra Low Cost
Handsets, which drove an increase in
local ARPU.
4. Turn around a value
destructive marketing
campaign as a result
of more accurate value
impact measurement
An operator was running a top-up
campaign in an attempt to exploit the
elasticity in the market. The campaign
stimulated customers to top up: ‘Top-
up for Y and get 20% free credit’.
But instead of generating additional
revenues, CVD analysis found that the
campaign had destroyed value.
To make things worse, the campaign
had inspired competition to launch
similar campaigns, which lead to overall
value destruction in the market.
As these examples show, CVD is a
powerful tool to optimise commercial
tactics. The implementation of CVD
is an eye-opener for many operators.
This is often the first time that they are
presented with empirical evidence that
certain tactics destroy value and should
be discontinued, while other evidence
indicates initiatives that can create
instant value.
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 Launch highly effective
micro-segmented marketing
campaigns through
enhanced customer base
understanding
Another common use of CVD is the
development of micro-segmented
marketing campaigns. The type of
dashboards and reports that CVD
develops allows operators to easily spot
opportunities for up-selling or cross-
selling or for the reduction of client
inactivity.
Micro-segmented marketing campaigns
focus on small target segments.
Therefore, they allow for more relevant
marketing messages and offers, while
minimising communication cost and
potential cannibalisation effects. As
a result, these campaigns are highly
effective and cost-efficient.
CVD dashboards and reports provide the
necessary understanding to successfully
design these micro-segmented
marketing campaigns. They offer highly
granular insights into the customer
base and the manner in which different
segments contribute value. As a result,
opportunities for up-selling, cross-selling
or for the reduction of client inactivity
Delta Whitepaper Design-07.indd 7
are easily identified.
In an emerging market context,
however, the biggest use of micro-
segmented campaigns is to increase
share of wallet of multi-SIM segments,
which often represent up to 70% of an
operator’s customer base. Understanding
the usage patterns and reasons for the
use of multiple SIMs (which can vary
significantly between segments) can
create immediate value. CVD helps to
develop relevant, targeted offers for
these different segments in order to
stimulate usage.
The way CVD driven campaigns are
designed and executed differs from
typical marketing campaigns in several
aspects and follow a six step cycle as
indicated in Exhibit 2:
• Campaign Hypothesis: CVD
campaign ideas are based on
analysis and hypotheses derived
from real/factual data. CVD does
not base campaign ideas on market
practices or management intuition.
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 • Offer: CVD offers are micro-
segmented instead of generic and
valid for all customers. Operators
that initiate CVD normally start with
larger segments (representing 15-
30% of their total customer base),
while more advanced operators use
smaller segments (2-3% of their
total customer base per segment).
• Testing: CVD campaigns are
always tested and value impact is
measured before roll-out. This is
done via small ‘test groups’ whose
behaviour is always compared to
that of so called ‘control groups’ to
ensure deviations can be attributed
to the campaign that was tested.
• Execution: Communication is
usually below the line to ensure
proper targeting, cost savings and
EXHIBIT 2: MICRO-SEGMENTED MARKETING CAMPAIGNS
Source: Delta Partners analysis
Delta Whitepaper Design-07.indd 8
the avoidance of an initiation of
competitive reactions. In advanced
operators, campaign execution can
be automated through dynamic
mechanisms that identify the
“best” offers for a given subscriber
at any particular point in time
• Monitoring: Campaign results are
tracked through simple comparison
of test groups with control
groups - whereas this is typically
very difficult in ATL (Above the
Line) and / or non-segmented
campaigns
• Learning: The ability to monitor
results and test different
approaches ensures that the
marketing team learns and evolves
over time.
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 Essential Customer Value
Development capabilities
Customer value management requires certain
capabilities for full execution, although measurable
results can be obtained from the very beginning,
regardless of an operator’s starting point

What does an operator need in order • Processes Capabilities: Are the

to deploy CVD? There are four types
of capabilities needed for CVD as
indicated in Exhibit 3. Operators may
have different levels of maturity and
a first step is to understand where
each operator is in terms of these
capabilities:
• People and Organisational
Capabilities: Which team within
the organisation is responsible for
Customer Value Development? Is
there a dedicated retention and
campaign management team,
trained in the CVD methodology?
Are there dedicated MIS resources
with specialised analysis capabilities?
Which skills are present and which
are lacking? Does the team have
adequate analytical and data
analysis skills?
• Systems Capabilities: Do the
IN and billing systems have the
minimum reporting requirements?
Is the operation using separate
“wallets / dedicated accounts” in IN
to manage different promotions?
Which SMS broadcasting capabilities
are available?
Customer Value Development
processes in place? How well are they
known and executed by the team
responsible for CVD?
• Customer Understanding
Capabilities: Which primary research
capabilities exist in-house? Which
segmentations studies do exist?
Does the operator know of the main
complaints from customers and their
expectations from the company?
Once an operator understands where
it is positioned in terms of these four
capabilities, it should benchmark itself
with its desired outcome, taking into
account the nature of the competition
in the market and the level of
sophistication of other players.
In emerging markets in particular,
special attention should be paid to
People and Organisational Capabilities
– lack of talent is usually the main cause
for lack of results in Customer Value
Development.

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 The key for success is a pragmatic
approach, focusing on the critical
aspects first and ensuring that CVD
starts producing tangible results as
soon as possible. Leveraging on our
experience in the region, we have
identified three key success factors
for successful Customer Value
Development:

• Focus on obtaining results

quickly: Too many CVD efforts get
abandoned because they fail to
deliver results quickly. A focus on
pragmatism and results is crucial.
Targeted campaigns are a good way
to show short term impact, although
it is important that CVD doesn’t
stop there. An experienced team
typically helps to gain quick results
as it can leverage experience from
similar situations to evaluate ideas
and improve commercial tactics and
targeted marketing campaigns.

• Set up a multidisciplinary team

to kick-start CVD: It is important to
involve various functional areas from
the start. The appropriate availability
of resources from all involved
departments (mainly IT, network and
marketing) is key.

• Ensure management support.

This is crucial to encourage the
vital cross-functional operation. It
can be done very simply through
providing enough management
attention, visibility and credits from
all functional areas.

Our experience with CVD in emerging

markets has proven very positive.
The results vary from client to client,
but as indicated earlier (Exhibit 2) the
improvement initiatives and marketing
campaigns were responsible for EBITDA
improvements between 5 and 15%.

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 Conclusion
Operators in emerging markets
today deal with major challenges
related to declining growth, ARPU
pressure (due to multi SIM behavior)
and rotational churn. Customer
Value Development deals with these
challenges via leveraging an operator’s
most unique assets – the data it owns
about its customer base. Detailed
analysis of these data generates the
insight required to optimise various
commercial tactics and roll-out
highly effective micro-segmented
marketing campaigns. Obviously, a
range of specific capabilities should be
developed to fully unlock the potential
of CVD. But this does not mean
that CVD’s benefits are immediately
accessible to all operators,
regardless of their current degree of
sophistication: experience has proven
that CVD can generate 5-15% EBITDA
improvement with immediate payback
in emerging markets.

campaign management (for more

Delta Partners’ experience
in Customer Value
Development
Delta Partners has ample experience
in Customer Value Development in
emerging markets, having worked
with several operators on this topic.
Delta Partners can support operators
that need to start or revise their
Customer Value Development practices,
providing:
developed operators)
• An automated “customer base scan”
that has been utilised and proven
in a multitude of market situations,
allowing a quick run of over 50
standardised analyses that provide
insights in value development of
customer segments

• A dedicated CVD unit, with analytical

experts specialised in telecom
customer analysis

• A highly experienced team, with real

experience in the region and a track
record of constantly creating 5-15%
EBITDA improvement in over 20
operations in emerging markets

• An extensive and proven library of

campaigns that can be implemented
quickly (for less advanced operators)
and tools to improve and automate

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 Delta Partners is the leading management advisory and investment firm specialised in Telecoms, Media and Technology (TMT) in

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