OPEX Reduction in Telecom

Industry
Q arib Raza Kazm i
SP-2010/M .M /205
Telecom Business M anagem ent

Introduction

The ability to com m unicate has enabled hum ans to m ake a

paradigm shift from tribalbased com m unities to inform ation
based societies.

W hile com paring the novel

m eans of com m unications,
telecom m unications
w ould probably stand
as the p ion eer tech n olog y,
giving birth to variety of
com m unication m eans like
PSTN , M obile Telephony,
Broadband netw orks, the
Internet and so on.

Th e 16th largest econom y of Asia and 2n d largest econom y

of South Asia; Pakistan .

The Plight of the Pakistan

Telecom Industry

According to the Econom ic Survey of Pakistan

2011-12, totalinvestm ents in the telecom sector
stood around $495.8 m illion in fi
scal2010-11, as
com pared to $1,137.5 m illion in fi
scal2009-10.
These statistics show that fi
scal2010-11, total
investm ents in the telecom sector fellby 56.4% .

But Stilltotalrevenues generated by the telecom

sector during fi
scal2010-11 w ere around R s363
b illion : an increase of 5.4% as com pared to
revenue generated in fi
scal2009-10, w hich w as
around R s344 b illion .

FDI Chart

Contribution to Exchequer

OPEX Reduction Strategies.

M anage the product Portfolio Carefully

Eff
ective and ef f
cient m arketing strategies
i

Focus on productivity/ef f
ciency and policies
i

Eff
ective Asset m anagem ent

Site Lease Pre-paym ents

M ulti-dim ensionalPlanning

OPEX Reduction Strategies.

M anage both labor and non-headcount costs

Keeping costs as variable as possible

Tow er Sharing (Indian Industry research)

C om pact BTS Technology

Solar Pow ered BTS

Manage the product Portfolio

Carefully

Few industry executives w ould

disagree that product proliferation is
the prim e enem y of cost
m anagem ent.

In a recent survey, 4 of 10
executives said that their com panys
product portfolio grew by m ore than
50% in the previous fi
ve years.

For the telecom industry, this grow th

in products creates problem s across
functionalareas sales, m arketing,
custom er care and billing w here the
num ber of products is a key driver for
com plexity, and subsequently, cost.

Portfolio Management

O ne of them is that the com panies have dif f

culty phasing
i
out older products.

The dif f
culty stem s
i
from a fear of churn,

lack of incentives to
elim inate products

lack of pruning culture

am ong the telecom
industry in general.

In addition, they
som etim es launch products w ithout a true understanding
of custom er needs. (U sing m arket research com panies
before product launch can be an area of interest here)

Portfolio Management

Effective and efficient

marketing strategies

Tough econom ic tim es lead to increased scrutiny and cuts to m arketing

spend. Although research suggests that brands should m aintain or
increase m arketing spend during recessions.

The fi
rst task is to understand the
eff
ectiveness and ef f
ciency of
i
m arketing spend across allchannels,
products, geographies, m arketing
objectives.

The im pact of spend can be quantifi

ed
through carefu l an alytic m od elin g
using available data,such as spend
across various levers, and relevan t
ou tcom e m etrics such as sales, n ew
cu stom ers ad d ed , sh are of w allet, and brand equity.

Profi
t im provem ents of at least 5 % through a com bination of tactics:
squeezing m ore sales out of the sam e overallspend by reallocatin g
sp en d , cu ttin g sp en d , and/or in creasin g sp en d for certain levers.

Focus on
productivity/efficiency and
policies

Any good cost reduction program cannot ignore the tried and true
productivity levers, an d a g ood startin g p oin t is th e d em an d
sid e.

For exam ple,rather than

trying to cut the cost
of a custom er service call,
m anagers should do tier best
to prevent the callin the
fi
rst place.

A case in point is the U fone

callcenter. They have a daily
callload of around 25 0,00 0 of
w hich they are only able to answ er around 1 75,000 .

Reducing the tim e of the callis a fi

n e strategy.But w hy not
elim inate the callin the fi
rst place?

Productivity/Efficiency

Preventing the callm ight be as easy as sim plifying or

stream lining the instructions that custom ers
receive w hen they purchase
their phone SIM S.

M ost successfultelecom s
autom ate calls w here it
m akes sense. The autom ation
m ust m atch the custom er
service dem ands. O therw ise
the com pany risks frustrating
custom ers and in the end
driving up the callvolum e.

For instance som e com plex

technicalquestions are dif f
cult to answ er via interactive voice
i
responses, but can be easily answ ered in videos that can be
m ade available on the handset or the internet.

Effective Asset Monitoring

C ellsite is one of the m ost expensive physicalassets of a

m obile
operator considering
the C APEX that goes
in every site.

Around 5% of sites n eed s

re-w ork and an oth er
5% w ould need special
m aintenance due to
poor im plem entation.

If an operator have an
eff
ective asset
m onitoring platform
such as A D aM (A m an zi
D ata M an ag em en t) then it is possible to achieve around
10% savin g s in O P EX .

Site Lease pre-payments

Site leases are the secon d h ig h est cost for any netw ork
operator next to payroll.

Site leases don't reduce

over tim e, they actually
increase based on factors
such as infl
ation, raising
value of property, etc.
The challenge is how do
you reduce this cost?

The answ er is sim pler than

you think its pre-paym ent
of site leases.

Site lease pre-paym ent can reduce the cost of leasing sites
from 20% to 40 % considering industry standard site lease
escalators.

Multi-dimensional planning

G ood planning is alw ays essentialto the success of

any operations.

It is m ore a strategy for

revenue assurance than O PEX
reduction, how big is its
eff
ect to the overallpicture?

C onsider a netw ork w ith

5 m illion subscribers having
a m onthly ARPU R s 300 of w hich
has a churn rate of 5% , now
w ith an optim ized netw ork the
churn rate can be reduced to
2.5% thus ensuring annual
revenue of Rs 37.5 m illion .

Manage both labor and nonheadcount costs

A headcount reduction can be one of the m ost painful

events in the life of an organization.

M ost Com panies ignore the fact that the bulk of

expenses in som e departm ents m arketing, for
exam ple is non-labor in nature.

Advertising production is an area w here the costs can

be very high.

A rule of thum b here for telecom industry is that m ed ia

b u yin g costs should be about 75% of ad vertisin g
costs. If you are too far offthis bench m ark then you
should focus on ad production cut and not too m uch on
m edia buying.

Manage both labor and nonheadcount costs

There are other areas, too, w here non-headcount spend

should be closely w atched. Like for instance, d ealer
com m ission and h an d set su b sid ies.

An eff
ective w ay of reducing handset subsidies is to join a
purchasing consortium and savin g u p to 10% .

Manage both labor and nonheadcount costs

Keeping costs as variable as

possible

O utsourcing is one w ay to
achieve variability, though it can
be tricky to execute. M oreover if
it is not m anaged properly,
outsourcing can result in costly
re-w ork that overshadow s
savings.

Areas w here outsourcing has

traditionally been eff
ective
include in form ation
tech n olog y, cu stom er care,
and b illin g .

Keeping costs as variable as

possible

Tower Sharing (Indian Industry

research)

The Indian w ireless industry, w ith a 3 2 %

penetration, is only second after China in term s
of sub-scribers at 3 2 5 m illion .

M ost of this grow th has com e from

u rb an In d ia W h ere p en etration is
close to 6 0 % , but in ru ral m arket
its less th en 1 5 % .And its here that the
industry sees the largest opportunity for grow th.

The challenges, though, for Indian telecom

operators is the average per user (ARPU ),
w hich, at less th an $7 ,
is one of the low est Ithe w orld.
This fi
g ure drops signifi
cantly w hen one m oves
into ruraland sem i-urban areas, and is
estim ated to b e as$2 .

Tower Sharing (Indian Industry

research)

According to an E& Y report titled 'W ireless Infrastructure

Sharing in India', "CAPEX (capitalexpenditure) savings
across the industry are expected to range betw een $7-12
b illion over the next four years, till2012

O ngoing O PEX (operationalexpenditure) savings are

estim ated at $1 b illion a year.

Tower Sharing (Indian Industry

research)

Tower Sharing (Indian Industry

research)

The grow th in the dom estic telecom industry has

largely been concentrated in the M etros an d
C lass A circles in the past decade, w ith coverage
reaching around 90% an d 35% , respectively.

H ow ever, coverage in the C lass B an d C lass C

cities is stilllow at 15-25% .

M oreover, w ithin these circles grow th has largely

been concentrated in the urban areas w hile
penetration in the ruralareas rem ains low er. Thus
future grow th is likely to com e largely from Class B
and C circles and ruralareas.

City wise Mobile Panatration

Compact BTS Technology

Com pact base transceiver stations (BTSs) are the

latest base station design to be introduced in the
m arket. They bring W iM AX operators fl
exibility and
cost savings w hile retaining the perform ance of
m acro BTSs.

Com pact BTSs can be installed in single-sector or

m ultiple-sector confi
g urations as alternatives to
distributed BTSs w ith rem ote radio heads (RRH s).

U nlike traditionalm acro BTSs, com p act B TS s d o

n ot req u ire g rou n d sh elters an d coolin g
eq u ip m en t. Yet they support high-perform ance
features such as m ultiple antennas per sector w ith
m ultiple input, m ultiple output (M IM O ), and beam
form ing.

W ith a sm aller footprint, lighter w eight and low er

pow er consum ption, com pact BTSs cost less to
installand to operate. O ur analysis show s that
operators can save 38% to 47% in C A P EX an d
O P EX over a f i
v e-year p eriod .

Compact BTS Configurations

Compact BTS CAPEX

Comparison

CAPEX Year 1

OPEX Year 1

Solar Powered BTS

The IFSP solutions off

er
up to 60 p ercen t or m ore
in operating expenditure
related pow er savings.

Alternative pow er solutions

are not com m only used in
telecom m unications system s today, but are being
actively evaluated for dif f
cult locations and lim ited
i
deploym ents have been m ade.

Target Configuration

World Solar Radiation Map

BTS Power
Consumption

O n average, a fully loaded G S/3G BTS

using traditionalPAs is estim ated to need
3 kW of pow er
at peak draw .

H ence our targeted confi

g uration w illbe
for the w orst case scenario in term s of
energy consum ption i.e. th e 3.0kW
p eak p ow er d raw B TS .

Studies have also show n that

this BTS w illconsum e an average of
12,500kW h of electricity in a year.

The Solution

An IFSP designed solar-pow ered

system , w hich consists of solar
panelm odules, deep cycle
battery arrays and charger
controller.

The battery array w illhave a

b acku p cap ab ility of 2 d ays,
w hile the solar m odules are
designed in such a w ay that it
only needs 4-5 h ou rs of
su n lig h t to rech arg e the
batteries.

Economic Payback

The cost estim ate for the fully functionalIFSP designed solar
pow ered system , w hich consists of solar panelm odules,
deep cycle battery
arrays and charger
controller for a fully
loaded 3kW B TS is
$30,550 .

In com parison, a fully

loaded BTS is typical
pow ered by tw in 15
kilo volt am pere (KVA)
or m ore diesel
generators w hich
consum es over 2.5
litres of dieselevery hour up to 20 h ou rs d aily w illcost
about $12,026.00 in dieselfuelper year(assum e
0.66cents/litre)

Comparative price on 10 year

basis for 10,000 BTS

A typicaltelecom operator
w ith about 10,000 BTS w ould
have spent w ellover $1.2
b illion on dieselfueland
generator w ithin a ten year
period.

w hile the solar option is

estim ated to cost $306.50
m illion over the sam e period.

Global Telecom Deals

Etisalat outlines major CAPEX

and OPEX reduction initiatives

Already undertaken a num ber of m ajor CAPEX and

O PEX reduction initiatives such as co-location
an d h yb rid p ow er and w as actively considering
others like transm ission sharing and sales and
leaseback of tow ers.

Identifi
ed tow er sale an d leaseb ack as an
excellent w ay of releasing capitalto invest in core
activities such as custom er acquisition,
m anagem ent and retention as w ellas increasing
the num ber of signifi
cant tow er deals by African
tow er com panies.

Recommendations: Compelling
case for 3G

D ue to an increase in revenue generation this year, the

telecom sector contributes R s117 b illion in taxes to the
nationalexchequer the highest ever.

Pakistan is am ong the few countries w hich have yet to

adopt the 3G /4G technology. Even countries like N ep al,
S ri Lan ka an d In d ia have already adopted these
technologies.

Experts in the telecom sector believe that increasing

broadband penetration leads to econom ic gains: a 1 0%
in crease in broadband penetration contributes by a
p ercen tag e in G D P g row th , w hile around 80 n ew job s
are created for every 1,000 n ew broadband connections.

Pakistan m ust now join the 159 cou n tries that have
already adopted 3G /4G technologies