As telecom industries around the world mature and competition begins to intensify, telecom players will see saturating mobile penetration and rising demand for data consumption. The shift from data to voice has not reflected in proportionately higher revenues, but has done the opposite, by diminishing returns.
This presents a longer-term challenge: the escalating appetite for mobile data is putting tremendous pressure on telecom operators to keep investing even as returns on incremental CAPEX keep shrinking.
The numbers say it all: 30-40 percent of all network towers are typically not profitable and over 20 percent don't even recover direct running cost.
Yet, delivering a good customer experience is not a choice, it is a necessity. To be profitable, telecom operators must gain scale and serve at low cost. They also must determine how to make their CAPEX – a scarce resource – work harder for them. This includes value-based investment decisions and how to transform them into bottom-line profitability.
Considerations before Investment
But what factors must telecom operators consider as they reallocate their CAPEX to improve utilization?
Our experience indicates that 20 percent of a telecom operator's top customers create 60 percent of profit by using only 40 percent of the network sites. While this defines the percentage of network that requires rethinking and investment, it is only the beginning.
With this, the management must ask itself critical questions to identify what the most-profitable key segments are. They must determine where the customers in these segments frequent the most, geographically and which competitors are currently targeting these segments.
To determine the above and to structure it so it enables decision making for CAPEX allocation, a methodology called the Value-CreationNetwork (VCN) dynamically integrates three layers of information. It clusters the customers' profiles and experiences using the network; a telecom operator's network and commercial performance; and the geographical cluster of the most-valuable customers.
By combining the layers of information, the methodology is able to rank every geographical area against the most-profitable customers, generating clear visibility on how to allocate resources to the most viable and profit-creating areas.
Big Data Underpins the Success of VCN
Our data conclusively shows that telecom operators can gain a 2-5 percent increase in return on capital expenditures can be achieved by planning CAPEX allocation through the VCN methodology. Telecom operators serious about making their CAPEX work harder, must consider bringing the VCN to life, through six essential and repeatable steps throughout the operators' entire network.
First, to determine how CAPEX is best allocated, the most profitable customers must first be identified and their needs must be quantified. Secondly, baseline comparisons comprising a profitability analysis of network's towers and an analysis of competition must be conducted.
Thirdly, external 'hotspots' or profitable high-growth areas in the operator's network operation areas must be recognized.
Once the first three steps have been exhaustively explored, the fourth step to the VCN methodology is to determine the areas to invest and how much is needed, to boost the existing network. Next, forecasting how the experience improves for profitable and targeted customers will be necessary, as well as how many more of such customers could be acquired by the telecom operator. Investments into the network to improve QoE, could also be used to prevent migration of a telecom operator's most valuable customers.
Finally, telecom operators need to align decisions on invested capital and technologies with other key functions, such as sales and marketing, as well as with key managers overseeing customer experience and pricing. Through promotional strategies in the right areas and the target customers, this would spur customer acquisition given the right pricing and package.
Long-Term Viability and Success
A value-centric approach with respect to investments into mobile networks, driven by a solid data-based investment decision engine, can greatly support telecom operators in making these decisions.
But to sustain this, ambitious management teams must integrate the methodologies into the organization, and integrate them well. This integration can only happen with sufficient time and with top management support to make the methodology truly transversal. Decision-makers must be convinced that "exceptions to methodology will be truly exceptional".
Furthermore, processes must be revised and data onsite performance be made transparent to all parties involved, so that they realize that VCN actually makes things more efficient and smoother in their planning process.