Best Practices for Managing OPEX in Today's Challenging Climate

Next Generation Communications Blog

Best Practices for Managing OPEX in Today's Challenging Climate

Telcom operators are facing a new competitive environment, where they are challenged by the economy as well as market trends, to manage capital and operational expenses more carefully than ever before.
 
As far as investments in their networks goes, operators are carefully planning their roadmaps to next generation communications infrastructures, including high leverage networks. But, ultimately, investment is inevitable, if they intend on remaining competitive and be able to deliver the latest content and services to a new generation of devices.
 
However, there are alternatives that can provide substantial benefits on the operational side, and operators are considering new models that will allow them to create new revenue streams through partnerships with various members of the community, from other network operators to content providers to application developers and others.
 
These new strategies include investing in fiber to the home, which will allow operators to deliver an expanded set of services more cost effectively. They can also look to deliver their services on converged platforms, lowering management and maintenance costs, as well as power to maintain multiple systems.
 
But perhaps the most telling sign of the changing landscape is a growing trend towards network outsourcing. In other words, service providers are looking to partner with network operators to deliver services to customers, rather than focusing on expanding their ownership of network assets. Considering the prevalent thinking that the future of communication lies in applications and services, it's not surprising we're seeing a separation of the network from services.
 
For network infrastructure owners, this presents a parallel opportunity to become network managers, allowing other operators to leverage their network reach and capacity to as a way of generating revenue and maximizing network potential. Increasingly, network operators are turning to managed services to increase their market position, including adopting "build-operate-transfer" or "build-operate-manage" strategies; full or partial network outsourcing (i,e, the transport
network of a mobile operator or full outsourcing of a legacy network); capacity management; and managed or hosted content and applications.
 
These new models not only reduce operating expenses, but build new relationships that will guide the communications industry into the future. Take, for example, the BT Openreach initiative in the UK, which allows telecom operators in the UK to leverage BT's existing local access and backhaul networks.
 
According to an Alcatel-Lucent whitepaper, outsourcing and network sharing can have a significant positive impact on a network operator's finances. Outsourcing can improve EBITDA (net income before interest, income taxes, and depreciation and amortization) by about 1.5 % and OpFCF (Operating Free Cash Flow) by about 6 percent. Infrastructure sharing will deliver 10-20 percent savings in CAPEX and 20-40 percent savings in OPEX over a five-year period.
 
Furthermore, separating the network from services vastly enhances a leased line unbundling model, and allows operators to be labeled as utilities rather than telecoms, increasing their market value.
 
Ultimately, though, sharing of network infrastructure will result in much faster ROI on new applications and services, as they can be rapidly deployed to a larger subscriber base without having to invest in new network infrastructure, and the testing and maintenance that go hand in hand.
 
Because of these inherent benefits in an outsourcing model, service providers are increasingly looking at network ownership as being outside their core business - their new core business, that is. Not only do they lower their capital investment, but, more importantly, they reduce the recurring costs associated with network upkeep. And the simple fact is that, as network operators continue to migrate to high leverage networks, those networks will become less of a differentiator and simply a means to an end, with each network being much like the next.
 
Instead, services become the differentiating factor, which is where providers will focus their investment, and service providers of the future may not even own any network assets. Instead, their efforts will be entirely focused on the customer - acquisition, interaction, and retention. And even then, they will need to forge third-party relationships to help deliver the latest applications and services to their customers, as members of the ng Connect program are already doing.
 
For more on the how the telecom operator landscape is evolving, read Alcatel-Lucent's white paper, called, The Coming Carrier Network Infrastructure - A Very Different Landscape.


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