CSPs can reduce capital investment, optimise capacity utilisation and achieve huge expenditure savings with network analytics
Capex optimisation is a term that has featured in every major communication service provider’s (CSP) financial reports in recent years and while it may seem like a proactive buzzword to use in the annual shareholders letter, there are genuine large-scale initiatives currently taking place within the CSPs to streamline capex spending At the core of these initiatives are generally an internal management team engaging with their network equipment manufacturers, their key OSS/BSS vendors and potentially a systems integrator or consultant partner.
The lean years of global economic downturn, falling ARPUs, falling EBITDA and increased competition from outside the industry has forced all CSPs to seriously address the way they deliver their services, dramatically reducing costs, increasing operational efficiency and maximising margins while simultaneously dealing with the drive towards deploying next generation network technologies and services. Analysys Mason research shows that capex spending in the top 125 CSPs worldwide has fallen consistently over the last four years; in 2014 capex totalled US$320 billion, or 16% of revenue.
Dean Ramsay, a senior analyst at Analysys Mason spoke to Ashwin Chalapathy the global head of Portfolio Management, Managed Services & Consulting of OSS/BSS vendor Subex, about the key actions he sees reducing inefficiencies in capex spending within CSPs and what Subex is currently doing with its customers to maximise the benefits of these initiatives.
Dean Ramsay: All major CSPs encounter challenges maximising the benefit they derive from capital expenditure in the network and elsewhere in the field, often as a result of suboptimal planning in the purchasing phase. What do you see as the key inefficiencies in capital investments decision making within CSPs?
Ashwin Chalapathy: Subex sees three main challenges faced by CSPs undergoing a transformative initiative to optimise capex spending:
The first key investment challenge facing CSPs with multiple large networks is that separate OSS/BSS systems are used to manage and support different types and ages of network technology with no single system accounting for all of the company’s assets. In global CSPs with a track record of M&A, this situation is amplified greatly as a large number of legacy systems continue to function in the country-specific operating companies due to the costs and time impacts involved with large scale data migration.
The problem has been compared to changing the engines on a jet airliner while it is in flight. In addition to this, inventory for outside plant has traditionally been handled by a manual data entry system which models assets from physical data centre infrastructure to cell tower hardware to satellites modelled in an offline system. The only way to ensure data quality on these systems is to perform physical audits, which again can prove to be a costly exercise.
The second inefficiency we have seen in our research is a disconnection of motivations from the different buying centres within a CSP, chiefly the alignment gap between the CTO and CFO. The CTO’s key drivers are to authorise capital expenditure in the network based on technological improvements, maintenance requirement and the ongoing expansion of network capacity. The CFO’s office is focused primarily on tackling eroding margins and preservation of capital, and the ability to free up liquid cash. Finance departments typically rely on Enterprise Resource Planning (ERP) software and techniques along with other supply chain, logistics or asset management applications to obtain metrics about the number, status and location of assets, which is a different view to that of the OSS. Capex management in modern CSPs requires an improvement of the linkage between these two driving forces in the company. CSPs’ CFOs and CTOs should work together to achieve best return on network investment.
The third key inefficiency that we see in the assessment of capex allocation comes from a driver perspective, where the vast majority of capex spending is automatically passed through purchase controls in an attempt to stay marginally ahead of capacity rather than from a strategic plan from the business. This kind of spending lacks a holistic approach, which leads to much lower levels of efficiency for the CSP as a whole and ultimately affects CTO and CFO budgets.
DR: With these fundamental problems in both business process and information management it is easy to see that capex spending activities in CSPs is not currently optimised. What is Subex doing to address these challenges, with the development of the ROC Asset Assurance solution and with partner and standards work elsewhere in the industry?
AC: The Subex solution is a network analytics based software platform which is designed to drive actions and changes in critical business processes that relate directly to capex. The solution is comprised of three key pieces; the discovery and reconciliation element, the asset assurance element and the capacity management. Together these products form the Network Analytics solution suite which addresses capex issues of CSPs and helps in substantial capex reduction.
While CSPs possess a network installation strategy, which should be focused on the selection of correct and appropriate network elements, capex optimisation is often achieved by striking the right balance between utilisation of existing infrastructure and new procurement activities. Data points such as returns derived from a network asset, average maintenance costs, utilisation levels of the equipment and spares management all need to be taken into account to correctly establish the capex cost over the lifetime of the element in question.
The procurement process is a classic example of a large opportunity for capex optimisation – having a robust procurement framework drives efficiency and cost reductions. An efficient procurement process – with a centralised procurement team, process transparency, prudent contract management and good co-ordination among relevant departments – can on its own result in a reduction in equipment procurement cost of more than 10%. The insight data flowing into this team however must be valid, consistent and holistic to begin with.
Subex’s approach in the first instance – along with other software vendors, the TM Forum and global CSP Econet – was to form the Asset Management Project Group, a joint venture to bring standards into the network capex and network optimisation practices within CSPs globally. The Asset Management Group has been established for TM Forum members to collaborate in defining guidelines to set network asset policies, track assets and manage the overall corporate balance sheet. The group participates in the Catalyst projects at TM Forum events to promote a single standards set in the industry. TM Forum and Subex as project lead remain committed to helping CSPs develop new approaches to achieve maximum efficiency and optimisation of their business processes and success in capex management through the TMF Asset Management group.
DR: How do you see better asset management resulting in capex spending efficiencies for the business as a whole?
AC: Subex’s proof of concept testing has proven that using a holistic approach to the asset lifecycle covering both ERP and OSS domains increases efficiencies in asset management. The direct knock on effect of improved asset management is improved capital management practices in all phases of the business. So from the CSP’s perspective, asset management can have a real impact on the financial health of the business in a relatively short timeframe just by re-aligning the communication gap between the two business groups within the CSP and ending long held and wasteful capex spending habits. Due to exponential growth of mobile and business data and the advent of IP and differentiated services, capacity planning problems have multiplied several fold.
Addressing the second of our capex inefficiency problems, Subex has sought to make the solution relevant to both the CTO and CFO of the organisation, unifying their global view, with a higher level of data quality than was previously available.
Key benefits for operations include:
- Optimal utilisation of capex and opex spend on network assets
- Better visibility into disposition of assets and ongoing/ on-demand FAR and OSS data integrity • Smooth audit and regulatory compliance for assets • Accurate asset depreciation and write-off, free cash flow generation
category: Expert Opinions