Opinion Paper. Capex Management. In Collaboration with Subex

Transcription

1 Opinion Paper Capex Management In Collaboration with Subex

2 Table of Contents 1 Introduction Aligning CTO and CFO views Capex optimization recommendations and tools The Authors The Company Opinion Paper 2 Detecon International GmbH

3 1 Introduction Unlike any other industry, the telecoms sector is characterized by one particular feature that poses a significant challenge the combination of fast changing technologies and huge investment layouts to realize financial objectives. This in turn suggests that a successful telco operator is one that manages its investments and their utilization most efficiently. Hence, the urge for telecom operators in particular to put increased focus on an integrated CAPEX- Management approach. To succeed in this environment, telecommunications companies need a blend of strategic investments coupled with close control on tactical investments. Network Capex is one of the most important and strategic investments made by Telecom companies to keep pace with the increasingly shorter technological cycles while contending with competition from within and outside the industry. Managing Network Capex, thus becomes a critical area in the overall Capex Management space which would yield significant benefits and optimization opportunities. Operators have witnessed strong growth in MVNO and OTT (Over the top) services, particularly on messaging services that have launched mobile VoIP services, e.g. WhatsApp, Viber, Facebook, and others that have announced plans for their future launch. This places a heavy network capacity burden on the operators, with shorter lead times to upgrade and high costs. These investments cannot always be translated one-to.one to the end consumer. This is a threat to most operators voice revenues and puts an increased pressure on the operators CAPEX budget and in turn its margins. Capex investments in a Telco cut across the Finance and Technical functions. Introducing a Capex control framework allows operators to optimize Capex spend and setup a strong foundation for Capex and Asset Management. This paper discusses the most common problems faced by multiple operators within the area of CAPEX Management. It goes to highlight potential solutions that will support operators in their pursuit to optimize their management of capital expenditures. It ensures that financial and commercial aspects are aligned with the technical asset management requirements and as such guarantee to overcome one of the most critical gaps, i.e. an integrated approach between the Finance and Network functions or the CFO and CTO agenda. Opinion Paper 3 Detecon International GmbH

4 2 Aligning CTO and CFO views The CFO and CTO functions are amongst the key functions of any telecommunications operator. Although Finance is given the official mandate to manage and optimize capital expenditures it becomes evident in many telecommunications operators that Finance is rather lagging behind in the decision-making process for CAPEX investments. This in turn will not enable it to establish a significant performance reporting and developing a sound basis for Management s informed decision making. As most investment decisions are driven by changes in technology more than by the critical analysis and deviation of business objectives that ought to be achieved, it becomes obvious that a stronger alignment between the CFO and the CTO is critical towards a more efficient and effective management of capital expenditures. To maximize the benefits derived through the Capex investments, it is imperative that the CTO and CFO organizations within a Telco are aligned some of the key challenges faced today to achieve this are: Aligning different organizations within the Telco having conflicting objectives and influences to align to a common goal. For instance, a Network organization would like to invest in the latest technologies available to keep pace with the industry while Finance organization would like to realize revenue from existing investments before sanctioning further Capex investments Lack of visibility of Network Capex investments through its lifecycle. While Finance organization are involved in and driving the planning and procurement processes, they tend to struggle with the asset visibility during operations and are unable to calculate and validate the return on Assets. Technical teams on the other hand are focused on the Service Assurance and Service Fulfilment processes and lack the controls and metrics to drive Capex efficiencies or capturing and optimizing return on Assets Lack of accountability of Capex investments as end-to-end visibility of Network Capex and assets is not available resulting in incomplete and ineffective (and in some cases, none at all) benefit calculation which is carried into future projects This leads to silo-ed operations and processes resulting in disparate efforts to optimize capex spend though not deriving the desired results. It becomes imperative then, to align the Finance and Technical organizations to maximize the Capex optimization opportunities within the Telco. Detecon and Subex Network Analytics suite provides Capex optimization solutions to Telecom operators aligning Finance and Technical organizations as well as providing network asset visibility across its lifecycle. We deliver network and finance centric processes and solutions that significantly optimize Capex spend, generate free cash flow and improve EBIDTA by providing financial and operational metrics to measure, predict and optimize the return on Assets in the network. Key enablers in aligning the finance and technical organizations delivered by Detecon and Subex Network Analytics suite comprise of 360 o asset view, Optimized Asset purchase, Improve Asset data integrity, and better Audit and Regulatory compliance through a Capex control framework detailed in the next section. Opinion Paper 4 Detecon International GmbH

5 3 Capex optimization recommendations and tools In aiming at closing this gap between the CFO and CTO area, an integrated CAPEX Management approach would assure that all key stakeholders, particularly in the CTO and CFO areas, will be involved from the early development and alignment of the Technology Strategy and Corporate Strategy throughout to the identification of investment needs. This should not be driven by technology but rather by the necessity to respond to identified business objectives. Capex Planning Flow Integrated CAPEX Framework Strategic Guidance Strategic Planning Business Plan (BP) / 3-yr Plan Detailed Budget (DB)/ 1-yr Plan Controlling/ Reporting Budget Change Mngt Alignment across HQ functions and operational domains Close Coordination of organization, process & tools Implementation and Close Monitoring Commercial/ Strategy Finance / Support Units Activity Long-term Plan Year 1 Year 2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 3-year CapEx Investment Plan Short-term Plan Detailed 1-year CapEx Budget Plan Execution Review Review Review Review Operations Clear governance with predefined roles and responsibilities given to the involved stakeholders ensures that a standardized approach will be acted upon. This includes a clear definition of what contributions are needed from the different functions in what sequence. The governance would involve the set up of an entity, e.g. investment committee that approves all capital expenditures. It is vital to ensure that this committee receives all the key information to enable it to probe and question, focus on critical success areas and key performance indicators and identify appropriate management actions where there are positive or negative variances from projected performance. An end-to-end process ensures that the Technology Strategy is closely aligned with the Corporate Strategy, where the CFO and CTO can jointly ascertain horizontal and vertical consistency, i.e. from strategy to budgeting and implementation to post-implementation performance controlling. The strategic planning process is closely interlinked with the budgeting and mid-term financial planning process to ensure continuous and consistent alignment of CAPEX needs and the appropriate decisions. CAPEX decisions need to be clearly categorized first before any decision can be taken. The categorization ensures that funds are being spent on the most promising investment opportunities, i.e. the ones with the highest return on investment, rather than trying to allocate little funds to meet parts of all potentially necessary investments. In addition to allowing for allocating scarce CAPEX to the opportunities with the most suitable risk/return profile, the categorization establishes an overview on CAPEX exposure by different dimensions. This categorization and prioritization, allows an operator to react flexibly to turbulent market environments. Opinion Paper 5 Detecon International GmbH

6 For the above mentioned measures to be fully functional, in general support from the business units or business finance, if present within the organization, in providing information from the field on revenues of profitability of products and services serves as a feedback loop to fine tune and enhance the assumptions taken within the integrated CAPEX management framework. Detecon and Subex Network Analytics suite provide a Capex control framework to operators which provides Capex tracking, controls and recommendations for optimization opportunities. Detecon, through its expertise over the years, provides a four-step project project approach lays the foundations to enable operators reach one of the lowest cost structures in the industry. Standard templates for evaluation and approval of investment opportunities are also critical and have a significant impact on how fast and smooth the process can be implemented. A standardized business case will ensure that one language will be prevailing. Decision metrics are defined and communicated in a transparent and consistent manner. This will be enriched by decision recommendation template and standards which will be highly appreciated by the executive management. Significant Performance reporting is also crucial in keeping the management informed and equipped for investment decisions. Best practice Reporting must ensure to Set aims, policy constraints and guidelines, objectives and broad strategy, and then confirm these to the management team. Once this has been approved it is crucial to ensure that the performance reporting process links objectives, principles and practices to its needs. Reporting requires the development of clean, accurate and timely data, with stable repositories and strong automated collection efforts. Subex Network Analytics solution, on the other hand, provides the enabling technology solution which operates across the complete lifecycle of Network Capex and assets and provides a progressive way for operators to achieve the highest level of maturity in Network Asset Management. Opinion Paper 6 Detecon International GmbH

7 Lets take a closer look at the Domains and Enablers of the Capex Control framework and what Subex Network Analytics solutions offer under each of these: Domains: Planning & Budgeting: Enables accurate record of Asset types and locations along with current utilization and guidelines on Return on Assets (RoA) expected based on previous budgeting cycles Procurement: Internal sourcing of procurement against purchasing it from external sources by identifying harvestable (stranded, unutilized, under-utilized) assets in the network. Optimizing purchasing needs of the operator Operations & Logistics: Comprehensive and near real-time tracking of all network assets coupled with Spares, Warranty and AMC management. In addition, analytical features like time-to-value, decommission management, geo-spatial analysis are available Asset Retirement: Identification of idle, excess and obsolete assets that can be resold or salvaged. Insights and approach on accelerating network migrations and site exits Enablers: Asset Visibility: Providing end-to-end asset visibility across all phases of its lifecycle coupled with asset utilization, tracking and maintaining an audit trail to analyze asset movements in the network to accurately know disposition of assets Measures & Controls: Availability of asset visibility enables the operator to put in place measures and controls to know how effectively are these assets being utilized to maximize Capex efficiency. It allows setting network thresholds to generate proactive notifications on SLA breaches. Data integrity of assets within all supporting systems can be upheld through periodic reconciliation with the network Opinion Paper 7 Detecon International GmbH

8 Analytics & Optimization: Upon availability of asset visibility coupled with corresponding measures and controls, the next step for the operator is to introduce analytical features leading to optimized Network Capex spend. Features like Procurement gating, automated workflows, reporting and dashboards allow the operator to complete the Network Capex Management loop and derive optimization benefits As a partnership, Detecon and Subex offer expertise in Capex Management for operators to reach one of the lowest cost structure in the industry along with an enabling technology solution which would introduce processes and solutions that significantly optimize Capex spend, generate free cash flow and improve EBIDTA by providing financial and operational metrics to measure, predict and optimize the return on Assets in the network. Opinion Paper 8 Detecon International GmbH

9 4 The Authors Youssef EL Ouariachi (ACCA) is a Management Consultant and has been working in the Detecon Germany office since 2006 within the Corporate Finance unit with focus on controlling, cost optimization and financial modelling. Through numerous projects he has gained substantial knowledge of the infrastructures, products and business processes in telecommunications. The emphasis of his work lies in the support for restructuring, implementation of cost efficiency programs, creation of transparent management logic, and fulfillment of internal and external compliance requirements. He can be reached at: or [email protected] Mr. Nizar Hneini, is a Partner at Detecon based in MENA region. He has been working in the ICT sector for the last one and half decades. He has worked with operators and vendors in Europe, North America and the Middle East and also advised operators, regulators and the public sector in the MENA region. He has in-depth knowledge of the telecom market and its developments in the last years and its role as enabler to the underlying transformation to the digital economy. He can be reached at: or [email protected] Mr. Tomas Belohoubek is a partner at Detecon based in Germany. Tomas has been responsible for the area of Corporate Finance consulting portfolio. He has conducted numerous projects in areas of financial performance, cost optimization and transaction services across Europe, MENA and Africa. He can be reached at: or [email protected] Mr. Parag Sagalia is a Principal Consultant for Subex in the Network Analytics portfolio with focus on helping operators in Capex optimization. He has substantial experience in the network and OSS/BSS domains with proven performance in diverse roles ranging from Functional Consultant for OSS/BSS to Subject Matter Expert on Telecom networks. The emphasis of his work lies in leading Business Solutions and Consulting for Telecom operators in the Emerging markets through transformation programs on Capex optimization and Network Analytics He can be reached at: or [email protected] Opinion Paper 9 Detecon International GmbH

10 5 The Company We make ICT strategies work Detecon is a consulting company which unites classic management consulting with a high level of technology expertise. Our company's history is proof of this: Detecon International is the product of the merger of the management and IT consulting company Diebold, founded in 1954, and the telecommunications consultancy Detecon, founded in Our services focus on consulting and implementation solutions which are derived from the use of information and communications technology (ICT). All around the globe, clients from virtually all industries profit from our holistic know-how in questions of strategy and organizational design and in the use of state-of-the-art technologies. Detecon s know-how bundles the knowledge from the successful conclusion of management and ICT projects in more than 160 countries. We are represented globally by subsidiaries, affiliates, and project offices. Detecon is a subsidiary of T-Systems International, the business customer brand of Deutsche Telekom. In our capacity as consultants, we are able to benefit from the infrastructure of a global player spanning our planet. Know-how and hands-on expertise The rapid development of information and telecommunications technologies has an increasingly significant influence on the strategies of companies as well as on the processes within an organization. The subsequent complex adaptations affect business models and corporate structures, not only technological applications. Our services for ICT management encompass classic strategy and organization consulting as well as the planning and implementation of highly complex, technological ICT architectures and applications. We are independent of manufacturers and obligated solely to our client's success. Detecon International GmbH Sternengasse Cologne Phone: [email protected] Internet: Opinion Paper 10 Detecon International GmbH

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