ITU / BDT- COE workshop Bangkok, Thailand, 11 15 November 2002 Network Planning Lecture NP- 3.6 Business Planning November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 1 Content Chapter 3.5 Role of business Planning today. Basic concepts Telecom business modeling Typical evaluation results Main actions to increase performance ratios November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 2
Planning Methodology: Integrated Iterative Planning Process Generation of Competitive Scenarios (Inputs) Analysis of Initial Context Business Assessments Traffic Demand Forecasting Network Design & Configuration Business & Financial Planning Technical and Economic Results (Outputs) Procedures and Tools November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 3 Definition of business plan A Business Plan presents the calculation of the financial indicators that enable the managers to evaluate the financial performances of an entreprise in order to take decisions. A Business Plan summarises the results of the planning process: the objectives to reach ( subscribers demand, sales) the description of all activities requested by the project; the future revenues expected from the project; the planned expenses (investment and operations); the accounting statements and the financial indicators characterising the profitability of the project. November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 4
Types of business plans Strategic Business Plan for evaluating a strategy: aid for making internal decisions for the whole company (strategic guidelines at the national level, all markets) Tactical Business Plans for specific projects : aid for making internal decisions for a particular area, or a market segment: IN, mobiles, IP Short term Business Plans for management control : aid for monitoring the implementation of projects preparation and follow-up of budgets, November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 5 Iterative process for evaluation Strategic objectives, strategic guidelines Marketing planning Network planning Operations planning Business Plan modifications Human resources planning modifications modifications modifications Evaluation November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 6
Interaction between analysis and business plan Analysis SWOT Pricing Service portfolio Technologies used Action plans Business Plan Costs models Revenues Financial indicators Evaluation Sensitivity studies what parameters to improve, how to adjust models November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 7 Business model structure Demand Tariffs Human Resources Corporate Customers Revenue Ordinary Customers Revenue CAPEX OPEX Evaluation with Ratios and financial indicators : NPV, IRR, pay-back, EVA, ROCE November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 8
Business model: Services Revenues calculation Customers Services Telephone connection fee rental fee local calls ld calls idd calls Mobiles Leased lines Data Added value services Total Revenues November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 9 Business model : Expenses calculation Customers Services Network construction operations extension Customer Care provisioning repairing call center Marketing Billing Labour Costs Administrative & general costs CAPEX OPEX November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 10
Business model: Financial Statement Income Statement: Net income = revenues - expenses Balance Sheet: Company capital = Assets - liabilities Cash flow statement : Cash balance = Inflows - outflows All fundamental financial indicators are carried out with the elements of these 3 statements November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 11 Business model Financial indicators calculation The most useful economical indicators are : - Net present value (NPV) - Internal rate of return (IRR) - Discounted Payback period (DPP) - Net cash flow (NCF) - Discounted cash flow (DCF) - Operating income - Revenue per service/service class November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 12
The purposes of the accounting statements Income statement to analyse potential profit is the profit enough? Balance statement to analyse the financial structure how to finance the development enough / too much equity? Enough/ too much debt Cash-Flow statement to make payments at every due date to have the rigth cash at the rigth time November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 13 Business model Income statement CAPEX Depreciation Taxes - - OPEX - + Revenues EBITDA Earning before income taxes, depreciation and amortisation -- EBIT Earning before interests, and income taxes, Net Income November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 14
Business Model CAPEX: Capital Expenditures CAPEX contribute to extend the fixed assets, and they are depreciated over an economic life time CAPEX are necessary for extending the business or for improving the range of services provided by the operator. Examples : Purchase of land & buildings, Network construction Purchase of information systems (hardware & software ) November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 15 Business Model : Importance of Modeling Economy of scale per technology and size Cost per unit u 1 u2 u 1 = a 1+ B 1 / S u 2 = a 2 + B 2 / S Full capacity cost m 1 m 2 X M 1 M 2 t 2 t 1 m 1 m 2 X M 1 M 2 Equipment size t = a S + B 1 1 1 t = a S + B 2 2 2 Equipment size Impact by occupancy or fill-in degree November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 16
Business Model : Importance of Modeling Economy of scale per location Cost per line ( Monetary units) 300 250 200 150 100 50 0 Metropolitan total Metrop. infrastructure Suburban total Sub. infrastructure 529 651 774 894 1 016 1 139 1 259 1 381 1 504 1 625 1 747 1 870 1 990 2 112 2 235 2 355 2 477 Density (subscribers per KM²) Cost Impact by customer density (NPV) November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 17 Business Model : Importance of Modeling Economy of scale through time Cost per Line (Monetary units) 1 200 1 000 800 600 400 200 0 Price per line for two Greenfield scenarios Impact by customer volume Suburban Rural 0 1 2 3 4 5 6 7 8 9 Years since start November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 18
OPEX= Operations Expenditures OPEX are expenses which don't contribute to extend the fixed assets, and consequently are not subject to depreciation OPEX are necessary for running the company, - Technical operations (switching, transmission, local loop,..) - Commercial operations (marketing and sales) - Administrative operations (support,..) Examples : - Labor costs for operations, - Travelling expenses, periodic administrative costs, - Rental of equipment, rental of cars, rental of buildings - Interconnection fees November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 19 Business Model : Importance of Modeling Deployment Strategies Equipment Deployment:CAPEX C: Balanced betwen COOP and demand satisfaction B: High risk, CAPEX and OPEX Solution B (Once for all) Solution A (yearly) Solution C (Optimized) Demand forecasts A: High OPEX by installation costs risk to satisfy demand Years Major impact on CAPEX and OPEX November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 20
Business model Income statement Total revenues (sales) Cost of sales Gross margin Operating expenses Income from operations Other incomes EBITDA Depreciation EBIT Taxes Interests Net income Dividends Retained earnings November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 21 Business model Cash Flow Inflows Revenues, funds Cash balance CASH FLOWS IRR NPV Out flows OPEX CAPEX Working Capital changes Taxes November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 22
Business model INFLOWS and OUTFLOWS Customers Shareholders Banks, lenders Sales of services Increase of equity Increase of debt (operating income) (capital increase) (credit, loans) cash flow INFLOWS OUTFLOWS Labour costs Training Network & equipment Technical & administrative expenses Tax Debt repayment with interests Dividends Staff Suppliers Service providers Government Banks, lenders Shareholders November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 23 7e+08 Network Solutions Optimization Example for what-if economical analysis Network NPV for new multiservice network operator Effects of the mix of services on Reference Scenario ( Low Competition) 4 6e+08 5e+08 1 Internet Euro 4e+08 3e+08 2e+08 1e+08 Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 0e+08 2 3 1 2 3 4 Internet & VoDSL Internet & Video All Services (reference) -1e+08-2e+08 Year November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 24
Network Solutions Optimization Example for what-if economical analysis Network NPV for new multiservice network operator Effects of the mix of services with decreased revenues (30%) in High Competition 5e+08 4 4e+08 1 Internet Euro 3e+08 2e+08 1e+08 Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 0e+08 2 3 2 3 4 Internet & VoDSL Internet & Video All Services (reference) -1e+08 1-2e+08 Year November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 25 Typical guidelines for Cashflow improvements To increase the number of new customers To keep the loyalty of present customers To increase the sales of new lines To introduce new services/service bundle in the portfolio To increase the paid revenue per customer To minimise expenses by improving management November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 26
Typical Action plans for Cashflow improvements To improve the customer segmentation, better identification of major accounts better statistics for each market segment To carry out market research studies Impact of potential competitors on the market shares To carry out customer satisfaction surveys To improve the Portfolio of products and services, Impact of new technologies (internet, mobiles, satellites) November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 27 Increasing the sales of new lines Waiting list management where are people waiting for new lines Field survey where are people who will demand a line later Construction of complete lines ready to sale how matching capacity and demand Sales promotion how to speed up the sales of available lines Service provisioning how to speed up service delivery November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 28
Service provisioning Objective : to speed up service delivery Many types of units are involved in the process and must be coordinated : - administrative tasks for the commercial file - billing file to be activate - charging system in the switching unit - customer care - open-wire to be installed and connected - MDF (main distribution frame) to be updated - CPE to be installed and connected November 12th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.6 - slide 29