1. Inefficient capital expenditure (CAPEX) allocation for telecom operators is shrinking profitability, given rising data traffic and lowered voice call revenues
2. Operators need to determine where their most profitable customers are and invest in the networks to maintain the Quality of Experience (QoE) for these valued customers
3. CAPEX needs to be carefully managed to ensure investments into networks correspond with returns
4. Roland Berger's proprietary methodology accurately determines where and how much to invest, to create a Value-Centric Network
5. Ambitious telecom operators have the opportunity to optimize customer experience and expand market share profitably

Singapore, April 21, 2015

With mounting data usage, shrinking mobile subscriber growth and increasing competition, profitability of telecom operators have come under increasing pressure. As a telecom market matures, users are migrating from using voice and SMS – billed per individual use – to veracious data use, straining networks and decreasing general QoE. Telecom operators need to look for ways invest smartly and determine how to improve returns on incremental CAPEX (ROIC). These issues are examined in the latest Roland Berger study: Building and Managing a Value-Centric Network, which highlights how telecom operators can prudently invest for best returns.

While continual investment into networks is an imperative, critical issues such as what to invest in and how much to invest to maximize ROIC is difficult to determine. Investing in the wrong areas within the network and the wrong technologies can have significantly adverse results. "The result we have seen at multiple telecom operators is shocking: despite an overall good EBITDA margin, 30-40% of their network sites are unprofitable," said Roland Berger Principal, Nitin Mahajan, one of the authors of the study.

Proven methodology for better CAPEX allocation

Roland Berger's extensive experience in consulting with telecom operators has found that 20% of a telecom operator's top customers create 60% of profit, by using only 40% of the network sites. To ensure that the top customers are retained and expanded in numbers in a cost effective way, telecom operators must invest in a "Value-Centric Network" to ensure that the QoE is consistent for these customers. To determine how CAPEX is best allocated, the most profitable customers must first be identified and their needs quantified. Secondly, baseline comparisons comprising a profitability analysis of network's assets and an analysis of competition must be conducted. Thirdly, external 'hotspots' or 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 this methodology is to determine the areas to invest and how much is needed, to boost the existing network. The fifth step of the methodology involves forecasting how the experience improves for profitable and targeted customers, as well as how many more of such customers could migrate to the telecom operator's network. 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.

Improved ROIC

Roland Berger has found that the Value-Centric Network improves ROIC by 2–5%. By using this value-centric approach, decisions on investing can be made faster and with more accuracy. However, ambitious management teams of telecom operators must fully support methodology of the Value-Centric Network to ensure success.

"The difference between success and failure is often how well integrated the methodologies are in the organization. This integration can only happen with sufficient time and support to make methodologies truly transversal. With this in mind, decision-makers must be convinced that 'exceptions to methodology will be truly exceptional' to derive the true value of capital invested", said Roland Berger Partner, Damien Dujacquier, a lead author of the study.

Roland Berger will be speaking at Myanmar Connect 2015, held in Nay Pyi Taw on the 15 & 16 September 2015 and will share these insights with telecom executives at the conference.