5620 SAM ROI Report

Report for Alcatel–Lucent

Return on investment of

the Alcatel–Lucent 5620 SAM

Business services segment

17 January 2011

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Contents

1 Executive summary 1

1.1 Key findings 1

1.2 Recommendations and conclusions 2

2 Introduction 4

2.1 Objective of the report 5

2.2 Approach/methodology 5

2.3 Disclosures 6

3 ROI analysis for the 5620 SAM in the business services segment 8

3.1 Highlights of CSP interviews 8

3.2 ROI modeling 10

3.3 Costs used in the model 12

3.4 Benefits used in the model 13

3.5 Risk assessment 17

3.6 Summary of the ROI model 18

4 Recommendations and conclusions 20

Appendix A: Glossary

Appendix B: Alcatel–Lucent’s 5620 SAM NMS portfolio: an overview of NMS

Appendix C: Analysys Mason’s experience in ROI development

Return on investment of the Alcatel–Lucent 5620 SAM

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© Analysys Mason Limited 2010.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or

transmitted in any form or by any means – electronic, mechanical, photocopying, recording or

otherwise – without the prior written permission of the publisher.

Analysys Mason Limited maintains that all reasonable care and skill have been used in the

compilation of this publication. However, Analysys Mason Limited shall not be under any liability

for loss or damage (including consequential loss) whatsoever or howsoever arising as a result of the

use of this publication by the customer, his servants, agents or any third party.

Analysys Mason Limited

818 Connecticut Avenue NW

Suite 300

Washington DC 20006

USA

Tel: (202) 331 3080

Fax (202) 331 3083

[email protected]

www.analysysmason.com

Return on investment of the Alcatel–Lucent 5620 SAM | 1

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1 Executive summary

Analysys Mason Limited (‘Analysys Mason’) was commissioned by Alcatel–Lucent to develop four

business cases looking at customer perceptions regarding the return on investment (ROI) in relation to

provisioning, assurance and operational flexibility for the 5620 Service Aware Manager (SAM) portfolio.

This report corresponds to the business case for the business services segment covering the

functionality/benefits offered by the 5620 SAM product.

Data points for this report were obtained from benchmarks developed by Analysys Mason’s research

and consulting divisions. In order to validate and refine the data points, we conducted interviews with

seven communications service providers (CSPs): Kordia, an incumbent sub-Saharan CSP,

Exponential-e, Cable & Wireless Worldwide, Virgin Media Business, an incumbent eastern-European

CSP and TELUS. Due to the variation across CSPs, we normalized the data and applied it to a

‘normalized’ composite CSP, detailed in Appendix A. A composite costs-and-benefits approach was

used to develop the quantitative ROI analysis.

1.1 Key findings

In the business services segment, the benefits associated with the 5620 SAM product were evident. In

spite of using conservative metrics, the ROI analysis yielded very positive results, with an expected

90% ROI over three years, and under 20 months of payback period. In the worst-case scenario, the

ROI for the 5620 SAM is estimated to remain at a healthy 68% over the three-year period of the

business case.

“We cannot imagine trying to manage a network of more than 10 to 15 nodes without the 5620 SAM.

Making one change in the 5620 SAM and having it configure the nodes is critical to our operations.

The 5620 SAM templates allow us to work in a controlled way, protecting against human error, and

ensuring adherence to our ISO9001-compliant processes.” Exponential-e.

“The 5620 SAM is one of our strategic OSS systems and will be for as long as we continue to deploy

ALU network infrastructure. And its service templates ensure services are deployed in a constant

manner.” Virgin Media Business.


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1.2 Recommendations and conclusions

Analysys Mason’s qualitative analysis of the ROI values on the 5620 SAM yielded the following

recommendations and conclusions:

The 5620 SAM has had success from ‘pull-through’ sales from the Alcatel–Lucent 7xxx Service

Router (SR) platform, as the CSPs interviewed chose this hardware platform for their IP-NGN

network transformation.

In mature markets where Tier 1 service assurance systems such as InfoVista, IBM Tivoli Netcool

and EMC Ionix IT Operations Intelligence (formerly Smarts) already exist in the CSP

environment, the 5620 SAM OSS integration (SAM-O) adapters provided a winning proposition.

Of the CSPs interviewed, it was noted that the weighing of network management systems (NMS) in

the evaluation of Requests for Proposals (RFP) has increased to >20%. This is a notable change from

where ~90% was typically weighted on the equipment and technology – that is ~10% on NMS.

The high ARPU generated by business customers in the business services segment led to a large

portion of the 5620 SAM benefits being attributed to customer net revenue.

Resource reduction and time reduction were the next largest benefits for the 5620 SAM in this

ROI analysis.

Provisioning was the main area where benefits were realized by the 5620 SAM in the business

services segment.

Figure 1.1 shows the consolidated results of the ROI analysis for the composite CSP over the business

case period (three years).

ROI parameters Realistic ROI model

(WACC = 12%)

Optimistic ROI model

(WACC = 7%)

Pessimistic ROI model

(WACC = 22%)

Mature market

Total costs (present value) (2 033 748) (2 128 453) (1 880 683)

Total benefits (present value) 3 865 550 4 306 005 3 167 480

NPV 1 831 802 2 177 552 1 286 797

IRR 28% 28% 28%

Payback period 1.63 years 1.63 years 1.63 years

ROI 90% 102% 68%

Figure 1.1: Consolidated modeling results for the business case, in USD [Source: Analysys Mason, 2010]


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Figure 1.2 and Figure 1.3, respectively, illustrate the results of the baseline/realistic ROI analysis for

the composite CSP.

ROI analysis (pessimistic)

1.286.797

ROI analysis (realistic) 1.831.802

ROI analysis (optimistic) 2.177.552

0

500.000

1.000.000

1.500.000

2.000.000

2.500.000N

et p

rese

nt va

lue

(U

SD

)

Figure 1.2: Consolidated

ROI analysis [Source:

Analysys Mason, 2010]

1.500.000

1.000.000

500.000

0

500.000

1.000.000

1.500.000

2.000.000

2.500.000

3.000.000

Year0 Year1 Year2 Year3

Cash

flow

(U

SD

)

Total costs

Total benefits

Cumulative running totals

Figure 1.3: Cashflow of

the realistic ROI analysis

[Source: Analysys

Mason, 2010]


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2 Introduction

Analysys Mason Limited (‘Analysys Mason’) was commissioned by Alcatel–Lucent to develop four

business cases looking at customer perceptions regarding the return on investment (ROI) in relation to

provisioning, assurance and operational flexibility for the 5620 Service Aware Manager (SAM)

portfolio, as follows:

business services segment – covering the functionality/benefits offered by the 5620 SAM

mobile backhaul segment – covering the functionality/benefits offered by the 5620 SAM

residential broadband services – covering the functionality/benefits offered by the 5620 SAM

a general business case – focusing on the specific benefits of the Alcatel–Lucent 5650 Control

Plane Assurance Manager (CPAM) product.

Analysys Mason and Alcatel–Lucent have agreed on a joint approach whereby Alcatel–Lucent will be

able to provide a number of customer contacts over an extended period of time for Analysys Mason to

acquire substantial data points to develop these respective business cases.

This report corresponds to the business case for the business services segment. The remainder of this

document is laid out as follows:

Section 2 describes the objective of this report, the methodology employed by Analysys Mason to

carry out the work, and relevant disclosures one should bear in mind when reading this document

Section 3 presents the assumptions, parameters, insight and results of the quantitative and

qualitative ROI analysis for this business case

Section 4 presents our recommendations and conclusions.

The report includes a number of annexes containing supplementary material:

Appendix A includes a glossary of terms used in this document

Appendix B provides an overview of Alcatel–Lucent’s 5620 SAM network management system

(NMS) portfolio

Appendix C provides an overview of the skills and experience of the Analysys Mason team that

contributed to this report.


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2.1 Objective of the report

The objective of this business case is to provide general results on the ROI, benefits and savings for

the following 5620 SAM values that are specific to communications service providers (CSPs) in the

business services segment:

provisioning – values related to process and assurance

assurance – values related to proactive assurance and troubleshooting

operational fit and flexibility – values related to the integration of operations support systems

(OSS), service portal and strategic flexibility.

Alcatel–Lucent has recognized that there is a requirement for its sales teams to have additional

collateral that provides a market-based view on the potential ROI in the 5620 SAM product area.

This document has been produced in a format and style suitable for a high-level business audience.

2.2 Approach/methodology

Our approach to developing the business case for the business services segment is illustrated in Figure 2.1.

Kick-off and detailed project plan

Secondary research

Primary research with selected

operators interviewed by phone

Overall analysis

Draft business case reports

Final business case reports

Detailed planning session with Alcatel–

Lucent to agree project parameters

Desk research to localize and tailor

questionnaire design

Direct interviews with Tier 1 CSPs

First full draft of business case report for

included segments

Final full draft of business case report

for included segments

Full analysis of interviews

Figure 2.1: Analysys

Mason approach

[Source: Analysys

Mason, 2010]

1. We gathered data on existing CSP operational and financial benchmarks from our research and

consulting divisions, including data on operational efficiency and optimization at the OSS level of

the 5620 SAM portfolio.

2. We had briefings with Alcatel–Lucent and undertook documentation reviews on all the Alcatel–

Lucent network management products, including the 5620 SAM (-E, -A, -P, -O), the 5650 CPAM,


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the 5670 Reporting and Analysis Manager (RAM), the Service Portal, the 5750 Subscriber Services

Control (SSC), the 5780 Dynamic Services Controller (DSC) and the 9900 Wireless Network

Guardian (WNG). This allowed us to probe the value Alcatel–Lucent expected its CSP customers to

gain from using these products.

3. We developed a metric-based questionnaire for the CSPs to respond to. This questionnaire formed the

basis of a subsequent follow-up interview (of approximately 40–60 minutes long) to crystalize the

answers in the questionnaire, as well as getting a more complete background of the CSP’s

environment. Seven of the eight CSP interviews were successfully conducted for this business case,

based on contacts provided to Analysys Mason by Alcatel–Lucent. The one unsuccessful interview

was because of a lack of information from the contacts supplied by Alcatel–Lucent on the CSP’s

5620 SAM implementation for managing business services.

4. We collated our own internal benchmark data and data points attained during the CSP interviews to

develop a flexible financial model for representing a composite CSP organization. The details of the

CSP model are presented in Section 3, whereas Appendix A provides details of the composite CSP.

5. We combined the quantitative analysis of the financial model with qualitative insights from the

CSP interviews to present a complete view in this business case.

We used an underlying cost–benefit analysis in our model to derive the following key business

investment indicators for implementing the 5620 SAM product in this composite CSP environment:

ROI

net present value (NPV)

internal rate of return (IRR)

payback period.

2.3 Disclosures

There are a number of disclosures one should bear in mind when reading the present document:

The study was commissioned by Alcatel–Lucent and delivered by Analysys Mason.

Alcatel–Lucent reviewed, and provided feedback to Analysys Mason on, the deliverables

produced as part of this study. However, Analysys Mason maintains editorial control over the

study and its findings, and does not accept changes to the study that contradict Analysys Mason’s

findings or obscure the meaning of the study.

The customer names for the interviews were provided by Alcatel–Lucent.


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Analysys Mason has made assumptions specific to this business case based on benchmarks we

have acquired globally in our research and consulting divisions. However, we have noted that

these are assumptions and are not absolute. As such, we have used a number of parameters in the

CSP model which allow the reader to input their own data/estimates to obtain a more accurate ROI

output based on specific environments.

Analysys Mason has provided the model to Alcatel–Lucent under the agreement of it being a trade

secret.

This study is not meant to be used as a competitive product analysis.

© Analysys Mason Limited 2010. All rights reserved. No part of this publication may be reproduced,

stored in a retrieval system or transmitted in any form or by any means – electronic, mechanical,

photocopying, recording or otherwise – without the prior written permission of the publisher.

Analysys Mason Limited maintains that all reasonable care and skill have been used in the

compilation of this publication. However, Analysys Mason Limited shall not be under any liability

for loss or damage (including consequential loss) whatsoever or howsoever arising as a result of

the use of this publication by the customer, his servants, agents or any third party.


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3 ROI analysis for the 5620 SAM in the business services

segment

In this section we present the assumptions, parameters, insight and results of the quantitative and qualitative

ROI analysis for the business case of the business services segment. It is structured as follows:

Section 3.1 provides highlights from the CSP interviews conducted

Section 3.2 describes the parameters of the ROI modeling

Section 3.3 details the costs used in the model

Section 3.4 details the benefits used in the model

Section 3.5 provides a risk adjustment calculation of the model for optimistic and pessimistic

scenarios from the baseline model

Section 3.6 summarizes the results of the ROI model.

In developing the business case, we investigated the following main parameters:

the costs associated to the 5620 SAM product

the benefits of using the 5620 SAM product versus a command-line interface (CLI) benchmark

the weighted average cost of capital (WACC) for the next three years

the number of nodes managed by the 5620 SAM product

the composite CSP environmental parameters (see Appendix A).

3.1 Highlights of CSP interviews

Analysys Mason and Alcatel–Lucent agreed on a joint approach whereby Alcatel–Lucent would

provide a number of customer contacts over an extended period of time for Analysys Mason to acquire

substantial data points to develop these respective business cases.

Seven of the eight CSP interviews were successfully conducted for this business case, based on

contacts provided to Analysys Mason by Alcatel–Lucent. The one unsuccessful interview was due to a

lack of information from the contacts supplied by Alcatel–Lucent on the CSP’s 5620 SAM

implementation for managing business services.


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Below we provide the highlights of the seven relevant CSP interviews we conducted in developing

this business case:

Kordia – It owns an extensive telecom network in New Zealand. Kordia’s OnKor™ is a fully

managed IP network solution, allowing enterprises to selectively outsource their wide area

network (WAN) operation, and maintain complete network visibility and control. The 5620 SAM

product has been instrumental in improving the visibility of the network protocols, dramatically

reducing the time taken to isolate problems: “When services are restored quickly with the aid of

the 5620 SAM, there is much less time spent (a) documenting the outage, (b) explaining to clients

what happened, and (c) how we are preventing a reoccurrence.”

An incumbent sub-Saharan CSP – This CSP has an extensive IP network to ensure that its

virtual private network (VPN) solution can be installed, maintained and managed anywhere within

its enterprise target market. The main benefit of the 5620 SAM product for this CSP is all-in-one

trusted view and high reliance: “5620 SAM’s fault correlation generally saves lots of time during

fault finding. Also being able to see a service from A–Z on a single view in the 5620 SAM shortens

the fault finding time and understanding of a service.”

Exponential-e – This is a next-generation provider of Ethernet solutions for the WAN in the UK.

Exponential-e designs and deploys bespoke Ethernet WAN solutions for businesses, connecting

companies’ local area networks (LANs) regionally, nationally and internationally into a single

cohesive LAN-like WAN. The main area of benefit from using the 5620 SAM is the time and

resources savings for provisioning complex services: “We cannot imagine trying to manage a

network of more than 10 to 15 nodes without the 5620 SAM. Making one change in the 5620 SAM

and having it configure the nodes is critical to our operations. The 5620 SAM templates allow us

to work in a controlled way, protecting against human error, and ensuring adherence to our

ISO9001-compliant processes.”

Cable & Wireless Worldwide – This is one of the world’s leading critical communication

companies, providing a range of high-quality managed voice, data and IP-based services and

applications to large corporates, multinational companies, governments, carrier customers and

resellers across the UK, the Asia–Pacific region, India, the Middle East and Africa, Continental

Europe and North America. The 5620 SAM provides good control over the network, effective

management of global changes and policy consistency, and the reuse of scripts, with the Service

Portal being the most instrumental tool: “The Service portal is the tool which provides speed and

automation in the provisioning and managing global changes and policy consistency.”

Virgin Media Business – It has the UK’s largest nationwide next-generation network. Virgin

Media Business has a strong product portfolio that includes market-leading Ethernet services; as a

result, some of the UK’s most demanding customers choose to work with them – including nearly

250 local councils and over 60% of the UK’s health and emergency services. The Alcatel–Lucent


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OSS Connected Partner Program is noted as very important, which saves huge effort when

integrating the 5620 SAM (SAM-O adapters) to other OSS applications (namely IBM Netcool and

InfoVista). “The Alcatel-Lucent OSS Connected Partner Program is very important to us. The

details of the integrations to other OSS applications (namely IBM Netcool and InfoVista) are off

loaded to ALU and these other OSS vendors. This saves us a huge amount of effort.”

TELUS – This is the largest telecommunications company in Western Canada and the second

largest in the country. It provides a wide range of wireline and wireless telecommunications

products and services including data, Internet Protocol (IP), voice, video and entertainment

services.

An incumbent eastern European CSP – This CSP is the largest integrated telecom, IT and TV

services provider in their respective nation. They operate a data center, which provides a full IT

services package that enables enterprise customers to outsource all their IT operations to one IT service

provider. The 5620 SAM provides a simple reporting tool to plan and manage resources, as well as

planning and implementing massive network topology changes: “5620 SAM is a good tool to plan and

implement massive network topology changes.”

The interviews revealed a number of common drivers for implementing the 5620 SAM product:

cost-effective NMS – bundled with network equipment as these CSPs moved to a greenfield

IP/MPLS network using the Alcatel–Lucent 7xxx Service Router (SR) platform

reduction of long troubleshooting times

improve configuration change management efficiencies

breakdown EMS/NMS, provisioning and assurance silos

easier integration with other OSS applications, primarily service assurance systems.

3.2 ROI modeling

We constructed a robust ROI model for organizations considering the implementation of the

5620 SAM product for delivering business data services. The model was developed based on a

composite CSP derived from the interviewed CSPs, which operated predominantly in mature markets.

For this composite CSP, a granular quantitative cost–benefit analysis was undertaken, which is

described in turn below.

3.2.1 The composite CSP organization

Analysys Mason consolidated the characteristics of the various CSPs interviewed to develop a composite

CSP model. This composite CSP was defined to be a national fixed CSP in a mature market with a multi-

play proposition (voice, data and video) delivering both business data and residential broadband services.

For this ROI business case, we have only segmented the business services segment.


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Analysys Mason defines this mature market environment as being competitive with high service

maturity and high level of customer penetration; that is, there were few new business customers

available, with the others being existing customers from other CSP competitors.

Figure 3.1 summarizes the composite organization used for developing the business case.

Attribute Description

CSP market This CSP played in a mature market, based on the interviews secured and data

points collected

Deployment type Greenfield IP transformation to the Alcatel–Lucent 7xxx platform from a legacy CLI

NMS and IP platform which is no longer relevant – hence referred to as greenfield

Type of services

offered

All typical business services: IP/MPLS-based services, point-to-point Ethernet

virtual leased line (VLL)/ePipe or virtual private wire service (VPWS), multi-point

Ethernet services (such as IP VPN, virtual private local area network services (VPLS),

hierarchical VPLS or multicast VPLS), border gateway protocol (BGP) peering,

composite services, and mirroring services

Number nodes

managed

300 nodes for an average-size network with primarily Alcatel–Lucent 7xxx nodes and

few other third-party (generic network elements, GNEs) nodes mixture

Number of main

customers

80 customers, who have multiple services at several sites

Average ARPU

per customer

USD70 000 per annum, which is conservative in some mature markets

Operations period 3 years since the 5620 SAM has been implemented and used in the environment

Drivers for

implementing the 5620

SAM

Cost-effective NMS – bundled with network equipment as these CSPs moved to a

greenfield IP/MPLS network using the Alcatel–Lucent 7xxx platform

reduction of long troubleshooting times

improve configuration change management efficiencies

breakdown EMS/NMS, provisioning and assurance silos

easier integration with other OSS applications, primarily service assurance systems

Preferred provisioning

method

5620 SAM graphical user interface (GUI), scripting or service templates – this is the

difference compared with CLI

Preferred assurance

method

5620 SAM with OSS integration to north-bound service assurance systems, such as

InfoVista, IBM Tivoli Netcool and EMC Ionix IT Operations Intelligence (formerly Smarts)

Preferred

troubleshooting

method

5620 SAM with OSS integration to north-bound service assurance systems, such as

InfoVista, IBM Tivoli Netcool and EMC Ionix IT Operations Intelligence (formerly

Smarts) with limited CLI troubleshooting

Figure 3.1: Summary of the composite CSP organization [Source: Analysys Mason, 2010]

In general, the benchmark assumptions we used in developing this composite CSP were deliberately

conservative to develop a more realistic business case for the next three years taking into consideration

the current economic environment.

We felt that the number of employees and annual revenue of this composite CSP were not required for

this analysis: the interviews confirmed that these two elements have no impact on the ROI of the

5620 SAM analysis.


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3.2.2 Modeling assumptions

Figure 3.2 lists some of the general modeling parameters used for developing the business case.

Assumptions Unit Rationale

Discount rate 12% We have adjusted down the WACC from 14% based on the new cost of

capital in 2010 and the one projected for the next three years

Length of analysis 3 years For OSS/BSS projects, the ROI is typically achieved within three years

Salary assumptions for

a mature market

These are based on benchmarks that Analysys Mason has acquired from working

with CSPs in mature markets. We have applied a 1.7 loading factor to obtain real

operations costs

Operations Manager USD212 500 The work of this resource level was very limited in relation to the benefits

of the 5620 SAM, but provided an upper limit for a mixed salary

Senior Engineer USD131 750 This benchmark was used most frequently in the model as this resource

level was indicated as the main area of benefits – Level 3 support

Field Engineer USD97 750 This resource level was used wherever applicable. This was very low

as these resources are mainly used for network roll-out rather than

network management

Admin/Customer Service

Representative (CSR)

USD63 750 This relates to benefits from call-center support because of better

network management and quality of service using the 5620 SAM

Figure 3.2: General modeling assumptions [Source: Analysys Mason, 2010]

3.3 Costs used in the model

Figure 3.3 describes the costs used to develop the ROI model.

Costs Value (USD) Rationale

Servers 90 000 This is a redundant server cluster with storage, delivery and

installation costs

Licenses 612 181 (Year 0)

425 677 (yearly)

This is a calculated total based on average node software license and

maintenance costs, estimated at USD1419 for a range of nodes. For

300 nodes, the annual license cost was USD425 677. On average, the

annual license cost was ~70% of the initial installation and configuration

cost for the CSPs we interviewed; hence, the Year 0 capital expenditure

(capex) for the 5620 SAM product was USD612 181

Internal integration 206 125 (Year 0) This includes the integration costs into the existing operations

environment with existing north-bound OSS, primarily service

assurance. This was taken to be the average of the top-tier resource

salaries – excludes admin and other resources

External integration 103 063 (Year 0) Because of economies of scale in suppliers, this was taken to be

50% of the internal integration cost (above)

Operations Nil Using operational benefits and savings nullifies the operations costs

Figure 3.3: Costs used in the model [Source: Analysys Mason, 2010]


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Figure 3.4 summarizes the total costs associated with the 5620 SAM product over the business case period.

Costs Year 0 Year 1 Year 2 Year 3 Total Present value

Servers (90 000) (90 000) (90 000)

Licenses (612 181) (425 667) (425 667) (425 667) (1 889 181) (1 889 181)

Internal integration (206 125) (206 125) (206 125)

External integration (103 063) (103 063) (103 063)

Operations - - - - - -

Total costs (1 011 369) (425 667) (425 667) (425 667) (2 288 369) (2 033 748)

Figure 3.4: Total costs cashflow, in USD [Source: Analysys Mason, 2010]

3.4 Benefits used in the model

Figure 3.5 defines the benefits used to develop the ROI model.

Benefits Description Examples of these benefits

Time

reduction

Time reduced by having the 5620 SAM product

versus a CLI benchmark related to combined

provisioning, assurance and troubleshooting

benefits

Time savings regarding provisioning

Time savings regarding diagnosing

Time savings regarding device configuration

Time savings regarding network auditing

Time savings regarding capacity planning

Time savings regarding troubleshooting

Mean time to resolve (MTTR)

Time savings regarding OSS integration

Productivity The value of improving operational efficiencies

using a CLI benchmark versus the 5620 SAM.

These are translated into time or resource

savings in a dollar value. An example of this

will be the reduction of provisioning steps using

the 5620 SAM scripting

Increased provisioning per day

Reduction in provisioning steps

Reduction in misconfiguration

Optimization of configuration

Proactive discovery of unknown issues

Increased accuracy of alarms

New services The benefits of actually launching new services

to both new and existing customers, which

includes using the 5620 SAM for

configuration/provisioning of the new service to

go live as well as the assurance of the

configurations and service delivery

Customer

revenue

The net benefits of acquiring new customers and

retaining existing ones. This is tightly linked with

the ability of the 5620 SAM to provide and

manage the service more quickly and accurately.

It is noted that for greenfield implementation the

majority of new customers will be from the actual

network (Alcatel–Lucent 7xxx SR platform) and

30% will be attributed to customer revenue

benefits provided by the 5620 SAM

Increase in the number of new customers

Retention of existing customers (churn

avoidance)


Ref: 17233-32

Benefits Description Examples of these benefits

Resource

reduction

The 5620 SAM benefits associated with

removing the need for more operational

expenditure (opex) as the network and

customer base increases

Reduced resources for provisioning,

troubleshooting and assurance tasks

Less customer care support required

Performance

benefits

The 5620 SAM benefits related to service

performance metrics for noting an

improvement in the quality of service (QoS)

and a reduction in complaint calls. This favors

customer acquisition and retention

Increased service performance

Decreased bottlenecks

Improved service uptime

Reduced customer complaints

Figure 3.5: Definition of the benefits used in the model [Source: Analysys Mason, 2010]

We provided Alcatel–Lucent with the detailed Excel worksheet for this model together with this

report. Below we provide quotes from some of the CSPs interviewed that illustrate, in each case, the

benefits of having the 5620 SAM product.

Time reduction

CSP Quote

Kordia “It takes 10mins to de-provision services with the 5620 SAM, which would usually take

4 hours to create the script and 2 hours to review, test and implement.”

Exponential-e “With 5620 SAM, we realized >50% time savings when compared with CLI management.”

Incumbent sub-

Saharan CSP

“Fault correlation, using the 5620 SAM, generally saves lots of time during fault finding.”

Figure 3.6: Quotes related to time-reduction benefits [Source: Analysys Mason, 2010]

Productivity

CSP Quote

Cable & Wireless

Worldwide

“5620 SAM provides good control over the network, effective management of global changes

and policy consistency, and the reuse of scripts contribute to our benefits of the 5620 SAM.”

Kordia “We have used the 5620 SAM to make some global changes with significant savings,

especially for removing old fully meshed services.”

Incumbent

eastern-European

CSP

“A key benefit is 5620 SAM’s support from other OSS providers, namely EMC Smarts.

Many third-party products offer an integrated 5620 SAM adapter for system integration.”

Anonymous quote

from CSP

participant

The Service Portal is being tested and is expected to bring more consistency and increase

productivity and efficiency in the provisioning and assurance.”

Figure 3.7: Quotes related to productivity benefits [Source: Analysys Mason, 2010]


Ref: 17233-32

New services

CSP Quote

Exponential-e “The 5620 SAM provisioning benefits varied on the complexity of the services. More

complex services have more time and resources savings. For example, a complex service

could take two to three days to provision; however, it takes two to three hours with the

5620 SAM.”

Figure 3.8: Quotes related to new services benefits [Source: Analysys Mason, 2010]

Customer revenue

CSP Quote

Cable & Wireless

Worldwide

“The 5620 SAM have contributed significantly to the total customer growth because of its

flexibility to deploy new services and create composite services more quickly.”

Exponential-e “Expecting to go live with the 5670 RAM to do application-level reporting as well as offer the

reporting service to customers at a nominal cost – monetizing its intrinsic reporting capability.”

Figure 3.9: Quotes related to customer revenue benefits [Source: Analysys Mason, 2010]

Resource reduction

CSP Quote

Incumbent sub-

Saharan CSP

“Integration with the 5620 SAM that is still forthcoming is expected to drastically reduce

man-hours. At the very least we are expecting halving of man-hours required in the

provisioning space while assurance will remain the same.”

Incumbent sub-

Saharan CSP

“With the 5620 SAM, we expect the current numbers of assurance operators to remain the

same as the network grows, thereby increasing efficiency.”

Virgin Media

Business

“The Alcatel–Lucent OSS Connected Partner Program is very important to us. The details

of the integrations to other OSS applications (namely IBM Netcool and InfoVista) are off

loaded to ALU and these other OSS vendors. This saves us a huge amount of effort.”

Incumbent

eastern-European

CSP

“5620 SAM provides a simple reporting tool that allows planning and managing resources.”

Exponential-e “We see a factor of 2.5 improvement for provisioning services with the 5620 SAM.”

Kordia “Root cause analysis could be up to one month of a level-3 resource, but with the 5620

SAM it is now one day with 30–40mins escalation for complex faults, at most.”

Figure 3.10: Quotes related to resource-reduction benefits [Source: Analysys Mason, 2010]


Ref: 17233-32

Performance benefits

CSP Quote

Incumbent sub-

Saharan CSP

“The 5620 SAM provides faster provisioning with scripting and eliminating

misconfigurations in the process, finding efficiency.”

Kordia “Our alarm accuracy increased by 50% with the 5620 SAM.”

Figure 3.11: Quotes related to performance benefits [Source: Analysys Mason, 2010]

Figure 3.12 summarizes the total benefits related to the 5620 SAM over the business case.

Benefits Year 0 Year 1 Year 2 Year 3 Total Present value

Time reduction - 97 357 210 941 292 072 600 370 462 978

Productivity - 46 440 92 880 148 609 287 929 221 285

New services - 452 4523 4523 9498 7229

Customer net revenue - 392 000 1 176 000 1 960 000 3 528 000 2 682 589

Resource reduction - 82 350 274 499 274 499 631 348 487 738

Performance benefits - 385 1155 3465 5005 3731

Total costs - 618 984 1 759 998 2 683 167 5 062 150 3 865 550

Figure 3.12: Summary of the total benefits related to the 5620 SAM over the business case in USD

[Source: Analysys Mason, 2010]

Most of the 5620 SAM benefits were attributed to customer net revenue from customer growth and

churn avoidance. This is mainly due to the high ARPU generated by business customers in this

particular business segment. Unsurprisingly, the next largest 5620 SAM benefits were associated with

resource and time reduction. These are typically the main benefits of OSS business cases. The benefits

associated with productivity and performance were much smaller. Provisioning was the main area

where benefits were realized for the 5620 SAM in the business services segment.

Figure 3.13 summarizes the cashflow in the ROI model related to the 5620 SAM over the three-year

business case.

Year 0 Year 1 Year 2 Year 3 Present value

Total costs (1 011 369) (425 667) (425 667) (425 667) (2 033 748)

Total benefits - 618 984 1 759 998 2 683 167 3 865 550

Yearly totals (1 011 369) 193 318 1 334 332 2 257 501

Cumulative running totals (1 011 369) (818 051) 516 281 2 773 781

Figure 3.13: Summary of cashflow in the ROI model, in USD [Source: Analysys Mason, 2010]


Ref: 17233-32

3.5 Risk assessment

While we have made conservative assumptions in developing the baseline ROI analysis (see

Sections 3.2, 3.3 and 3.4 above), our experience shows that these projects are typically not exactly the

same and that there are a number of risks associated to them. Such risks are classified into either

positive or negative risks. We have therefore developed an optimistic (positive) and pessimistic

(negative) risk-assessment model in addition to the realistic model detailed above.

Pessimistic ROI analysis

We have increased the discount rate to 22%, which represents a 10% increase with respect to the

baseline discount rate of 12% used in the realistic model. The factors influencing such a high increase

in the discount rate are as follows:

instability of the global economy, causing the increase of the WACC

project overruns – delays, over-budget, loss of customer uptake (late to market)

integration complexity, requiring more internal and external resources

lack of on-site skills by the vendor and/or CSP

equipment and hardware issues – delivery, testing, integration, etc.

legacy constraints

longer lead time to transition from the legacy systems and operational processes, leading to a

delay in realizing benefits.

Optimistic ROI analysis

We have decreased the discount rate to 7%, which corresponds to a 5% decrease with respect to the

baseline discount rate of 12% used in the realistic model. The factors influencing such a low decrease

in the discount rate are as follows:

most of the benefits associated with the 5620 SAM have been included in the realistic model

rapid acceleration for the CSP to train and transition to the Service Portal, 5620 SAM, 5650 CPAM

and 5670 RAM; most of these products’ capabilities (about 80–90%) are used as originally designed

an ideal greenfield implementation with no legacy constraint – systems or operational

the optimal number and type of nodes were deployed for optimal operation and costing

higher customer ARPU due to customer satisfaction from the quality of management and

reporting (5670 RAM)

discounting of all associated costs from the benchmarks used in the realistic model.


Ref: 17233-32

3.6 Summary of the ROI model

Figure 3.15 shows the consolidated results of the ROI analysis for the composite CSP over the

business case period (three years).

ROI parameters Realistic ROI model

(WACC = 12%)

Optimistic ROI model

(WACC = 7%)

Pessimistic ROI model

(WACC = 22%)

Mature market

Total costs (present value) (2 033 748) (2 128 453) (1 880 683)

Total benefits (present value) 3 865 550 4 306 005 3 167 480

NPV 1 831 802 2 177 552 1 286 797

IRR 28% 28% 28%

Payback period 1.63 years 1.63 years 1.63 years

ROI 90% 102% 68%

Figure 3.14: Consolidated modeling results for the business case, in USD [Source: Analysys Mason, 2010]

Figure 3.15 and Figure 3.16, respectively, illustrate the results of the baseline/realistic ROI analysis

for the composite CSP.

ROI analysis (pessimistic)

1.286.797

ROI analysis (realistic) 1.831.802

ROI analysis (optimistic) 2.177.552

0

500.000

1.000.000

1.500.000

2.000.000

2.500.000

Ne

t p

rese

nt va

lue

(U

SD

)

Figure 3.15:

Consolidated ROI

analysis [Source:



Ref: 17233-32

1.500.000

1.000.000

500.000

0

500.000

1.000.000

1.500.000

2.000.000

2.500.000

3.000.000

Year0 Year1 Year2 Year3

Ca

sh

flo

w (

US

D)

Total costs

Total benefits

Cumulative running totals

Figure 3.16: Cashflow of

the realistic ROI analysis

[Source: Analysys

Mason, 2010]


Ref: 17233-32

4 Recommendations and conclusions

Analysys Mason’s analysis of the ROI values on the 5620 SAM yielded the following

recommendations and conclusions:

The benefit of the 5620 SAM was evident in the business services segment and the 5620 SAM has

had success from ‘pull-through’ sales from the Alcatel–Lucent 7xxx Service Router (SR)

platform, as the CSPs interviewed chose this hardware platform for their IP-NGN network

transformation.

In mature markets where Tier 1 service assurance systems such as InfoVista, IBM Tivoli Netcool

and EMC Ionix IT Operations Intelligence (formerly Smarts) already exist in the CSP

environment, the 5620 SAM OSS integration (SAM-O) adapters provided a winning proposition.

Of the CSPs interviewed, it was noted that NMS weighting in RFP evaluations has increased to

>20%. This is a notable change from where ~90% was typically weighted on the equipment and

technology – that is ~10% on NMS.

The high ARPU generated by business customers in the business services segment led to a large

portion of the 5620 SAM benefits being attributed to customer net revenue.

Resource and time reduction were the next largest benefits for the 5620 SAM in this ROI analysis.

Provisioning was the main area where benefits were realized by the 5620 SAM in the business

services segment.

In spite of using conservative metrics, the ROI analysis yielded very positive results for the 5620 SAM

for the composite CSP deploying only business services in mature markets with an expected 90% ROI

over three years, and under 20 months of payback period. In the worst case scenario, we calculate that

the ROI for the 5620 SAM is estimated to remain at a healthy 68% over the three-year period of the

business case.

Return on investment of the Alcatel–Lucent 5620 SAM | A–1

Ref: 17233-32

Appendix A: Glossary

ALU Alcatel–Lucent

ARPU Average revenue per user

BGP Border gateway protocol

BSS Business support systems

Capex Capital expenditure

CLI Command line interface

CPAM Control plane assurance manager

CSP Communications service provider

CSR Customer service representative

DSC Dynamic service controller

EMS Element management system

GPON Gigabit-capable passive optical network

GUI Graphical user interface

IP Internet Protocol

IRR Internal rate of return

LAN Local area network

LTE Long term evolution

MPLS Multi-protocol label switching

MTTR Mean time to resolve

NEM Network equipment manufacturer

NGA Next generation access

NGN Next generation network

NMS Network management system

NPV Net present value

Opex Operations expenditure

OSS Operations support systems

PCRF Policy control and rating function

PV Present value

RAM Reporting and analysis manager

RFP Request for proposal

ROI Return on investment

SAM Service aware manager

SR Service router

SSC Subscriber services control

VLL Virtual leased line

VPLS Virtual private LAN services

VPN Virtual private network

VPWS Virtual private wire service

WACC Weighted average cost of capital

WAN Wide area network

WNG Wireless network guardian

Return on investment of the Alcatel–Lucent 5620 SAM | B–1

Ref: 17233-32

Appendix B: Alcatel–Lucent’s 5620 SAM NMS portfolio:

an overview of NMS1

Alcatel–Lucent was the second-largest vendor of NMS in 2009, with revenues of USD770 million in a

total NMS market of USD4.3. The company is also one of the largest network equipment

manufacturers (NEM), both fixed and mobile, reflecting the combined heritage of its two parent

companies – Alcatel and Lucent Technologies – which merged in 2006.

Alcatel–Lucent typically delivers its NMS as part of network roll-out projects that deploy Alcatel–

Lucent network equipment and platforms, providing optimized network management capabilities. In

order to support a CSP’s transformation to an all-IP architecture, Alcatel–Lucent provides its ‘high

leverage network’ conceptual architecture: a consolidated, converged architecture supporting all

services and network technologies at reduced cost and greater efficiency. The 5620 Service Aware

Manager (SAM) NMS is the core of this ‘high leverage network’ conceptual architecture. As a result,

the 5620 SAM was designed to be a multi-domain (mobile, business services and residential

broadband) NMS, which can manage network technologies from the core to the access network such

as optical transport and access, IP-MPLS, carrier Ethernet and mobile packet core. This product and

approach will support multi-play CSPs when consolidating their NMS into a common IP-NMS.

CSPs are constantly battling operational inefficiencies to increase margins. The objective of the

5620 SAM is to reduce key network management operations metrics such as provisioning (and de-

provisioning) time, configuration time, network auditing time, resolution time, and operational

resource requirements.

The 5620 SAM product family addresses network management in the high-growth mobile and

business services NMS segments, as well as the lower-growth residential services segment. The

product is not used for the declining PSTN market. Additionally, the 5620 SAM will provide

enhanced support for optical technologies. This indicates that Alcatel–Lucent’s strategic direction is to

develop a common (multi-domain) IP-NMS for multi-play CSPs to consolidate their complex NMS

environments.

Alcatel–Lucent’s 5780 Dynamic Service Controller (DSC) complements the 5620 SAM and provides

3G and Long Term Evolution (LTE) policy control and rating function (PCRF), enabling mobile CSPs

to optimize mobile network bandwidth and offer personalized tiered services to subscribers in 3G and

LTE environments. Furthermore, the 5780 DSC provides a foundation for converged wireline/wireless

policy management for the enablement of any screen application.

1 For further detail, see Alcatel–Lucent 5620 SAM NMS portfolio: network management systems.

http://www.analysysmason.com/Research/Content/Company-profiles-/RMA07-Alcatel-Lucent-profile-Nov2010/


Ref: 17233-32

Alcatel–Lucent is a major global enterprise with over 77 000 employees in more than 130 countries.

The company’s NMS products are developed and provided through its largest segment, the Networks

(prior to 2010 called the Carrier) segment, which employed over 28 000 staff at the end of 2009. The

company is especially strong in North America and in Europe, the Middle East and Africa (EMEA),

building on its dual heritage. Alcatel–Lucent’s share of the market in the Asia–Pacific region is

growing with investments in optical transport and access and IP-MPLS networks by the Tier 1 CSPs.

Figure B.1 shows Analysys Mason’s estimate of Alcatel–Lucent’s NMS revenue from 2007 to 2009.

0

100

200

300

400

500

600

700

800

900

2007 2008 2009

Re

ve

nu

e (

US

D m

illio

n)

Figure B.1: Alcatel–

Lucent’s NMS revenue,

2007–2009 [Source:


Alcatel–Lucent’s year-on-year NMS revenue declined by around 13% to an estimated

USD770.4 million in 2009, after a nominal 2% growth in the previous year. This decrease reflected

the general impact of the economic recession, coupled with a longer-term decline in investments in

xDSL and legacy PSTN equipment and related NMS. In addition, Alcatel–Lucent also announced

fewer mobile NMS contracts in 2009 compared with other NEMs. However, its business services and

residential broadband segments were sustained with contracts particularly from mobile backhaul, and

optical next-generation access (NGA) (FTTx, Gigabit-capable passive optical network (GPON)) and

IPTV, respectively.

NMS sales generated 67% of Alcatel–Lucent’s telecoms software total revenue in 2009, as shown in

Figure B.2, whereas the service-delivery segment generated 26%. Most of Alcatel–Lucent’s revenue

from service-delivery platforms came from telecoms application servers supporting delivery and its

service layer exposure capabilities for application enablement. Customer care accounted for 5% of

Alcatel–Lucent’s telecoms software total revenue, which comes from Alcatel–Lucent’s acquisition of

Genesys. Billing accounted for 2%.


Ref: 17233-32

NMS

67%

Service delivery

26%

Customer care

5%

Billing

2%

Figure B.2: Alcatel–

Lucent’s telecoms

software revenue by sub-

segment, 2009 [Source:


Return on investment of the Alcatel–Lucent 5620 SAM | C–1

Ref: 17233-32

Appendix C: Analysys Mason’s experience in ROI development

Analysys Mason has conducted numerous business planning, cost–benefit analysis and risk-assessment

projects related to investments and market opportunities for CSPs, vendors and enterprises on

products/solutions and strategies. We are also highly specialized in the telecom sector in both our research

and consulting divisions, which we do leverage in such studies to provide breadth and depth of experience

and knowledge in our final deliverables, always ensuring high standards of quality.

Analysys Mason team

The Analysys Mason team who contributed to this project has extensive experience in undertaking

business modeling and analysis for vendors, CSPs, banks and private investors:

Patrick Kelly (Research Director) was the Project Director, with overall responsibility for ensuring

that project objectives were met, quality procedures were followed and Alcatel–Lucent’s

requirements were satisfied. Patrick is an entrepreneur and experienced industry analyst with a

proven track record in evaluating emerging technologies and the business value in developing

markets. He has advised public- and private-sector clients throughout his 20 years in the industry. He

will serve as the expert on the service assurance market. Patrick has an M.B.A. from Plymouth State

University in the UK, and a B.S. in Mathematics from the University of Vermont in the USA.

Glen Ragoonanan (Senior Analyst) was the Project Manager, responsible for the day-to-day

management of the project. Glen is the lead analyst for Analysys Mason’s Infrastructure Solutions

research program. He joined Analysys Mason in 2008 and has worked as a consultant on projects on

next-generation IT and telecom networks, systems and technologies for incumbents, new entrants,

private companies, regulators and public-sector clients. Before joining Analysys Mason, Glen worked

for Fujitsu, designing, delivering and managing integrated solutions. Glen is a Chartered Engineer and

project management professional with an M.S. from Coventry University in the UK.

Mark Mortensen (Principle Analyst) acted as subject matter expert, with experience in business

planning and product strategy development. Mark is a leading expert on service fulfillment. He

provided a major input to the overall analysis for this project, as well as injecting specific

expertise and senior-level experience. Mark has a Ph.D. in Physics from Yale University in New

Haven, and a B.S. in Physics from the University of Massachusetts Lowell in Lowell,

Massachusetts.

Documents

5620 SAM ROI Report