Oracle Approach for Telecom Challenges

Oracle Approach for Telecom Challenges (Cost Reduction Focus)

Vijay Ramaswamy Senior Director, Oracle Insight & Customer Strategy

22 November 2013

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Managing Revenue Growth While Controlling Costs Is A Huge Challenge For Telcos

Revenue growth = opex growth

Airtel

America Movil

AT&T

BT

China Mobile

China Telecom

Deutsche Telekom

Etisalat

France Telecom

KDDI

KPN

KT

MTS

NTT

Telecom Italia

Telefonica

Telenor

TeliaSonera

Verizon

Zain

- 6

- 4

- 2

0

2

4

6

8

10

12

14

- -10 - 5 5 10 15 20

Revenue growth (%)

Opex growth (%)

Primary focus on revenues from

emerging – sooner or later cost focus

will be key

Very aggressive cost cutting

measures due to deep decline in

revenues

Source: Adapted from Ovum Telco KPIs – superimposed PT new KPIs on historical KPIs

PT


Several Of These Telcos Have Implemented Aggressive Cost Reduction Measures

7.7% reduction in Opex costs through labour costs as well as lower mobile termination rates

‘Save for Service’ project aimed at EUR 4.2 billion savings - cost saving measures including

workforce reduction primarily in German operations.

6.1% reduction primarily due to exchange rate fluctuations combined with some a few cost

reduction programs

‘Chrysalid’ program to control spend around EUR 2.5 billion in 4 years through best practices in

network mgmt, marketing, customer relations, distribution etc

Lower wages and salaries and improved adoption of M4O drove reduced Op-Ex

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PT’s EBITDA Has Exhibited A Constant Decline But Is Not Alone Among Other Incumbent Peers

Industry EBITDA average

Telecom Services (B2B) 55.07%

Global Top 20 Telcos 36%

• Given smaller barriers to entry within the value added

service provider environments, smaller players are making

greater margins

• For asset intensive Incumbents, its far more challenging to

extract enough turnovers from existing assets

Source: Ovum Telco KPIs; Insight analysis; Value line Database;

34,7%

33,3%

9M12 9M13

PT EBITDA Margins

PT is focussed on continued efficiency

improvements in order to offset the pressure on

declining revenues especially within the high profit

enterprise segment

44,9% 42,8%

9M12 9M13

Portugal + Oi Portugal only


3,9

3,8

3Q13

3Q12

6,3

5,8

3Q13

3Q12

1,07

1,02

3Q13

3Q12

Residential Customers Growth Personal Customers Growth (mobile) Enterprise Customers Growth

Customer growth is good given current conditions...

Port

ugal only

(In

Mill

ions)

32,0

32,0

3Q13

3Q12

7,8

8,9

3Q13

3Q12

20,7

23,1

3Q13

3Q12

Residential Customers ARPU Personal Customers ARPU Enterprise Customers ARPU

Port

ugal only

(In

Euro

s)

But their willingness to spend as much as before is waning...

Creating a greater pressure on margins given a predominantly fixed asset base

Balancing Margins With Declining Revenues Is Tough


Several Avenues Available For PT To Address Cost Reduction Imperatives

Hig

h

Low

Low High

Siz

e o

f C

ost

Re

du

cti

on

s

Feasibility (Lower effort & costs)

Strategic Wins Quick Wins

Leisure Targets Continuous Savings

• NGN Networks

• FMC Convergence

Initiatives

• Full blown

infrastructure

rationalisation &

virtualisation

• Phased cross-

channel customer

experience

• Optimising traditional

channel costs

• Improving decision

management

• Identification and

discarding un-used

assets

• Signalling integration

activities

• Targeted motivational

measures

(gamification etc)

• Procurement, fleet &

supply chain activities

• Reducing IT

maintenance costs

• Process re-

engineering &

Modernisation

Higher risk and

hence senior exec

sponsorship is

required. Controlled

change management

Bottled within

individual units and

can be managed as

a low profile project

Customer touch-point

operations – easy to

gain sponsorship.

Faster time to value

Extract thick costs to

release them into

other areas. Lower

impact on overall

business


Margin Is A 2-way Lever To Success – Impact On Revenues As Well As Costs

Margin

Cost Drivers

Services’ cost

Workload

Volume

Unit Time

Service support

Cost of sales Workload

Time spent on sales

Sales support

Revenue Drivers

Units sold or Retention

Up-sell/Cross-

sell

Retention

Time to Market

Price Tariffs,

Bundling

Manage

cost centre

budgets

through

efficiencies

Manage profit

centres – marginal

cost for every

addition in

revenue is low


A Top Down Breakdown Of A Telco’s Operational Costs Will Help Determine Prioritisation

Opex Breakdown

Non-Process Opex

Support Process Opex

Operational Process Opex

Typical Telco Opex Breakdown

25%-30%

25%-30%

50%-55%

• Interconnection fees, taxes, CPE etc.

• Limited control over these

• HR, IT, Finance, procurement and other back-office activities.

• Reasonable potential for savings exist

Network Infrastructure

40%-45%

Network Ops & Design 18%

- 23% Sales 20% -

25%

Customer Service 10% -

15%

Billing 7% - 12%

Source: Deloitte, Insight analysis Strategic long term wins Quick wins


Cost Reduction Can Be Achieved Across Several Areas, But A Right Balance In Prioritisation Is Important

IT Platform

s

Fleet, Facilitie

s..

Network Operations

HR

Illustrative Cost Reduction Levers

• Lower cost of servicing a customer

• Lower acquisition costs

• Improved productivity of staff across

functions

• Improved first call resolution rates

(direct impact on call centre costs)

• Reduced faults across the entire

Order to Provision to Cash chain

• Shared service capabilities driving

greater productivity for back-office

• Reduce cost to market (several ways)


Two Approaches Possible For The Role Of IT As Business Enabler To Achieve Margin Maximisation

Prioritise them

against strategic

goals to achieve

Map it against

appropriate new

business demand

IT Options

available to

address them

Prioritisation and

balance between

different projects

Business & IT

roadmap to

achieving wins

IT roadmap with a

Business buy-in

Joint

Execution

Joint

Execution

Assess top cost

buckets for the

business as a

whole

Identify IT budget

constraints and

platform

rationalisation

needs

END

STATE

Business capability gaps

determines IT Options

IT capabilities restrict business

capabilities to address

CURRENT

STATE


Illustrative: Picking The Order to Cash Area For Approach To Execution

CUSTOMER PRODUCT OPERATIONS

Marketing Product Conception Fulfillment & Billing

Sales Extended Revenue Chain Development Field Service Management

Service Product Delivery Network

Management

MANAGE & CONTROL

Business Intelligence

Strategic Enterprise Management

Financial Performance Management

Human Resource Management

TECHNOLOGY

Infrastructure Management

Business Process Management

Architecture Management

Information Management

Order to cash

process

Source: Insight communications industry component framework


Streamlining Order to Cash Processes Requires Several Key Capabilities

Order Capture Provision Validate &

Enable Activate Invoice Collect

Order to Cash Process

Multi-

channels Customer

Customer Management

Channel Mgmt

Billing Order Capture

Order Delivery

Key Capabilities

Delivery role of IT as an enabler to business

Explore

Buy Connect

Use

Pay Get Help

Move Chan

ge

Renew /

Term

Superior Customer Experience (CRM) Design of Offer

Delivery of Offer

Fulfillment CRM Billing Provisioning Activation Inventory Product

SDP

Product Design & Delivery


Each Capability Area Will Target Operational Improvements That Will Drive Cost Benefits For PT

Customer Management

Enabling Capabilities

• Unique 360 degree view of customer

• Multi-channel capabilities

• Harmonized , integrated and

simplified customer processes

cross-channels

• Robust proactive retention and win

back capabilities

• Flexible loyalty program measure

across products/offers

• Customer scoring and profiling is

integrated with CRM

Sample Target Operational KPIs

Number of Order

Capture systems

1

?

Best Practice PT - Today

Average call

handling time

6.1 minutes

?

Number of

applications in

call centers

2

?

Potential Benefits

• Improved Productivity of call center

staff

• Reduced cost of order management

• Improved customer intimacy

• Reduced customer churn

• Increased cross-sell rate

• Reduced Opex


Channel Mgmt

Enabling Capabilities

• Point of service (POS) system with high

reliability, performance and usability.

• Integrated POS and CRM systems

• Harmonized look and feel cross-channels

• Single sign on cross online services

• Differentiated and personalized experience

• Integrated business intelligence and RTD

• Rapid time to market through unified

catalogue and product hub

Sample Target Operational KPIs

Best Practice PT - Today

Potential Benefits

Self service

account

management ?

Online sales vs

Total Sales

50%

?

% of transactions

over number of

online visits ?

15% - 30%

30%

• Improved customer experience

• Increased revenue through better

targeting

• Increase in margins through deflecting

customers through cheaper channels

• Improved customer retention

Each Capability Area Will Target Operational Improvements That Will Drive Cost Benefits For PT


Key Considerations To Bear In Mind While Addressing Margin Maximisation Initiatives

Sponsor

• Joint business & IT exec sponsorship to support strategic transformation activities

Simplify

• Business Process and IT platform should be simplified to cater to future needs

Streamline

• Avoid hesitation to change status quo processes

• Business focussed approach to streamlining processes – define success metrics

People

• Manage cultural drivers effectively and manage change through proper communication and accountability

Infrastructure

• Resilient and scalable support infrastructure to enable convergence around commercial as well as network functions


From An Oracle Perspective We Can Help Address Issues Across The Telco Stack

Service Delivery & Fulfilment

Customer Master

Customer Experience (Sales, Marketing,

Service, Social etc)

Back Office

Integration

Billing & Revenue Mgmt

Technical Infrastructure (hardware,

Processing, Virtualisation, OS etc)

End-to-End Stack

Customers

Networks

Designed based on industry recognised

standards

B

Lower total cost of ownership

A

Vastly improved centralised control over

efficiencies

C

Potential Value


Oracle Insight Welcomes The Opportunity To Discuss With You Options In Detail And Provide Our Support

Industry

Experience

Solution

Knowledge

Value

Analysis Oracle Insight

Composition

A methodology focused on enabling greater customer business value

Drives business impact by helping view technology as enablers of business value

Helps build a compelling value proposition

Assists with alignment with your executive team

For any questions, please don’t hesitate to contact me at

[email protected] / Ph: +44 7825121521

mailto:[email protected]


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Oracle Approach for Telecom Challenges