Project on Capex and Opex

SUMMER TRAINING REPORT ON

CAPEX AND OPEX SAVING SOLUTIONS FOR TELECOM INDUSTRY For S.M.Creative Electronics Ltd BSMC Power Systems .

BY SRIKANT YADAV B-55 In Partial Fulfillment for the award of the degree Post Graduate Diploma In Business Management 2009—2011 New Delhi Institution of Management

NEW DELHI INSTITUTION OF MANAGEMENT

Page 1

SUMMER TRAINING REPORT ON

CAPEX AND OPEX SAVING SOLUTIONS FOR TELECOM INDUSTRY For S M CREATIVE ELECTRONICS LIMITED BSMC POWER SYSTEM Under the supervision Of HIMANSHU RAGHAVA Submitted BySrikant Yadav

Submitted toMonika Nijhawan

Roll : B-55


Page 2

ACKNOWLEDGEMENT It is a great sense of satisfaction and a matter of privilege to me to work at S M Creative Electronics Limited .I wish to express my heartiest thanks to S M Creative Electronics Limited for providing me the opportunity to undergo training in their esteemed organization. I would like to take this opportunity to thank Director CRC Manoj NDIM and my special indeptness to Monika Nijhawan our project in charge whose guidance was a great support and all the members of the Institute that were always ready to assist me. It gives me immense pleasure to express my gratitude towards all the individuals who have helped me in completing this project. I am extremely grateful to Mr. Vikas Gupta (MARKETING HEAD OF S M CREATIVE ELECTRONICS LIMITED) granting permission to carry out the project work in his department. Special thanks to my project guide Mr. Himanshu Raghava (Marketing Manager, S M Creative Electronics Limited ) for his invaluable guidance during the project period which helped me in completing the project successfully he helped me out in understanding the subject .

SRIKANT YADAV


Page 3

DECLARATION

I Srikant Yadav student of New Delhi Institution of Management (2009-2011) declare that every part of the Project report on Capex and Opex for Telecom Industry that I have submitted is original. I was in regular contact with the nominated guide and contacted number of times for discussing the project. Date of project submission:-______________ <> Faculty’s Comments: __________________________________________________________________ __________________________________________________________________ _________________________________________________________


Page 4

EXECUTIVE SUMMARY Through this project I have tried to get the knowledge about Opex and Capex for Telecom Industry. Its been a learning experience working in this project .The main objectives of the project are: 1.To understand capex and opex structure in the industry. 2.To have the awareness about capex and opex workings. 3.Overall opinion about capex and opex. 4.Cost saving initiatives. 5.Industry environment. 6.Market position.

This project was carried out through published reports and through company respondents.Through this project I learnt the various concepts of Capex and Opex.


Page 5

CONTENT TABLE

S.N.

TOPICS

Pg. No.

1.

INTRODUCTION

8-15

2.

MANAGEMENT

16-18

3.

OVERVIEW OF BSMC

19-24

4.

BEGINNING OF TELECOM SECTOR

25-28

6.

HOW BSMC PRODUCTS SAVES ON CAPEX & OPEX

29

5.

MEANING OF CAPEX AND OPEX

30-38

6.

OPEX OPERATIONS

39-41

7.

PROBLEMS ON CAPEX AND OPEX

42-45

8.

INDIAN TELECOM TRENDSETTER IN TERMS OF 46-47 CAPEX AND OPEX

9.

OVERCOMING THE OPEX OPTICAL TO TELECOM 48-53

10.

PROFITIBILITY IN ASIA-PACIFIC CONVERTING CAPEX INTO OPEX

54

11.

CAPEX AND OPEX WORKINGS

55-56

12.

FIXED MOBILE CONVERGENCE IN EMERGING 57-62

13.

MARKETS OPEX MARGINS

63

14.

CONCLUSION

64-66

15.

BIBLIOGRAPHY

67


Page 6


Page 7


Page 8


Page 9


Page 10


Page 11


Page 12


Page 13


Page 14


Page 15

MANAGEMENT

Sanjay Trehan Managing Director Sanjay Trehan did his B Com (Honours) from Delhi University followed by MBA from XLRI Jamshedpur.

He worked in different divisions of an Indian Company-Mekaster-before founding S M Creative Electronics Ltd with Col S D Maini.

He has 26years experience in Telecom Industry with a through knowledge on the rapidly growing India Telecom segment from fixed line to wireless and Submarine cable network. He nurtured the company from a single product to multi-product, multi-industry servicing company in the last 17 years. Brig.R.Mohan (Rtd) Director A telecom graduate with vast experience in Telecom Industry and Operations. After a long rewarding tenure in the Indian Army (Corps of Signals), took charge of Alcatel Operations in India and retired as President-Alcatel India.


Page 16

Col S.D Maini (Rtd) Chairman Emeritus Col.S.D.Maini is the co-founder of S M Creative Electronics Ltd in 1992, along with Sanjay Trehan.

He was commissioned in the Corps of Electrical and Mechanical Engineers (EME), Indian Army in 1950. Later, he joined Bharat Electronics Limited (BEL), the premier defense electronics company in India and he was instrumental in setting up Ghaziabad, Panchkula, and Kotdwar Plants of BEL and retired from BEL in 1985 as Executive Director (Northern Units). He actively takes part in product design, development & engineering activities and quality assurance

Vikas Gupta Head-Telecom Power Division Vikas Gupta is an Electronics Engineer & has over 12 years of experience in the Telecom Power. He joined SMCEL in 1996 as a Research Engineer and later Technical Head. Lately, he has been looking after the Manufacturing & Sales activities as well.

His areas of expertise include - Sales & Marketing, New Product Development, Domestic & International customer relationships, Strategic Planning & running profit centre. He handles business operations of SMCEL-Subsidiaries Trehan Electronics International Ltd-Bangladesh and BSMC Power Nigeria Ltd-Lagos. NEW DELHI INSTITUTION OF MANAGEMENT

Page 17

S.K.Gupta Head-Finance & Accounts S.K.Gupta is a Chartered Accountant with more than 20 years experience. He has been working in the organisation since last 7 year as Head (Finance).

He worked with various organizations under various capacities and has rich experience in the field of Financial Planning, Accounts, MIS, Fund Management, Budgeting, Costing, Taxation

and

building internal

financial

controls.

His greatest strength is Proficient knowledge in related field, Positive thinking, and Analytical approach, Hardworking, Sincerity and Integrity.


Page 18

.

OVERVIEW

BSMC Power Systems an ISO 9001:2000 organization, was formed in 1995 as a 50:50 joint venture between S.M Creative Electronics Ltd. & Benning, Germany. Later in 2004, BSMC was merged with and become a division of S.M. Creative Electronics Ltd.

The Core competencies of BSMC are founded in its strong technology base for manufacturing of state of the art DC Power Systems & Providing Telecom Infrastructure Products & Solutions. This strength enables us to develop internationally competitive products, provide world-class partnerships, and add value through customization , integration and technical support. We provide O&M of landing stations and passive infrastructure for cable landing station & Submarine cable landing station solutions. NEW DELHI INSTITUTION OF MANAGEMENT

Page 19

BSMC has grown significantly and diversified its activities from merely manufacturing to providing turnkey power solutions including various infrastructure products & Solutions for Telecom, Gas and oil, Power Line communication and Power Utilities Networks. As a result of our expansions, we have crossed the border limits and today we have our 100% owned, full fledged subsidiaries / branch offices in Singapore , France, Nigeria, Sri Lanka, Bangladesh, Afghanistan, and our exclusive partners in South Africa, Czech Republic, Vietnam etc.

Our products are approved and working with leading Telecom operators such as Roshan, AWCC, Grameen phone, Airtel, Tata Communications, MTN, TIGO, TELENOR, Vodafone, Multi-Links ( A Telecom SA Company), Power Grid Corporation of India, Gas Authority of India to name a few.

Experience and execution of IMEWE Submarine Cable – landing Station Project of Telecom Egypt added another feather to the BSMC cap of activities

Research & development In-house State-of-the Art R&D facility specializes in developing customized power systems and turnkey power solutions for applications in Telecom, Railways, Defense and Nuclear installations etc. BSMC R&D Center is approved by The Ministry of Science and Technology, India.


Page 20

Quality policy BSMC believes in and strives to maintain the highest quality standard of its turnkey power solutions, products and service. BSMC‘s endeavor to upgrade and improve the quality never stops.

Customer support We believe in high ethical standards and establishing long term relations with our customers, through total satisfactions for them in our products and after-sales support.

Product R InfrasItructure

BSMC Corporate Headquaters are located at prime location in National Capital region with a beautifully constructed building at Electronic City of Gurgaon. NEW DELHI INSTITUTION OF MANAGEMENT

Page 21

Surrounded by corporate like MUL, Aricent, Alcatel, TCS and others, the office incorporates professional atmosphere at its location following all the industrial and environmental regulations. Not only the Headquarters, BSMC has taken care of all its units specifically to its location and construction to employ 

Ease of operation



Easy approachability



Motivated Staff



Approachable Customer



Professional culture



Quality productivity



BSMC Infra is equipped with Beautifully constructed factory in foothills of Himalaya.More than 30,000 sqft Factory Covered Area.More than 195 EmployeesMulti Located Customer Service CentresHighly qualified & experienced team of professionalsFull Fledged Design Engineering CentreLatest Testing and Machinery set-up. Quality Procedure

Customer Confidence Quality certification is a fundamental requirement for all manufacturing units nowa-days, but at BSMC , we strongly believe in Quality and our management always conveys on ―Zero Compromise‖ on quality issues. Our Quality Management System ensures :


Page 22



Quality Assurance



Quality Control



Quality Improvement

Besides manufacturing, our emphasize is to apply Quality management not only in the manufacturing process but also in Finance, Administration, Sales and Marketing, Design Engineering etc. Courtesy to our efficient quality team supported strongly by the Management and all colleagues, BSMC enjoys sky level customer confidence in it and is always appreciated by the customer by repeated business transactions. Today BSMC power systems are installed at more than 40,000 sites in various parts of the world.

In its endeavor to achieve total customer satisfaction, SMCEL has obtained ISO 9001:2008 Certification for design, implementing, testing and maintenance of Power Supplies.

SMCEL runs a continuous quality management system (QMS) assessment program with STQC, Standardization Testing and Quality Certification (STQC) , an attached office of the Department of Information Technology(DIT), Government of India. With a number of successful external audits, SMCEL’s NEW DELHI INSTITUTION OF MANAGEMENT

Page 23

quality management processes and procedures have been repeatedly reported to demonstrate a very high level of compliance with the ISO 9001:2008 Standard. SMCEL‘s management team and personnel are strictly committed to maintaining and constantly improving the SMCEL QMS in conformity with customer quality objectives and requirements via regular management reviews, internal audits, customer feedback and quality awareness training.

The SMCEL quality assurance team has designed and documented a set of internal processes to ensure that the company‘s R&D operations comply with the guidelines set down by the standard. SMCEL's Quality Process 

On-going collection of various quality and performance matrix.



Summing up and reporting all quality metrics on a quarterly basis



Motivation of Quality Circle



Recording and storing all tests and associated documents with references to be provided to the customer along with related deliverables



RCA (root cause analysis) process for operations improvement and prevention of potential quality issues

SMCEL's performance management policies include the following quality assurance initiatives: 

Crystal Clear communication with customer at all levels ( technical, operation etc. to identify customer requirements and grasp the client's vision of how SMCEL can meet them)



Comprehensive documentation reviews (internal, external)



Well-prepared conferences with customers



Stringent code inspection


Page 24



Innovative product verification strategies

Quality and excellence form an integral part of our business process to ensure the delivery of reliable solutions on our customers' terms, including their most stringent time requirements. We do our utmost to make the notion of 'quality' more tangible and comprehensible, defining it as a crucial element of service delivery. We realize that high quality services combined with organizational effectiveness serve the launching pad to business success of our customers. Therefore, we continuously improve our design, development and testing procedures, evaluating achievements and taking the necessary measures to update our quality model and quality control practices.


Page 25

BEGINNING OF TELECOM SECTOR


Page 26

Product Range


Page 27


Page 28


Page 29

How BSMC Products Saves on Capex and Opex Site Infrastructure & Power Management System or SIMS, is a combination of various Functional Blocks, that facilitates management of Unmanned Telecom Sites. This is a complete standalone site manager which makes maximum Utilization of Grid Power. BSMC Power Systems India are one of the most trusted Site Infrastructure Management System (SIMS) suppliers worldwide. This can be ordered with various combinations to suit every site or need. Built in Class-B & C Lightning and Surge protection, RFI/EMI/EMC/EFT filters. SIMS meets international standards i.e. CE, UL etc. S  

      

CAPEX Optimization Eliminates all discrete blocks such as AVR+IT, Generator ATS Panel, Surge Arrestors, Air-conditioner controller, AC Distribution etc. Saving on OPEX Minimizes Generator Run Time by utilizing Grid Power even if two phases are available Does battery cycling by precisely observing battery voltage and shelter temperature. No Human Intervention after Installation. Fully Integrated Unit allows faster network rollout. Minimizes bulky & lengthy cable routing & terminations. Remote Site Status Communication on 5 hand phones and two remote servers/computers/laptop


Page 30

Capex vs Opex

The optical networking industry has recognized that the industry‘s health depends on lowering service provider operational expenses as well their capital expenditures. Equipment vendors have made significant efforts to address this need, and optical component vendors have also taken this issue seriously. But perhaps the component vendors are barking up the wrong tree? I‘d like to put forward the case for paying more attention to lowering capex than opex. The drive to lower opex in optical networking originated from analyses that Ciena Corp. (Nasdaq:CIEN) conducted in the late 1990s on the predicaments of U.S. interexchange carriers. Ciena showed that data traffic was rising rapidly, revenues from data traffic were growing at one-seventh this rate, and costs associated with data traffic were growing faster than revenues. McKinsey & Co. and Goldman Sachs & Co. continued this work in 2001, when they maintained that service providers could not solve their financial problems simply by reducing capex. Service provider costs needed to fall at 30 percent a year, but since capex made up less than 30 percent of total spending, service providers needed to reduce opex as well. McKinsey and Goldman Sachs concluded that service providers needed to reduce operating expense at a rate of 24 percent a year. Equipment manufacturers have embraced these recommendations and have been promoting their systems as lowering capex and opex. One optical networking equipment manufacturer – Photuris Inc. – stated at NFOEC 2002 that its new NEW DELHI INSTITUTION OF MANAGEMENT

Page 31

product could save 50 percent on opex versus systems in use today. In addition, the manufacturer maintained that for every dollar invested in its equipment, the product saved as much as seven dollars in opex. These assertions are encouraging for the optical networking industry. They also raise expectations that optical components can be developed that have parameters that create quantifiable opex savings. Defining such parameters, however, seems elusive. In addition, statements one hears at different levels of the optical networking supply chain suggest that searching for opex parameters may not be as rewarding as concentrating instead on those that relate directly to capex. For example, service providers are intensifying their payback requirements on new equipment. New equipment can often incur increased initial costs, for features that enable greater savings during the life of the equipment. If a service provider had required a payback period of three years on a new kind of optical networking equipment, then the provider may now be requiring payback to be demonstrated in just one year. The shorter recovery period places more of a premium on delivering the biggest financial advantage upfront – in other words, cutting capex. Moreover, it is not clear how well service providers can quantify optical networking opex in legacy networks or how much these costs can really be lowered. Technology planning engineers at service providers point out that opex incorporates many factors beyond the direct cost of provisioning, maintaining, or protecting a wavelength. These engineers agree that equipment that allows for point-and-click lighting of wavelengths does have the potential to provision services faster and minimize the cost of sending technicians into the field. Service provisioning costs, however, are complex and incorporate many other factors. Lighting a wavelength is just one of many costs in the process, with others from NEW DELHI INSTITUTION OF MANAGEMENT

Page 32

operations, administration, provisioning, and maintenance creating bottlenecks that are more significant to the total cost. Technician costs are also not variable, as service providers cannot readily eliminate this function. Union contracts with service providers, as well as prudence against unforeseen scenarios, encourage service providers to retain their technicians. Technology planning engineers also point out that that the remote, automated capability of next-generation optical networking equipment can increase service provider costs. Using this feature requires that DWDM equipment and routers be populated with transceiver boards in advance of live traffic. Yet, having a DWDM transmitter and receiver, for example, sitting idle until traffic is turned up is asking a service provider to leave tens of thousands of dollars of inventory unused. In a tight economic climate, a service provider is motivated to preserve cash rather than purchase capital that is not immediately generating revenue. Such complexities concerning opex suggest that the optical component vendor should concentrate on what can be quantified in selling to the intermediary, the equipment vendor. There are clearly some parameters that do affect opex that can be quantified. Size and power consumption are among two of the obvious ones. Real estate and cooling costs are significant expenses for service providers, so any savings that component manufacturers can provide will help everyone. Optical components that are inherently geared for lowering opex by being dynamically and remotely tunable, however, are struggling to take off. One can read about design-ins of widely tunable lasers and dynamic spectrum equalizers, for example, but their vendors complain that revenues are disappointing. Worse, they are not taking market share from earlier, less sophisticated versions of these products. NEW DELHI INSTITUTION OF MANAGEMENT

Page 33

An executive from a tunable laser manufacturer told me privately at NFOEC that his full C-band products were simply overkill for any business of significant revenue. He said that six nanometers was sufficient for applications that could actually ship, as these applications were for sparing and inventory management. The incremental cost for eight 100GHz tuning range was sufficiently small to justify these static applications, but the price premium for an even wider tuning range was just too high. The slow acceptance of optical components specifically for highly automated optical networks suggests that less dynamic optical components provide a more valuable mix of capex and opex savings. I recommend to my optical component clients that they rely on the mix that has worked most successfully over the history of optical communications. A reduction in the cost per bit per second per kilometer is the argument that justified singlechannel TDM transmission in the 1980s and WDM in the 1990s. Architectures have varied and are still evolving today, but the metric of $/bit/s/km continues to be the most persuasive, largely because it is the most simple to quantify and use for comparisons. The optical component vendor can differentiate himself in $/bit/s/km by improving either the numerator or the denominator. The vendor can lower the price, while keeping the same distance-bandwidth product; or the vendor can preserve the price, while adding dbs to the link budget. Of course, with pressure on saving money so strong these days, customers value improvements to the numerator more highly. How much of an improvement do equipment manufacturers require to be motivated to adopt a more powerful technology or more economical product? During the boom, one heard from the service provider community expectations of NEW DELHI INSTITUTION OF MANAGEMENT

Page 34

10x improvements in first-installed cost. These targets were, however, for complete overhauls of existing networks rather than for incremental improvements. No service provider today has the available capital to invest in a brand new network. Current targets seem to be more consistent with historical expectations, based on incremental build outs, upgrades, and rehabilitations. Optical component vendors, prior to the boom, were used to equipment vendors expecting reductions of at least 15 to 20 percent to justify engineering redesigns. Today, with competition intense for every available socket, equipment manufacturers are expecting much steeper declines. Some equipment manufacturers are saying that the overall material cost of the board has to fall at least 15 percent to justify a redesign. If the optics on the board makes up just 25 percent of the material cost of the board, as may be the case in a metro system, then the optics have to fall 60 percent so that the net cost declines 15 percent. The challenge to the optical component vendor is to meet these stiff expectations in a differentiated, sustainable manner. Significant improvements in cost per Gbit/s per km are difficult to achieve, especially in the numerator. Still, offering improvement on the price-performance ratio is more valuable than making promises that are not as easily quantifiable. Any optical component sales engineer will tell you that in a competitive bid, link budget and price virtually always trump footprint and power consumption. Specifications even more remotely removed from first cost, such as those relating to maintenance; find themselves even lower on the priority list. After achieving leadership on price-performance, the vendor also needs to offer other benefits that demonstrate its product as distinctive in a crowded field. In addition, the vendor has to prove long-term viability, either with NEW DELHI INSTITUTION OF MANAGEMENT

Page 35

cash reserves or a partnering relationship with a major supplier. These three areas are essential for success. In conclusion, optical component manufacturers should definitely address opex issues in their development and manufacturing of new products. Increasing functionality, reducing size and power consumption, decreasing the number of fiber connections, enhancing reliability, etc., are all valuable to the health of the industry. Given the questions raised above, however, the component manufacturer seems more likely to increase his ability to increase sales by concentrating first on lowering capex and making decisions concerning opex subordinate. Such recommendations on decision-making criteria may seem to place the optical component vendor‘s health ahead of those of the industry, but the ambiguities in transforming service provider needs into quantifiable parameters at the optical component level strongly suggest such behavior DEFINITION Capital Expenditures Refers to the cost of developing a product or system. OPEX (operating expenditures) are the ongoing costs for running it. For example, the purchase of a printer is the CAPEX, and the annual paper and ink cost is the OPEX. For larger systems, OPEX may also include the cost of human operators and facility expenses such as rent, electricity, heating and air conditioning.

An operating expense, operating expenditure, operational expense, operational expenditure or OPEX is an ongoing cost for running a product, business, or system. Its counterpart, a capital expenditure (CAPEX), is the cost of developing or providing non-consumable parts for the product or system. For example, the NEW DELHI INSTITUTION OF MANAGEMENT

Page 36

purchase of a photocopier is the CAPEX, and the annual paper, toner, power and maintenance cost is the OPEX. For larger systems like businesses, OPEX may also include the cost of workers and facility expenses such as rent and utilities.In business, an operating expense is a day-to day expense suchas sales and administration, or research & development, as opposed to Production, costs, and pricing. In short, this is the money the business spends in order to turn inventory into throughput. Operating expenses also include depreciation of plants and machinery which are used in the production process. On an income statement, "operating expenses" is the sum of a business's operating expenses for a period of time, such as a month or year. In throughput accounting, the cost accounting aspect of Theory of Constraints (TOC), operating expense is the money spent turning inventory into throughput. In TOC, operating expense is limited to costs that vary strictly with the quantity produced, like raw materials and purchased components. Everything else is a fixed cost, including labour unless there is a regular and significant chance that workers will not work a full-time week when they report on its first day.


Page 37

What Does Capital Expenditure - CAPEX Mean? Funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maintain or increase the scope of their operations. These expenditures can include everything from repairing a roof to building a brand new factory.

Capital Expenditure - CAPEX The amount of capital expenditures a company is likely to have depends on the industry it occupies. Some of the most capital intensive industries include oil, telecom and utilities.

In terms of accounting, an expense is considered to be a capital expenditure when the asset is a newly purchased capital asset or an investment that improves the useful life of an existing capital asset. If an expense is a capital expenditure, it needs to be capitalized; this requires the company to spread the cost of the expenditure over the useful life of the asset. If, however, the expense is one that maintains the asset at its current condition, the cost is deducted fully in the year of the expense.

WhatDoes OperatingExpense Mean? A category of expenditure that a business incurs as a result of performing its normal business operations. One of the typical responsibilities that management must contend with is determining how low operating expenses can be reduced without significantly affecting the firm's ability to compete with its competitors. Also known as "OPEX". NEW DELHI INSTITUTION OF MANAGEMENT

Page 38

Operating Expense

For example, the payment of employees' wages and funds allocated toward research and development are operating expenses. In the absence of raising prices or finding new markets or product channels in order to raise profits, some businesses attempt to increase the bottom line purely by cutting expenses.

While laying off employees and reducing product quality can initially boost earnings and may even be necessary in cases where a company has lost its competitiveness, there are only so many operating expenses that management can cut before the quality of business operations is damaged.


Page 39

CAPEX OPERATIONS Capital expenditures (CAPEX) refers to the money spent to acquire and maintain the physical assets of a company. These assets are most commonly referred to as plant, property and equipment (PPE) on the balance sheet. Manufacturing companies tend to have large CAPEX and usually spend more money on maintenance than service firms. For technology-rich companies, CAPEX might also refer to the cost of developing a product or system. Either way, it is a number the investment community uses to measure a firm's investment in future revenuegenerating activities. A company with low CAPEX may have fewer expenses. The Indian telecom market has become a trendsetter for the telecom operators in the developed markets such as Europe and the US for efficient ways to reduce their capex and opex at a time of tough economic challenges. A recent report by E&Y on the short-term prospect of telecom sector in the developed markets, has suggested that telecom operators in developed markets need to ‗unlock and reclaim the full value of their networks‖. ―The Indian telecom market is at least five years ahead of its American and European counterparts in terms of hiving off passive infrastructure. Hiving off the tower business into independent business units is going to catch-up in the developed markets‖, Vincent de la Bachelerie, the global telecommunications leader with E&Y told FE. Most of the incumbent operators in India, including the country‘s largest telecom operator, Bharti Airtel, Reliance Communications and Tata Teleservices have hived off their tower business into separate business entities.The report shows that telecom sector has been resilient across Europe and America despite the recent global slowdown. Cost reduction has become high on


Page 40

the operators‘ agenda making it difficult for the operators to justify huge investments into the business networks. The report titled ‗The Power of the Pipe‘, further adds that Mobile Virtual Network Operators (MVNO) have largely failed in the developed markets where they are struggling to justify their business model. MVNOs typically buy bulk airtime from the Mobile Network Operators (MNO) and sell it to consumers under another brand. ―They don‘t add any value to MNOs services, their model hinges on a strong marketing and distribution which can be easily done through a normal distributor or a mass market retailer such as Carrefour‖, Vincent added. The report was compiled from interviews from 18 telecom companies and industry stakeholders across Europe and America. AT&T, France Telecom, Vodafone Europe and Deutsche Telekom were among the participants. Regulatory uncertainties especially in the area of spectrum surfaced as a big challenge for the operators in current times. Investment incentivisation was rated as the biggest issue facing the operators since the telecom operators were finding it increasingly difficult to match the investments that investors, governments and consumers were demanding. Among the strategic objectives the participants unanimously voted for customer value/centricity as the most important objective followed by service innovation and cost efficiency.


Page 41

India & China to lead global telecom sector capex spend to over $ 224 bn by 2015 The demand for mobile services particularly in the developing markets such as Indian and China will fuel the capex of mobile service providers across the globe to scale over $ 224.5 billion by the year 2015, says a new research from market research firm, The Insight Research Corp. "Capital expenditures (capex) by telecommunications service providers globally is expected to increase at a compound rate of 2.4 per cent, from USD 199.6 billion in 2010 to USD 224.5 billion in 2015," says the market research report. While the developed markets would observe a slowdown in spend, the demand for mobile services in developing markets will offset for this and result in overall growth in capex. "This growth is expected to continue during the forecast period. India's capex outlook is prima facia evidence of this trend," the report stated. China however might see a comparatively slowdown in telecom gear spend due to slowdown in mobile subscriber growth rates, rock-bottom equipment prices and operator margin pressure. The fixed line sector is expected to continue witnessing decline in capex spend.


Page 42

PROBLEMS ON CAPEX AND OPEX

Capital expenditures (capex) plummeted after the crash of the telecom bubble of 1999-2001. This correction for previous excesses, most prevalent in the U.S. and Europe, has caused many carriers to spend below even ―maintenance‖ levels, creating service quality problems, network outages, delays in turning up service, etc. Despite his capex drop, profitability remains elusive for many carriers: the ten largest carriers worldwide booked an average net profit loss of 8% (most recent fiscal year results). Revenue growth in most areas is modest (and negative in a few places). As a result, the focus has shifted to operating expenses (opex). Many service providers have announced plans for opex reduction through consolidation, staffing cuts, OSS/software implementations, and other methods. Their suppliers, in turn, have addressed opex constraints as a focus of product marketing pitches. Cutting opex is tough to accomplish in practice, though. M&A activity can increase opex in the short term, and technical methods of reducing opex are limited, unproven, and require organizational changes in companies. Success to date, on all accounts, has been mixed, despite the rhetoric. Significant reductions in opex are central to sustained telco profitability, yet few carriers have achieved success in anything more than gradual, incremental cost cutting.


Page 43

SituationinAsia-Pacific In the Asia-Pacific region, service providers appear to be on the right track. Helped by solid revenue growth, lower overall staffing expenses, a smaller capex ―bubble‖, more limited competition, industrial policy favoring a stable telecom sector, good economic growth, and – one would hope – some smart strategic decisions on the part of carriers, net profit margins have grown from 10% in 2001 to 14% in 2003, for a group composed of 20 of the region‘s large carriers (referred to as ―AP20‖ in this report) (Figure 1).

Margins have not improved in all regions or at all carriers, but the level of Asian margins is much higher than other regions. This 14% average, in fact, is comparable to the 2 best performing non-Asian carriers – SBC and BT – in Standard & Poor‘s list of the 10 largest global service providers. The growth in net profits stems from stronger revenue growth (16%, versus 9% in 2002), capex/sales (capex intensity) decline to (18% from 22% in 2002), and company investments in affiliate companies. Opex also grew, by 14%, but, as in 2002, slightly slower than revenue growth. The gap between revenue and opex growth is not wide, but enough to differentiate Asia – on the whole – markedly from North America and Europe.

Reducing Opex Going forward, though, Asia cannot rest on its laurels. Asian carriers are beginning to see more competition, increasingly saturated markets, and uncertain prospects for new services. They will have to get serious about opex reduction soon, in order to sustain the impressive results of recent past. Opex cuts typically require upfront investments in process or technology change, and take years to achieve real results. Hence, Asian carriers should consider the following options: NEW DELHI INSTITUTION OF MANAGEMENT

Page 44

- Staff cuts: direct staff costs are between 25-50% of total opex among Asian carriers, so must be addressed. However, staff should be shrunk as a side effect of other efforts that change how the network is operated and services or provided; otherwise, quality of service and brand value will decline. - Mergers and acquisitions: M&A activity aimed at growing market share and integrating network resources within a specific market should be approached with caution. More scale brings better bargaining power with suppliers and (possibly) a stronger brand, but the integration process is very expensive and distracts carriers‘ from everyday business needs. M&A aimed at entering new markets, and – in the process – achieving greater scale (and reducing supplier and capital costs) is of potentially greater benefit (e.g., SingTel‘s Optus acquisition). - Software/OSS: some of the best opportunities for opex reduction are in building new software/operational support system (OSS) platforms that automate and/or simplify processes that are currently manual. By some measures, OSS spending in Asia-Pacific is well over $5B per year. OSS investments also face obstacles to success; for example, automating provisioning – a potential huge time and costsaver – is complicated by heterogeneous networks and the use of homemade OSS systems. Regardless, this is an area that carriers must attack to begin cutting opex dramatically. - Automatic control planes: control planes in accord with the ITU‘s ASON and ASTN models, in particular GMPLS, can enable unified control management of the network layers (packet, TDM, wavelength, fiber) in a way that should cut the cost of network operations substantially. Most interest in GMPLS, though, comes from carrier labs; given the potential impact of it, and the need for at least 5 years to implement properly, control planes should soon be a front-burner issue within the network planning groups. - Metro Ethernet: using Metro Ethernet (ME) technology (whether on switches or NEW DELHI INSTITUTION OF MANAGEMENT

Page 45

multi-service provisioning platforms) promises to deliver data services much cheaper than their legacy alternatives. Opex is lower in all stages of the service: initial provisioning, bandwidth upgrades, service additions, and site additions. Since many carriers are experiencing some ―growing pains‖ with ME deployment, though (especially in the area of performance monitoring), carriers will need to implement carefully and learn from other carriers‘ mistakes. - Network outsourcing: both PCCW and Telecom New Zealand – using two very different approaches – are experimenting with outsourcing network operations requirements. While too early to gauge success, both efforts should be studied carefully by carriers interested in cutting the cost of running and maintaining the network.

While the burden of implementation is on service providers, equipment and software vendors must develop solutions to the opex obstacle, and work closely with their customers to ensure product visions turn into reality.


Page 46

INDIAN TELECOM A TRENDSETTER IN TERMS OF CAPEX AN OPEX The Indian telecom market has become a trendsetter for the telecom operators in the developed markets such as Europe and the US for efficient ways to reduce their capex and opex at a time of tough economic challenges. A recent report by E&Y on the short-term prospect of telecom sector in the developed markets, has suggested that telecom operators in developed markets need to ‗unlock and reclaim the full value of their networks‖. ―The Indian telecom market is at least five years ahead of its American and European counterparts in terms of hiving off passive infrastructure. Hiving off the tower business into independent business units is going to catch-up in the developed markets‖, Vincent de la Bachelerie, the global telecommunications leader with E&Y told FE. Most of the incumbent operators in India, including the country‘s largest telecom operator, Bharti Airtel, Reliance Communications and Tata Teleservices have hived off their tower business into separate business entities. The report shows that telecom sector has been resilient across Europe and America despite the recent global slowdown. Cost reduction has become high on the operators‘ agenda making it difficult for the operators to justify huge investments into the business networks. The report titled ‗The Power of the Pipe‘, further adds that Mobile Virtual Network Operators (MVNO) have largely failed in the developed markets where they are struggling to justify their business model. MVNOs typically buy bulk airtime from the Mobile Network Operators (MNO) and sell it to consumers under another brand. ―They don‘t add any value to MNOs services, their model hinges on a strong marketing and distribution which can be easily done through a normal distributor or a mass market retailer such as Carrefour‖, Vincent added. NEW DELHI INSTITUTION OF MANAGEMENT

Page 47

The report was compiled from interviews from 18 telecom companies and industry stakeholders across Europe and America. AT&T, France Telecom, Vodafone Europe and Deutsche Telekom were among the participants. Regulatory uncertainties especially in the area of spectrum surfaced as a big challenge for the operators in current times. Investment incentivisation was rated as the biggest issue facing the operators since the telecom operators were finding it increasingly difficult to match the investments that investors, governments and consumers were demanding. Among the strategic objectives the participants unanimously voted for customer value/centricity as the most important objective followed by service innovation and cost efficiency.


Page 48

Overcoming the Opex Obstacle to Telecom Profitability in Asia-Pacific Description: - Improving operating profits can be accomplished by either growing revenues or cutting costs. Since revenues are flat, at best, among service provides in North America and Europe, their focus has turned to reducing capital spending (Capex) drastically in 2001-2. Carries in Asia-Pacific (AP), however, have kept profit margins high due to solid revenue growth, lower staffing expenses, smaller capex ―bubble‖, more limited competition, government policies favoring a stable telecom sector, good economic growth, and some smart strategic decision on the part of carries. AP carries reduced capex in 2002-3, but operating costs (excluding depreciation) have not yet been attacked aggressively. As revenue growth slows in the years ahead, carries in AP must diligently reduce opex burdens in order to keep profit margins high, and continue to attract investors. Technology suppliers – hardware vendor, software firms, and system integrators – have a unique opportunity to help Asian carries take on this task. While some of the operating cost ―excess‖ is related to heavy customers‘ acquisition costs, adverting/marketing, and inefficient corporate structures, much more is related to operating and maintaining the network. The staff needed for these tasks often cost less, on average, than their peers in North America and Europe, but cutting opex may require smart staffing reductions. Carries must Choose or migrate to products that offer real opex efficiencies. Ideally, this will mean improvement in overall ―life cycle costs‘, including the initial capex cost. They also should find ways to turn up, monitor and repair service more efficiently (possibly through new control planes). Staff layoffs may be avoided or minimized for carries that can re-task employees to growth market or new service areas. This report offers the following data and analysis to its readers: - Section I: Executive Summary Provides a concise review of the analysis and conclusions of report. – Section 2: Service provider results – 2001-3 presents NEW DELHI INSTITUTION OF MANAGEMENT

Page 49

aggregate measure of 2001-3 performance, for 20 larger Asian carries, plus regional breakdowns and analysis. – Section 3: Opex Segmentation presents two views of how best to segment opex, from the ITU and the US FCC. – Section 4: Leading AP Carries: examines trends at a few of the best performing service providers in AsiaPacific. –Section 5: Opex Reduction Strategies addresses some of the common methods of reducing opex and their effectiveness. ―Overcoming the Opex obstacle to Telecom Profitability in Asia-Pacific‖ addresses a central issue driving financial results and stretigy moves at Asia‘s telecom service providers. This report arms Asian carriers, their partners, and suppliers with the inside needed to address opex intelligently as top-line growth slows in the region. Contents:-Table of contains list of figures report Description Notes

on

Methodology Section 1: Executive Summary Background Situation in Asia-Pacific Reducing Opex Section 2:Service Provider Results – 2001-2003 Aggregate Revenues, Opex, And Operating Income Capex Net Margins Regional Japan China Korea Other Section 3: Opex Segmentation Itu Frameworks Fcc Frameworks Section 4: Leading And Lagging AP Carries Leaders Telecom Indonesia Chunghwa Telecom China Mobile Hong Kong Singtel Optus laggagds Hanaro Telecom pccw Section 5: Opex Reduction Strategies Staff Mergers And Acquistions The Software Issue Automatic Control Planes Gmpls Metro Ethernet Outsourcing The Network Telecom New Zealand Pccw Section 6: Recommendations. Summary:- Section 1: Executive Summary Background Capital expenditures (capex) plummeted after the crash of the Telecom bubble of 1999-2001. This correction for previous excesses, most prevalent in the U.S. Europe, has caused many carries to spend below even ―maintenance‖ levels, creating service quality problems network outages, delays in turning of service, etc. Despite his capex drop,


Page 50

profitability remains elusive for many carriers: the ten largest carriers worldwide booked an average net profit loss of 8% (most recent fiscal year results). Revenue growth in most areas is modest (and negative in few places). As a result the focus has shifted to operating expenses (opex). Many service providers have announced plans for opex reduction through consolidation, staffing cuts, OSS/software implementations, and other methods. Their suppliers, in turn, have addressed opex constraints as a focus product marketing pitches. Cutting opex is tough accomplish in practice though. M&A activity can increases opex in the short term, and technical methods reducing opex are limited, unproven, and require organizational changes in companies. Success to date, on all account, has been mixed, despite the rhetoric. Significant reductions in opex are central to sustained telco profitability, yet few carriers have achieved success in anything more than gradual incremental cost cutting. Situation in Asia – Pacific in the Asia –Pacific region, service providers appear to be on the right track. Helped by solid revenue growth, lower overall staffing expenses, a smaller capex ―bubble‖, more limited competition, Industrial policy favoring a stable telecom sector good economic growth and – one would hope – some smart strategic decision on the part of carriers, net profit margins have grown from 10% in 2001 to 14% in 2003, for a group composed of 20 of the region‘s large carriers (referred to as ―AP20‖ in this report) (Figure 1). Margins have not improved in all regions or at all carriers, but the level of Asian margins are much higher than other regions. This 14% average, in fact, is comparable to the 2 best performance non-Asian carriers – SBC and BT – in standard & poor‘s list of the 10 largest global service providers. The growth in net profits stems from stronger revenue growth (16%, versus 9% in 2002), capex/sales (capex intensity) declined to (18% from 22% in 2002), and company investments in affiliate companies. Opex also grew, by 14% but as in 2002, slightly slower than


Page 51

revenue growth. The gap between revenue and opex growth is not wide, but enough to differentiate Asia – on the whole – markedly from North America Europe. Reducing opex going forward though, Asia cannot rest on its laurels. Asian carriers beginning to see more competition, increasingly saturated markets, and uncertain prospects for new services. They will have to get serious about opex reduction soon, in order sustain the impressive results of recent past. Opex cuts typically require upfront investments in process are technology change, and take years to achieve real results. Hence Asian carriers should consider the following options:Staff cuts: direct staff costs are between 25-50% of total opex among Asian carriers so must be addressed. However staff should shrunk as a side effect of other efforts that change how the network is operated and services are provided otherwise, quality of service and brand value will declined – mergers acquisitions: M&A activity aimed at growing market share and integrating network resources within a specific market should be approached with caution. More scale brigs better bargaining power with suppliers and (possibility) a stronger brand, but the integration process is very expensive and distract carriers from everyday business needs. M&A aimed at entering new market, and - in the process – achieving greater scale (and reducing supplier and capital costs) is of potentially greater benefit (e.g., SingTel‘s Optus acquisition) – Software/OSS: some of the best opportunities for opex reduction are in building new software/operational support system (OSS) platforms that automate and or simplify processes that are currently manual. By some majors, OSS spending in Asia – Pacific is well over $5B per year. OSS investment also faces obstacles to success, for example, automating provisioning – a potential huge time and cost-saver – is complicated by heterogeneous networks and the use of homemade OSS systems. Regardless, this is an area that carriers must attack to begin cutting opex dramatically. – Automatic control plans: control


Page 52

plans in accord with the ITU‘s ASON and ASTN models, in particular GMPLS, can enable unified control management of the network layers (packet, TDM, wavelength, fiber) in a way that should cut the cost of network operations substantially. Most interest in GMPLS, though, comes from carrier‘s labs; given the potential impacted of it, and the need for at least 5 years to implement properly, control planes should soon be a front-burner issue within the network planning groups. – Metro Ethernet: using Metro Ethernet (ME) technology (whether on switches are multi - service provisioning platforms) promises to deliver data services much cheaper than their legacy alternatives. Opex is lower in all stages of service: initial provisioning bandwidth up grades, service addition, and site additions. Since many carriers are experiencing some ―growing pains‖ with ME deployment, though (especially in the area of performance monitoring), carriers will need to implement carefully and learn from other carriers‘ mistakes. – Network outsourcing: both PCCW and telecom New Zealand – using to very different approaches - is experimenting with outsourcing network operations requirements. While too early to gauge success, both efforts should be studied carefully carriers interested in cutting the cost of running and maintaining the network. While the burden of implementation is on service providers equipment and software vendors must develop solutions to the opex obstacle, and work closely with their customers to ensure product visions turn into reality.


Page 53

CONVERTING CAPEX INTO OPEX Leading telecom players have taken a beating on their capital expenditure (capex) plans affter having touched their peak in the last fiscal. For the current fiscal, Bharti Airtel, Reliance Communications and Vodafone Essar have chalked out their capex plans, altogether pegged at $6.5 billion, down 30% as against thes outlay for the last fiscal. Owing to the fact that almost all the telecom circles in the country have been penetrated by leading players, the slip of the capex in the current fiscal is looking obvious. Now, the main focus of these players will be the need to spend on network upgradation and marketing or operational expenditure (opex). Telecom service providers, of late, are in the process of hiving off the passive infrastructure assets like towers to separate companies and outsourcing non-core operations, including IT and call centres. And now, the trend is all set for converting capex into opex.


Page 54

CAPEX AND OPEX WORKINGS An operating expense, operating expenditure, operationalexpense, operational expenditure or OPEX is an ongoing cost for running a product, business, or system. Its counterpart, a capital expenditure (CAPEX), is the cost of developing or providing non-consumable parts for the product or system. For example, the purchase of a photocopier is the CAPEX, and the annual paper, toner, power and maintenance cost is the OPEX. For larger systems like businesses, OPEX may also include the cost of workers and facility expenses such as rent and utilities. In business, an operating expense is a day-to-day expense such as sales and administration, or research & development, as opposed to Production, costs, and pricing. In short, this is the money the business spends in order to turn inventory into throughput. Operating expenses also include depreciation of plants and machinery which are used in the production process. On an income statement, "operating expenses" is the sum of a business's operating expenses for a period of time, such as a month or year.In throughput accounting, the cost accounting aspect of Theory of Constraints (TOC), operating expense is the money spent turning inventory into throughput. In TOC, operating expense is limited to costs that vary strictly with the quantity produced, like raw materials and purchased components. Everything else is a fixed cost, including labour unless there is a regular and significant chance that workers will not work a full-time week when they report on its first day. In a real estate context, operating expenses are costs associated with the operation and maintenance of an income producing property. Operating expenses include 

accounting expenses



license fees


Page 55



maintenance and repairs, such as snow removal, trash removal, janitorial service, pest control, and lawn care



advertising



office expenses



supplies



attorney fees and legal fees



utilities, such as telephone



insurance



property management, including a resident manager



property taxes



travel and vehicle expenses Travel expenses are defined as those incurred in the event of travel required for professional purposes. For this purpose, ―travel‖ is defined as the simultaneous absence from the residence and from the regular place of employment. It is prompted by professional or company purposes and likely does not concern the traveller‘s private life, or concerns it only to a small degree. Travel expenses include travel costs and fares, accommodation expenses, and so-called additional expenses for meals. For the self-employed (contractors and freelancers), the expenses constitute business expenses. 

leasing commissions



salary and wages



raw materials


Page 56

Fixed-Mobile Convergence in Emerging Markets - The Impact on Capex and Opex

The convergence of fixed and mobile telecommunications in emerging economies is still in its infancy, and even though next-generation networks already dominate capital expenditures, bona fide fixed-mobile platforms and services are rare. A handful of greenfield service providers and market challengers have chosen all-IP infrastructure for their WiMAX networks and started installing IMS platforms to support business fixed-mobile convergence (FMC) services, such as IP Centrex and VoIP. We believe that the IMS architecture, with its support for both legacy and IP networks, holds solid long-term promise for emerging-market operators. However, migration to an all-IP network in earnest won‘t happen for years, since many emerging-market operators have adopted a wait-and-see strategy to learn from IP pioneers in North America and Western Europe, such as AT&T, BT, KPN and Telekom Austria.

As all-IP networking waits on the sidelines, a growing number of providers are reaping the benefits of scale, running multiservice operations and integrating their fixed and mobile divisions. Most incumbent operators never sold their mobile arms; others increased their ownership in previously spun off operations to 100%. And in China and Russia, fixed-mobile integration has begun, with significant implications for the telecom industry in those markets. Key findings we publish in this report include the following:


Page 57

- Fixed-mobile service bundles are the first step on the road to convergence. Many operators in emerging markets already offer packages of mobile voice and fixedbroadband Internet services to business and home users.

- WiMAX is starting to create waves in most emerging markets as a substitute for fixed networks, despite its slow start. A number of greenfield WiMAX operators have chosen an all-IP architecture, pioneering convergence and influencing overall market dynamics by prompting competitors to expedite investment in nextgeneration networks.

- Case studies in China and Russia show that integration of fixed and mobile operators will have a significant impact on the telecom industry structure and longterm investment plans.

Naturally, integration causes concern among equipment manufacturers: What impact will it have on Capex?

The new report, Fixed-Mobile Convergence in Emerging Markets: The Impact on Capex and Opex, examines the early FMC choices telcos have made in emerging markets and analyzes the impact of these choices on the overall direction of telecom investments and the level of operating expenses.


Page 58

Key questions answered - What are the key drivers of fixed-mobile convergence, and how do they differ between mature and emerging markets? - Who will launch FMC in emerging markets? - What benefits will fixed-mobile convergence offer emerging-market industry players? - Will mergers of fixed and mobile operators result in greater operational efficiency? If so, when and how? - What drives Capex in emerging markets today? And will the strong Capex growth continue?

Target audience

Integrated operators in emerging markets Identify successful strategies for introducing and promoting FMC offerings; draw on the experience of others in planning for changes in Capex and Opex.

Equipment and application providers From the case studies of China and Russia, develop an understanding of how the introduction of FMC in a market will affect Capex and Opex over both the short and long terms, and acquire insight into the challenges facing emerging-market operators in network rollouts and operations. Use these insights to successfully position your equipment and services as well as to enhance your value proposition.


Page 59

Financial services, investment firms Receive a thorough grounding in the salient issues facing fixed-mobile M&A and integration in emerging markets today. Use this analysis to understand who is best positioned to succeed and to assess upcoming opportunities in emerging telecommunications markets.

Mobile operators Understand the drivers behind FMC, why the FMC path is critical in the long run, and when to pursue it. Get a head start in understanding the impact of 3G and broadband deployments on traffic, future Capex and Opex.

Fixed operators Anticipate changes in the telecom industry resulting from fixed-mobile integration and convergence. Position yourself to take advantage of sharing access to fixed infrastructure with mobile network operators.


Page 60

OVERCOMING THE OPEX OBSTACLE TO TELECOM PROFITABILITY IN ASIA Improving operating profits can be accomplished by either growing revenues or cutting costs. Since revenues are flat, at best, among service providers in North America and Europe, their focus has turned to reducing operating costs, after reducing capital spending (capex) drastically in 2001-2. Carriers in Asia-Pacific (AP), however, have kept profit margins high due to solid revenue growth, lower staffing expenses, a smaller capex ―bubble‖, more limited competition, government policies favoring a stable telecom sector, good economic growth, and some smart strategic decisions on the part of carriers. AP carriers reduced capex in 2002-3, but operating costs (excluding depreciation) have not yet been attacked aggressively. As revenue growth slows in the years ahead, carriers in AP must diligently reduce opex burdens in order to keep profit margins high, and continue to attract investors. Technology suppliers – hardware vendors, software firms, systems integrators – have a unique opportunity to help Asian carriers take on this task. While some of the operating cost ―excess‖ is related to heavy customer acquisition costs, advertising/marketing, and inefficient corporate structures, much more is related to operating and maintaining the network. The staff needed for these tasks often cost less, on average, than their peers in North America and Europe, but cutting opex may require smart staffing reductions. Carriers must choose or migrate to products that offer real opex efficiencies. Ideally, this will mean improvements in overall ―life cycle costs‖, including the initial capex costs. They also should find ways to turn up, monitor and repair service more efficiently (possibly through new control planes). Staff layoffs may be avoided or minimized for carriers that can re-task NEW DELHI INSTITUTION OF MANAGEMENT

Page 61

employees to growth markets or new service areas.

This report offers the following data and analysis to its readers:

- Section 1: Executive Summary provides a concise review of the analysis and conclusions of the report. - Section 2: Service Provider Results – 2001-3 presents aggregate measures of 2001-3 performance, for 20 large Asian carriers , plus regional breakdowns and analysis. - Section 3: Opex Segmentation presents two views of how best to segment opex, from the ITU and the US FCC. - Section 4: Leading AP Carriers: examines trends at a few of the best performing service providers in Asia-Pacific. - Section 5: Opex Reduction Strategies addresses some of the common methods of reducing opex and their effectiveness. ―Overcoming the Opex Obstacle to Telecom Profitability in Asia-Pacific‖ addresses a central issue driving financial results and strategic moves at Asia‘s telecom service providers. This report arms Asian carriers, their partners, and their suppliers with the insight needed to address opex intelligently as top-line growth slows in the region.


Page 62


Page 63

CONCLUSION

Carrier capital expenditure (Capex) is undergoing a dramatic transformation under the combined effect of factors ranging from demand for additional capacity to convergence and network evolution towards next-generation networks (NGNs). The analysis of operator capital spending and the assessment of the business opportunity for telecoms OEMs has traditionally been confined to carrier spending on network infrastructure. As the size and allocation of operator Capex shifts dramatically in response to industry dynamics, the Opex line item in operator‘s income statements has become a holy grail for vendors.

Today, mobile operators, for instance, spend three times more on Opex than Capex, or a total of US$400–500bn annually. Not all of that Opex spending is available to equipment suppliers and vendors, however. Although many operators have outsourced business functions such as IT, call centers, and other areas, Network Services is the focus of most of the outsourcing that pertains to the equipment supplier and vendor market. Today, Network Services is an US$80bn spending area; we believe that US$30–35bn of this is directly accessible by the major telecommunications vendors, like Ericsson, Alcatel-Lucent, Nokia-Siemens, Motorola, and their peers.

This 25-page study helps to quantify operator network capital and operating investments worldwide. It examines how network-related spending among different functions is allocated by operator type, mobile, wireline incumbent and wireline challenger. Conducted online, this survey of roughly 100 operator network executives offers critical insight into the priorities and needs fueling NEW DELHI INSTITUTION OF MANAGEMENT

Page 64

operator decision making and helps vendors stay competitive by diversifying services offerings and appealing to operator sensibilities.

Sample Survey Questions We asked 25 questions, including the following: - What % of Opex is allocated to Network Opex? How will Network Opex:Opex ratio change over the next three years? - What % of network Opex is allocated to the operations and maintenance of the core network? - What % of network Opex is allocated to maintenance services? How will maintenance Opex: network Opex change over the next three years? - What % of maintenance expenditures is allocated to field maintenance, remote support, software updates, repair and replacement, and the management of spare parts? - What % of network Opex is allocated to network optimization? How will it change over the next three years? Who conducts network optimization for your network? Study results and analysis include: - Raw data in Excel format - 27 slide data presentation

Benefits The Demystifying Opex & Capex Budgets study provides quantitative intelligence on spending patterns of wireline and mobile operators, offering insight into the overall market potential. The study supports business planning activities of vendors and equipment manufacturers with direct insight from their operator NEW DELHI INSTITUTION OF MANAGEMENT

Page 65

customers. It draws upon hard facts derived from the operator survey to provide the most accurate opportunity assessment.

This program assists vendors worldwide to: - Quantify demand and operator spending by network area - Identify the best opportunities to align capabilities and offers - Develop more accurate forecasts to deploy resources and go-to-market execution - Align service positioning and marketing with operators requirements


Page 66

BIBLIOGRAPHY

1.www.smcel.com 2.www.bsmcindia.com 3.www.investopedia.com 4.Company journals 5.Telecom journals


Page 67

Project on Capex and Opex

Recommend Documents