Friday, April 09, 2010
Those Stranded Assets Sure Do Look Nice
This would be better if I was in a classroom but bear with me. Let’s see a show of hands if you’ve ever over-provisioned when new technology’s been introduced into your network. Now, don’t be embarrassed because your colleague just noticed that you raised your hand for seemingly no reason. This scenario is inevitable really.
Market projections are bound to be off to some degree. Surpluses and shortages throughout the network are a fact of life. Shortages are easy to spot. There’s usually a service delivery issue on the other end. But surpluses, those are a little trickier.
Surplus capacity typically gets mounted in a rack, wired to a distribution frame, and waits to be activated. It’s the job of Operations personnel to get it installed and running. But, without a network interrogation system in place, or a remarkably accurate provisioning system, it’s rare that anyone will ever go back to see whether the equipment has been deployed optimally, thereby exposing excess capacity.
Equipment that is deployed but never carries revenue-generating traffic is what we refer to as a ‘stranded asset.’ Even equipment that is carrying a partial load can be classified as a stranded asset. For example, if there are 4 DS1 cards in an Ethernet Switch, and each is only using 6 DS1 ports, they could be combined into a single card, making the other 3 DS1 cards available for reuse elsewhere in the network.
In its own way, over-provisioning can appear to be a perfectly rational exercise. After all, what network deployment team wants to be caught unprepared? But as I mentioned earlier, when customer take-rates don’t meet projections, those assets can become forgotten pretty quickly.
Not only are stranded assets incapable of generating revenue, they are often still covered by a maintenance contract, which means a carrier is paying a vendor to ensure SLAs are met – even though there may be no traffic on the device. Now, that’s a double whammy!
The obvious culprit here is a lack of visibility. You can’t put to better use what you can’t see. That’s why visibility is the core tenant of reuse optimization.
A reuse strategy built around establishing comprehensive visibility into a carrier’s entire ecosystem creates opportunities to get more use – and therefore more revenue – out of each network asset. Surpluses are inevitable but in a difficult economic environment, you’ve got to get the maximum return on the capital you’re putting forth to ensure service delivery levels.
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Friday, April 02, 2010
The $200 Billion Opportunity
Ericsson’s CEO Hans Vestberg was in the U.S. last week and spoke with a number of news outlets. If you didn’t see any of the coverage, definitely required reading if you want to begin to understand where the next significant opportunity lies for equipment manufacturers.
What were the key points? For starters, the market for Telecom services, those which help carriers deploy and maintain their network infrastructure, is a $200 billion market. And second, that two-thirds of the global market is still controlled by the carriers themselves.
This is a story – and opportunity – about growth. Through recent M&A and the rise of new players the competition in the OEM space is white hot, which means that traditional revenue streams may not be as abundant as they once were.
By grabbing a slice of the services pie, OEMs are bringing an important value-added service to the table and creating some much needed ‘stickiness’ with their clients. In a competitive marketplace, the more ingrained you are in your client’s business the harder it becomes for the client to think about conducting business with someone else.
Are other OEMs on to this opportunity? You bet. In their 2009 annual report, for example, Huawei notes that they had been awarded more than 100 managed services contracts by year’s end.
So, the cat’s out of the bag when it comes to the opportunity surrounding multi-vendor service agreements. Biggest question I have for OEMs is ‘now that you’re responsible for servicing other company’s gear, how are you going to maximize the value – and use – of those assets to your client’s satisfaction?’
Posted by Todd Adelman •
Category:
Multi-Vendor Services •
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Sunday, March 28, 2010
Reuse and Capex-to-Revenue Ratios
Sunday mornings are great for catching up on email, and pancakes. Spinning through last week’s headlines I see that China Unicom – among the top 10 largest mobile operators in the world – reported a significant drop in 2009 net profit. All things equal, the company’s bottom line sank a staggering 73% despite moderate revenue growth. In contrast to China Mobile and China Telecom, who both grew profits last year, the company blamed weaknesses in its fixed-line business (what’s new), the cost of rolling out its new 3G network, and the drag of associated Q4 depreciation and amortization charges.
“As revenue grows, we expect things will improve,” the company's CFO told reporters at the press conference. Fair enough. They reportedly aim to add more than 1 million new 3G subscribers a month, maintain current ARPU, and lower capital expenditures by at least 35% in 2010.
According to analyst firm Infonetics, carriers these days strive to maintain capex-to-revenue ratios around 15 percent, and historical data shows this rate of spending is adequate to expand networks while enjoying moderate revenue growth. The exception to this rule, they add, is Asia Pacific where capital has exceeded 20 percent. This week's news could be the tipping point.
Not so handy at ¥ conversion before my second cup of coffee, and doing what I do here at Trade Wings, began to consider the potential impact of reuse strategies on capex-to-revenue ratios for carriers in my own backyard. Having recently read AT&T and Verizon's last couple of annual reports, was able to derive ratios in line with – or better than – the Infonetics estimate.
For one of these carriers, the cost of network inventories for Telecom operations – factored on average original equipment cost – shrank consistently over the past 3 years as revenues grew by 4% per year or more. (As we know, these two highly competitive US carriers spent the last few years upgrading their networks, rolling out great new stuff like the iPhone and FiOS.) Enabling just-in-time inventories and the reuse of equipment not yet at the end of its useful life, inventory carrying costs, expedites and costly maintenance contracts can be effectively lowered. Further reducing spares and other network inventories by half, for example, it’s conceivable that a sound reuse strategy could not only add .01 to the EPS, but probably even get someone promoted...a compelling thought as we head back into the work week.
Posted by Lisa Clark •
Category:
Reuse Best Practices •
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Friday, March 19, 2010
Looking to the Future and Living in the Present
CTIA kicks off on Monday in Las Vegas. Judging by the news reports this week, looks like we’re in for a lot of announcements related to handsets – e.g. smartphones – and 4G technology. As the industry races toward 4G (and whatever lies beyond) the reality is that for the foreseeable future we’re going to see 4G, 3G and 2G all co-existing within the same ecosystem. The disparity in the sophistication of network infrastructure around the world is simply that great.
There’s no question that the prospect of having three generations of network technology operating at the same time is going to create headaches for carriers and operators alike, but perhaps the biggest impact will be felt by the equipment manufacturers. Accurately planning and provisioning network assets is difficult enough but when you add multi-vendor service contacts into the mix the pressure to maintain QoS rises exponentially.
The explosive growth we’re seeing in developing markets represents a tremendous opportunity for equipment manufacturers to drive revenue growth. But making the most of those new opportunities – and scaling for the future – requires implementing a more proactive approach to managing product data and physical network assets today.
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Tuesday, March 09, 2010
The Mobile Data Deluge
Amidst a flurry of announcements from AT&T detailing their plans to further increase wireless network capacity, one statistic really stands out. Over the course of the last 3 years alone, wireless data traffic on AT&T’s network has increased more than 5000%. The driver behind this explosion of traffic is - of course - the smartphone and all of those handy applications we love to use so much and cannot live without.
Now combine that information with the results of a recent Cisco survey, which predicts that by 2014 the average mobile broadband connection will generate the equivalent of 3,500 MP3 music files per month, and it doesn’t take long to figure out what keeps carriers awake a night. Today, incidentally, the average mobile connection generates the equivalent of about 650 MP3 music files a month. If you think network infrastructure is churning at a high rate today, sit tight – you haven’t seen anything yet.
The mobile data explosion not only puts pressure on carriers from the perspective of service delivery requirements, but raises the stakes when it comes to recouping value from infrastructure investments. When the pace of change is this fast, it’s next to impossible for assets to fully depreciate in value. So, if a carrier doesn’t have visibility into those assets, and therefore the ability to either put them to use elsewhere, they are simply leaving money on the table. A proactive approach to ensuring consolidated visibility, picking up where OSS systems leave off, can fix that.
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