France Telecom’s new CEO, Stephane Richard, was out in front of the press earlier this week detailing the carrier’s five-year strategic growth plan. It’s a big, bold and ambitious plan that by 2015 could see Orange the service provider of choice for 300 million people. By my calculation, that amounts to roughly 22% of the world’s population. How does France Telecom plan to go from 192 million to 300 million customers in five years? Upgrade existing networks and capitalize on the explosive growth in markets such as the Middle East and Africa. Making the most of new opportunities in emerging markets will almost certainly involve a few strategic acquisitions, which are en vogue across the industry (right now, the industry’s on pace to have its busiest year of M&A since 2005 when transactions topped $408 billion).
Any time there’s an acquisition in this industry, the price tag, expected revenue and customer growth will almost certainly grab all of the headlines. What you won’t hear much about though is how these companies plan to manage all of their newly acquired network assets for maximum profit. A seemingly minor detail to a large transaction? That’s a dangerous omission for firms looking to assuage investors of a multi-billion dollar deal. When you get right down to it, the financial models created to support an acquisition are predicated on metrics such as operational efficiency, integration of network infrastructure, and service delivery levels. If a company can’t answer fundamental questions about the location, condition, or value of those millions of network assets it just acquired, discharging those models will become daunting at best.
From my perspective, this excerpt from a recent (June 16) Reuters article offers a fascinating glimpse into Wall Street’s mindset regarding the impact of current network investments on long-term market cap:
"Investors could be surprised by capex plans over the coming years and for a sector still generally mistrusted to allocate capital optimally, this is likely to lead to volatility in the shares," said James Gautrey, telecommunications analyst at Schroders. "Until I see more concrete evidence that the companies will generate a decent return from their fiber/mobile investments, there are better opportunities elsewhere.”
We’ve all heard about the explosion of mobile data traffic and subsequent requirement for network expansion (Apple sold another 1.7 million iPhone’s over the weekend). Which is precisely why Wall Street’s radar is so attuned to capex ratios. Challenging Wall Street perceptions such as Mr. Gautrey’s will require carriers to find new and better ways to optimize equipment planning, sourcing and disposition, and extend the overall value of their network investments. At the end of the day, far too many assets are still left in the dust before they’ve even come close to reaching their full revenue potential.
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Ok, so maybe this question doesn’t elicit the same type of dread a parent may feel when asked by a child. As a parent at least you can buy some time with wild tales of storks. Unfortunately, Telecom executives can’t pull such a response out of their back pocket when it comes to getting their arms around the origin of their network equipment forecasts.
The problem – of course – is that Operations and Finance usually behave like politicians representing different sides of the isle. Both working for the common good but maintaining contrasting priorities and agendas. As one can imagine, bi-partisanship can be just as rare as it is in Washington.
Among the victims of this organizational schism is inventory/stock forecasting. Procurement wants to know when stock levels and spare capacity is running low. But, too often, they only learn of the shortage when it’s critical and they have to expedite the replacement – paying top dollar because they’re desperate.
Operations, on the other hand, is overworked and understaffed in their race to roll out new services and maintain existing infrastructure. After the initial product rollout, they are not accountable to Procurement. Consequently, they aren’t exactly rushing to provide finance with stock levels.
At most carriers, the standard reporting structure has Operations reporting up through the VP Ops/COO, while Procurement reports to the VP Finance/CFO. So the Operations and Procurement staff support each other, but don’t necessarily have accountability to one another. And therein lies the disconnect.
Can the gap by bridged? Call me an optimist if you like but I believe it can. Solving the situation doesn’t require shaking up the organizational chart, just a better lens into inventory levels. Better visibility will empower operations and procurement professionals to make more strategic business decisions regarding the acquisition and disposition of assets. Decisions that at the end of the day will generate significant value for the organization in the form of reduced CapEx, new revenue streams and networks running at optimal efficiency.
We’ve been making the rounds in the industry analyst community, introducing many of the top firms to Trade Wings and our approach to extending the lifecycle of high-value assets. Reuse strategies may not yet be the focal point of published research but the response has been no less enthusiastic. Our perspective on the market and the value we’re able to bring to different client situations continues to be really well received.
One of the most popular discussion points to date has been sustainability. There’s a lot of interest in looking at the issue beyond efforts to simply reduce power consumption. Yesterday, for example, we had a great call with Gartner’s Bettina Tratz-Ryan and talked at length about the need for a more end-to-end approach to sustainability and ways in which companies can bridge the gap between the desire to be greener and the pressure to achieve financial metrics. As the notion of sustainable business practices becomes more entrenched within telecom companies, how well these two areas are addressed will go a long way toward determining the long-term impact of innovative programs and initiatives. To learn more about our take on sustainability and ecology management within the industry, be sure to check out this report.
