As I listen daily to the challenges of telecom executives around the globe, I can’t help but wonder who in the organization ultimately owns the responsibility or “problem” of driving the sort of measurable change that can reduce waste and save millions?
For starters, there are the sustainability teams, yet many of these continue to function in silos apart from core operating teams making change difficult, if not impossible. There’s finance, but the natural predisposition is to move assets out of the business as they come out of service, regardless of their quality, condition or ability to service internal needs. Then there are the supply chain/procurement people who work so diligently to source lowest cost solutions, yet have no mechanism for sourcing within their own excess before heading out to the open market and repair partners for the best price.
By seeking “change” I don’t mean disruptive processes, systems or restructuring, I’m merely talking about a new way of thinking – the thought that you could employ your own excess and decommissioned inventories for the purpose of instantly fulfilling internal equipment demands, if only you had an easy way to load it, see it and “socialize” it across the organization. Automating the relationship between supply and demand lists through services like Re:, for example, supply teams can easily refactor the most critical material back into the service chain as replacements and spares (instead of buying new), finance can resell marketable items no longer needed at greater than scrap value, and the sustainability folks can rest assured that the company is doing everything possible to reduce waste.
So whose job is it? You could say everybody, but in the end it’s the executive who wants to save millions, reduce risk and achieve results without disrupting the business. Could that be you?
Attempts to put network assets to highest and best use can take on many different shapes and forms. Fresh from a couple of overseas trips to meet with telecom executives, Mark Portu shares his perspective on a few of the more common approaches, and why they often come up short in delivering long-term ROI.
Looks as though hurricane season is in full swing. Hurricane Earl is bearing down on the Eastern U.S. seaboard and weather prognosticators are predicting no fewer than 14 named storms this season. While hurricanes may not be a common occurrence for us here in the New England, they certainly are for other regions as much as severe snow and ice storms can bring us to our knees in winter. So, what does this all have to do with reuse? Well, a lot actually.
Severe weather and natural disasters (i.e. earthquakes, volcano eruptions) can have a tremendous impact on service providers’ network operations. And communication, particularly in the hours and days following an event, is absolutely critical for first responders, relief efforts and families trying to connect with loved ones.
Restoring service quickly could very well hinge on how fast a carrier or OEM (if they’re operating a network as part of a managed services deal) is able to source replacement parts. With little, or no, visibility into equipment inventories it’s going to take longer to locate, transport and install assets despite the best intentions of existing disaster response and recovery plans.
While reuse strategies can’t predict the weather, this type of an approach can help you plan better for events like hurricane season and winter storms. By establishing greater visibility into stocks, you’ll not only know what excess equipment you have (and what you don’t) and where it’s located, but more importantly you’ll be able to incorporate severe weather patterns into your long-term planning and procurement processes. As a result, you’ll be better prepared when the time comes to respond with speed and efficiency.
I like value propositions. They both engage and enlighten. They help determine where we spend our money and our time. The key is separating the vague and mediocre propositions from the value props that are actually capable of delivering greater efficiency.. increased revenue.. lower costs..better client service. More often than not, companies fall short when it comes to transferring value statements into something truly meaningful to a customer – the language of currency. Don’t just tell me I’m going to save money or make money. Show me.
Now, I know what you’re thinking. ‘So tell us Mark, what’s the value of reuse – in black and white.’ Well, it’s startling. Through our knowledge of how telecom supply chains work we’ve created a financial ROI model that does just that…and has been proven out at some of the world’s largest organizations. The model is powered by variables set by each client, including the volume of excess and decommissioned equipment you plan to reuse, resell or recycle over a period of time, across X networks, etc. We recently ran the model for executives at a large global carrier and the value to the client over the course five years was more than €23 million net. Pretty black and white, I’d say. That is a value prop. That is the measure of more.
If you’d like to learn more about our model and what your potential savings could be, drop us a note at info@tradewings.com.
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.
Can there be anything more frustrating than running around the house in the morning looking for your car keys only to find them sitting on the kitchen table – exactly where you left them the night before? That’s a direct byproduct of discursive and distracted thinking. In the early stages of client engagements we often see similar thought patterns plaguing carrier and OEM equipment repair strategies. Repairs are typically viewed as a necessary component of the service chain but other obvious economic and environmental repair-related opportunities constantly escape the guise of most managers. Why? Lack of visibility into their ecosystem and how it directly relates to their repair strategy. It’s that simple.
But change is on the horizon. At long last, we’re beginning to see the ‘spare v. repair’ conversation gaining traction among carriers and equipment manufacturers as the need to inject fresh ideas into their supply chain becomes too much to ignore. When we talk about repair strategies, ‘keys’ equate to visibility into the equipment install base, the ecosystem spares pool, planned upgrades and de-installs, and new managed service agreements. That may all sound complicated but once a dialog has been started about capturing asset data as opposed to physical assets, the ‘keys’ emerge pretty quickly. And one of the great benefits of visibility is that it reveals assets an organization already owns.
From a carrier or OEM perspective, finding assets you already own sitting idly should be like finding the pot of gold at the end of the rainbow. Why deal with the costs and headaches of repairing equipment when a spare is ready to be put back into service immediately?Just as assets move from manufacturing and into the service and reverse logistics chains, the strategy for optimizing assets must also evolve. If service managers are to get the maximum value from reverse logistics flows, a different viewpoint is essential. Asset visibility is the single most important factor in reducing service managers’ repair costs. And that’s the power of a reuse strategy.
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.
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.
