The European telecoms industry is at risk of becoming a low profit business. The new study "Cost Reduction in the Telecom Industry" from the management consultancy Arthur D. Little warns that cost management must become an even stronger focus for wireless and wireline operators.
According to the study, EBITDA margins are at risk of dropping from the current figure of 35-40% to 15% within five years due to a proliferation of voice and data bundles and the increasing costs of promotional discounts. Significant investment requirements increase the urgency to save costs further: mobile operators need to invest to cope with mobile data traffic explosion via LTE networks or other means; fixed operators need to further invest into VDSL and FTTB/FTTH networks.
The obvious areas for saving measures have already been targeted by operators, so the challenge now is to identify hidden savings potential through a stringent OPEX/CAPEX analysis.
Arthur D. Little has identified a number of saving measures, including:
- Operational saving measures (low benefit and low effort) which can be realized within the day-to-day operation and render saving benefits in the region of 10% per annum. Examples are the changing of maintenance service levels, backhauling optimization or introduction of QoS concepts for bandwidth management.
- Strategic saving measures (high benefit and high effort), which can provide substantial savings benefits, but are likely to require changes to the business model. Examples are consolidation of the wireless and wireline sides of an operator or entering intensive LTE/4G or FTTx network co-operations to save investments and subsequent network operation costs. Integrated operators have the further option of limiting mobile network investments by offloading mobile data traffic via WiFi or via femtocell technology.
“Ongoing pressure on revenues, EBITDA and free-cash-flow has triggered an urgent need to save on investment budgets and operating costs beyond the obvious areas. This requires the ability to “think outside of the box”, a process Arthur D. Little has managed with many operators,” commented Klaus von den Hoff, Global Head of Arthur D. Little’s Telecommunication, Information, Media and Electronics (TIME) Practice.
Cost Reduction in the Telecoms Industry is now available for download at www.adl.com/Cost_Reduction
Sue Glanville/Jo Gwaspari