The reality is that controlling costs is the number one priority for telcos. As much as discussions about delivering value are interesting, even fun, they will always take second place to cost control and asset management. A major part of this is that investment is constrained and anything that can sensibly be run out of opex rather than capex will be.
The goal must be to maximize the usage of assets that are already in place while ensuring the revenue from new assets comes on stream as quickly as possible.
However, the current climate produces some stark facts for CFOs. The cost of capital for network assets is typically nine percent. The return on investment (ROI) is three percent less than that. Revenues are shrinking and depending on the type of network, anywhere between 5 to 15 percent of a telcos’ assets are stranded.
These facts are made worse by the culture within many large companies – not just telcos. Budgets are fought for as they represent power within an organization. An increased budget means increased power, a cut means the opposite. Of course, items in budgets will deliver business benefits and competitive edge, but companies and budgets are run by human beings.
This then translates into buying assets but in many organizations the accountability for the asset disappears once it is in the ground, or in the data centre. There is a serious lack of governance and an equally serious lack of communication. For instance, the CFO of a Tier 1 European operator recently said that there is no governance over outsourced network vendors. He went on to say that he lacks visibility into current resource availability and consumption. Outsourced vendors are responsible for network capex as part of their fixed budget for operations. They are incentivised to run the network as ‘lean’ as possible – on the verge of poor quality – to conserve capex and increase contract margin. The CFO and CTO currently does not have any visibility into capacity utilization rates, and are unable to judge network exhaustion as a result of falling QoS.
According to a recent survey by Longitude Research, 84 percent of the CFOs surveyed mentioned that co-operation between the CFO and CIO is a must and has increased over the past 3 years. Most telco finance leaders recognize that technology is a critical tool to enable them to fulfill their role. As a result, CFOs have become much more closely involved in network investment decisions and in managing network assets and infrastructure.
While the CFO struggles to manage the financial efficiency of the assets, the CTO has his own problems. Capacity on his network is forcing him into a fire fighting position, day in and day out. New investments might represent 20 to 30 percent of the budget, but realistically they take up the majority of management time. Many of these investments are reactive, ‘me too’ investments.
All this would be bad enough – and possibly explains why the outsourcing of almost all of a telco’s assets is now up for discussion – but there is also the communications problem. In the same way that Billing and Marketing have, at best, an uneasy alliance, the CFO and the CTO do not talk the same language. The CFO looks at assets such as network elements as sources of money. The CTO looks at the same assets as solutions to an overcrowded or inefficient network. As one consultant put it, “the CTO does not want to share information with anyone who cannot add value to what he is trying to do.” And because he is fire fighting all day, he simply does not have the time to step back and take a longer, strategic view. As some observers might say, ‘he is too busy trying to produce more and more arrows, while the opposition is loading a cannon.’ His only comfort is that opposition’s CTO is almost certainly in the same position.
What then is the solution to this situation? Part two is tomorrow.