The document discusses strategies for reducing operational expenditures (OPEX) in the telecom industry in Pakistan. It outlines several approaches such as carefully managing product portfolios, improving marketing efficiency, focusing on productivity, effective asset management, pre-paying site leases, multi-dimensional planning, controlling labor and non-headcount costs, tower sharing, compact base station technology, and using solar power. Adopting these OPEX reduction strategies could help address financial challenges currently facing the Pakistan telecom sector and enable further investment and growth.

1. OPEX Reduction in
Telecom Industry
BY
Ali Shahbazi Khojasteh
2016/11/27

2. Introduction
 The ability to “communicate” has enabled humans to make a
paradigm shift from tribal based communities to information
based societies.
 While comparing the novel
means of communications,
telecommunications
would probably stand
as the ‘pioneer technology’,
giving birth to variety of
communication means like
PSTN, Mobile Telephony,
Broadband networks, the
Internet and so on.
 The 16th largest economy of Asia and 2nd largest economy of
South Asia; Pakistan.

3. The Plight of the Pakistan
Telecom Industry
 According to the Economic Survey of Pakistan 2011-
12, total investments in the telecom sector stood
around $495.8 million in fiscal 2010-11, as compared
to $1,137.5 million in fiscal 2009-10. These statistics
show that fiscal 2010-11, total investments in the
telecom sector fell by 56.4%.
 But Still total revenues generated by the telecom
sector during fiscal 2010-11 were around Rs363
billion: an increase of 5.4% as compared to revenue
generated in fiscal 2009-10, which was around Rs344
billion.

4. FDI Chart

5. Contribution to Exchequer

6. OPEX Reduction Strategies….
 Manage the product Portfolio Carefully
 Effective and efficient marketing strategies
 Focus on productivity/efficiency and policies
 Effective Asset management
 Site Lease Pre-payments
 Multi-dimensional Planning

7. OPEX Reduction Strategies….
 Manage both labor and non-headcount costs
 Keeping costs as variable as possible
 Tower Sharing (Indian Industry research)
 Compact BTS Technology
 Solar Powered BTS

8. Manage the product
Portfolio Carefully
 Few industry executives would disagree
that product proliferation is the prime
enemy of cost management.
 In a recent survey, 4 of 10 executives said
that their company’s product portfolio
grew by more than 50% in the previous
five years.
 For the telecom industry, this growth in
products creates problems across
functional areas – sales, marketing,
customer care and billing – where the
number of products is a key driver for
complexity, and subsequently, cost.

9. Portfolio Management
 One of them is that the companies have difficulty phasing out older
products.
 The difficulty stems
from a fear of churn,
 lack of incentives to
eliminate products
 lack of pruning culture
among the telecom
industry in general.
 In addition, they
sometimes launch products without a true understanding of
customer needs. (Using market research companies before product
launch can be an area of interest here)

10. Portfolio Management

11. Effective and efficient
marketing strategies
 Tough economic times lead to increased scrutiny and cuts to marketing
spend. Although research suggests that brands should maintain or
increase marketing spend during recessions.
 The first task is to understand the
effectiveness and efficiency of
marketing spend across all channels,
products, geographies, marketing
objectives.
 The impact of spend can be quantified
through careful analytic modeling
using available data, such as spend
across various levers, and relevant
outcome metrics such as sales, new
customers added, share of wallet, and brand equity.
 Profit improvements of at least 5% through a combination of tactics:
squeezing more sales out of the same overall spend by reallocating
spend, cutting spend, and/or increasing spend for certain levers.

12. Focus on
productivity/efficiency and
policies
 Any good cost reduction program cannot ignore the tried and true
productivity levers, and a good starting point is the demand
side.
 For example, rather than
trying to cut the cost
of a customer service call,
managers should do tier best
to prevent the call in the
first place.
 A case in point is the Ufone
call center. They have a daily
call load of around 250,000 of
which they are only able to answer around 175,000.
 Reducing the time of the call is a fine strategy. But why not
eliminate the call in the first place?

13. Productivity/Efficiency
 Preventing the call might be as easy as simplifying or streamlining
the instructions that customers
receive when they purchase
their phone SIMS.
 Most successful telecoms
automate calls where it
makes sense. The automation
must match the customer
service demands. Otherwise
the company risks frustrating
customers and in the end
driving up the call volume.
 For instance some complex
technical questions are difficult to answer via interactive voice
responses, but can be easily answered in videos that can be made
available on the handset or the internet.

14. Effective Asset Monitoring
 Cell site is one of the most expensive physical assets of a mobile
operator considering
the CAPEX that goes
in every site.
 Around 5% of sites needs
re-work and another
5% would need special
maintenance due to
poor implementation.
 If an operator have an
effective asset
monitoring platform
such as ADaM (Amanzi
Data Management) then it is possible to achieve around 10%
savings in OPEX.

15. Site Lease pre-payments
 Site leases are the second highest cost for any network operator
next to payroll.
 Site leases don't reduce
over time, they actually
increase based on factors
such as inflation, raising
value of property, etc.
The challenge is how do
you reduce this cost?
 The answer is simpler than
you think it’s pre-payment
of site leases.
 Site lease pre-payment can reduce the cost of leasing sites from 20%
to 40% considering industry standard site lease escalators.

16. Multi-dimensional planning
 Good planning is always essential to the success of any
operations.
 It is more a strategy for
revenue assurance than OPEX
reduction, how big is its
effect to the overall picture?
 Consider a network with
5 million subscribers having
a monthly ARPU Rs 300 of which
has a churn rate of 5%, now
with an optimized network the
churn rate can be reduced to
2.5% thus ensuring annual
revenue of Rs 37.5 million.

17. Manage both labor and non-
headcount costs
 A headcount reduction can be one of the most painful events in
the life of an organization.
 Most Companies ignore the fact that the bulk of expenses in
some departments – marketing, for example – is non-labor in
nature.
 Advertising production is an area where the costs can be very
high.
 A rule of thumb here for telecom industry is that media buying
costs should be about 75% of advertising costs. If you are too
far off this bench mark then you should focus on ad production
cut and not too much on media buying.

18. Manage both labor and non-
headcount costs There are other areas, too, where non-headcount spend should be
closely watched. Like for instance, dealer commission and handset
subsidies.
 An effective way of reducing handset subsidies is to join a
purchasing consortium and saving up to 10%.

19. Manage both labor and non-
headcount costs

20. Keeping costs as variable as
possible
 Outsourcing is one way to achieve
variability, though it can be tricky to
execute. Moreover if it is not managed
properly, outsourcing can result in
costly re-work that overshadows
savings.
 Areas where outsourcing has
traditionally been effective include
information technology, customer
care, and billing.

21. Keeping costs as variable as
possible

22. Tower Sharing (Indian
Industry research)
 The Indian wireless industry, with a 32%
penetration, is only second after China in terms of
sub-scribers at 325 million.
 Most of this growth has come from
urban India Where penetration is
close to 60%, but in rural market
it’s less then 15%.And it’s here that the industry
sees the largest opportunity for growth.
 The challenges, though, for Indian telecom
operators is the average per user (ARPU), which, at
less than $7,
is one of the lowest I the world.
This figure drops significantly when one moves into
rural and semi-urban areas, and is estimated to be
as$2.

23. Tower Sharing (Indian
Industry research) According to an E&Y report titled 'Wireless Infrastructure Sharing in
India', "CAPEX (capital expenditure) savings across the industry are
expected to range between $7-12 billion over the next four years, till
2012
 Ongoing OPEX (operational expenditure) savings are estimated at $1
billion a year.

24. Tower Sharing (Indian
Industry research)

25. Tower Sharing (Indian
Industry research)
 The growth in the domestic telecom industry has
largely been concentrated in the Metros and Class A
circles in the past decade, with coverage reaching
around 90% and 35%, respectively.
 However, coverage in the Class B and Class C cities is
still low at 15-25%.
 Moreover, within these circles growth has largely been
concentrated in the urban areas while penetration in
the rural areas remains lower. Thus future growth is
likely to come largely from Class B and C circles and
rural areas.

26. City wise Mobile Panatration

27. Compact BTS Technology
 Compact base transceiver stations (BTSs) are the
latest base station design to be introduced in
the market. They bring WiMAX operators
flexibility and cost savings while retaining the
performance of macro BTSs.
 Compact BTSs can be installed in single-sector
or multiple-sector configurations as alternatives
to distributed BTSs with remote radio heads
(RRHs).
 Unlike traditional macro BTSs, compact BTSs do
not require ground shelters and cooling
equipment. Yet they support high-performance
features such as multiple antennas per sector
with multiple input, multiple output (MIMO),
and beam forming.
 With a smaller footprint, lighter weight and
lower power consumption, compact BTSs cost
less to install and to operate. Our analysis shows
that operators can save 38% to 47% in CAPEX
and OPEX over a five-year period.

28. Compact BTS Configurations

29. Compact BTS CAPEX
Comparison

30. CAPEX Year 1

31. OPEX Year 1

32. Solar Powered BTS
 The IFSP solutions offer
up to 60 percent or more
in operating expenditure
related power savings.
 Alternative power solutions
are not commonly used in
telecommunications systems today, but are being actively
evaluated for difficult locations and limited deployments have
been made.

33. Target Configuration

34. World Solar Radiation Map

35. BTS Power
Consumption
 On average, a fully loaded GS/3G BTS using
traditional PAs is estimated to need 3 kW of
power
at peak draw.
 Hence our targeted configuration will be for the
worst case scenario in terms of energy
consumption i.e. the 3.0kW peak power draw
BTS.
 Studies have also shown that
this BTS will consume an average of
12,500kWh of electricity in a year.

36. The Solution
 An IFSP designed solar-powered
system, which consists of solar panel
modules, deep cycle battery arrays and
charger controller.
 The battery array will have a backup
capability of 2 days, while the solar
modules are designed in such a way
that it only needs 4-5 hours of
sunlight to recharge the batteries.

37. Economic Payback
 The cost estimate for the fully functional IFSP designed solar
powered system, which consists of solar panel modules,
deep cycle battery
arrays and charger
controller for a fully
loaded 3kW BTS is
$30,550.
 In comparison, a fully
loaded BTS is typical
powered by twin 15
kilo volt ampere (KVA)
or more diesel
generators which
consumes over 2.5
litres of diesel every hour up to 20 hours daily will cost about
$12,026.00 in diesel fuel per year(assume 0.66cents/litre)

38. Comparative price on 10
year basis for 10,000 BTS
 A typical telecom operator with
about 10,000 BTS would have
spent well over $1.2 billion on
diesel fuel and generator within a
ten year period.
 while the solar option is estimated
to cost $306.50 million over the
same period.

39. Global Telecom Deals

40. Etisalat outlines major CAPEX
and OPEX reduction
initiatives Already undertaken a number of major CAPEX and
OPEX reduction initiatives such as co-location and
hybrid power and was actively considering others like
transmission sharing and sales and leaseback of
towers.
 Identified tower sale and leaseback as an excellent
way of releasing capital to invest in core activities such
as customer acquisition, management and retention as
well as increasing the number of significant tower
deals by African tower companies.

41. Recommendations:
Compelling case for 3G
 Due to an increase in revenue generation this year, the
telecom sector contributes Rs117 billion in taxes to the
national exchequer – the highest ever.
 Pakistan is among the few countries which have yet to adopt
the 3G/4G technology. Even countries like Nepal, Sri Lanka
and India have already adopted these technologies.
 Experts in the telecom sector believe that increasing
broadband penetration leads to economic gains: a 10%
increase in broadband penetration contributes by a
percentage in GDP growth, while around 80 new jobs are
created for every 1,000 new broadband connections.
 Pakistan must now join the 159 countries that have already
adopted 3G/4G technologies