This document provides a framework and methodology for cost modelling in the telecom industry. It involves 3 main steps: 1) defining product matrices to categorize all billable products and platforms, 2) collecting relevant data on revenue, subscribers, usage, and costs to allocate to products and platforms, and 3) allocating costs based on factors like subscribers, usage, and network utilization to determine unit and total costs for each product. The goal is to develop a comprehensive model to understand the true costs of all products and services to inform pricing strategies.

1. Telecom Cost Modelling
PITA Fiji - 2019
CFO Conference Session
Parcus Group
Igor Glavanic
Tobias Skog

2. Parcus Group Intro
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TELECOM COMMERCIAL
DOMAIN SERVICES

3. Financial Analysis Framework

4. Cost Modelling - Methodology
1
Framework
2 Data Collection
3
Allocation

5. Step 1A: Product
Matrix
Data gathering note: must
gather all the billable
product entities in the
business and consolidate to
an agreed view
Code PRODUCT FINAL LIST
A1 Voice 2G Pre Paid
A2 Voice 2G Post Paid
A3 Data 2G Pre Paid
A4 Data 2G Post Paid
A5 SMS (local and intl.)
A6 Roaming Voice Inbound
A7 Roaming Voice Outbound
A8 Interconnect (Mobile)
A9 Roaming Data
B1 Residential Domestic Fixed Voice (Post Paid)
B2 Residential International (Post Paid) * via C&W
B3 Business & Gov Domestic Fixed Voice (Post Paid)
B4 Business & Gov International (Post Paid) *
B5 PBX / Centrex
B6 Interconnect (Fixed)
C1 iNet - ADSL/VDSL
C2 iNet - FTTH
C3 Dedicated Internet Access (DIA)
C4 Point to Point and Point to Multi-Point Ethernet
C5 Cable TV (CTV)
C6 WiFi (Public Wifi)
D1 Other
D2 Directories
FRAMEWORK

6. Step 1B: Product
Families
Data gathering note: must
align with existing product
matrix
FRAMEWORK

7. Step 1C: Platforms
Data gathering note: must
cover all existing platforms
Access - Copper
Access - Fibre
Access - Mobile
Transmission - Radio/Microwave
Transmission - Copper
Transmission - Fibre
Soft Switch / Legacy Voice
MPLS / Metro Ethernet
ADSL Network
ISDN Network
Mobile 2G / 3G / 4G
Submarine Cables
Property incl Power, AC
IT Systems (all incl. OSS/BSS)
Staff Costs - Via Survey
Other
FRAMEWORK

8. FRAMEWORK: Total Product Cost View
Data gathering note: must gather all product unit options available for inputs into
modelling (eg. number of services, minutes of use, bandwidth, download...)
Product Family Code Product Revenue Total Costs 1st Allocation 2nd Allocation 3rd Allocation Staff GEN ALOC. Depreciation COGS Profit $ Margin %
MOBILE A1 Voice 2G Pre Paid $2,026,911 $5,457,558 3,681,079 87,713 444,295 898,721 206,722 139,028 -$3,430,647 -169.25%
A2 Voice 2G Post Paid $317,183 $3,133,759 2,605,806 62,091 219,169 143,090 86,323 17,279 -$2,816,576 -888.00%
A3 Data 2G Pre Paid $0 $196,228 2,634 54,622 80,402 46 58,523 0 -$196,228 N/A
A4 Data 2G Post Paid $0 $196,228 2,634 54,622 80,402 46 58,523 0 -$196,228 N/A
A5 SMS (local and intl.) $132,828 $1,365,030 764,979 18,228 187,009 285,843 56,736 52,235 -$1,232,202 -927.67%
A6 Roaming Voice Inbound $96,086 $860,440 521,583 12,428 48,241 203,190 37,854 37,144 -$764,354 -795.49%
A7 Roaming Voice Outbound $71,889 $815,048 348,312 278,740 6,642 48,241 96,510 19,324 17,279 -$743,159 -1033.76%
A8 Interconnect (Mobile) $588,191 $1,431,412 1,301,445 31,011 0 59,712 39,244 -$843,221 -143.36%
A9 Roaming Data * $0 $0 0 0 0 0 0 $0 N/A
FIXED VOICE B1 Residential Domestic Fixed Voice (Post Paid) $9,232,081 $6,969,674 1,454,612 171,979 127,415 2,349,520 2,004,212 861,936 $2,262,406 24.51%
B2 Residential International (Post Paid) *via C&W $980,861 $79,126 4 0 70,811 8,311 $901,735 91.93%
B3 Business & Gov Domestic Fixed Voice (Post Paid) $14,812,750 $15,091,784 10,628,345 312,549 154,692 836,775 1,949,530 1,209,893 -$279,034 -1.88%
B4 Business & Gov International (Post Paid) * $0 $0 0 0 0 0 $0 N/A
B5 PBX / Centrex $5,990,521 $5,150,154 3,094,531 111,136 69,410 32,161 1,036,095 806,821 $840,367 14.03%
B6 Interconnect (Fixed) $921,604 $1,165,244 235,139 84,956 0 137,775 707,373 -$243,640 -26.44%
DATA & INTERNET C1 iNet - ADSL/VDSL $9,986,677 $14,504,937 1,565,721 4,452,822 928,476 1,902,248 3,673,611 1,825,897 156,162 -$4,518,260 -45.24%
C2 iNet - FTTH $692,805 $2,460,127 53,886 473,835 99,995 1,063,091 552,183 215,838 1,301 -$1,767,322 -255.10%
C3 Dedicated Internet Access (DIA) $2,009,423 $889,441 154,272 32,556 309,100 308,553 84,536 424 $1,119,982 55.74%
C4 Point to Point and Point to Multi-Point Ethernet $2,005,215 $1,513,143 384,189 190,196 287,660 540,377 108,695 2,027 $492,072 24.54%
C5 Cable TV (CTV) $1,070,773 $2,483,402 1,088,029 739,606 156,081 37,521 302,124 110,912 49,130 -$1,412,629 -131.93%
C6 WiFi (Public Wifi) $13,842 $232,336 53,301 11,248 85,762 58,866 23,129 30 -$218,494 -1578.49%
OTHER D1 Other $93,762 $97,712 88,144 6,768 2,800 -$3,950 -4.21%
D2 Directories $271,368 $21,887 0 19,589 2,298 $249,481 91.93%
COSTS

9. FRAMEWORK: Product Unit Cost View
Data gathering note: must gather all product unit options available for inputs into
modelling (eg. number of services, minutes of use, bandwidth, download...)
Annual Costs: Annualised Costs:
Product Family PRODUCT FINAL LIST Revenue Subscribers Calls SMSs Min Mbp/s Product COST Cost per Subscriber Cost per Call Cost per MIN/SMS/Mbps
A1 Voice 2G Pre Paid $2,026,911 5,592 5,511,210 0 3,886,287 - $5,457,558 $975.96 $0.9903 $1.40
A2 Voice 2G Post Paid $317,183 695 5,511,210 0 6,241,917 - $3,133,759 $4,509.01 $0.5686 $0.50
A3 Data 2G Pre Paid $0 - - 0 10,000 - $196,228
A4 Data 2G Post Paid $0 - - 0 10,000 - $196,228
A5 SMS (local and intl.) $132,828 2,101 0 142448 0 - $1,365,030 $649.70 $9.58
A6 Roaming Voice Inbound $96,086 1,494 12,000 - 10,000 - $860,440 $575.93 $71.7033 $86.04
A7 Roaming Voice Outbound $71,889 695 270,876 - 10,000 - $815,048 $1,172.73 $3.0089 $81.50
A8 Interconnect (Mobile) $588,191 2 2,559,650 - 3,666,862 - $1,431,412 $715,705.84 $0.5592 $0.39
A9 Roaming Data $0 - - - - -
B1 Residential Domestic Fixed Voice (Post Paid) $9,232,081 9,791 5,639,367 - 11,205,682 - $6,969,674 $711.84 $1.2359 $0.6220
B2 Residential International (Post Paid) * via C&W $980,861 - - - 1,000 - $79,126 #DIV/0! #DIV/0! $79.1256
B3 Business & Gov Domestic Fixed Voice (Post Paid) $14,812,750 5,984 10,248,828 - 20,364,894 - $15,091,784 $2,522.02 $1.4725 $0.7411
B4 Business & Gov International (Post Paid) * $0 - - - - -
B5 PBX / Centrex $5,990,521 4,341 3,644,258 - 7,241,309 - $5,150,154 $1,186.40 $1.4132 $0.71
B6 Interconnect (Fixed) $921,604 2 7,060,425 - 15,321,079 - $1,165,244 $582,621.99 $0.1650 $0.08
C1 iNet - ADSL/VDSL $9,986,677 5,162 0 0 0 1,970 $14,504,937 $2,809.95 $7,362.91
C2 iNet - FTTH $692,805 43 0 0 0 430 $2,460,127 $57,212.26 $5,721.23
C3 Dedicated Internet Access (DIA) $2,009,423 14 0 0 0 140 $889,441 $63,531.53 $6,353.15
C4 Point to Point and Point to Multi-Point Ethernet $2,005,215 67 0 0 0 335 $1,513,143 $22,584.23 $4,516.85
C5 Cable TV (CTV) $1,070,773 1,624 0 0 0 10 $2,483,402 $1,529.19
C6 WiFi (Public Wifi) $13,842 1 0 0 0 50 $232,336 $232,336.50 $4,646.73
Other D1 Other $93,762 - 0 0 0 - $97,712
D2 Directories $271,368 - 0 0 0 - $21,887
MOBILE
FIXED VOICE
DATA & INTERNET

10. FRAMEWORK: Allocation tables
Data gathering note: must gather all product unit options available for inputs into
modelling (eg. number of services, minutes of use, bandwidth, download...)
Master Table for GENERIC Allocations
30% 40% Network Use 30% TOTAL
Product Family Code Product REVENUE Subscribers Assumed MB Use W / AVG
MOBILE A1 Voice 2G Pre Paid $2,026,911 3.95% 5,592 14.87% 5,052,173 0.49% 7.2785%
A2 Voice 2G Post Paid $317,183 0.62% 695 1.85% 8,114,492 0.78% 1.1588%
A3 Data 2G Pre Paid $0 0.00% 0 0.00% 13,000 0.00% 0.0004%
A4 Data 2G Post Paid $0 0.00% 0 0.00% 13,000 0.00% 0.0004%
A5 SMS (local and intl.) $132,828 0.26% 2,101 5.59% 92,591 0.01% 2.3150%
A6 Roaming Voice Inbound $96,086 0.19% 1,494 3.97% 13,000 0.00% 1.6456%
A7 Roaming Voice Outbound $71,889 0.14% 695 1.85% 13,000 0.00% 0.7816%
A8 Interconnect (Mobile) $588,191 1.15% 2 0.01% 4,766,921 0.46% 0.4836%
A9 Roaming Data * $0 0.00% 0 0.00% - 0.00% 0.0000%
FIXED VOICE B1 Residential Domestic Fixed Voice (Post Paid) $9,232,081 17.99% 9,791 26.03% 14,567,387 1.40% 16.2315%
B2 Residential International (Post Paid) * via CW $980,861 1.91% 0 0.00% 1,300 0.00% 0.5735%
B3 Business & Gov Domestic Fixed Voice (Post Paid) $14,812,750 28.87% 5,984 15.91% 26,474,362 2.55% 15.7887%
B4 Business & Gov International (Post Paid) * $0 0.00% 0 0.00% - 0.00% 0.0000%
B5 PBX / Centrex $5,990,521 11.67% 4,341 11.54% 9,413,702 0.91% 8.3910%
B6 Interconnect (Fixed) $921,604 1.80% 2 0.01% 19,917,403 1.92% 1.1158%
INTERNET & DATA C1 iNet - ADSL/VDSL $9,986,677 19.46% 5,162 13.73% 638,280,000 61.41% 29.7515%
C2 iNet - FTTH $692,805 1.35% 43 0.11% 139,320,000 13.40% 4.4720%
C3 Dedicated Internet Access (DIA) $2,009,423 3.92% 14 0.04% 45,360,000 4.36% 2.4989%
C4 Point to Point and Point to Multi-Point Ethernet $2,005,215 3.91% 67 0.18% 108,540,000 10.44% 4.3764%
C5 Cable TV (CTV) $1,070,773 2.09% 1,624 4.32% 3,240,000 0.31% 2.4468%
C6 WiFi (Public Wifi) $13,842 0.03% 1 0.00% 16,200,000 1.56% 0.4767%
OTHER D1 Other $93,762 0.18% 0 0.00% - 0.00% 0.0548%
D2 Directories $271,368 0.53% 0 0.00% - 0.00% 0.1586%
$51,314,770 37,608 1,039,392,330 100.00%

11. Step 2:
Data gathering note: ensure
that all data is relevant and
verified, Data Intergritgy is
crucial to the success
DATA COLLECTION
Financial Data
GL – Revenue
GL – Cost
Depreciation
COGS
Etc.
Metrics
Usage
SIO
Etc.

12. Required Financial Data
You will require:
- Full GLs (Rev & Cost) for the business including summary as well as source GL data
- COGS Data
- Access to staff, managers and other experts who may be able to assist with sourcing of
required information
- Key categories of costs where detailed breakdown is required:
o Depreciation breakdown
o Electricity breakdown
o Motor vehicles
o Network support contracts
o Staff costs and HR Org charts details
o Property costs, water, insurance, rates etc
o Financial costs, loans, interest, bad debts, impairments
o Marketing spend breakdown or budgets
o Other costs

13. Required Metrics
Engineering / Operations Data Required:
a) Network platforms types & details (network & design diagrams, BOMs..)
b) Key network platforms usage (based on engineering traffic usage stats)
a) Key links by type eg. fibre, copper, satellite...
b) Traffic stats and usage on all key links
c) Traffic stats by type on key links (data, internet, mobile, voice...)
Other Data
a) Staff to complete timesheets or use survey approach
b) Number of services by product

14. Step 3:
Maximise direct allocation
ALLOCATION
I. Allocate GL Revenue to Products
II. Allocate GL Costs to Products
a. directly
b. via product family
c. via platform
d. to other/generic
III. Create Total Product cost table
IV. Create Product Unit cost table
V. VERIFICATION

15. An Example

16. 1. Start with general ledger data

17. 2. Define the product hierarchy
Family Product
Fixed Voice PSTN Voice
PBX
Mobile Voice Mobile Voice Prepaid
Mobile Voice Postpaid
Internet ADSL Internet
Fibre Internet
Data Products IP VPN
P2P LL

18. 3. Capture the key attributes for each product
Family Product Revenue
($m)
# Services Minutes /
BW
Fixed
Voice
PSTN Voice 20.32 10,000 1M
PBX 3.22 2,500 2M
Mobile
Voice
Mobile Voice
Prepaid
45.09 50,000 2M
Mobile Voice
Postpaid
23.84 60,000 2M
Internet ADSL Internet 19.32 10,000 500MB
Fibre Internet 8.23 5,000 600MB
Data
Products
IP VPN 32.90 2,000 200MB
P2P LL 16.32 1,000 150MB

19. 4. Create allocation tables
20% 40% 40% 0%
Family Product
Revenue
($m)
% # Services %
Minutes
(Millions)
% Bandwidth % Weighted Average
Fixed Voice
PSTN Voice 20.32 86% 10,003 81% 1.03 32% 0 0% 62%
PBX 3.22 14% 2,423 19% 2.23 68% 0 0% 38%
23.54 12426 3.26 0 100%
45% 20% 35% 0%
Mobile Voice
Mobile Voice
Prepaid
45.09 65% 50,232 45% 2.34 47% 0 0 55%
Mobile Voice
Postpaid
23.84 35% 60,232 55% 2.65 53% 0 0 45%
68.93 110464 4.99 0 100%
25% 25% 0% 50%
Internet
ADSL
Internet
19.32 70% 19,023 74% 0 0 502 42% 57%
Fibre
Internet
8.23 30% 6,754 26% 0 0 683 58% 43%
27.55 25777 0 1185 100%
35% 35% 0% 30%
Data
Products
IP VPN 32.9 67% 1,975 66% 0 0 234 60% 64%
P2P LL 16.32 33% 1,034 34% 0 0 154 40% 36%
49.22 3009 0 388 100%
Based on the physicals and revenue
data for each product, we create a
weighted average cost allocator

20. 5. Create a platform data dictionary
Document all of the key product
platforms used by all products

21. 6. Create platform allocation tables aligned back to
products and product categories
Fixed Voice Mobile Internet Data
Fibre Network 10% 20% 40% 30%
Copper Network 20% 0% 50% 30%
Working with engineering, allocate platform utilization back to each product
portfolio

22. 7. Allocate time of staff back to products, product
categories and platforms
Product Category Product Platform
Fixed Voice PSTN Voice Fibre Network
PBX Copper Network
Mobile Voice Mobile Voice Prepaid
Mobile Voice Postpaid
Internet ADSL Internet
Fibre Internet
Data Products IP VPN
P2P LL

23. 8. Now we can allocate costs from General Ledger
For each line item in the general ledger, try to allocate the cost back to a product,
Product Category or Platform in order of preference

24. 9. Most General Ledger Cost lines will need to be
examined in more detail to allocate costs
Example: Depreciation transactions (schedule)
Line items in depreciation schedule
Product, Product
Categories and
Platforms

25. PBXFixed Voice
Portfolio allocated
cost item
Platform allocated
cost item
Fibre cable cost: $100
$10
$38
Voice Switching costs: $100
$3.80
10. Allocate costs that have been assigned to a
Product Portfolio or Platform back to Products
EXAMPLE PRODUCT: PBX
$41.80
Use the allocation tables
we created before for
products categories and
platforms to assign costs
back to Products

26. 11. Rinse and Repeat
Use the same
methodology for each
line item in the general
ledger

27. Summarise into Consolidated Product Unit cost
report

28. Thank You
For more information contact:
Parcus Group
contact@parcusgroup.com