Oracle Approach for Telecom

Challenges
(Cost Reduction Focus)

Vijay Ramaswamy
Senior Director, Oracle Insight & Customer Strategy
22 November 2013
 Managing Revenue Growth While Controlling Costs Is A
Huge Challenge For Telcos
Revenue growth (%) Revenue growth = opex growth
14
MTS
12 Airtel China Telecom

10 Telecom Italia
China Mobile
8 KT
America Movil
6
Very aggressive cost cutting
measures due to deep decline in 4 Telenor Primary focus on revenues from
revenues Verizon Telefonica emerging sooner or later cost focus
2 NTT AT&T
France Telecom will be key
0
KDDI
-10 -5 - 5 10 15 20
Etisalat Opex growth (%)
Zain -2 KPN
Deutsche Telekom
TeliaSonera -4
BT
PT -6
Source: Adapted from Ovum Telco KPIs superimposed PT new KPIs on historical KPIs

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 Several Of These Telcos Have Implemented Aggressive
Cost Reduction Measures
7.7% reduction in Opex costs through labour costs as well as lower mobile termination rates

Save for Service project aimed at EUR 4.2 billion savings - cost saving measures including
workforce reduction primarily in German operations.

6.1% reduction primarily due to exchange rate fluctuations combined with some a few cost
reduction programs

Chrysalid program to control spend around EUR 2.5 billion in 4 years through best practices in
network mgmt, marketing, customer relations, distribution etc

Lower wages and salaries and improved adoption of M4O drove reduced Op-Ex

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 PTs EBITDA Has Exhibited A Constant Decline But Is
Not Alone Among Other Incumbent Peers
PT EBITDA Margins
Portugal + Oi Portugal only

PT is focussed on continued efficiency

34,7% improvements in order to offset the pressure on
44,9%
33,3% 42,8% declining revenues especially within the high profit
enterprise segment

9M12 9M13 9M12 9M13

Industry EBITDA average Given smaller barriers to entry within the value added
service provider environments, smaller players are making
Telecom Services (B2B) 55.07% greater margins
For asset intensive Incumbents, its far more challenging to
Global Top 20 Telcos 36%
extract enough turnovers from existing assets

Source: Ovum Telco KPIs; Insight analysis; Value line Database;

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 Balancing Margins With Declining Revenues Is Tough
Customer growth is good given current conditions...
Portugal only (In Millions)

Residential Customers Growth Personal Customers Growth (mobile) Enterprise Customers Growth

3Q12 3,8 3Q12 5,8 3Q12 1,02

3Q13 3,9 3Q13 6,3 3Q13 1,07

But their willingness to spend as much as before is waning...

Portugal only (In Euros)

Residential Customers ARPU Personal Customers ARPU Enterprise Customers ARPU

3Q12 32,0 3Q12 8,9 3Q12 23,1

3Q13 32,0 3Q13 7,8 3Q13 20,7

Creating a greater pressure on margins given a predominantly fixed asset base

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 Several Avenues Available For PT To Address Cost
Reduction Imperatives

High
Strategic Wins Quick Wins
Higher risk and NGN Networks Phased cross- Customer touch-point
hence senior exec FMC Convergence channel customer operations easy to
sponsorship is Initiatives experience gain sponsorship.

Size of Cost Reductions

required. Controlled Full blown Optimising traditional Faster time to value
change management infrastructure channel costs
rationalisation & Improving decision
virtualisation management

Leisure Targets Continuous Savings

Identification and Procurement, fleet &
discarding un-used supply chain activities
Bottled within assets Reducing IT Extract thick costs to
individual units and Signalling integration maintenance costs release them into
can be managed as activities Process re- other areas. Lower
a low profile project Targeted motivational engineering & impact on overall
measures Modernisation business
Low

(gamification etc)

Low High
Feasibility (Lower effort & costs)

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 Margin Is A 2-way Lever To Success Impact On
Revenues As Well As Costs
Volume

Services
Workload Unit Time Manage
cost
cost centre
Service budgets
Cost Drivers support
through
Time spent efficiencies
on sales
Cost of sales Workload
Sales
Up- support
Margin sell/Cross-
sell
Units sold or
Retention
Retention Manage profit
centres marginal
Revenue Time to cost for every
Drivers Market
addition in
Price
Tariffs, revenue is low
Bundling

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 A Top Down Breakdown Of A Telcos Operational Costs
Will Help Determine Prioritisation
Typical Telco Opex Breakdown

25%-30% Interconnection fees, taxes, CPE etc.

Limited control over these
25%-30% HR, IT, Finance, procurement and other back-office activities.
Reasonable potential for savings exist

Billing 7% -
12% Network
50%-55% Customer Infrastructure
Service 10% - 40%-45%
15%

Opex Breakdown
Network Ops
& Design 18%
Non-Process Opex Sales 20% -
- 23%
25%
Support Process Opex
Operational Process Opex

Source: Deloitte, Insight analysis Quick wins Strategic long term wins

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 Cost Reduction Can Be Achieved Across Several Areas,
But A Right Balance In Prioritisation Is Important
Illustrative Cost Reduction Levers

Lower cost of servicing a customer

Lower acquisition costs
Improved productivity of staff across
HR functions
Network
Operations Improved first call resolution rates
Fleet, (direct impact on call centre costs)
IT Facilitie
Platform s.. Reduced faults across the entire
s Order to Provision to Cash chain
Shared service capabilities driving
greater productivity for back-office
Reduce cost to market (several ways)

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 Two Approaches Possible For The Role Of IT As
Business Enabler To Achieve Margin Maximisation

Business capability gaps

determines IT Options

Assess top cost

buckets for the Prioritise them
IT Options
against strategic Business & IT Joint
business as a available to
goals to achieve roadmap to Execution
whole address them
achieving wins
CURRENT END
STATE STATE
Joint
Identify IT budget Prioritisation and IT roadmap with a Execution
Map it against balance between Business buy-in
constraints and
appropriate new different projects
platform
business demand
rationalisation
needs IT capabilities restrict business
capabilities to address

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 Illustrative: Picking The Order to Cash Area For
Approach To Execution
CUSTOMER PRODUCT OPERATIONS

Marketing Product Conception Fulfillment & Billing

Order to cash Sales Extended Revenue Chain Development Field Service Management
process
Network
Service Product Delivery
Management
Business Intelligence
Strategic Enterprise Management
MANAGE & CONTROL
Financial Performance Management
Human Resource Management
Infrastructure Management
Business Process Management
TECHNOLOGY
Architecture Management
Information Management
Source: Insight communications industry component framework

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 Streamlining Order to Cash Processes Requires Several
Key Capabilities
Order to Cash Process
Multi- Validate &
Order Capture Provision Activate Invoice Collect
Enable
channels
Customer

Customer Management Billing Order Capture

Channel Mgmt Order Delivery

Key Capabilities
Superior Customer Experience (CRM) Product Design & Delivery
Explor Conn
Design of Offer Delivery of Offer
Buy Use
e ect CRM Billing Product Fulfillment Provisioning Activation Inventory
Move Rene
Get w/ SDP
Pay Chan
Help Term
ge

Delivery role of IT as an enabler to business

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 Customer Management
Each Capability Area Will Target Operational
Improvements That Will Drive Cost Benefits For PT

Enabling Capabilities Sample Target Operational KPIs Potential Benefits

Unique 360 degree view of customer Average call 6.1 minutes

handling time
Improved Productivity of call center
Multi-channel capabilities ? staff
Harmonized , integrated and 1 Reduced cost of order management
simplified customer processes Number of Order
cross-channels Capture systems
? Improved customer intimacy

Robust proactive retention and win 2 Reduced customer churn

Number of
back capabilities applications in ? Increased cross-sell rate
Flexible loyalty program measure call centers
Reduced Opex
across products/offers Best Practice PT - Today

Customer scoring and profiling is

integrated with CRM

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 Channel Mgmt

Each Capability Area Will Target Operational

Improvements That Will Drive Cost Benefits For
PT
Enabling Capabilities Sample Target Operational KPIs Potential Benefits
Point of service (POS) system with high
Online sales vs
50% Improved customer experience
reliability, performance and usability.
Total Sales ? Increased revenue through better
Integrated POS and CRM systems
targeting
Harmonized look and feel cross-channels Self service 15% - 30%
account ? Increase in margins through deflecting
Single sign on cross online services management customers through cheaper channels
Differentiated and personalized experience % of transactions 30% Improved customer retention
Integrated business intelligence and RTD over number of ?
online visits
Rapid time to market through unified
catalogue and product hub
Best Practice PT - Today

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 Key Considerations To Bear In Mind While Addressing
Margin Maximisation Initiatives
Joint business & IT exec sponsorship to support strategic transformation activities
Sponsor

Business Process and IT platform should be simplified to cater to future needs

Simplify

Avoid hesitation to change status quo processes

Business focussed approach to streamlining processes define success metrics
Streamline

Manage cultural drivers effectively and manage change through proper communication
and accountability
People

Resilient and scalable support infrastructure to enable convergence around commercial

as well as network functions
Infrastructure

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 From An Oracle Perspective We Can Help Address
Issues Across The Telco Stack
End-to-End Stack Potential Value

Customers
A
Customer Experience (Sales, Marketing,
Service, Social etc) Lower total cost of ownership

Integration
B
Back Office
Designed based on industry recognised
standards
Billing & Revenue Mgmt

Service Delivery & Fulfilment

C
Customer Master
Vastly improved centralised control over
Technical Infrastructure (hardware, efficiencies
Processing, Virtualisation, OS etc)

Networks

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 Oracle Insight Welcomes The Opportunity To Discuss
With You Options In Detail And Provide Our Support

Value Industry Solution

Oracle Insight Analysis Experience Knowledge
Composition

A methodology focused on enabling greater customer business value

Drives business impact by helping view technology as enablers of business value
Helps build a compelling value proposition
Assists with alignment with your executive team

For any questions, please dont hesitate to contact me at

vijay.ramaswamy@oracle.com / Ph: +44 7825121521

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