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The future of network operations and management – an economic perspective - Keynote presentation to APNOMS, Fukuoka Japan 3 rd October 2003 Gregory Fidler.

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Presentation on theme: "The future of network operations and management – an economic perspective - Keynote presentation to APNOMS, Fukuoka Japan 3 rd October 2003 Gregory Fidler."— Presentation transcript:

1 The future of network operations and management – an economic perspective - Keynote presentation to APNOMS, Fukuoka Japan 3 rd October 2003 Gregory Fidler Strategic Management Team, TMForum

2 1 © Mandarin Associates Ltd 2003 All rights reserved North American fixed line capex 1990 – 2006E ($bn) $22 $ Pre Liberalization $84 The Bubble Correction New Era? $67 $ $47 $31 $33 $39 Post Liberalization - Pre Bubble Utility Industry Utility Industry?Growth Industry % 15% 19% 17% 19% 20% 26% 35% 29% 14% 12%E 13%E Capital Investment as % of revenue Source: RHK Telecom Economics Program $35 We live in interesting times…. Aberration Normality

3 2 © Mandarin Associates Ltd 2003 All rights reserved With multiple downward pressures on price.… Over- capacity New technologies Competition (direct and indirect) Government & regulators Price

4 3 © Mandarin Associates Ltd 2003 All rights reserved But operating costs remain stubbornly high Source: RHK Telecom Economics Program Q012Q013Q014Q011Q022Q023Q024Q02 Operations costs as a % of rev British TelecomDeutsche TelecomTelecom Italia NA ILECsNA IXCs

5 4 © Mandarin Associates Ltd 2003 All rights reserved Prices falling faster than costs in many markets Unit costs/ revenues Average revenue /unit Average cost/unit

6 5 © Mandarin Associates Ltd 2003 All rights reserved ….The question is…. … are we seeing a short-term impact… …or are we seeing the emergence of Moores law in the mobile industry …where the price decreases and service level is expected to rise …and where survival means re- inventing the way you do business

7 6 © Mandarin Associates Ltd 2003 All rights reserved In reality, operators have 2 businesses to manage Commodity voice / messaging services Market won on price / quality High volumes / high market share Ultra-low operational costs Low churn through significant levels of customer service Advanced services Market won innovation, speed, brand High operational flexibility Very fast reactions Highly scaleable operations

8 7 © Mandarin Associates Ltd 2003 All rights reserved In other words… continuously.… Drive down costs Drive up revenue Drive up business flexibility Drive up customer loyalty Just squeezing an organization until the pips squeak wont achieve these goals – we have to be smarter

9 8 © Mandarin Associates Ltd 2003 All rights reserved Although management thinking is changing Bottom line focus Demand-led Just in time investment Market led Focus on operating costs and business flexibility Improving wallet share Reducing debt Reducing risk Top line focus Investment led Network led Build-it-and they- will-come Growth management Handset subsidies Very few have said that they intend to be the lowest cost, most flexible player in their chosen market

10 9 © Mandarin Associates Ltd 2003 All rights reserved Financial freezes are like antibiotics – they kill good good things as well as bad In any case they dont solve underlying problems The real enemies are operating cost and business inflexibility Many are still managing via fiscal squeezes And you cant attack these with piecemeal approaches that try to justify ROI on a case-by case basis

11 10 © Mandarin Associates Ltd 2003 All rights reserved …often risking a death spiral Declining profitability Market share declines Customer service and quality declines Across the board opex and capex cuts Declining profitability

12 11 © Mandarin Associates Ltd 2003 All rights reserved This is the core problem: - Silo based organisations with poor integration Marketing Sales Customer service Engineering Planning Finance The majority of operators are high cost, inflexible and slow High manpower costs because of a lack of automated process flow-through Poor time-to-revenue because of have rigid and inflexible business processes Weak customer service because of poorly integrated & systems with inaccurate data Slow growth because processes and systems cant scale Slow new service introduction because of high risks & costs to make changes Poor economies of scale because of using hundreds of suppliers

13 12 © Mandarin Associates Ltd 2003 All rights reserved Just like many other industries in the past - the Toyota lean production model Craft production Manual assembly Hand-built, non standard parts Slow, expensive but flexible Limited availability Weak competition 1890s-1930s Mass production Manual assembly Mass produced standard parts Fast, cheap but inflexible Competition on price 1930s -1990s Lean production Automated assembly Just-in-time standard parts Fast, cheap and flexible Competition on features 1990s - present Todays information services Todays PSTN & mobile voice services This is the target © Mandarin Associates Ltd 2002 Manufacturing, retailing, financial services etc. have all become lean

14 13 © Mandarin Associates Ltd 2003 All rights reserved Lean is not the same as low cost Lean operators have: Ultra low cost operations High levels of automation/ very low manpower levels High levels of integration High quality and excellent customer service Right first time data integrity Customer self management Low cost of change Use standardized, commercially available, off- the-shelf, software Highly flexible infrastructure Rapid introduction of new services & features Fast time-to-revenue Easy and flexible response to business changes Fast reactions to competitive moves

15 14 © Mandarin Associates Ltd 2003 All rights reserved 7 Lean must dos Must have ownership of transformation strategy at Board level Must have clear business goals Must be in this for the long haul but with continuous wins Must be prepared to reshape company Must have clear end-end process owners Must have unified target for processes, systems and data Must have a strong investment in integrated and automated IT

16 15 © Mandarin Associates Ltd 2003 All rights reserved 7 steps to becoming a Lean operator Stretch the organisation - Set stretching goals for operating cost, flexibility and cost of change to cause transformation Transform processes and systems progressively - heroic change programs are less effective than continuous change with consistent goals Drive home flexibility – progressively get rid of hardwired processes & systems Unlock the business intelligence - unlock the vital customer information buried in today's fragmented systems Design in the ability to react to the unknown – markets are volatile. Build scalability and changeability into the mix Know where to differentiate and where to collaborate Build relationships with key supplier partners

17 16 © Mandarin Associates Ltd 2003 All rights reserved External benchmarks – particularly non telecom service sectors Ensure goals set against end – end processes, not departments Set them to cause change to occur! Set the goals that you believe a competitor would have to attack you Drive systems investment as an enterprise wide vehicle for driving change to OpEx and flexibility Stretch the organisation

18 17 © Mandarin Associates Ltd 2003 All rights reserved Transform processes and systems progressively Examine overall process Examine overall process Improve process/ clean data/ renew systems Determine 20% of hot spots creating 80% cost Determine 20% of hot spots creating 80% cost Improve process/ clean data/ renew systems Within the framework of a comprehensive operational process architecture

19 18 © Mandarin Associates Ltd 2003 All rights reserved Medium term : Reduce opex through highly automated processes Reduce churn through improved customer service Improve wallet share through better targeting Drive more new services, with reduced time to revenue But gather the low hanging fruit along the way Short-term : Reduce opex through improved asset management bandwidth management StrategicTactical Immediate : Plug revenue leakages Plug fraud leakages

20 19 © Mandarin Associates Ltd 2003 All rights reserved Around 12% CapEx or around 4% of revenues spent on operations systems But up to 50% of that investment is spent on integrating dissimilar systems That integration tax could be slashed if operators and suppliers used common standards Drive home flexibility - get rid of the integration tax which slugs costs and flexibility

21 20 © Mandarin Associates Ltd 2003 All rights reserved Unlock business intelligence 24% 14% 22% 40% 53% 36% 8% 3% ARPU Customers Source : Bell Canada International (Based on Research by PWC) Rich information on customers and markets is in operational systems today but fragmentation prevents its timely capture and use.

22 21 © Mandarin Associates Ltd 2003 All rights reserved Sales Volume Tornado Systems must scale & be flexible enough to handle significant volume. Market leader can set price. Many operators stumble at this point Main street Volumes and revenue significant - need zero- touch, ultra low cost operations to maintain margins in commodity market. Early market Systems must be capable of being quickly turned up to meet demand or turned off without a huge investment Time After Geoffrey A. Moore Chasm Design in the ability to react to the unknown Services today are resembling fast moving fashion goods. Need to try things out easily and cheaply BUT must scale rapidly if a service takes off

23 22 © Mandarin Associates Ltd 2003 All rights reserved Know where to differentiate Network technology IT technology OSS / BSS technology Integration architecture Never differentiate You will not make money by building unique systems, or integrating them in a unique way Its not what you have – its what you do with it ! Always differentiate Service features Network quality Process optimisation Data Customer service Service packaging

24 23 © Mandarin Associates Ltd 2003 All rights reserved Lean systems – 4 things to get right What are the process steps and policies? Is the information understandable by the next step? Can each step interoperate? Can I tell which part is working correctly? Defining and developing each of these uniquely is prohibitively expensive

25 24 © Mandarin Associates Ltd 2003 All rights reserved has developed NGOSS - a comprehensive lean operator framework has developed NGOSS - a comprehensive lean operator framework Marketplace + legacy = many hundreds of: architectures data models user interfaces Result = High integration tax Poor automation Weak flexibility NGOSS NGOSS has the power of one – i.e. a worldwide industry magnet to line up the fragments

26 25 © Mandarin Associates Ltd 2003 All rights reserved Hitchhikers Guide to NGOSS Information framework Methodology Shared information & data models Business processes framework Principles Definitions & models Framework Supports multiple viewpoints Combination of policy and process management Systems framework Integration framework Technology-neutral architecture Technology-specific implementations Contract interface definitions Component-based Distributed networking and computing services Compliance framework Testable and provable Business Process Framework Compliance Framework Integration Framework Information Framework

27 26 © Mandarin Associates Ltd 2003 All rights reserved Final thoughts If we are arriving at a Moores law type of communications market: Operators must change their business fundamentally to cope, or are you just tweaking around the edges? If they do not aim to be the lowest cost, most flexible player in the market, how will they survive? They must have a strategic transformation plan including an industry owned target process and system architecture TM Forums NGOSS is now at a mature state and can now be deployed


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