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May 2014

Telecoms Failing Badly in CAPEX: The Desperate Need for Asset Management & Financial Visibility

Telecoms Failing Badly in CAPEX: The Desperate Need for Asset Management & Financial Visibility

Most industry reports published by consulting giants like Deloitte, Ernst & Young, and Accenture are written with a soft touch.  After all, these reports are designed to gently nudge senior executive clients to address new industry problems or alter a strategy or two.

It’s very rare that such reports call out an industry for poor management.  But that’s precisely what a 2012 report by PricewaterhouseCoopers (PwC) does concerning telecom’s handling of its CAPEX.  Among the report’s many solid recommendations:

. . .  without reliable facts, capex proposals and challenges become politicized, arbitrary and inefficient.  In our experience, the antidote to such flawed decision making is the creation of a robust fact base regarding the (post-capital) economic profitability of products, network, customers, channels and segments.


Let me put that conclusion in my own words: network investments are out of control.  Since nobody can accurately tell whether a particular CAPEX expenditure pays off or loses money, senior execs figure it’s better to err on the side of buying more equipment.

The prescription, however, offers some hope: deliver a “robust fact base” in the CAPEX area.  If you can do that, you’re at least on the way to better decision-making.

Well one company, Subex, has been working on this very CAPEX problem for over a year now.  Up to now we’ve known Subex as an Indian supplier of revenue assurance and fraud management software.  But today Subex is transforming its business and pouring most of its R&D energy into its Network Analytics solution which combines Asset Assurance, Data Integrity Management and Capacity Management functions.  To that end, two large clients in North America have bought into the Subex program — viewing it as an answer to many of their long-standing CAPEX problems.

Here to give us a in-depth brief on the CAPEX issue and the kind of solution his firm is delivering is Ashwin Chalapathy, Subex’s Global Head of Consulting, Solutions & Managed Services.

Dan Baker: Ashwin, how have telecom carriers allowed themselves to get in the pickle that PwC has identified?

Ashwin Chalapathy: Dan, the fast rise of IP and mobile networks basically caught the industry flat-footed.  If you look back to the mid-2000s, you had Time Division Multiplexing (TDM) equipment: switches, ATM, optical networks -- all of which were designed for static loads where you know the capacity you can carry.

Due to exponential growth of mobile and business data and the advent of IP and differentiated services, capacity planning problems multiplied several fold.

Soon enough, CFOs lost the bubble: Rapid changes in technology cycles, associated deployments, lack of process controls etc. meant that capitalization and depreciation shown on their balance sheet no longer reflected reality.  Not only that, procurements cycle were getting longer and lots of duplicate orders were occurring.

As PwC reported, the priority today is getting visibility into what is happening in the network and its financial impact.

The complexity is enormous, of course, because to get it right, you need to track the life cycle of network assets from start to finish.  It starts with procurement, then delivery of the equipment, getting it into warehouses and networks, commissioning it and then turning it on.  Then, are you actually making money on the equipment you just deployed?

Unfortunately, each of these functions tends to have its own database.  The finance team stores its asset-related information in an ERP system.  Network ops have an inventory system specific to provisioning and assurance.

So how does Subex help operators manage their network investments?  What insights does Asset Assurance provide?

Take the scenario of a CFO.  He has USD $100 million at his disposal and he wants to spend it wisely.  And yet 80% of his CAPEX spend is to sustain or maintain legacy equipment.  What remains is the 20% needed to budget new profit-generating investments — and it’s not nearly enough.

But when you gain visibility over that 80% spend, you begin to get a handle on the ton of legacy equipment, stranded assets, and unutilized equipment lying in your network and warehouse equipment that can be brought to active use and therefore avoid CAPEX spend.

We also help the CTO reconcile their network with inventory systems and ensure their spare management and asset decommissioning programs are optimized.

Dan, let me walk your readers through some of the key capabilities of our solution to show you how it all fits:

Discovering & Reconciling Network Assets

One of the first things we do is discover the live network configuration at both the physical and service levels.

This is key because over time, the “as-designed” inventory steadily loses its view of the true “as-currently-deployed” view.  And that’s dangerous because you lose an ability to link faults to important customers, meaning you can‘t prioritize your maintenance or warn VIPs about potential downtimes.

Network migration, such as from legacy networks to IP and Ethernet, is another area where live discovery is essential because to migrate successfully you need to accurately map to the new network without losing the features of the older service.

Optimizing the Location of Network Elements

With the move to mobile phones, people have gotten rid of fixed lines, and that’s left big holes in legacy deployments, and that’s a problem because carriers pay a heavy price to lease land from real estate providers.  Plus their maintenance overhead is high since you are rolling a truck to a facility that is servicing only a small number of subscribers.

So one of our North American customers is using the discovery and reconciliation capabilities to determine which sites it can exit from.  For instance, if a campaign to attract business in a specific region doesn‘t pan out, the decision is made to move that equipment — to put it to good use another region and maybe exit its original site altogether.

Their strategy is to reassign subscribers onto a larger capacity element and retire assets that are barely carrying traffic.  This customer is looking for the 2014 program of saving something like USD $80 million dollars on real estate costs alone.

Consolidating Redundant Inventory

Operators have invested in multiple network inventory technologies.  For instance, they will often have one inventory system for the transport network, one for the access network, and perhaps another for mobile.

So there’s a wonderful opportunity to save money by consolidating.  However, to do that you need to have absolutely fool-proof information and a single source of data you can rely on.

Predicting Capacity Analytics

The last important piece is capacity management.  On the wireline side, you need to anticipate when peak loads will occur.  Likewise, in mobile, you need analytics to predict when cell sites are running out of capacity.

You can‘t just wait for events to happen.  You need to continuously look for trends based on previous patterns to come up with a solid mitigation plan — and maybe shift network loads or add more capacity by bringing in new network element cards from the warehouse.

Let’s say a mobile operator in the U.S. wants to roll out a service to stream NFL games live.  Well, immediately upon launch they need to discover: what’s the take up rate of that service, and in what locations are users logging in?  Then you run what-if scenarios to determine how much capacity should be augmented to take care of peak demand during game time.

So, the first time such an event is held, you’re creating a baseline for future planning.

Ashwin, thanks for the quick rundown on your solution.  You’ve explained the system, but how do your professionals enter the picture?

Well, our in-house experts have backgrounds in capacity management and planning from operators.  So this allows us to come in and insert best practices around key KPIs and SLAs that measure specific parts of the network.  Of course, the customer has its own experts who contribute insight, and our framework kick starts the problem with a core base of knowledge that they can tailor to their own needs.

Good luck to you and your Subex team, Ashwin.  If PwC’s analysis is correct, you’re certainly onto something big.

NOTE: Subex is one of 41 vendors profiled in TRI's 574-page research report: The Telecom Analytics & Big Data Solutions Market.

Copyright 2014 Black Swan Telecom Journal

 

About the Expert

Ashwin Chalapathy

Ashwin Chalapathy

A 19-year IT industry veteran, Ashwin Chalapathy is Global Head of Consulting, Solutions and Managed Services at Subex.  His experience spans engineering, operations, business development and a strong people focus.  He is currently responsible for developing domain-led solutions, services and technology offerings.  When he joined Subex in 2007, he set up the fulfillment and assurance business unit and in 2010 took the reins of Subex’s Managed Services Portfolio.

Ashwin is the former Group Head for engineering across several product lines at Siemens Public Communication Networks Ltd.  He holds a Master’s degree in computer Science from the University of Mysore.   Contact Ashwin via

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