Telecom operators facing shrinking profitability must look for ways to improve returns on incremental capex (ROIC), such as concentrating on keeping their most profitable customers satisfied.
These are among the findings of a new study from Roland Berger Strategy Consultants, which finds that the top 20% of a mobile operator's customers generate 60% of profit while using only 40% of network sites.
The report notes that inefficient capex allocation is reducing profitability in operators grappling with rising data traffic, lower voice call revenues and increasing competition.
Investing in the wrong areas within the network and the wrong technologies can have a major negative impact, according to the study's co-author, Roland Berger principal Nitin Mahajan.
“The result we have seen at multiple telecom operators is shocking: despite an overall good ebitda margin, 30-40% of their network sites are unprofitable," he said.
Roland Berger recommends that operators invest in a value-centric network, focusing spending on ensuring a consistent QoE for the operator's most profitable customers. This requires identifying the most profitable customers and quantifying their needs.
Operators should take additional steps including a baseline profitability analysis, identifying areas to invest and forecasting how the experience will improve.
The report states that using a value-centric network approach improves ROIC by between 2% and 5%. But the success of this approach hinges on how well the operator supports the value-centric network methodology.