New metrics are required for a new age

Mike Cansfield, Telecoms Strategy Practice Leader

The reporting season for the latest round of quarterly results from telcos is now well underway. Most of these briefings take a very familiar form - a presentation from the CFO on financial performance, cross references by the CEO to strategy and maybe even a new announcement or two, followed by a Q&A session.

Those attending these briefings are usually representatives of various City institutions, journalists from the business and trade press, plus a few industry analysts. Questions put to telco CXOs usually relate to detailed accounting issues and policies rather than how the company is addressing the big issues in the industry today.

For sure, the financial performance of the company is important and should be covered properly, but the metrics used (calls and lines, capex and SG&A costs) are largely retrospective and accounting-led. But these are hardly a measure of how a company is addressing convergence (networks, systems, services and sectors); or transformation (automation, e-enablement and ICT); or competing successfully (positioning, service innovation and branding).

In our view, new metrics are required for a new age. What could they be? Here are three examples.

Customer not product profitability

Telcos are typically structured along product lines. This has been fine in the past, but it leaves them open to criticism that new services (for example, broadband line plus calls) are not as profitable as the traditional equivalent (such as PSTN) services. This is true, but this comparison does not acknowledge that broadband connectivity is so different from its narrowband predecessor. Broadband offers voice/data/video down one access link at far faster speeds and capacity, and therefore offers connectivity to far richer and broader content. Furthermore, once broadband connectivity is provided, the sales acquisition costs for additional services (such as security, convergent voice and video services) are radically reduced because they can be marketed, ordered and fulfilled online. A more meaningful measure is how successful the telco is in adding incremental services to the broadband line, and how each additional service sale improves the ARPU and profitability of each customer.

Integrated operational efficiency

At the heart of every telco is its network, and networks are measured as entities in their own right using financial (capex and opex costs etc.) and operational metrics (mean time to repair, latency, utilisation etc.). However, networks are not an end in themselves, but the means by which telcos provide services to customers. We would like to see telcos reporting how networks are managed, services provided, and customers supported, within the framework of how the company is performing. Systems to integrate these four areas do exist, as do suppliers (Satyam, for example) that understand how to integrate these hitherto independent silos.

Transformation to new business models

When telcos refer to transformation they tend to relate to developing or implementing next-generation networks (NGNs). Whilst NGNs are transformational in terms of what they do for collapsing overlay networks and duplicate systems into one framework, they also open up different business models as a result. NGNs are designed in an IT-orientated way and as a result business models used in the IT sector can also be adopted. Thus opportunities to outsource and offshore become possible, and yet we know of only one telco that has followed this through to this natural conclusion (Colt Telecom outsources its back office to India). We believe industry leaders in the future will be the companies that best adapt to the opportunities created by new business models.

Mike Cansfield is a Research Director with over 17 years' experience in the industry, and now also leads Ovum's Telecoms Strategy practice. He is responsible for leading Ovum's research in this area and managing relationships with several key clients.