Telecom Cost Modelling

PITA Fiji - 2019

CFO Conference Session

Parcus Group
Igor Glavanic
Tobias Skog
 Parcus Group Intro

Business Business
Cases Processes
Market Product
PARCUS GROUP Analysis Launch
Customer
Service Level Experience &
Management sd Customer Value
Management
Product
Training Consulting Financial Business
Performance Process
Management Optimization
YOUR
Product Churn and
Operating PRODUCTS Credit Risk
Rhythm Models
Analytics

Product Cost and Product

Price Models Commercial
Sales
Inter-carrier
TELECOM COMMERCIAL Training
Reconciliation &
DOMAIN SERVICES Settlement Product
Revenue Technical
Assurance Sales Training
& Fraud
Financial Analysis Framework
Cost Modelling - Methodology

3 1
Allocation Framework

2 Data Collection
Step 1A: Product FRAMEWORK
Matrix

Code PRODUCT FINAL LIST

A1 Voice 2G Pre Paid
A2 Voice 2G Post Paid
A3 Data 2G Pre Paid
A4 Data 2G Post Paid
A5 SMS (local and intl.)
A6 Roaming Voice Inbound
A7 Roaming Voice Outbound
Data gathering note: must A8 Interconnect (Mobile)
gather all the billable A9 Roaming Data
product entities in the B1 Residential Domestic Fixed Voice (Post Paid)
B2 Residential International (Post Paid) * via C&W
business and consolidate to B3 Business & Gov Domestic Fixed Voice (Post Paid)
an agreed view B4 Business & Gov International (Post Paid) *
B5 PBX / Centrex
B6 Interconnect (Fixed)
C1 iNet - ADSL/VDSL
C2 iNet - FTTH
C3 Dedicated Internet Access (DIA)
C4 Point to Point and Point to Multi-Point Ethernet
C5 Cable TV (CTV)
C6 WiFi (Public Wifi)
D1 Other
D2 Directories
Step 1B: Product FRAMEWORK
Families

Data gathering note: must

align with existing product
matrix
Step 1C: Platforms
Data gathering note: must
cover all existing platforms
FRAMEWORK
Access - Copper
Access - Fibre
Access - Mobile
Transmission - Radio/Microwave
Transmission - Copper
Transmission - Fibre
Soft Switch / Legacy Voice
MPLS / Metro Ethernet
ADSL Network
ISDN Network
Mobile 2G / 3G / 4G
Submarine Cables
Property incl Power, AC
IT Systems (all incl. OSS/BSS)
Staff Costs - Via Survey
Other
 FRAMEWORK: Total Product Cost View
Data gathering note: must gather all product unit options available for inputs into
modelling (eg. number of services, minutes of use, bandwidth, download...)

COSTS
Product Family Code Product Revenue Total Costs 1st Allocation 2nd Allocation 3rd Allocation Staff GEN ALOC. Depreciation COGS Profit $ Margin %
MOBILE A1 Voice 2G Pre Paid $2,026,911 $5,457,558 3,681,079 87,713 444,295 898,721 206,722 139,028 -$3,430,647 -169.25%
A2 Voice 2G Post Paid $317,183 $3,133,759 2,605,806 62,091 219,169 143,090 86,323 17,279 -$2,816,576 -888.00%
A3 Data 2G Pre Paid $0 $196,228 2,634 54,622 80,402 46 58,523 0 -$196,228 N/A
A4 Data 2G Post Paid $0 $196,228 2,634 54,622 80,402 46 58,523 0 -$196,228 N/A
A5 SMS (local and intl.) $132,828 $1,365,030 764,979 18,228 187,009 285,843 56,736 52,235 -$1,232,202 -927.67%
A6 Roaming Voice Inbound $96,086 $860,440 521,583 12,428 48,241 203,190 37,854 37,144 -$764,354 -795.49%
A7 Roaming Voice Outbound $71,889 $815,048 348,312 278,740 6,642 48,241 96,510 19,324 17,279 -$743,159 -1033.76%
A8 Interconnect (Mobile) $588,191 $1,431,412 1,301,445 31,011 0 59,712 39,244 -$843,221 -143.36%
A9 Roaming Data * $0 $0 0 0 0 0 0 $0 N/A
FIXED VOICE B1 Residential Domestic Fixed Voice (Post Paid) $9,232,081 $6,969,674 1,454,612 171,979 127,415 2,349,520 2,004,212 861,936 $2,262,406 24.51%
B2 Residential International (Post Paid) *via C&W $980,861 $79,126 4 0 70,811 8,311 $901,735 91.93%
B3 Business & Gov Domestic Fixed Voice (Post Paid) $14,812,750 $15,091,784 10,628,345 312,549 154,692 836,775 1,949,530 1,209,893 -$279,034 -1.88%
B4 Business & Gov International (Post Paid) * $0 $0 0 0 0 0 $0 N/A
B5 PBX / Centrex $5,990,521 $5,150,154 3,094,531 111,136 69,410 32,161 1,036,095 806,821 $840,367 14.03%
B6 Interconnect (Fixed) $921,604 $1,165,244 235,139 84,956 0 137,775 707,373 -$243,640 -26.44%
DATA & INTERNET C1 iNet - ADSL/VDSL $9,986,677 $14,504,937 1,565,721 4,452,822 928,476 1,902,248 3,673,611 1,825,897 156,162 -$4,518,260 -45.24%
C2 iNet - FTTH $692,805 $2,460,127 53,886 473,835 99,995 1,063,091 552,183 215,838 1,301 -$1,767,322 -255.10%
C3 Dedicated Internet Access (DIA) $2,009,423 $889,441 154,272 32,556 309,100 308,553 84,536 424 $1,119,982 55.74%
C4 Point to Point and Point to Multi-Point Ethernet $2,005,215 $1,513,143 384,189 190,196 287,660 540,377 108,695 2,027 $492,072 24.54%
C5 Cable TV (CTV) $1,070,773 $2,483,402 1,088,029 739,606 156,081 37,521 302,124 110,912 49,130 -$1,412,629 -131.93%
C6 WiFi (Public Wifi) $13,842 $232,336 53,301 11,248 85,762 58,866 23,129 30 -$218,494 -1578.49%
OTHER D1 Other $93,762 $97,712 88,144 6,768 2,800 -$3,950 -4.21%
D2 Directories $271,368 $21,887 0 19,589 2,298 $249,481 91.93%
 FRAMEWORK: Product Unit Cost View
Data gathering note: must gather all product unit options available for inputs into
modelling (eg. number of services, minutes of use, bandwidth, download...)

Annual Costs: Annualised Costs:

Product Family PRODUCT FINAL LIST Revenue Subscribers Calls SMSs Min Mbp/s Product COST Cost per Subscriber Cost per Call Cost per MIN/SMS/Mbps
A1 Voice 2G Pre Paid $2,026,911 5,592 5,511,210 0 3,886,287 - $5,457,558 $975.96 $0.9903 $1.40
A2 Voice 2G Post Paid $317,183 695 5,511,210 0 6,241,917 - $3,133,759 $4,509.01 $0.5686 $0.50
A3 Data 2G Pre Paid $0 - - 0 10,000 - $196,228
A4 Data 2G Post Paid $0 - - 0 10,000 - $196,228
MOBILE A5 SMS (local and intl.) $132,828 2,101 0 142448 0 - $1,365,030 $649.70 $9.58
A6 Roaming Voice Inbound $96,086 1,494 12,000 - 10,000 - $860,440 $575.93 $71.7033 $86.04
A7 Roaming Voice Outbound $71,889 695 270,876 - 10,000 - $815,048 $1,172.73 $3.0089 $81.50
A8 Interconnect (Mobile) $588,191 2 2,559,650 - 3,666,862 - $1,431,412 $715,705.84 $0.5592 $0.39
A9 Roaming Data $0 - - - - -
B1 Residential Domestic Fixed Voice (Post Paid) $9,232,081 9,791 5,639,367 - 11,205,682 - $6,969,674 $711.84 $1.2359 $0.6220
B2 Residential International (Post Paid) * via C&W $980,861 - - - 1,000 - $79,126 #DIV/0! #DIV/0! $79.1256
B3 Business & Gov Domestic Fixed Voice (Post Paid) $14,812,750 5,984 10,248,828 - 20,364,894 - $15,091,784 $2,522.02 $1.4725 $0.7411
FIXED VOICE
B4 Business & Gov International (Post Paid) * $0 - - - - -
B5 PBX / Centrex $5,990,521 4,341 3,644,258 - 7,241,309 - $5,150,154 $1,186.40 $1.4132 $0.71
B6 Interconnect (Fixed) $921,604 2 7,060,425 - 15,321,079 - $1,165,244 $582,621.99 $0.1650 $0.08
C1 iNet - ADSL/VDSL $9,986,677 5,162 0 0 0 1,970 $14,504,937 $2,809.95 $7,362.91
C2 iNet - FTTH $692,805 43 0 0 0 430 $2,460,127 $57,212.26 $5,721.23
C3 Dedicated Internet Access (DIA) $2,009,423 14 0 0 0 140 $889,441 $63,531.53 $6,353.15
DATA & INTERNET
C4 Point to Point and Point to Multi-Point Ethernet $2,005,215 67 0 0 0 335 $1,513,143 $22,584.23 $4,516.85
C5 Cable TV (CTV) $1,070,773 1,624 0 0 0 10 $2,483,402 $1,529.19
C6 WiFi (Public Wifi) $13,842 1 0 0 0 50 $232,336 $232,336.50 $4,646.73
Other D1 Other $93,762 - 0 0 0 - $97,712
D2 Directories $271,368 - 0 0 0 - $21,887
 FRAMEWORK: Allocation tables
Data gathering note: must gather all product unit options available for inputs into
modelling (eg. number of services, minutes of use, bandwidth, download...)

Master Table for GENERIC Allocations

30% 40% Network Use 30% TOTAL

Product FamilyCode Product REVENUE Subscribers Assumed MB Use W / AVG
MOBILE A1 Voice 2G Pre Paid $2,026,911 3.95% 5,592 14.87% 5,052,173 0.49% 7.2785%
A2 Voice 2G Post Paid $317,183 0.62% 695 1.85% 8,114,492 0.78% 1.1588%
A3 Data 2G Pre Paid $0 0.00% 0 0.00% 13,000 0.00% 0.0004%
A4 Data 2G Post Paid $0 0.00% 0 0.00% 13,000 0.00% 0.0004%
A5 SMS (local and intl.) $132,828 0.26% 2,101 5.59% 92,591 0.01% 2.3150%
A6 Roaming Voice Inbound $96,086 0.19% 1,494 3.97% 13,000 0.00% 1.6456%
A7 Roaming Voice Outbound $71,889 0.14% 695 1.85% 13,000 0.00% 0.7816%
A8 Interconnect (Mobile) $588,191 1.15% 2 0.01% 4,766,921 0.46% 0.4836%
A9 Roaming Data * $0 0.00% 0 0.00% - 0.00% 0.0000%
FIXED VOICE B1 Residential Domestic Fixed Voice (Post Paid) $9,232,081 17.99% 9,791 26.03% 14,567,387 1.40% 16.2315%
B2 Residential International (Post Paid) * via CW $980,861 1.91% 0 0.00% 1,300 0.00% 0.5735%
B3 Business & Gov Domestic Fixed Voice (Post Paid) $14,812,750 28.87% 5,984 15.91% 26,474,362 2.55% 15.7887%
B4 Business & Gov International (Post Paid) * $0 0.00% 0 0.00% - 0.00% 0.0000%
B5 PBX / Centrex $5,990,521 11.67% 4,341 11.54% 9,413,702 0.91% 8.3910%
B6 Interconnect (Fixed) $921,604 1.80% 2 0.01% 19,917,403 1.92% 1.1158%
INTERNET & DATA C1 iNet - ADSL/VDSL $9,986,677 19.46% 5,162 13.73% 638,280,000 61.41% 29.7515%
C2 iNet - FTTH $692,805 1.35% 43 0.11% 139,320,000 13.40% 4.4720%
C3 Dedicated Internet Access (DIA) $2,009,423 3.92% 14 0.04% 45,360,000 4.36% 2.4989%
C4 Point to Point and Point to Multi-Point Ethernet $2,005,215 3.91% 67 0.18% 108,540,000 10.44% 4.3764%
C5 Cable TV (CTV) $1,070,773 2.09% 1,624 4.32% 3,240,000 0.31% 2.4468%
C6 WiFi (Public Wifi) $13,842 0.03% 1 0.00% 16,200,000 1.56% 0.4767%
OTHER D1 Other $93,762 0.18% 0 0.00% - 0.00% 0.0548%
D2 Directories $271,368 0.53% 0 0.00% - 0.00% 0.1586%
$51,314,770 37,608 1,039,392,330 100.00%
Step 2: DATA COLLECTION

Financial Data
GL – Revenue
GL – Cost
Depreciation
Data gathering note: ensure
COGS
that all data is relevant and Etc.
verified, Data Intergritgy is
crucial to the success
Metrics
Usage
SIO
Etc.
 Required Financial Data
You will require:
- Full GLs (Rev & Cost) for the business including summary as well as source GL data
- COGS Data
- Access to staff, managers and other experts who may be able to assist with sourcing of
required information

- Key categories of costs where detailed breakdown is required:

o Depreciation breakdown
o Electricity breakdown
o Motor vehicles
o Network support contracts
o Staff costs and HR Org charts details
o Property costs, water, insurance, rates etc
o Financial costs, loans, interest, bad debts, impairments
o Marketing spend breakdown or budgets
o Other costs
 Required Metrics
Engineering / Operations Data Required:

a) Network platforms types & details (network & design diagrams, BOMs..)
b) Key network platforms usage (based on engineering traffic usage stats)
a) Key links by type eg. fibre, copper, satellite...
b) Traffic stats and usage on all key links
c) Traffic stats by type on key links (data, internet, mobile, voice...)

Other Data

a) Staff to complete timesheets or use survey approach

b) Number of services by product
Step 3: ALLOCATION

I. Allocate GL Revenue to Products

II. Allocate GL Costs to Products
a. directly
Maximise direct allocation b. via product family
c. via platform
d. to other/generic
III. Create Total Product cost table
IV. Create Product Unit cost table
V. VERIFICATION
An Example
1. Start with general ledger data
 2. Define the product hierarchy

Family Product
Fixed Voice PSTN Voice
PBX
Mobile Voice Mobile Voice Prepaid
Mobile Voice Postpaid
Internet ADSL Internet
Fibre Internet
Data Products IP VPN
P2P LL
 3. Capture the key attributes for each product

Family Product Revenue # Services Minutes /

($m) BW
Fixed PSTN Voice 20.32 10,000 1M
Voice PBX 3.22 2,500 2M
Mobile Mobile Voice 45.09 50,000 2M
Voice Prepaid
Mobile Voice 23.84 60,000 2M
Postpaid
Internet ADSL Internet 19.32 10,000 500MB
Fibre Internet 8.23 5,000 600MB
Data IP VPN 32.90 2,000 200MB
Products P2P LL 16.32 1,000 150MB
 4. Create allocation tables
20% 40% 40% 0%
Revenue Minutes
Family Product % # Services % % Bandwidth % Weighted Average
($m) (Millions)
PSTN Voice 20.32 86% 10,003 81% 1.03 32% 0 0% 62%
Fixed Voice
PBX 3.22 14% 2,423 19% 2.23 68% 0 0% 38%
23.54 12426 3.26 0 100%

45% 20% 35% 0%

Mobile Voice
45.09 65% 50,232 45% 2.34 47% 0 0 55%
Prepaid
Mobile Voice
Mobile Voice
23.84 35% 60,232 55% 2.65 53% 0 0 45%
Postpaid
68.93 110464 4.99 0 100%

25% 25% 0% 50%

ADSL
19.32 70% 19,023 74% 0 0 502 42% 57%
Internet Internet
Fibre
8.23 30% 6,754 26% 0 0 683 58% 43%
Internet
27.55 25777 0 1185 100%

35% 35% 0% 30%

Data IP VPN 32.9 67% 1,975 66% 0 0 234 60% 64%
Products
P2P LL 16.32 33% 1,034 34% 0 0 154 40% 36%
49.22 3009 0 388 100%

Based on the physicals and revenue

data for each product, we create a
weighted average cost allocator
5. Create a platform data dictionary

Document all of the key product

platforms used by all products
 6. Create platform allocation tables aligned back to
products and product categories

Fixed Voice Mobile Internet Data

Fibre Network 10% 20% 40% 30%
Copper Network 20% 0% 50% 30%

Working with engineering, allocate platform utilization back to each product

portfolio
7. Allocate time of staff back to products, product
categories and platforms

Product Category Product Platform

Fixed Voice PSTN Voice Fibre Network
PBX Copper Network
Mobile Voice Mobile Voice Prepaid
Mobile Voice Postpaid
Internet ADSL Internet
Fibre Internet
Data Products IP VPN
P2P LL
8. Now we can allocate costs from General Ledger

For each line item in the general ledger, try to allocate the cost back to a product,
Product Category or Platform in order of preference
 9. Most General Ledger Cost lines will need to be
examined in more detail to allocate costs

Example: Depreciation transactions (schedule)

Line items in depreciation schedule

Product, Product
Categories and
Platforms
 10. Allocate costs that have been assigned to a
Product Portfolio or Platform back to Products
EXAMPLE PRODUCT: PBX

Use the allocation tables

we created before for
products categories and
platforms to assign costs
back to Products
Fibre cable cost: $100 Voice Switching costs: $100

Platform allocated Portfolio allocated

cost item cost item
$38
$10 $41.80

Fixed Voice PBX

$3.80
 11. Rinse and Repeat

Use the same

methodology for each
line item in the general
ledger
Summarise into Consolidated Product Unit cost
report
 Thank You

For more information contact:

Parcus Group
contact@parcusgroup.com