Global Best Practices Benchmark Report:

Telecom Finance and Accounting Performance

Compared to Other Industries

PricewaterhouseCoopers conducted a Global Telecom

Finance and Accounting Benchmarking study of tele-
communications companies during 2005. The objective
was to analyze 71 performance measures that would enable
telcos to compare finance and accounting functions with
that of their peers to identify both business strengths and
challenges. PwC’s Global Best Practices Group distributed
the results of this study in a telecom finance
and accounting report this past September.
In addition to analyzing the telcos against their peers,
we also compared the finance and accounting metrics
of the telecommunications sector against all other Manufacturing 30.2% Commercial Services 6.7% Insurance 1.9%

companies in PwC’s Global Best Practices database. Energy and

Healthcare 3.4% Real Estate 0.4%
Telecommunications 26.9%
This extensive database contains information on more than
250 companies worldwide operating in industries ranging Consumer Products 18.3% Financial Markets 2.6% Unspecified 0.4%

from manufacturing and consumer products to commercial Nonprofit/Government 9.3%

services, financial markets and real estate to healthcare,
insurance and nonprofits/government. By expanding our
original study to include such a diverse control group,
we are able to provide a useful context for evaluating
the overall finance and accounting performance of the
telecom sector.
As expected, telecommunications compared very favorably
with other industries. The following summary of our findings
provides insights into the strengths of the sector plus
identifies a few interesting opportunities for improvement.

PWC
Overall Finance Costs
Our review of overall finance costs indicates that the A. Benchmark Group

optimal
telecommunications industry is inline with other industries. Minimum Median Maximum
Initially, we thought the telecommunications sector might
have higher overall finance costs, but we are pleased to Telecom 0.14% 0.82% 0.99% 1.57% 4.32%
report very similar results when we compare telecom All Other 0.13% 0.46% 0.96% 1.59% 3.82%
to a line item from the study defined as - “All Other”
industries. Interestingly, we found non-U.S. telcos operate
with a slightly higher percentage of costs than U.S.
companies. We also identified a wide gap between median
performance and best-in-class among telcos. Best-in-
class performance in telecoms will be achieved through
continued automation, removal of error/defect rework
and labour arbitrage via outsourcing and off shoring.
We looked at the specific functions typically found B. Finance department cost as a percentage
within the finance organization and found the tele- of revenue by process
communications sector performed well in relation to the
Telecom All Other Best in
median performance of other industries. Functions such Process Median Median Class
as payroll, travel and entertainment and accounts payable
Payroll 0.048% 0.130% 0.010%
performed well above the “All Other” industry median.
Still, there is a substantial gap between best-in-class Travel and entertainment accounting 0.007% 0.021% 0.001%
and the telecom median. We believe this is largely due Accounts payable 0.045% 0.095% 0.005%
to the fact that some companies in other industries have
changed the systems and processes that support the Billing 0.204% 0.079% 0.000%
finance function enabling them to achieve performance Accounts receivable 0.326% 0.099% 0.002%
levels that set them apart. This raises a question worth Close-the-books / financial reporting 0.057% 0.130% 0.005%
discussion: Does the cost of achieving enhanced
performance divert scarce resources in an attempt Financial budgeting and analysis 0.099% 0.111% 0.002%
to manage minimal costs? Many telecommunications Fixed-assets accounting 0.024% 0.021% 0.002%
companies are focused on driving top-line growth. Internal audit 0.037% 0.036% 0.002%
However, if they chose to channel investments
to non-revenue activities, such as finance costs, Tax 0.016% 0.031% 0.001%
the telecommunications sector and many tele-
communications companies could move closer to
best-in-class performance levels.

Finance Head Count

The telecommunications sector did not compare well C. Span of control by process
to other industries in terms of head count within the (staff-to-management ratio)
finance function. Telcos appear to employ more staff
Telecom Benchmark Best in
than other industries to perform similar functions. Size
Process Median Median Class
of company and volume of transactions – particularly in
accounts receivable – may require more staff to support Payroll 6.0 5.0 28.1
the function, but telecommunications companies have Travel and entertainment accounting 6.0 4.1 28.0
larger staffs in other areas, such as internal audit and
Accounts payable 5.3 8.4 37.0
budgeting, that should be similar across all industries.
More importantly, there is a significant gap between the Billing 6.2 6.7 31.0
sector and best-in-class. Telecommunications companies Accounts receivable 12.9 5.6 29.5
may want to look at other industries to gain a better
Close-the-books / financial reporting 3.0 2.6 21.7
understanding of how to achieve greater efficiency
by leveraging a different model. Financial budgeting and analysis 5.7 2.1 25.0
Fixed-assets accounting 6.2 3.3 24.0
Internal audit 5.0 3.4 9.0
Tax 2.0 2.2 30.0

2
Payroll
Payroll operations within the telecommunications sector D. Benchmark Group

optimal
are dauntingly complex and, if mishandled, can create Minimum Median Maximum
morale issues among employees and legal issues with
regulators. The sector must contend with factors ranging Telecom 2.35 4.18 5.07 17.64 38.05
from company size, differing payment structures (i.e. All Other 0.06 5.34 10.68 20.54 73.50
commissions, union scales, etc.), state/country-specific
taxation and extensive record keeping. In response, the
sector has designed both processes and applications
that create and distribute high volumes of data in a cost-
effective manner. When comparing the sector to other
industries, we found telecommunications companies
performed significantly better than others. Yet the sector’s
best performer significantly lagged behind the best-in-
class performer. Culture and tools appear to provide the
edge. The best-in-class company leverages automation,
e-commerce, on-line forms, electronic signature and
direct deposit to effectively manage the transactional cost.

Accounts Payable
Telecommunications companies procure goods and E. Benchmark Group

optimal
services on par with companies in other industries, though Minimum Median Maximum
we found telcos lag behind the median performance of
“All Other” industries by US $0.92. More importantly, Telecom 1.45 3.91 6.64 12.52 21.95
we found the sector supports/maintains a vendor All Other 0.93 3.00 5.72 11.22 70.69
population that is twice the median value for “All Other”
industries. Telecommunications companies could drive
cost out of the business by reducing processing cost and
rationalizing the vendor pool. The gap between sector
median performance and best-in-class is also significant.
On examining the variance, we attributed enhanced
performance to the procurement organization. Through
the contracting process, best-in-class companies require
vendors to submit invoices, and leverage web-based
tools to perform validation routines and route invoices to
departments for approval.

Billing & Accounts Receivable

The telecommunications sector has made steady progress F. Days Sales Outstanding
in managing and maintaining accounts receivable Days Benchmark Group

optimal
Sales Outstanding (DSO) at a reasonable level. Several Minimum Median Maximum
years ago, we found that many telecommunications
companies carried DSO of 50 to 60. Today, the sector is Telecom 7 31 38 41 75
outperforming other industries by employing disciplined All Other 7 30 49 61 120
credit and collection actions and leveraging third-party
tools. Interestingly, there is a large gap between best-in-
class and median performance. Obviously, as a company G. Cash Remittance without Errors
progresses towards best-in-class performance it improves Benchmark Group

optimal
its working capital position. Yet it’s worth considering the
Minimum Median Maximum
impact on customer experience and overall retention.
Customers that have a good experience typically pay Telecom 0.01% 0.03% 0.23% 0.72% 2.65%
bills faster and continue using service longer. All Other 0.02% 0.82% 2.16% 7.60% 24.0%
Additionally, the telecommunications sector set the best-
in-class performance target related to cash remittance
due largely to its investment in technology to process,
scan, and apply payments. The sector has learned
from the financial services industry, where much of the
technology supporting payment processing is tested,
tuned, and proven. 3
Budgeting
Our review of the budgeting process differs from other
areas of this study in that instead of comparing processes
focused on reducing errors or lowering cost, we looked
at the timeline required to prepare the annual budget. We
found that telecommunications companies lag behind the
median performance of other industries by 15 days. The
telecommunication sector’s best-in-class performer took
nine times longer to complete the budget process than
the best performer in “All Other” industries.
Based on the data presented in this survey, it's difficult
to identify the cause for the increased preparation time
or what affect it might have on the sector’s financial
performance. The sector may want to determine if legacy
practices and processes are hampering performance.
H. Benchmark Group

optimal
Minimum Median
Telecom 45 74 90
All Other 5 45 75
Industry-Specific Information
As part of the Finance and Accounting Benchmarking
Survey, we asked respondents to provide sector-specific
data that could be compared to peers. Although not all
sixteen respondents complied, we receive sufficient data
to draw some interesting comparisons.
Rating and Invoicing
We noted a large disparity between U.S. and non-U.S.
telecommunications companies in the cost of producing
an invoice. U.S. companies spent $0.01 - $0.02 to
produce an invoice compared to the $0.76 - $1.41
per invoice spent by non-U.S. telcos. This is a large
difference for a similar activity. We can only presume
non-U.S. companies capture or allocate costs associated
with the activity or provided fully loaded
costs including postage.
Revenue Assurance
The sector continues to invest in revenue assurance.
All respondents had a revenue assurance group though
they varied in size. U.S. telcos spend approximately
$1.6M - $1.8M per annum on the function, while
non-U.S. telcos spend from $1.6M - $3.9M. These figures
represent significant investments in human resources,
thereby demonstrating the value the function continues
to provide the organization.
© 2006 PricewaterhouseCoopers LLP. All rights reserved. “PricewaterhouseCoopers” refers to PricewaterhouseCoopers LLP (a Delaware limited liability partnership) or, as the context requires, other
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Interestingly, we found there was not a consistent
approach to measuring the performance of the function.
In fact, there does not even appear to be a widely
accepted method. Several companies apply a return-on-
investment methodology; several apply a measure
of reducing billing adjustments and customer care calls;
and several simply did not measure the function.
Fixed Assets
There does not appear to be a consistent definition
for fixed asset classes/pools among the survey
respondents. We noted that one respondent manages
as few as six asset classes, while another manages
as many as 860. On average, respondents indicated
they manage the business with 400 asset classes.
Tracking, computing and accounting for these assets
Maximum requires significant effort by the finance and accounting
organization. Interestingly, we noted that companies
120 150 are investing – the rate of asset additions exceeds
91 270 asset disposals by 50%.
We had hoped to gather data on asset tagging and
tracking, but this section of the survey elicited limited
response. We interpreted this to mean companies
continue to struggle with asset tagging and tracking.
However, the few companies that did respond provided
the following: a company in Asia has tagged 100%
of its inventory and physically verifies 50% of its asset
base annually. No other company comes close to this
performance level. Several other companies tagged
30% - 80% of the assets but did little annually to
validate existence.
Summary
Telecommunications companies are operating on par
with many other large global companies, but the sector
does not establish best-in-class performance targets
except in cash remittance. Telecom executives may want
to ask themselves why, especially in light of increased
performance pressures and heightened scrutiny of
finance and accounting functions. Would shareholders,
regulators and government agencies be more satisfied
if a telecommunications company achieved best in
class? Obviously this survey does not address these
questions, but it does highlight areas that provide the
sector opportunities for improvement. More importantly,
the survey provides insights into how companies in other
industries are achieving better performance and enables
telecom finance and accounting groups to benefit by
incorporating similar practices. We look forward to the
day best-in-class performance targets are set by the
telecommunications sector and others are striving to
capitalize on our achievements.