Cost Optimization, Growth Programs in a VUCA World: Leveraging Innovation, AI and Strategic Transformation

In today’s volatile, uncertain, complex, and ambiguous (VUCA) world, telcos face unprecedented challenges. Rising inflation, economic recessions, and declining EBITDA margins are pushing telecom operators to reimagine their business models. Traditional approaches, such as raising prices, are no longer viable due to market saturation and competitive pressures. Instead, telcos are turning to cost and business transformation strategies that leverage operational efficiency, technological innovation and adjacent business models for revenue expansion.

Global Trends in Telco Opex

As inflation escalates globally, operating expenses (Opex) for telecom companies have surged. Key drivers include increased energy costs, higher wages, and the rising cost of technology. Telcos must find innovative ways to manage these expenses without compromising service quality or customer satisfaction. Global trends indicate a shift towards automation, AI-driven processes, and lean operational models to enhance efficiency and reduce costs.

The 4 Pillars of Cost Transformation:

1. Operational Innovation: Operational innovation focuses on improving internal processes to enhance efficiency and effectiveness. By streamlining operations, telcos have been able to minimize redundancies and accelerate workflows. For example, by automating customer service operations, T-Mobile has reduced its customer service costs by 20% while improving customer satisfaction.
2. Technological Innovation: Embracing new technologies such as automation, cloud computing, and artificial intelligence is significantly enhancing operational efficiency and service quality for telcos. Automation tools, like robotic process automation (RPA), help streamline routine tasks and reduce human error, while cloud-based solutions offer scalable resources and lower capital expenses. Turkcell has invested heavily in AI and machine learning to optimize network management and predict maintenance needs, reducing downtime and operational costs.
3. Vendor Management: Strategic partnerships with vendors can lead to significant cost savings. Effective vendor management involves selecting the right suppliers, negotiating favorable terms, and establishing robust performance metrics. For example, AT&T’s long-term agreements with key suppliers have enabled bulk purchasing at discounted rates, ensuring consistent supply chains and reduced costs.
4. Business Management: Tier 1 telcos have reevaluated their business models to identify new revenue streams. Effective Business Management fosters profitability through strategic planning, financial oversight, change management, and performance alignment. Jio, for instance, has diversified its services beyond traditional telecom offerings to include digital services, generating additional revenue while leveraging existing infrastructure. Rakuten with 70 subsidiaries in e-commerce, FinTech, ad tech, and digital content, OR VMO2 UK are also telcos or tech-cos with the same mindset.

Ways to Drive Business Value and Optimize Costs

To further optimize costs, telcos employ strategies such as improving service efficiency, enhancing sales processes, optimizing site management, and leveraging advanced systems and technology. The 4S Framework provides a structured approach to cost reduction and efficiency, focusing on:

1. Service - All areas surrounding customer service and strategies that have a net positive impact on costs and improvement in user experience. Tier 1 telcos call it "effortless CX" OR Amazon like convenience.
2. Sales - Strategizing is being used to reduce costs while boosting revenue growth. These could be sophisticated AI-led acquisition, onboarding, up-sell, CLV, etc.
3. Sites - All things about the network and impact on network costs – which include both capex and Opex. Energy saving initiatives would be an example of Opex cost reduction while network sharing and network outsourcing initiatives are examples of capex saving.
4. Systems & Tech - These are internal to the organization and cover all aspects of IT/Systems and cost reduction from a support perspective. An example of this would be the use of AI Chatbots within the organization or the digitization of the business model to reduce operational expenses.

Benchmarking OPEX & CAPEX

The telecom industry is witnessing a paradigm shift in cost structures, with an increasing focus on standardization and benchmarking. By adopting industry-wide benchmarks for Opex and Capex, telcos can better measure performance and identify areas for improvement.

Telcos are increasingly using benchmarking metrics to drive performance. Key indicators include:

? Revenue/Employee

? EBITDA/Customer

? Capex/GBP (Gross Booked Profit)

? Capex/Subscriber

? Revenue/GB Consumed

? EBITDA Margin/GB

? SAC (Subscriber Acquisition Cost)/LTV (Lifetime Value)

? Energy Cost/GB of Traffic

These benchmarks serve as a playbook for telcos to compare their performance and drive operational excellence.

Vision 2028: Strategic Roadmaps and Results

Telcos are now looking beyond immediate cost-cutting measures and developing long-term strategies for sustainable growth.

A recent survey by the Wireless Federation, encompassing over 90 telcos has identified eight key focus areas for cost optimization and business transformation. These areas are instrumental for telcos aiming to streamline operations and enhance efficiency:

1. Operational Excellence: Streamlining operations to improve efficiency and reduce costs. This often involves process optimization, automation, and the adoption of best practices.
2. Telco to Tech-co Transformation: Shifting the business model from a network-centric to a technology-centric approach, leveraging technology to drive innovation and new revenue streams.
3. Portfolio Optimization: Evaluating and adjusting the product and service portfolio to focus on high-value and high-margin offerings while phasing out underperforming or less profitable services.
4. Digitization: Leveraging digital technologies to enhance business processes, improve customer experiences, and reduce manual intervention and associated costs.
5. Revenue Assurance: Implementing strategies and technologies to prevent revenue leakage, ensure accurate billing, and enhance overall financial integrity.
6. Customer Experience (CX) Improvement: Enhancing customer interactions and satisfaction through personalized services, streamlined processes, and improved service quality to drive customer retention and reduce churn.
7. Sustainable Practices: Incorporating sustainability into business practices to reduce environmental impacts and associated costs, such as energy-efficient technologies and sustainable infrastructure practices.
8. AI and Automation: Deploy AI and automation tools to improve operational efficiency, create new revenue streams, and lower costs associated with manual processes.

Best practices that Leading telcos are employing to thrive in a VUCA world:

Axiata's Transformation Journey: Axiata’s “Telco to Tech-Co” journey exemplifies a forward-looking approach to cost optimization. Its strategy emphasizes operational excellence and sustainable practices, with a roadmap structured around five vectors of value creation:

1. Core Operations Mastery
2. Innovative Product Development
3. Strategic Partnerships
4. Enhanced Customer Engagement
5. Agility in Market Adaptation

Key initiatives under this transformation include:

• Network Cost Excellence: Axiata has achieved significant savings through Total Cost of Ownership (TCO) strategies, reducing network costs by 9%.
• Asset Light Model: By divesting non-core assets and focusing on digital businesses, Axiata has improved its EBITDA margin by 6%.
• Value Creation for InfraCo: Axiata has unlocked value in its infrastructure company (InfraCo), enhancing its market position and generating new revenue streams.

An Asian telco has targeted $17 5 million in cost efficiency and $290 million in revenue growth by 2026 through a comprehensive business transformation program. Key pillars include:

• Simplicity & Effortless CX: Streamlining customer experiences to reduce service costs.
• Smart Networks: Investing in AI-driven network management to optimize performance and reduce operational expenses.
• Market Growth: Expanding into new markets with tailored products, driving revenue growth while maintaining cost efficiency.

Building digital infrastructure is essential for telcos to reduce costs and enhance efficiency. A leading telco’s strategy to transition from a telco to a tech co to an AI company underscores the importance of restructuring core business functions. Key initiatives include:

• AI Investments: Significant investments in AI and machine learning to drive network efficiency and customer experience.
• Cloudification: Moving core services to the cloud, reducing IT costs and improving scalability.
• Energy Consumption Reduction: Implementing energy-saving technologies to lower operational expenses, aligning with sustainability goals.

In the landscape of declining EBITDA margins, regulatory pressures, fierce competition and inflation or bordering recession in a few regions, telcos must adopt innovative strategies to manage costs and drive growth. By leveraging operational and technological innovations, standardizing cost metrics, and focusing on long-term business transformation, telcos can navigate these challenges effectively.

To get access to telco best practices on Growth programs and Cost Optimization in a VUCA world, please reach out to [email protected]

About Us:

Wireless Federation is a Telecoms Research & Advisory Conglomerate HQ in London, UK focused on helping Digital Service providers, and Regulators, profit in the connected Digital economy with evolving business models. For the last 2 decades, WF has been supporting 500 + Telcos, and 75 regulatory bodies as a research, knowledge and training partner.

The Mandate of WF is to provide its Telco customers with learning and best practices of what other Telcos are doing globally so you won't have to re-invent the wheel.