THE PARETO PARADOX IN TELECOM

This is not about Amartya Sen’s Liberal Paradox or Genealogy’s long tail. It just about how 80/20 rule in telecom brings an operational paradox.

Pareto’s rule which started with 20% Italians holding 80% of the land is seemingly universal truth. The high value segment (Top 2 decile) inevitably generates almost 80% of the profits and top 20% of sites constitutes to 80% of telecom revenue as well (Trust me it is mostly true). This analogy can be extended across.

The question is “how important is the tip of the iceberg”?

Operationally, if 80% of the revenue comes from 20% of the customers, can we divert 80% of our opex to acquire service and retain these customers?

If 20% of the sites generate 80% of the charged volume, can we switch off the rest to reduce network opex! In site sharing or outsourcing does this site running cost differ significantly?

Why spend 80% of customer service cost on these customers who bring less than 20% of the revenue!

The paradox is visible in the answer. The rationale for sustaining this paradox is that telecommunication needs to develop a community of interest (COI). The “tip of the iceberg would not stay floating without the body beneath the surface!”

However there is a lot that can be done to improve the situation;

1. Be Aware – GIS representation of KPIs gives us a clear impression of geographic dispersion of current and potential value. Use of business intelligence linked information can help to generate current value heat maps, predict churn or support other strategic decisions in war rooms.
2. Treat Differently – The dispersion understanding creates opportunities for differential allocation of resources (especially for pricing and distribution margin). It also highlights opportunities of managing value perception linked with capacity utilization with dynamic bundles or value offering. The value segmentation can be made multi-dimensional and resources utilized more efficiently.

The theory is bridged to reality via execution on ground. First step for exemplary execution is to have clear understanding of resource availability and alternate options. If we prioritize correctly using 80/20 principles and focus the top 20 downwards based on KPIs aligned to strategic imperative the results are more than just marginal gains.