The future of network operations and management – an economic perspective - Keynote presentation...

The future of network The future of network operations and management operations and management

– an economic perspective -– an economic perspective -Keynote presentation to APNOMS, Fukuoka

Japan

3rd October 2003

Gregory Fidler

Strategic Management Team, TMForum

2 © Mandarin Associates Ltd 2003 All rights reserved

North American fixed line capex 1990 – 2006E ($bn)North American fixed line capex 1990 – 2006E ($bn)

$22 $22 $22 $23 $23

19901990 19911991 19921992 19931993 19941994 19951995 19961996 19971997 19981998 19991999 20002000 20012001 20022002

Pre Liberalization

$84

The Bubble Correctio

n

NewEra?$67

$103

20032003

$47

$31 $33$39

Post Liberalizatio

n - Pre Bubble

Utility Industry Utility Industry?Growth Industry

20042004 20052005 20062006

16% 15% 15% 15% 15% 19% 17% 19% 20% 26% 35% 29% 14% 12%E 12%E 13%E13%E

Capital Investment as % of revenue

Source: RHK Telecom Economics Program

$35

We live in interesting times….We live in interesting times….

Aberration

Normality


With multiple downward pressures on price .… With multiple downward pressures on price .…

Over-capacity

Newtechnologies

Competition(direct

and indirect)

Government&

regulators

Price


But operating costs remain stubbornly highBut operating costs remain stubbornly high

Source: RHK Telecom Economics Program

505560657075808590

1Q01 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 4Q02

Ope

ratio

ns c

osts

as

a %

of r

ev

British Telecom Deutsche Telecom Telecom Italia

NA ILECs NA IXCs


Prices falling faster than costs in many marketsPrices falling faster than costs in many markets

1999 2000 2001 2003 2004 2005

Un

it c

osts

/ re

ven

ues

Average revenue /unit

Average cost/unit


…….The question is…..The question is….

…are we seeing a short-term

impact…

…or are we seeing the

emergence of “Moores law” in

the mobile industry

…where the price decreases and service level

is expected to rise

…and where survival means re-inventing the

way you do business


In reality, operators have 2 businesses to In reality, operators have 2 businesses to managemanage

Commodity voice / messaging services

Market won on price / quality

High volumes / high market share

Ultra-low operational costs

Low churn through significant levels of customer service

Advanced services Market won

innovation, speed, brand

High operational flexibility

Very fast reactions

Highly scaleable operations


In other words… continuously .… In other words… continuously .…

Drivedowncosts

Driveup

revenue

Driveup

businessflexibility

Driveup

customerloyalty

Just squeezing an organization ‘until the pips squeak‘

won’t achieve these goals – we have to be smarter


Although management thinking Although management thinking is is changingchanging

• Bottom line focus• Demand-led•‘Just in time’ investment• Market led• Focus on operating costs and business flexibility• Improving wallet share• Reducing debt• Reducing risk

•Top line focus•Investment led•Network led•‘Build-it-and they-will-come’•Growth management•Handset subsidies

Very few have said that they intend to be the

lowest cost, most flexible player in their chosen market


Financial freezes are like antibiotics – they kill good good things

as well as bad

In any case they don’t solve underlying

problems

The real enemies are operating cost and

business inflexibility

Many are still managing via fiscal squeezesMany are still managing via fiscal squeezes

And you can’t attack these with piecemeal approaches that try to justify ROI on a case-by case basis


……often risking a death spiraloften risking a death spiral

Declining profitability

Market share declines Customer service

and quality declines

Across the board opex and capex cuts

Declining profitability


This is the core problem:This is the core problem: - - Silo based organisations with poor integrationSilo based organisations with poor integration

Mar

ketin

g

Sal

es

Cus

tom

er

serv

ice

Eng

inee

ring

Pla

nnin

g

Fin

ance

The majority of operators are high cost, inflexible and slow

High manpower costs because of a lack of automated process flow-through

Poor time-to-revenue because of have rigid and inflexible business processes

Weak customer service because of poorly integrated & systems with

inaccurate data

Slow growth because processes and systems can’t scale

Slow new service introduction because of high risks & costs to make

changes

Poor economies of scale because of using hundreds of suppliers


Just like many other industries in the pastJust like many other industries in the past - the Toyota lean production model- the Toyota lean production model

‘Craft’ production•Manual assembly•Hand-built, non standard parts•Slow, expensive but flexible•Limited availability•Weak competition

1890’s-1930’s

‘Mass’ production• Manual assembly• Mass produced standard parts• Fast, cheap but inflexible• Competition on price

1930’s -1990’s

‘Lean’ production• Automated assembly•Just-in-time standard parts• Fast, cheap and flexible• Competition on features

1990’s - present

Today’s information

services

Today’s PSTN & mobile voice

services

This is the target

Manufacturing, retailing, financial services etc. have all become ‘lean’


‘‘Lean’ is not the same as ‘low cost’Lean’ is not the same as ‘low cost’

Lean operators have:

Ultra low cost operations

High levels of automation/ very low manpower levels

High levels of integration

High quality and excellent customer service

‘Right first time’ data integrity

Customer self management

Low cost of change

Use standardized, commercially available, off-the-shelf, software

Highly flexible infrastructure

Rapid introduction of new services & features

Fast time-to-revenue

Easy and flexible response to business changes

Fast reactions to competitive moves


7 Lean ‘must do’s7 Lean ‘must do’s

Must have ownership of transformation strategy at Board level

Must have clear business goals

Must be in this for the long haul but with continuous wins

Must be prepared to reshape company

Must have clear end-end process owners

Must have unified target for processes, systems and data

Must have a strong investment in integrated and automated IT


7 steps to becoming a ‘Lean operator’7 steps to becoming a ‘Lean operator’

Stretch the organisation - Set stretching goals for operating cost, flexibility and cost of change to cause transformation

Transform processes and systems progressively - heroic change programs are less effective than continuous change with consistent goals

Drive home flexibility – progressively get rid of ‘hardwired’ processes & systems

Unlock the business intelligence - unlock the vital customer information buried in today's fragmented systems

Design in the ability to react to the unknown – markets are volatile. Build scalability and changeability into the mix

Know where to differentiate and where to collaborate

Build relationships with key supplier partners


Lean systems – 4 things to get rightLean systems – 4 things to get right

• What are the process steps and policies?

• Is the information understandable by the next step?

• Can each step interoperate?

• Can I tell which part is working correctly?

Defining and developing each of these uniquely is prohibitively expensive


has developed NGOSS - has developed NGOSS - a comprehensive ‘lean operator’ frameworka comprehensive ‘lean operator’ framework

Marketplace + legacy = many hundreds of:

architectures

data models

user interfaces

Result =

High ‘integration tax

Poor automation

Weak flexibility

NGOSSNGOSS

NGOSS has the ‘power of one’ – i.e. a worldwide industry ‘magnet’ to line up the

fragments


Hitchhiker’s Guide to NGOSSHitchhiker’s Guide to NGOSS

Information framework Methodology Shared information & data models

Business processes framework Principles Definitions & models Framework Supports multiple viewpoints Combination of policy and process management Systems framework

Integration framework Technology-neutral architecture Technology-specific implementations Contract interface definitions Component-based Distributed networking and computing services

Compliance framework Testable and provable

Business Process

Framework

Compliance Framework

Integration Framework Information

Framework


Final thoughtsFinal thoughts

• If we are arriving at a “Moore’s law” type of communications market:

• Operators must change their business fundamentally to cope, or are you just tweaking around the edges?

• If they do not aim to be the lowest cost, most flexible player in the market, how will they survive?

• They must have a strategic transformation plan including an industry owned target process and system architecture

•TM Forum’s NGOSS is now at a mature state and can now be deployed

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