Is your network built for value?

From volume to value: financial data analysis is pivotal in identifying loss leader subscribers

Even as the world’s economy recovers, it’s difficult to overlook the impact of the recent downturn on the global mobile industry. Lowered consumer confidence and spending compelled operators to focus their efforts on managing their margins, retaining their subscribers, and identifying incremental revenue opportunities.

Pumping up the volume
Throughout this period of economic inactivity, operators made customer experience management (CEM) a priority. They recognised that network QoS is critical in maintaining differentiation and retaining customers. This in turn led to network investment to better support high traffic volumes.

At the same time, operators have always followed the notion that the more subscribers they support effectively, the more services these subscribers consume – and the more money they, the operators, recoup on their network investment.

Identifying the value in the volume
While there is value in provisioning network capacity according to where customer usage and network traffic is heaviest, a tighter focus on the type of customer occupying each hotspot can be hugely beneficial. It’s for this reason that operators should consider combining network data (number of users in each cell, service usage, traffic hotspot locations) with BSS information (customer demographics, historical behaviour, billing information) in order to determine the cost of their network investments versus the revenue potential and also the profitability.

This distinct approach enables operators to ensure they don’t invest in loss leaders (customers that cost operators more to support than they will deliver in revenue) or divert capacity away from smaller groups of big spending customers and high-value VIPs.

The rise of margin assurance
By prioritising network investment towards high value customers, operators can be certain of accelerating ROI for improvements such as the placement of small cells and other upgrade strategies. Operators can actively compare wholesale network costs associated with these capacity improvements against actual “real world” consumer revenue potential.

This approach, known as ‘margin assurance,’ is not limited to improving network capacity but extends to the complete service delivery chain. Each revenue-generating customer activity often involves an ecosystem of partners that participate in enabling or providing the service. These partners contribute to the cost of service delivery – computed for each transaction – based on the interplay of call routing, content sourcing, partner settlements and billing, and customer care. In some instances, these fees can be magnified, especially when subscribers roam in other countries.

TEOCO margin assurance

The graphic shows a 3G network covering a major city in South America where the MNO want to roll out 1800 MHZ coverage to provide extra capacity alongside its existing 900MHZ network. The map has been produced using TEOCO’s network planning solution and combines several datasets, including 3G coverage in the 900MHZ band plus subscriber ARPU.The orange-red gradient shows where customers receive service. Any area that is not served has then been overlaid with an ARPU map: the ARPU traffic goes from white to green, with blue/green areas representing areas where additional revenue-earning traffic can be served by improving the network.If the operator only takes the engineering data in isolation, it would prioritise the large white area in the centre. However once ARPU is considered it becomes much easier to determine where additional overlaid capacity using 1800MHZ is required to improve revenue, and hence profitability. In the graphic, several sites are identified that need additional in-building capacity relatively close to the cell site – this could be achieved with a lower frequency overlay cell. Other areas that require extra capacity, such as the two buildings in the centre of the graphic and also the street at the far lower left hand corner, could be covered by a small cell. 

Controlling subscriber shock
Much is made in the media of high profile cases of subscriber ‘bill shock’ tied to roaming fees. However, in certain markets, regulators are introducing new legislation designed to manage and structure these fees better. In the EU for example, the European Commission aims to reduce incremental data roaming fees for all subscribers between member states to zero by July 2016. But this movement has in turn led to a growing trend for ‘subscriber shock’ among mobile operators – that is, the emergence of high value, data-hungry roaming subscribers who actually generate massive interconnectivity fees that far outstrip the revenue they generate.

Under the previous model, operators would instinctively go to great lengths to ensure high value roamers enjoyed a positive and seamless mobile experience, at home and also abroad – the lucrative roaming fees would usually more than justify the effort. But with the end of interconnectivity fees and the emergence of new, more complex roaming agreements, this is no longer the case. By following the principles of margin assurance, operators can make proactive decisions in real-time on how best to handle these users in order to preserve their profitability.

Proving the case for margin assurance
The principles of margin assurance have been instrumental in delivering significant operator cost savings. Over the past five years, a tier one US operator has undertaken in-depth end-to-end analysis of its network to understand potential hidden costs. This includes scrutinizing partnership strategies related to everything from roaming and interconnectivity to third-party content providers.

The operator has also been able to identify to identify areas of its network that deliver high ARPU or which are more profitable, and proactively target high value customers in these areas with network service improvements. This includes providing sufficient bandwidth to support the consumption of lucrative feature-rich mobile data services. In addition, the operator has proactively filled coverage “cold spots” to ensure it doesn’t lose any high value roaming subscribers during periods of heavy network use.

By following these principles of margin assurance, the operator achieved cost savings of more than US$500 million over the past five years, effectively reducing network costs by 25 per cent and improving overall profitability.

About the author: Jonjie Sena is VP Marketing,TEOCO.