Reduce, reuse, recycle…and resell

Across the operator estate, hidden in vans, yards and warehouses, lurks a million dollar opportunity

Buyer and seller of used telco kit TXO Systems has been gaining coverage this week following its claim that up to 50% of operators’ inventory could be lying stranded, unused and wasting money.

TXO matches used telco equipment that one operator no longer needs with buyers from other operators, or OEMS, who need second hand or replacement equipment. The company either outright buys, and then resells, equipment or it offers to hold on to equipment for an operator and split the proceeds if it can find a buyer. Currently the company holds about 600,000 parts in stock.

It can be a profitable business for the operator, with TXO claiming to have returned or made £10 million for operators this year alone. TXO itself turned over around £20 million last year, and earlier this year took on a £4 million loan from HSBC as expansion capital. With operations in Brazil, North America and the UK, the company is also looking to open in Dubai within the next six months.

We spoke to Business Development VP, Tom Parker about the second hand network equipment market.

Is there really that much useful legacy equipment lying around?

There’s a huge amount of legacy equipment sitting within operators that is uncatalogued, uninventoried. This happens over time, through mergers and acquisition, or because operators lack the right tools to track equipment, or because they are constantly looking at what they have just installed rather than legacy. We think anything between 30-50% [of equipment operators own] is not catalogued, not known about or if it is known about exists hidden somewhere on an Excel spreadsheet.

For one operator [fixed line] in the UK we recovered over 150,000 parts in three years that were surplus to requirement. We recover those, identify them so they can be re-used and redeployed within the network, and then resell what they don’t need. We generated £100,000 per month for this operator from stock that was written off and was just scrap.

One major European operator we worked with was stockpiling huge amounts of kit following a deinstallation, so we worked with them to take that kit out, mostly base stations, identify where there is appetite in the market for those parts and what the fair market value is. We do that using tools called i-JUDGE and i-VALUE to make valuations on equipment, remove those we see as having value and recycle what doesn’t. Even if we only resell 5% of those parts we will get two to three times the value for the operator compared to just recycling everything.

Aren’t there already platforms and exchanges where operators can buy and sell second hand equipment?

There’s no end of recyclers that will buy equipment, or brokers who cherry pick what they want. We have a whole consultative approach that is really about TXO making connections between operators or OEMs who are otherwise in competition with each other. If an OEM has got a services contract and takes on a competitor’s estate, it’s unlikely that competitor supply it with the kit for maintenance and replacements.

Who are the biggest buyers? The perception would be that the operators who need second hand kit would be smaller operators, or those in emerging markets.

The opposite is true in many ways. That is always the perception – that the developing markets are falling over themselves to get our cast offs. The actual situation is that in many developing markets they have Huawei and ZTE all over them with all sorts of interesting finance agreements. So actually the developing markets is sitting on a lot of good equipment.

But if you take BT, Verizon, France Telecom etc – these operators have got massive legacy networks and they are looking for equipment to help sweat the life of that asset. If something is broken or needs to be repaired and they go to the OEM, the OEM is always looking to sell the next generation or may not support the part any longer. We give operators the option to look at their networks differently. Can they replace the part faster and cheaper than the cost of repair? So for these operators it’s about, “How can I drive down the costs of maintaining my legacy networks?”

What’s hot in the telco parts world at the moment?

The mobile market is all about windows of opportunity. At the moment there’s a large 2G expansion underway in a large Asian operator’s network, and suddenly we have demand for a couple of thousand 2G radios. Yet 12 months ago you couldn’t give that away.

Most frequently it’s radios and combiners that are in most demand either for maintenance or expansion. But we have sold a complete second hand network in Africa, including the switching.

It’s not uncommon to see Ericsson RBS6000 equipment sitting around, or Nokia. And that is usually due to a Chinese vendor coming in, taking over a contract and then everything comes out. It generally tends to be only the Chinese that are that disruptive in the marketplace.

What is coming out of networks at the moment?

12 months ago a lot of 2G equipment was coming out. Now we’re starting to see some 3G coming out as countries commit more to LTE. We also see LTE equipment coming through. It’s not uncommon to see Ericsson RBS6000 equipment sitting around, or Nokia. And that is usually due to a Chinese vendor coming in, taking over a contract and then everything comes out. It generally tends to be only the Chinese that are that disruptive in the marketplace.

Do you think operators are aware of the opportunity?

We need to get the message over to senior levels. If someone uncovers a load of equipment in a warehouse with net value, they are often not the right individual to make that decision as to what to do with it. If you tell someone at C-level there are X amounts of savings to be made that then that can offer quick returns for investors – but you need that buy-in to make that happen.

Engineers are usually good technical people, but can be sitting on parts in case this or that part of the network goes down and they have the part to hand. But they can be sitting on tens of thousands of pounds worth of equipment, non-maliciously squirelled away in garages and vans.

Some operators recognise the issue and have done their own diligence but they are few and far between.