Beruflich Dokumente
Kultur Dokumente
in telecommunications
Meeting the challenges of communicating
performance in a shifting industry landscape
Contents
01 02 03 06
Why change and
why now?
Strong industry
growth fuels capex
concerns
An uncertain
outlook ...
08 10 12
Customer metrics
need to reflect new
use cases
16 17
Summary
The factors
challenging legacy
metrics
Contacts
Legacy metrics
cannot capture
todays growth and
profitability
Metrics transformation
in telecommunications
Why change and why now?
Across the global telecommunications industry, the
fast-changing technological, competitive and customer
environment is calling for a renewed look at the metrics
operators use to measure and report their financial
performance.
The changes impacting the industry are
pervasive and profound, and they occur in
several dimensions. Operators profitability
remains under significant pressure,
driven by rising customer sophistication
and demand, ongoing price pressures
exacerbated by intensifying competition
from over-the-top (OTT) providers and
regulatory pressures on core service areas.
And as traditional markets become
saturated, the business case for investment
by operators is no longer driven by net
additions and rising penetration. Many
markets are now hyper-penetrated,
while churn remains low despite intense
pricing pressure. Yet long-term capex
requirements remain high. And future
growth opportunities increasingly involve
new types of customers, connectivity, use
cases and profitability profiles with even
the traditional definitions of customer
or user coming under scrutiny.
Change is also under way on the investor
side as shareholders and analysts
increasingly look for new sector growth
stories in the wake of infrastructure
upgrades. Meanwhile, operators
themselves are squaring up to the
challenge of improving their business
intelligence capabilities as a catalyst
70
1,200
60
1,000
50
800
40
600
30
400
20
4,000
200
10
2,000
Millions
10,000
Millions
8,000
6,000
0
2010
2011
2012
Global population
2013
2014
2015
2016
2017
Mobile connections
2011
2012
2013
Smartphone shipments
2014
2015
2016
Source: Mobile Regional and Country Forecast 20122017, Ovum, August 2012;
US Census Bureau
An uncertain outlook
In combination, these trends are projected to see
the proportion of global mobile revenues derived
from data services rise from 29% in 2010 to 48% in
2017, reflecting a fundamental shift in product and
revenue mix.
2,000
0
2011
2012
2013
2014
2015
2016
Source: Mobile Regional and Country Forecast 20122017, Ovum, August 2012;
Cisco Visual Networking Index 20112016, May 2012
80
60
40
20
0
Dec 12
100,000
100
Jun 12
4,000
Dec 11
200,000
120
Jun 11
6,000
Dec 10
8,000
300,000
Jun 10
400,000
Dec 09
10,000
Jun 09
500,000
Dec 08
14,000
12,000
Jun 08
600,000
Revenue (US$m)
Dec 07
Usage
Jun 11
Apr 11
May 11
Feb 11
Mar 11
Jan 11
0
Dec 10
0
Oct 10
20
Nov 10
50
Sep 10
40
Jul 10
100
Aug 10
60
Jun 10
150
Mar 10
Revenue
80
Apr 10
200
May 10
0%
50%
100%
15%20%
10%15%
25%40%
2011
2015E
5%10%
65%75%
50%70%
Voice
SMS
Data
Smartphone take-up
42%
24,070
40%
23,000
38%
21,000
19,000
17,000
18,694
18,139
17,211 17,272
36%
34%
16,720
32%
15,790
15,000
30%
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
A double-edged sword
Source: Telecom Services and Towers: Smartphone, iPhone, and LTE Mix Update
for 4Q and 2013 Expectations including T-Mobile, JP Morgan, December 2012;
Telecom Services 3Q12 Tracker, Morgan Stanley, December 2012
750
650
550
450
350
250
150
50
0
2011
Global
2012
2013
North America
2014
2015
Europe
2016
2017
Asia-Pacic
Source: Mobile Regional and Country Forecast 20122017, Ovum, August 2012
Also, many new connections are now being generated by multiSIM consumers, and by enterprise and machine-to-machine
connections, blurring what a net addition means. These new
types of connectivity also have very different usage, revenue
and margin profiles compared with the legacy customer base.
Operators complicate the picture further by measuring subscriber
churn in varying ways, making it harder to compare reported
performance.
60
50
40
30
20
10
0
2011
Global
2012
2013
North America
2014
2015
Europe
2016
2017
Asia-Pacic
Source: Mobile Regional and Country Forecast 20122017, Ovum, August 2012
IT
Outsourced
equipments
and IT services
with revenuesharing
arrangements
in place
Passive
infrastructure
Tower sharing
activities to
minimize capex
and open
burden in rural
areas
Network
Outsourced
network
management
with supplier
payment based
on subscriber
usage
45
40
35
30
25
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
Average
Operator 1
Operator 2
Operator 3
Operator 4
Operator 5
3Q12
Network coverage
SAC/SRC
Network additions
Chum
Market penetration
MoU
ARPU
3G handset take-up
Source: EY analysis
100%
maturity and the industry characteristics that will drive the need
for these metrics.
80%
60%
40%
20%
0%
2009
1 service
2 services
2011
3 services
4 or more services
Network coverage
SAC/SRC
Subscribers
Chum
Penetration
M2M connections
MoU
ARPU
3G handset take-up
Smartphone take-up
Industry characterstics
Mobile as premium product
ARPU stabilization
Disruptive competition
Source: analysis
A throwback to an earlier
industry phase ...
The usage of EBITDA in the industry dates back to the 1980s,
when leveraged buyout (LBO) investors began to apply it to
help them assess a telecoms businesss financial restructuring
potential for example, by calculating EBITDA-to-interest coverage
ratios.
In the wake of the dot-com crash in 2001, operators started
reporting EBITDA themselves. In the years that followed, as
industry players recovered from the downturn, reporting in EBITDA
allowed operators to highlight positive core profit trends.
10
EBITDAs advantages
In determining what these metrics might be, its important to
recognize that EBITDA does have some fundamental benefits. One
is that it enables clearer peer comparisons and comparisons
between industries by stripping out the impact of financing and
accounting decisions, which can vary substantially year-on-year
and between industry sectors.
Furthermore, EBITDA allows trends to be tracked over time and
enables baseline profitability to be evaluated without capital
expenses, making it preferable to net income as an indicator of a
companys ongoing operational strength. EBITDA is also widely
used in other important ratios that are tracked and reported in the
sector, for purposes such as valuations (EV/EBITDA) and gearing
(net debt/EBITDA).
and drawbacks
While EBITDA is a good metric for evaluating profitability, its
insights fall short in an era when investors are closely tracking
cash generation. This is one reason why operators began
introducing cash flow metrics in 2008. Operating cash flow is
a better measure of how much cash a company is generating,
because it takes net income and adds back non-cash charges,
while also including changes in working capital.
US$m
300,000
200,000
100,000
Capex
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
EBITDA
11
ROIC (%)
8
6
4
Western Europe
Asia-Pacic
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
North America
14
12
40
Legacy connectivity
services
35
30
25
20
M2M services
15
OTT/ICT
applications
10
5
10
Advertising and
payments
11
12
13
14
CROIC %
Source: EY analysis
13
Market characteristics:
Early 3G introduction
Economic/regulatory pressures
Low fiber penetration
Market characteristics:
Spectrum scarcity
High smartphone penetration
Early LTE introduction
High levels of historic
consolidation
Market characteristics:
Market characteristics:
Low population density
Recent consolidation in fixed
and mobile
Aggressive NBN rollout
14
Figure 19. Metrics matrix to cover key information needs of investors and management
KPI domain
Efficiency
Usage
Environment
Smartphone/tablet penetration %
Broadband penetration %
Pay-TV penetration %
M2M ARP-SIM
Cloud/virtual IT penetration %
4G population coverage %
In-home 3G coverage %
Network utilization %
Bps/Hz/BTS
On-net traffic %
Investor Insights
Investor Insights
Investor Insights
Return on equity
Data consumption
Cross-selling execution
Market reach
Equity/assets ratio
Network resilience/efficiency
Network load
Network rollout
Net debt/EBITDA
Spectrum efficiency
Energy consumption
Network density
Customer
Network
Operator performance
Business environment
Source: EY analysis
15
Summary
The factors challenging legacy metrics
The telecoms industrys legacy metrics face significant challenges, both from external factors and internal
strategic considerations.
16
Contacts
Jonathan Dharmapalan
Global Telecommunications Leader
jonathan.dharmapalan@ey.com
Holger Forst
Global Telecommunications Markets Leader
holger.forst@de.ey.com
Prashant Singhal
Global Telecommunications Markets Leader
prashant.singhal@in.ey.com
Olivier Lemaire
Telecommunications Leader EMEIA
olivier.lemaire@lu.ey.com
Luis Monti
Telecommunications Leader Americas
luis.monti@br.ey.com
Masahiko Tsukahara
Telecommunications Leader Japan
tsukahara-mshk@shinnihon.or.jp
David McGregor
Telecommunications Leader Asia-Pacific
david.mcgregor@au.ey.com
Adrian Baschnonga
Lead Analyst
Global Telecommunications Center
abaschnonga@uk.ey.com
Metrics transformation in telecommunications
17
ey.com