Viewpoint

Extracting network operations efficiency in the
post-COVID-19 era
How telecom operators can overcome complexity and demand challenges

Globally, the telecommunication industry faces declining profitability levels with constant pressure on operators’ top line because of pricewars and competition from OTT players, as well as increasing expenditures (OPEX and CAPEX) to meet the ever-growing data demand andinvestments required in next-generation networks. The COVID-19 crisis has exacerbated this situation due to work-from-home and stay-athome models. Arthur D. Little is partnering with telecommunication players to overcome these challenges and to identify and implement
operational transformations aimed at improving performance and enhancing the customer experience (CX) as well as the quality of service.
We recommend a transformative approach to support clients that redefines network operations, relying on a wide range of concrete projectexperiences where evolving toward network cloudification/softwarization will change mobile network operators’ (MNO) cost structure, withthe goal of reducing OPEX and optimizing CAPEX.

Pressure on top line asks for next level of efficiency

COVID-19 speeds up the need for higher efficiency

Intense competition means telecom players must aim for better
efficiency to compensate for pressure on the top line. They mustbuild a transformative multiyear program to protect margins for future
investments, whatever market conditions and strategies for increased
data traffic will be. In fact, Ericsson forecasts global data traffic willreach 160 exabytes per month by 2025 (see figure below), considering
all mobile technologies, while Cisco is forecasting a 20%-30% CAGR
range increase of total IP traffic in Asia-Pacific (APAC), Europe, and North
America regions between 2018-2023.

The COVID-19 crisis has changed the hourly data traffic profile andincreased usual peak hours. This new busy hour profile has beenregistered more in APAC and Europe, Middle East, and Africa (EMEA)
regions than North America, according to Opensignal research (seenext figure). Italy, where data traffic increased by 15% and downlink
speed dropped by nearly 20%, has experienced the highest increase.1
For example, Italian fixed-fiber operator Fastweb witnessed a spike innetwork usage early in the pandemic, measuring one years’ traffic in justone week.

Ericsson data traffic forecast, 2015-2025

February 2020 variations in data transmission

Source: Ericsson

EB/month

APAC

160
140
120
100
80
60
40
20
0

EMEA

Mobile and fixed data traffic increased as COVID-19 forced people
to work from or stay at home. This caused a download speed dropat times, mainly due to an increase of concurrent connections andlarger volumes of data consumed. Services such as streaming,
videoconferencing, or gaming have intensified, inducing giants such as
Netflix and Disney to reduce streaming quality in some markets to easethe stress on networks.

1

Source: AGCOM Report, June 2020; Opensignal Report, June 2020; ADL analysis

Italy

12%

-10%

15%

-19%

North America
South America

7%

-12%

-1%
-8%

6%
14%

Source: Arthur D. Little analysis

Cost-efficiency approach beats one-off cost cutting
Based on Arthur D. Little’s experience, a one-off cost-cutting approachis not the right solution for sustainable impact in the long run. Telcos
need to identify the investments necessary to quickly respond to
new customer needs, both in terms of data traffic and download
performances. To meet these new market requirements and react to thefinancial pressure, telco players must proactively launch cost-efficiency
initiatives.

Viewpoint

OPEX, including site rental, energy, and personnel, represents about
50% of the total operating costs of a typical telco operator. This portionis even greater (70%-80%) for towercos. Out of this 50%, site rental,
maintenance, and energy costs cover more than 80% of the yearly total(see figure below). Maintenance represents the highest cost for MNOs,
while site rental is the largest for towercos.

Relevant combined KPIs at the site/geographical area level enable
operators to de-average the average and to evaluate relative prioritiesof each domain, providing a clearer indication of what should be done.
This ensures that all possible scenarios are viewed from a variety ofperspectives to ensure the company chooses the best solution to
dismantle a site.

Network OPEX distribution

Arthur D. Little deploys big data analytics to evaluate the profitability
levels of a site’s portfolio, considering commercial, technical, and CX
perspectives. A real-time, site-level, value-based assessment approachenables telcos to evaluate investment/divestment decisions to enhancethe overall return on site investments.

Source: Arthur D. Little analysis

Network consolidation is usually driven by two main factors: technical
KPIs and rental cost. A more comprehensive approach for a smart
site dismantle methodology should combine technical KPIs and rental
costs with commercial and CX KPIs to enable a 360-degree view of thecurrent situation. This approach provides insight into future site needs,
allowing for better evaluation of potential for consolidation (see figure
above).
2

Extracting network operations efficiency in post-COVID-19 era

BerlinRental market price range

Rental reference price range

Steglitz

CX drivers
 Complaints
 Reasons for churn Churn

Structured approach benchmarking analysis

DahlemTechnological drivers
 Fixed voice & data Mobile voice Mobile data

Zehlendorf

Commercial drivers
 Population density
 GDP per capita
 Market share

Spandau

A comprehensive methodology to evaluate sites

Benchmarking enables the company to compare current costswith actual market prices by geographical areas, even reaching theneighborhood or street level, along with a meticulous market analysis.
This allows for the definition of achievable objectives based on realmarket trends and grants know-how for future operations (e.g., siteacquisition processes). The figure below illustrates the results of abenchmark Arthur D. Little conducted in Berlin, where rents paid by thecompany are benchmarked to actual values at the neighborhood level.

Grunewald

There has been a recent rise in network consolidation, especially inEurope, despite limitations imposed by electromagnetic pollution laws
(Italy, for example, has one of the most restrictive rules in Europe,
allowing just 6 V/m, while UK legislation allows 41 V/m).

Another pillar is a structured database that enables telcos to analyze
landlords’ contracts on a site-by-site basis in order to establish a program
to lower rental costs. Such a program should include a benchmarking
analysis and define a contract-renegotiation strategy to drive thecompany toward challenging but realistic rental-reduction targets.

Wilmersdorf

The typical business model for towercos includes increasing tenancy
ratios (leveraging onsite consolidation) to reduce rental and maintenancecosts and avoid CAPEX. The target should be to reduce these costs by
up to 40%, primarily through lower rental (targeting 1.3-1.5 rent range ofthe base fee paid by the anchor tenant) and maintenance costs, alongwith huge CAPEX avoidance. Mobile network operators’ OPEX structure
can consequently change by hosting fees but depends on specificcontractual agreement governing service fees.

Kreuzberg

Telco players can perform optimization interventions on rental,
maintenance, and energy, as we will explore later in this Viewpoint. An
opportunity for performance improvement that is unique to towercos,
however, is network consolidation.

Charlottenburg

Efficiency from network consolidation

Friedrichshain

and energy, maintenance, and site rental costs.

Site rental contracts represent a significant cost for telco players, andespecially for towercos. Following a well-structured strategy in operating
on site rental cost can mean considerable cost saving and performanceenhancements. High-quality and well-organized information about the
network is a prerequisite for a robust efficiency plan. A comprehensive
and integrated inventory system, updated in real time, is the backboneof the whole strategy and is necessary to understand the current
situation of the sites, especially the oldest ones. Such a system allows
for full insights about contracts, configuration, equipment installed, etc.,
managed by the company and enables real-time analysis and reporting.
Companies including Verizon or Vodafone have adopted enterprisesolutions to better manage NTW data and information and enable
monetization of their assets.

Tempelhof

Operators must rethink their cost structure to be lean and more
efficient, reduce absolute spending while growing their networks, andadd capacity and new technologies, thus increasing overall complexity.
With its clients, Arthur D. Little has identified solutions to streamline
transformational cost improvements, focusing on network consolidation

Lever 1: efficiency from site rental

Schöneberg

Towercos

Tegel

MNOs

Köpenick

Source: Arthur D. Little analysis

51%

Pankow28%

Prenzlauer Berg

RentalMitte

38%

Neukölln

Maintenance

12%
14%
23%

Marzahn20%
14%

Lichtenberg

Other
EnergySite priceSource: Arthur D. Little analysis

Developing a renegotiation strategy supports executives in evaluating
choices and planning next steps, including: a make or buy (internal
resources vs. external agents) decision for renegotiation team setup;levers (such as advanced vs. balanced payment, contract duration
extension, up to two to three years’ advance rental fee, voice-over3

Viewpoint

relocation) to adopt during face-to-face contract renegotiation withlandlords; and incentive policies linked to actual savings (e.g., to pushinternal resources or external agents to perform at their best).
Arthur D. Little provides negotiators with a playbook containing all
required information and documents (e.g., site benchmark, ad hoclevers, decision tree, current contract, negotiation history) to secure
better negotiation performances. Following Arthur D. Little’s approach,companies have saved as much as 20%-40% of rental cost.

Lever 2: efficiency from maintenance
Maintenance processes and activities represent the foundation forproviding expected quality of service to customers. They contribute 40%
or more to operations OPEX and are usually seen as ever-increasing
costs over time. Telecommunication players have a real opportunity
to reduce operational costs by up to 50%, while improving service
quality and CX by streamlining and improving their maintenanceactivities. Arthur D. Little has conducted a benchmark study covering
most leading telco players in European, Asian, and Middle Easterncountries to understand how operators address challenges and achieve
better performance in their network operations. Results of the study
demonstrate that the best performers in reducing front-office and backoffice external costs are 38% superior overall and 18% in terms of staff;
in an examination of field operations, the best performer in the study is
56% superior on external costs and 35% on staff, resulting mainly fromautomation of processes and tools.
The best performers achieved their efficiencies by implementing aportfolio of solutions including: sourcing optimization, managed services
agreements to obtain synergies through a technical partner, radical
simplification by reducing operational complexities accumulated during
the growth, digital shift of the operations to automate and predict
events, and new technologies adoption (virtualization, cloudification, andartificial intelligence [AI]).

A multi-year hands on efficiency program in a nutshell
In a long-running collaboration, Arthur D. Little has supported a
European operator to compete in a mature and capital-intensive
market where ARPU (average revenue per user) is far below 10
euros and the top line is under pressure because of a price war.
Facing a negative profit and loss, the CEO decided to redefine thesourcing strategy, moving to a full end-to-end managed services
model to leverage huge synergies only achievable by a vendor. At
run rate, results have proved that two-digit savings (~33%) over aseven-year period are possible while improving quality of services
and network KPIs (i.e., the operator’s drop call rate was aligned to
the fifth percentile of benchmarked peers).
After some years, the operator was still registering EBITDA marginof 10% (vs. a market average of 35%), and EBIT and free cash flow
were negative. Competition grew, and the network architecture
was getting more complex due to data traffic increases and therollout of heterogeneous access technologies. The CTO decided
to move to customer-centric operations, shifting from platform
KPIs to service QPIs and introducing a first wave of network
virtualization. Those initiatives brought OPEX increase avoidance(~20%) enhancing the CX, as confirmed by an improved customer
satisfaction index.

Profit and loss and free cash flow improved but were still not goodenough to compete in a market with huge margins erosion anda negative ARPU trend. The company achieved 20% savings bydigitizing network operations (e.g., fault management systems
automation and adoption of an AI algorithm) and conducting a radical
simplification of the processes supported by off-the-shelf systems.
This case study summarizes the main efficiency initiatives an operator
can adopt to reduce network down time, providing better service-levelagreements and lowering revenue loss. Arthur D. Little has found that
other approaches can be implemented as well:n

A structured and proactive “service management model” approach(from reactive to predictive maintenance) enables operators typicallyto increase their network availability by up to 30% and reduce theescalation of customer claims by up to 10% for faults related to
network.

n

A periodic fault management analysis approach to monitor network
operation center performances aims to optimize costs (reducing
the number of trouble tickets) and be as close as possible to bestpractices (e.g., restricting the number of trouble tickets forwarded tothird-level support to within 1%).

n

An integration between systems within operations provides multifunctional dashboards enabling network engineers to identify criticalareas (e.g., throughput per user in busy hour below the minimum
acceptable threshold for good CX) for process improvement,
end-to-end monitoring, and performance management capabilities
enhancements.

n

An integration between operations systems and customer caresystems allows better response to clients’ inquiries in case of faults(e.g., expected time for resolution in a specific geographical area) or
to enable an outbound proactive call campaign to inform high-value
customers about faults and estimated time for resolution.

All of these efficiency levers pertain to either MNOs or towercos,
but the latter should be prepared to manage new technologies andidentify new revenue streams to monetize their assets. To do so,organizations must have reliable, real-time visibility into their structuresand understand the entity of available capacity for installing additional
equipment and the passive infrastructure’s technical specifications
to ensure structural integrity. Towercos that have developed such an
integrated image of the site have achieved an OPEX optimization of
15%-25% and raised opportunities to increase their top line by 10%30% by adding more tenants.

Lever 3: efficiency from energy management
Companies in different geographical areas must identify the bestsolutions to lower energy consumption and related costs, consideringfactors such as the climate or the availability of commodities.
Moving legacy active equipment to a single RAN cabinet is the first
approach to consider; equipment modernization and consolidation
allow consumption optimization (up to 70% depending on network
vendor) and CO2 emission reduction (up to 75%), as well as operations
simplification and site space release. Introducing energy efficiency
technologies is another way to reduce power consumption: deploymentof more efficient rectifiers and a massive employment of radio stand-bymodalities (shutting down carriers) during off-peak hours can bring a 5%10% saving. Automation tools can enable the remote network operation
Extracting network operations efficiency in post-COVID-19 era

3

Viewpoint

center to manage air-conditioning to bring another 5%-10% saving andavoid the need for field technicians to go to site locations.
Free cooling systems, which force air exchange between an internal site
and the external environment to lower a site’s internal air temperature,
are limited geographically due to climate. However, in some areas,cooling optimization together with advanced climate-control systems (tobalance free ventilation and air conditioning set point) show a potential
15%-20% savings in consumption and require limited CAPEX per site.
Case studies demonstrate an average payback period of up to two
years.
Adoption of solar panels is another alternative for optimization. They havegeographical and space limitations to be a real alternative to electricity
or diesel generators, requiring clear sky conditions most of the year andspace to power a site (to gain an average power of 8 kW requires morethan 50 sqm). Despite these constraints, use cases highlight significant
savings, mainly due to reduced prices over the last 10 years (by some
80%-90%) and to government incentives. In fact, green bonuses forsustainable energy installations often make such an investment very
appealing. Solar is becoming more and more attractive, even in countries
where oil prices are very low (e.g., in the Gulf Cooperation Council[GCC] region, with a breakeven price of about US $0.05 per kWh).
Arthur D. Little also recognizes solar energy as a valid alternative togenerators in areas where the electricity grid is not present, even in
those countries where diesel prices are as low as in the GCC region.
The convenience of replacing diesel generators with solar has been
proved by several use cases built for operators in the Middle East, with apayback period of less than five years. Companies have explored renting
and managed service agreements as sourcing opportunities to simplify
operations as well as partnering with suppliers to manage the entire
equipment lifecycle.

Contacts
Austriataga.karim@adlittle.com

Belgium
pankert.gregory@adlittle.com

Chinaharada.yusuke@adlittle.com

Czech Republic
vylupek.lukas@adlittle.com

Franceduvaud-schelnast.julien@adlittle.com

Germany
opitz.michael@adlittle.com

India
maitra.barnik@adlittle.com

Italy
agresti.giancarlo@adlittle.com

Japanakayama.shinichi@adlittle.com

Korea
lee.kevin@adlittle.com

Latin America
casahuga.guillem@adlittle.com

Middle Eastfaggiano.andrea@adlittle.com

The Netherlands
eikelenboom.martijn@adlittle.com

Norwaythurmann-moe.lars@adlittle.com

Polandbaranowski.piotr@adlittle.com

Russian Federation
ovanesov.alexander@adlittle.com

Singapore
izydorczyk.tomasz@adlittle.com

Spainportal.jesus@adlittle.com

Swedenlasku.agron@adlittle.com

Switzerland
opitz.michael@adlittle.com

Turkeybaban.coskun@adlittle.com

UKjohnson.nicholas@adlittle.com

USA
mcdevitt.sean@adlittle.com

Authors
Vincenzo Basile, Bernd Schreiber, Pedro Ugarte, Lokesh Dadhich,
Fabio Bianchi

In summary, overall consumption efficiency depends on the extent of
the interventions taken and the size of the total network. Arthur D. Little
estimates an average performance improvement of 15%-25% of thetotal energy cost is achievable with the right implementation.

Insight for the executive
Operators face inevitable operational changes driven by technologicaladvancements that will be key to enabling network automation andenhancing CX. By taking a decisive strategic shift in replacing legacy
technologies and transforming the organization so that it can support
future customer-centric business, operators make cost transformation a
viable option.
Driving a transformation across a multifaceted organization requires
challenging the status quo. Operators may find this endeavordemanding, and they may well face internal resistance, among otherbarriers.
To succeed, operators must realize that operations are no longer a mere
prerequisite but can be a driver of value to enhance CX and support
new, innovative services. They must also establish grounded initiatives,
as described in this Viewpoint, and ensure efficient execution, leveraging
the competition between prospective cost-transformation providers.
Following this guidance, Arthur D. Little believes that operators caneffectively navigate the strategic choices that leverage the right supportand methodologies. In turn, they will realize their transformation
visions and be better prepared in the new landscape of next-generation
connectivity.

Arthur D. Little
Arthur D. Little has been at the forefront of innovation since 1886. We
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