VIEWPOINT

2024

RESHAPING TELECOMINVESTMENT IN A
N E X T- G E N E R AT I O NWORLDAdopting a new blueprint to focus
CAPEX/OPEX & drive profitability

AUTHORS
Vincenzo Basile
Fabio Bianchi

Telco operators are facing declining profitability

Guillem Casahuga

from a combination of stagnant or negative revenue

Sean McDevitt

growth resulting from competition and increasing

Arvind Rajeswaran

CAPEX/OPEX caused by increasing user traffic.
While operators have always run efficiency programs,
traditional methods are no longer sufficient to meetcurrent financial constraints and future market
evolution. This Viewpoint explains how successfully
managing costs requires a new, more granular,
holistic approach.

Abhishek Srivastava

ARTHUR D. LITTLE

VIEWPOINT

MA XIMIZING PERFORMANCE
WHILE OP TIMIZINGINVES TMENT
The changing pressures on telcos

THERE IS A CLEAR
NEED TO PRIORITIZE
AREAS WITH THE
HIGHEST RETURNS

Telecom operators play a critical role in a worldthat depends on ubiquitous connectivity anddemands data traffic and services. However,rising costs and increasing competition have
impacted their overall profitability. Providers
understand the urgent need to transformthemselves by developing an ecosystem approachthat moves beyond traditional connectivity andprovides both B2C (business-to-consumer) and- Achieving operational andinfrastructure-led excellence. Focusing
on the quality and reliability of services tomaximize customer experience is criticalwhen planning and operating network
infrastructure.

- Running service-centric operations.

B2B2x (business-to-business-to-any-end-user)

End-to-end (E2E) service orchestration

customers with platform-based products.

and automation are essential to delivering

Technology innovation is the essential lever forthis transformation. Adopting open, modern,the next generation of telecom services.

- Becoming an ecosystem provider. By

software-based architectures that are modular,

exposing their network to partners throughreusable, cloud-native, AI-ready, and madeapplication programming interfacesof standardized components will transform(APIs), telcos can create an ecosystemcompany culture and enable new operating

and increase their service offerings.

models and go-to-market and partnering
approaches. Given the investments requiredand current financial pressures, there is a clear
need to prioritize areas with the highest returns.

2. Network sustainability. As highlighted
in the Arthur D. Little (ADL) Viewpoint“Enabling a Sustainable Telco Ecosystem,”
operators must ensure their technology

When prioritizing network investments, operators

investments support the objective of runningtend to focus on traditional metrics like speed.

a more sustainable network. To deliver this,

Although meeting customer needs is central

many telcos have modified their CAPEX

to success, two other critical key performanceappraisal process. For instance, they set

indicators (KPIs) focus on customer expectations/aside ring-fenced funds for projects thatexperience and sustainability strategies:

offer sustainability benefits.

1. Network reliability and quality. Currently,
customers are generally satisfied with modern

Factors behind need for greater efficiency

networks that deliver speeds of 50Mbps orFour key factors drive the gap between stagnant

higher and offer reliable coverage, so theyrevenues and greater required investment:

are unlikely to perceive or value any future
improvements. Operators therefore have tofocus on reliability and quality. The recent
Opensignal Global Reliability Experience
Report highlights the relevance of reliability toretention and revenues; CTOs and chief network
officers should reshape the investment mix byshifting from coverage and speed to pursuing

1. Regulatory pressure. Regulatory interventions
are increasing to support various objectives,
such as creating more competitive markets
with lower customer costs (e.g., termination
costs in the EU) and providing them withhigher-quality services and experiences(e.g., fiber rollout in the Middle East).

network resilience based on three key pathways:

RESHAPING TELECOM INVESTMENT IN A NEXT-GENERATION WORLD

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ARTHUR D. LITTLE

VIEWPOINTASSETS MUSTBE MONETIZEDIN SHORTER
TIME FRAMES

Why CAPEX-intensity ratios are increasing
The above factors are expanding telco CAPEXintensity ratios, which measure CAPEX against
revenue (see Figure 1). Telcos are investing
more in their network and IT infrastructures
to support businesses and customers but are
unable to fully monetize these investments.

2. Growing technology complexity. Rapid

The main drivers for CAPEX intensity are a needevolution adds new layers and network

to deliver a greater number of services, cope withcomponents, which increases the need fortechnology evolution, and pay for higher energy

CAPEX spending to compete with rivals,

consumption while data provision becomeswhile assets must be monetized in shorter

commoditized. Compared to traditional players,time frames.

new entrants are less constrained by a need to

3. Market hyper-competition. Competition,

keep CAPEX-intensity ratios manageable, adding

especially in Europe, is lowering average

to competitive pressures.

revenue per user (ARPU) as operators offer

In terms of technology, these growing CAPEX

generous deals to attract customers.

costs span:

Consequent low margins reduce resources- Fixed and mobile network fiberization- Maintaining legacy copper infrastructure

to reinvest in the network and generatealternative dynamics in the telecom
landscape (e.g., NetCo-ServCo separation,with fewer retail end customers

TowerCo, network sharing, mergers).
4. Mounting data traffic volumes. Data traffic
is constantly growing, due to streaming, 5G
devices, fixed wireless access (FWA), andfiber. Huge capacity expansions are required- Rolling out 5G networks and virtualization- Continued network densification- Huge investments to maintain high network
quality across growing data traffic volumes

to maintain the same quality of service,
Maintaining
legacy 2G and2015–
3G networks
e 1. Evolution of
CAPEX as percentage- ofrevenue,necessitating higher CAPEX for investments- Rising IT maintenance costs
and OPEX spending on maintenance.

Figure 1. Evolution of CAPEX as percentage of revenue, 2015–2022

20%
19%
18%
17%
16%
15%
14
13
12
2015

2016

2017

2018

European average

2019

2020

2021

2022

North American average

Source: Arthur D. Little

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ARTHUR D. LITTLE

VIEWPOINTINTRODUCING NE W
INVES TMENT PAR ADIGM
Telcos are under pressure to increase investment
while revenues plateau; over the long term, thisis financially unsustainable. Traditional telco
efficiency programs that focus only on cost

Geolocated tailored services
Instead of a blanket approach to network
CAPEX, operators are evaluating their spending
on a geographical basis, centered on the three
KPIs of commercial, technology, and customer
experience (see Figure 3).

reduction through analyzing costs and budgets,

They also must evaluate their complete service

redesigning processes, and adopting automation

offering portfolio on a geographical basis.

are no longer enough.

Both fixed and mobile operators should tailor

Operators need a new framework to guide CAPEX/OPEX spending to ensure ROI. There shouldbe less emphasis on spending reductions andmore on targeting investments to drive ROI.
These investments must be correctly allocatedgeographically and over time. As illustrated
in Figure 2, new efficiency levers can build on
existing programs to deliver transformative

the quality of service (including throughput
and latency) and the portfolio itself at an accessnode level (i.e., the mobile site or access point
for fixed-line networks). This analysis should
be based on a financial evaluation of required
CAPEX/OPEX versus expected revenues generated
by the forecast customer base, competition, andcustomer requirements and expectations.

improvements.

Figure 2. Main evolution drivers and efficiency levers
affecting CAPEX/OPEX-intensity ratio
Figure 2. Main evolution drivers and efficiency levers affecting CAPEX/OPEX-intensity ratio
EVOLUTION DRIVERSOPEX (55%-60% of revenue)

Increasing numberof services

Operations (15%-20%)
NW OPEX(40%-45%)

Sales & marketing (18%-23%)
Non-NW
OPEX(55%-60%)

EFFICIENCY LEVERS

Geolocated tailoredservices

Infrastructure (15%-20%)
Utilities (10%-15%)

Technology evolution

Rising start-up
ecosystem

vs.

Technology
transformation1

G&A (10%-15%)
IT (8%-13%)
Content (5%-10%)
Other (3%-4%)
R&D (2%-3%)

Vendor management

CAPEX (16%-20% of revenue)

Increasing energy
consumption

Commoditizationof data

RAN (35%-40%)
NW CAPEX(70%-75%)

Non-NW
CAPEX(25%-30%)

Infrastructure
as a service

Transport & IP (15%-20%)
Core (13%-18%)
Quality & OSS (2%-3%)
IT (15%-20%)

Partnerships

Other (5%-19%)

Note: (1) Including modernization, automation, etc.
Source: Arthur D. Little

Note: (1) Including modernization, automation, etc.
Source:Arthur
D. Little
RESHAPINGTELECOMINVESTMENT IN A NEXT-GENERATION WORLD

4ARTHUR D. LITTLE

VIEWPOINT

e 3. Combining commercial, technical, and customer
ience KPIs

r D. Little

Figure 3. Combining commercial, technical, and customer experience KPIs

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

Technologicaldrivers• Fixed voice & data
• Mobile voice• Mobile data

Customerexperience drivers• Complaints• Churn• Reasons for churnSource: Arthur D. Little

Technology transformation

Infrastructure as a service

Technology surely drives costs up; however,Many mobile and fixed operators in Europe andtechnology can also bring costs down.

Asia have implemented physical or virtual company

Automation, AI adoption, and equipment

separations, splitting themselves into a network

modernization are fundamental levers tocompany (NetCo) and a service company (ServCo).

speed up processes, reduce operational costs,

The NetCo can generate new revenue streams by

and improve customer experience, as explained

offering its infrastructure as a service more widelyin previous ADL publications (“Operations 4.0”

to other telcos and non-telcos. Though physicaland “Extracting Network Operations Efficiency

separation can be disruptive for operators, itin the Post-COVID-19 Era”).

delivers major financial advantages. Based on our
experience, it provides a 3%-4% growth in EBITDA

Vendor management
Effectively managing vendors is a classic
approach to delivering cost savings. However,and 10%-20% enterprise value improvements.
Partnerships

often more can be done. Well-structured sourcing

Establishing partnerships with vendors or

and negotiation strategies built on a thoroughmarket players enables operators to create ananalysis of strengths, weaknesses, opportunities,

ecosystem where they can cost-effectively offer

and threats (SWOT) should form the foundationa wider portfolio of services to their customersof strong vendor management, especially whenor increase volumes to decrease costs throughoperators must rebalance costs and revenues.

economies of scale. Opening their network toother companies through APIs allows operators tocreate an ecosystem where third-party developers
and businesses can leverage their infrastructure,
leading to increased innovation, expanded service
offerings, and enhanced customer experiences.

RESHAPING TELECOM INVESTMENT IN A NEXT-GENERATION WORLD

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ARTHUR D. LITTLE

VIEWPOINTAN INTEGR ATED,SUS TAINABLE FR AME WORKTR ANSFORMS EFFICIENCY- Customer data
- Technology infrastructure mapping- Cost structures for each technology

To meet their pressing needs, operators must

Combining these inputs and the outcomes of themove beyond traditional efficiency measures.

analysis guides operators to the next three steps:

Instead, they must adopt a geolocated approachthat delivers a service heat map to maximize

1. Assess demand & business needs

revenue and minimize CAPEX/OPEX spending.

Operators can assess and challenge demand

Essentially, they must redefine the classic

from business departments by integrating it

top-down planning process, which is normallywith a deep dive into technical and commercial/determined by engineering factors rather thanmarket competitiveness KPIs at a geographicalinvestment considerations. CAPEX planning,level, ideally around individual access nodes. Thisin today’s 5G era and in the future with 6G andenables operators to identify what customers

beyond, must operate at unprecedented pace,need customers in a specific location.

scale, and precision with seamless workflow

The outcome of the demand analysis includes:

across the entire organization.

- Geolocation of addressable market within

Achieving this requires a framework that unites

site range

efficiency levers and embraces a customer-- Prospect and customer base addressable

centric perspective (see Figure 4). It starts byanalyzing multiple inputs, including:per point of presence (PoP)- Operator’s current business plan

- ARPU per service estimation- Incremental cost per customer calculationand service/product portfolio- Competitor mapping- Regulatory rules and constraints

based on distance from PoP- Potential penetration estimation

Figure 4. ADL’s integrated sustainable framework totransform
efficiency
Figure 4. ADL’s integrated
sustainable framework to transform efficiency
INPUT
Operatorbusiness plan

Competitor
mapping

Regulatory
framework

Assessment of demand& business needs•

Assess challenges

1 • Combine customer experience,technical & commercial KPIs
at a granular geographical level,
down to individual sites,
to de-average the average

ILLUSTRATIVE

Customerdata lake

Infrastructure
mapping

Cost structure assessment
for each technological option

2•

Assess market & technology options,matching demand with most convenienttechnology•

Prepare business case simulations
for each element

Addressable market

Cost structuresof eachtechnology

Benchmarkstudiestailored & detailed
3 • Perform
international benchmarks analysis•

Analyze relevant set of datato compare with peers

New technology investment plan

NEW CAPEX/OPEX PLAN
Project selection at operator
country & group level

Service coverage
Competitor 1
Competitor 2

Source: Arthur D. Little

Source:Arthur
D. LittleINVESTMENT IN A NEXT-GENERATION WORLDRESHAPINGTELECOM

6

ARTHUR D. LITTLE

VIEWPOINT

Market competitiveness factors comprise:This must factor in PoP, service coverage,- Competitive analysis to support revenue

market potential, and CAPEX/OPEX costs. There
should also be an assessment of market andprojection- Definition of offer positioning- Competitor churn and gross adds estimation- Churn and gross addition versus competitor
estimation- Revenue risk analysis- Calculation of potential market share per PoP
Delivering the above at a local, granular leveltechnology options to match demand with themost convenient technology. Starting fromthe individual access points, business casesimulations should be run for each element,
based on the best combination of technologies,
service offerings, and related quality of service
and costs. Once optimized, they should be
aggregated, first to the core network level
and then to the transport nodes. This iterative
approach ensures a positive business case. The

requires analyzing enormous volumes of data,
which is only possible by harnessing dedicated,
automated AI/ML (machine learning)–powered
tools built on an automated workflow from input
to output. The framework outlined above has
been developed to meet these requirements
and can be customized on a case-by-case basis

outcome of the process should be an optimal
combination of interventions mixing different
technologies and services at the local level tomeet customer needs.
3. Benchmark to ensure best practices

to tailor analysis to an operator’s specific needs

The optimal combination should then be

and objectives.

validated by comparing its outcomes tointernational and local benchmarks to identify

2. Assess cost structures forany final changes and highlight risks. The operator

each potential technology option

needs to compare its plan with its competitors
and international best practices to fine-tune theUpon quantifying demand, operators need toquality of services to meet customer needs andidentify the optimal technology combination

expectations (see Figure 5).

for building their new technology investment

Figure 5. Sample
benchmarked
KPIs
and business
plan.
Figure 5. Sample benchmarked KPIs

ILLUSTRATIVE

30

Company KPIs

Department KPIs

NTW OPEX/revenue (%)
29

Acquisition cost per channel (€)
100 112
75 82
25 25

Range: 13.8-20.7

20
10
0

13

20
10
0

Indirect
Pre-paid

1
Y1
Client OpCo30

Direct

Y2

Y3

FTTH

257 450FTTCInternet only

FWA

Internet + TV

1 GBPS

Service activation time (minutes)

10

Y2

Y3

Jan

Feb

ADL bench range (median)

1

1-1.5

>1.5

Voice inaccessibility

1

1-1.5

>1.5

Call drop rate (%)

0.8

0.8-1.2>1.5

3G user throughput(Mbps)

1.5

1.5-1

<1

4G user throughput(Mbps)

6

6-3.5

<3.5

Post-paid

4
Y1

NW unavailability (%)

Online

1,363
2,356
1,524
1,283
425505

ADL bench range (median)

19

Client OpCo

KPI

Unitary service cost (€)

NTW CAPEX/customers(€/customer)
11

Geolocated KPIs

Mar
FTTC

Apr
FTTH

May

Jun

Download throughput per site
(Mbps)

10

20

30

30

40
20

10 10 10

Location 1 Location 2 Location 3
Operator 1

Operator 2

Operator 3

Source: Arthur D. Little

RESHAPING TELECOM INVESTMENT IN A NEXT-GENERATION WORLD

Source: Arthur D. Little

7

ARTHUR D. LITTLE

VIEWPOINTC O M PA R I N G A N
O P E R AT O R ’ S K P I s T O I T S
PEERS HELPS IDENTIFYPOTENTIAL RISKS TO
THE CUSTOMER BASE

APPLYING NE W
INVES TMENT PAR ADIGM
IN THE MIDDLE E AS T
Countries across the Middle East are actively
building digital economies with far-reachingtransformation programs, such as Saudi
Arabia’s Vision 2030, Kuwait’s Vision 2035,

For example, if a competitor provides a service

and Bahrain’s Vision 2030 and Sixth Nationalthat meets customer expectations, with KPIs

Telecommunications Plan. The digital agendas

below those of the planned option (e.g., deliveringin these countries aim to accelerate economic

50Mbps download speeds on a 4G network),

diversification, promote sustainability, andinvesting in better-quality services is unnecessaryenhance citizen satisfaction by implementing

and inefficient. CAPEX can then be redeployed

innovative technologies and creating smart cities,

to deliver a competitive advantage. Similarly,

next-generation healthcare and education, smart

comparing an operator’s KPIs to its peers helps

government, and advanced mobility options.

identify potential risks to the customer base if a

Telco regulators are supporting thesecomparatively lower-quality service is provided.

transformations by mandating quality and

The results of the benchmark analysis are crucial

performance standards and boosting service

to fine-tuning the previous analyses and businessavailability. However, operators face challenges

case. Operators will be able to define the optimal

from the combination of rising costs and static

scenario around PoPs, service coverage, market

revenues, which limit investment resources.

potential, and cost, which will form the foundation

It is vital for Middle Eastern telcos to adoptof the technical new CAPEX/OPEX plan and the

new frameworks for CAPEX/OPEX planningcompany’s new business plan that integrates

and efficiency.

revenues and spending.

Case study: Reengineering B2B network strategy for a Middle Eastern operator
A convergent operator wanted to build aThis approach enabled the operator tosignificant presence in the B2C and B2B markets

successfully offer fixed fiber services to 40%

using its own FWA and fiber network. This requiredof the B2B medium-high-end market with ana shift from its existing focus on offering point-

investment that was five times lower than initial

to-point connectivity to B2B customers. ADL

estimates by focusing upgrades in main cities

began with an analysis of customer demand

and avoiding unnecessary investments. The sameand competitor activity at a local access site

approach was then applied at the backbone level

level. For each candidate site, analysis included

to identify infrastructure gaps and the need forrequired CAPEX/OPEX investment to upgrade to

redundancy to protect relevant traffic routes

fiber, potential market size, and penetration rates.

and enhance network resilience. Overall, theThe information was used to create a ranked list

project provided a comprehensive fiber coverageof business cases for each site, displayed throughstrategy that was immediately translatable into

a visual, geolocated tool.

infrastructure design, implementation, and sales
plans while meeting financial needs to deliveradequate ROI.

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ARTHUR D. LITTLE

VIEWPOINT

5 K E Y BENEFIT S OFSUS TAINABLE TELCOSPENDING
Applying the framework described above supports
the development of both a future-proof businessplan and a new, modular, integrated strategy
that reduces cost, increases revenue, and better
engages with the operator ecosystem (see Figure6). This plan simultaneously creates five benefits:
1. Expense optimization — identifying
efficiencies and the best allocation

3. Commercial commitment — gaining
company-wide support for the strategy
to enhance financial results
4. An outward-looking perspective — scouting
for potential partnerships, involving external
stakeholders, and highlighting NetCo and M&A
opportunities
5. A transparent and reliable strategy —creating a robust approach built on businessdrivers and data analysis, making the decisionmaking process transparent and reliableof CAPEX/OPEX
2. A future-proof plan — selecting future-proof
technologies with a flexible and localized
approach, focused on customer needs

6. Future-proof business plan and integrated strategy

ittle

Figure 6. Future-proof business plan and integrated strategy

Risk &
opportunities

Company,
department& geolocated
KPIs

Demandmapping

Technology
investment plan
& strategy
MarketcompetitivenessProposed list of investment
after three-stage
optimization
Source: Arthur D. Little

RESHAPING TELECOM INVESTMENT IN A NEXT-GENERATION WORLD

9ARTHUR D. LITTLE

VIEWPOINT

CONCLUSIONA N I N T E G R AT E D F R A M E W O R K
DELIVERS SUCCESST E L C O S N E E D T O Q U I C K LY A D O P T A N E W ,B O T T O M - U P, D ATA - D R I V E N F R A M E W O R K

Telcos need to rethink their business models and quickly adopt a
new, bottom-up, data-driven framework to address the widening
gap between stagnant revenues and increasing CAPEX/OPEX
investments. Critical factors to consider include:
1

Business demand, required CAPEX/OPEX spending, andrevenues should be highly granular and closely correlated
at a geographical level.

2

The service offering portfolio and quality of service required
will vary between locations.

3

The service offering portfolio and quality of service must be
tailored and geolocated to customer needs and competitor
offerings.

4

The new technical and business plan will ensure operators
stay within budget while maximizing expected revenues
and increasing ROI.

RESHAPING TELECOM INVESTMENT IN A NEXT-GENERATION WORLD

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ARTHUR D. LITTLE

VIEWPOINTNOTES

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11

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