opex efficiency strategies for csps and vendors...opex efficiency strategies for csps and vendors...

Opex efficiency strategies for CSPs and vendors

Opex efficiency strategies for

CSPs and vendors

Caroline Gabriel and Michela Venturelli


KEY QUESTIONS ANSWERED IN THIS REPORT WHO SHOULD READ THIS REPORT

This report is a companion to Analysys Mason’s Telecoms opex:

worldwide trends and forecast.1 It provides further qualitative

analysis of the trends identified in that report, particularly

regarding the impact of automation, virtualisation and asset

sharing programmes on communications service providers’

(CSPs’) operating costs, and the risks that accompany such

programmes. This report is based on several sources, including:

▪ a detailed model based on many public and private sources

▪ analysis and tracking of at least 60 Tier-1 CSPs based on

financial reporting, combined with a primary survey of 68

CSPs worldwide.

2

About this report

1 This report is available here: https://www.analysysmason.com/research/content/regional-forecasts-/telecoms-opex-forecast-

rdns0/.

▪ Are CSPs’ capex/opex/revenue ratios changing and why?

▪ How will automation and virtualisation affect CSPs’ staff levels,

productivity and overall costs?

▪ Will a wider range of organisations be involved in the running and

funding of telecoms networks in the 2020s through sharing and

hosting?

▪ Will opportunities arise for vendors as a result of their customers’ cost-

cutting programmes?

▪ How do CSPs’ business models and approaches to network ownership

affect their opex strategies?

▪ Strategy, planning and finance executives within CSPs who wish to

compare their own investment strategies with the overall market’s.

▪ Strategy and product management teams within equipment vendors

who wish to understand the key areas of spending growth with suppliers,

and target their activities accordingly.

▪ Senior executives within CSP services organisations (such as systems

integrators and software developers) who wish to understand where the

best commercial opportunities lie.

▪ Strategy, planning and finance executives within other companies (such

as towercos and webscalers) that are investing in networks.

GEOGRAPHICAL COVERAGE CATEGORY COVERAGE

▪ Worldwide

▪ Central and Eastern Europe

▪ Developed Asia–Pacific

▪ Emerging Asia–Pacific

▪ Latin America

▪ Middle East and North Africa

▪ North America

▪ Sub-Saharan Africa

▪ Western Europe

▪ Passive infrastructure for

wireline and wireless networks

▪ Physical and digital access

▪ Capitalised labour and non-

network capex

▪ Digital infrastructure

▪ Mobile and converged core

▪ Digital and traditional switching

and routing

▪ IT

https://www.analysysmason.com/research/content/regional-forecasts-/telecoms-opex-forecast-rdns0/


CSPs face uncertainty regarding the opportunities for new

revenue growth in the early 2020s (compounded by the COVID-

19 crisis), and need to release cash to enable business

expansion. However, the strategies with biggest potential

impact are risky and disruptive. CSPs should work with

partners and share assets to overcome this challenge.

CSPs will be heavily focused on reducing opex as a percentage of

revenue in the period to 2026 so as to maximise the monetisation

of 5G and FTTx roll-outs, while freeing up cash to develop new

income streams. Approaches will vary between different groups of

CSPs, but all will focus on automation and network sharing in the

near term, plus virtualisation and as-a-service models in the

medium term. Each strategy carries risk, and vendors that can

mitigate these by facilitating automation and displacing in-house

spending have the opportunity to generate USD50 billion in new

revenue between 2018 and 2026.

Figure 1: Overview of the multiple ways in which CSPs can

reduce opex

4

Executive summary

RECOMMENDATIONS

1. CSPs should consider innovative partnerships for sharing

infrastructure while controlling key assets.

2. CSPs must define clear automation targets and mitigate

the risks by working closely with partners.

3. Vendors should tailor their products and services to

individual customers’ opex profiles to secure a more

strategic role with CSPs. Source: Analysys Mason

USD50 billion will be

displaced from in-

house to external

opex

INTENSIFIED

FOCUS ON TCO

REDUCTION


The greatest opex efficiencies can be derived from increased

levels of infrastructure sharing and from the automation of

network and customer operations. However, both carry risk,

including loss of control of key assets and skills.

The gradual but steady growth in CSP revenue since 2009 is

becoming difficult to sustain, especially in competitive markets. It

is expected to slow in the 2020s, from a CAGR of over 2% in

2009–2019 to 0.33% in the period to 2026. As such, CSPs must

take action to improve their opex efficiency. They can either aim to

reduce opex to maintain or improve their opex:revenue ratio

(EBITDA), despite falling income, or they may protect revenue

growth, at the expense of margins, by making opex savings in one

area, such as network costs, in order to divert spending to an

enabler of revenue growth (such as Orange’s bank).

Analysys Mason’s Telecoms opex: worldwide trends and forecast

predicts that CSPs will have some success with these strategies

in the period to 2026. Opex will grow more slowly than revenue

until 2022, and will then fall.¹ This will be primarily because of

efficiencies from network sharing and automation. CSPs’ total

opex will be USD500 billion lower in 2026 than it was in 2017 if

they follow their plans. However, both sharing and automation risk

a loss of control of physical assets, people and skills that could be

prove to be essential to being competitive in the future. Once

control is abdicated to others, it will be difficult and expensive to

regain.

Figure 2: Opex savings in 2026 as a result of increased

network sharing and automation over 2018 levels

6

Challenge: CSPs’ opex reduction strategies with the biggest potential impact come

with high risk and disruption

¹ For more information, see Analysys Mason’s Telecoms opex: worldwide trends and forecast.

AUTOMATION

>USD130 billion

PASSIVE INFRA

SHARING

>USD95 billion

ACTIVE NETWORK

SHARING

>USD270 billion

Source: Analysys Mason

https://www.analysysmason.com/research/content/regional-forecasts-/telecoms-opex-forecast-rdns0/


There are several ways to mitigate the risk of releasing valuable

assets and differentiation in the quest for cost efficiency.

▪ CSPs must identify the people, assets and processes that

are fundamental to their success, and ringfence them or

increase their investment in them.

▪ CSPs can spread their risk by adopting several different

efficiency measures rather than relying on very forceful

efficiencies in just one part of the business.

▪ CSPs must identify strong, trusted partners to support them

with sharing, outsourcing and digital transformation

processes. Vendors can significantly reduce CSPs’ risks by

supporting their processes on an as-a-service basis, or by

taking on integration work that has traditionally been done

in-house. Both options allow CSPs to reduce their staff

levels without compromising their processes and platforms.

Forming strong partnerships (with other CSPs or webscalers)

for asset sharing and wholesaling will also mitigate risk.

The exact approach taken will depend on the profile of the CSP.

We have defined four CSP profiles according to their approach to

network and business operations and their attitude to opex. The

profiles are summarised in Figure 3. Diversifiers and infra-centric

CSPs are willing to retain reasonably high levels of opex. Asset-

light and infra opex-light CSPs are aiming to minimise opex, but in

different ways.

Figure 3: CSP profiles based on approaches to network and

business operations¹

7

Solution: CSPs can mitigate the risk of cost reduction by adopting a combination of

different measures and working closely with vendors and partners

¹ For more information, see slide 26 in the appendix and Analysys Mason’s Telecoms opex: worldwide trends and forecasts.

▪ Invests heavily in the network

for differentiation

▪ Opex-efficient and automated

▪ Examples: Reliance Jio and

Iliad

PROFILE 3: INFRA OPEX-

LIGHT

▪ Large-scale infrastructure owner

▪ High levels of capex and opex

intensity, but high economies of

scale

▪ Examples: NTT and Singtel

PROFILE 4:

INFRA-CENTRIC

PROFILE 2: ASSET LIGHT

▪ Owns and runs very little

▪ High degree of sharing and

automation

▪ Examples: heavy MVNOs and

Dish

PROFILE 1: DIVERSIFIER

▪ Network is not a key

differentiator

▪ High operating costs in other

areas of differentiation

▪ Examples: SoftBank, Orange,

Tele2, Elisa

USD500 billion

savings at stake

Source: Analysys Mason

http://www.analysysmason.com/research/content/regional-forecasts-/telecoms-opex-forecast-rdns0


Recommendations

8

1CSPs should consider innovative partnerships for sharing infrastructure while controlling key assets.

Sharing of passive and active networks and cloud infrastructure will be important to opex efficiency strategies;

they will enable CSPs to reduce costs and will facilitate CSPs’ access to large-scale, modern platforms. Multi-

operator sharing, neutral host and wholesale models and co-investment with non-CSP partners such as

webscalers are all options. However, CSPs must be careful to identify the key assets for their particular business

model and should ensure that they maintain control of them.

2CSPs must define clear automation targets and mitigate the risks by working closely with partners.

The biggest opex savings are likely to come from the increased automation of network and customer operations in

the medium term. However, over-enthusiastic or unintelligent automation may negatively affect core KPIs such as

quality of experience. It is essential that CSPs adopt new platforms and ecosystems so that automation does not

just save immediate costs, but enables new ways of working, such as service agility based on cloud-native

systems.

3Vendors should tailor their products and services to individual customers’ opex profiles to secure a more

strategic role with CSPs.

CSPs will take different approaches to achieving opex efficiency, and that will influence their choice of suppliers.

Vendors can help to mitigate CSPs’ risks by providing mature platforms that reduce the upfront cost of automation

and virtualisation, and by increasing the services component of their portfolios to support the trend towards

outsourcing many key processes.


ContentsExecutive summary

Research overview

Increased asset sharing will drive down opex

Automation will be critical to most strategies for TCO reduction

Opex efficiency programmes create opportunities for vendors

Appendix

About the authors and Analysys Mason


About the authors

33

Caroline Gabriel (Principal Analyst) leads Analysys Mason’s Operator Investment Strategies programme, as well as leading many 5G-related

research activities across multiple programmes. She is responsible for building and running Analysys Mason's unique research base of mobile

and converged operators worldwide. She works directly with Analysys Mason's research clients to advise them on wireless network trends and

market developments. She has been engaged in technology analysis, research and consulting for 30 years, and has focused entirely on mobile

and wireless since 2002. Her focus is on critical issues and trends related to mobile and wireless infrastructure, particularly operator

deployment intentions for 4G, 5G, cloud-RAN and other technologies.

Michela Venturelli (Analyst) is a member of the Infrastructure Investments research team in London, and contributes to various research

programmes, focusing on Operator Investment Strategies and Wireless Infrastructure. She previously worked with the Telecoms Software and

Networks research team. Michela holds a PhD and an MSc in Physics from University College London and Statale di Milano university,

respectively.


Consulting

We deliver tangible benefits to clients across the telecoms

industry:

▪ communications and digital service providers, vendors,

financial and strategic investors, private equity and

infrastructure funds, governments, regulators, broadcasters

and service and content providers

Our sector specialists understand the distinct local challenges

facing clients, in addition to the wider effects of global forces.

We are future-focused and help clients understand the challenges

and opportunities new technology brings.

Research

Our dedicated team of analysts track and forecast the different

services accessed by consumers and enterprises.

We offer detailed insight into the software, infrastructure and

technology delivering those services.

Clients benefit from regular and timely intelligence, and direct

access to analysts.

34

Analysys Mason’s consulting and research are uniquely positioned

Analysys Mason’s consulting services and research portfolio


Research from Analysys Mason

35


Consulting from Analysys Mason

36


PUBLISHED BY ANALYSYS MASON LIMITED IN NOVEMBER 2020

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opex efficiency strategies for csps and vendors...opex efficiency strategies for csps and vendors...

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