By: Suresh Chintada

Profitability is the underlying driver of telecom operations, fueled primarily by margin calculations. Over the past three years, though, profit margins have been deteriorating by 13 percent on average.

The reasons are many: consumer habits are changing, forcing telcos to compete and offer complex bundled products. In cases where CSPs introduced products with negative margins, it has led to a massive $3.4 billion in losses. In addition, agile OTT providers pose stiff competition by meeting customer demand for relevant OTT content such as videos, music, movies, and more—eating into telcos’ market share. Asset management often lacks granular views, leading to suboptimal utilization of assets that amount to an additional $1.7 billion leakage. Moreover, telcos struggle with high operational costs, tallying over $800 million, which calls for impactful cost optimization methods to improve margins.

Current obstacles to profitability

Apart from rising product complexities and competition from OTT providers, CSPs must also be aware of the gaps that hinder profitability. These include unidentified contributory costs that emerge as a result of the different direct and indirect expenses that rise as the number of partner systems increases. Improper cost allocation models, in addition to the bundling of network and business costs, increase the overall complexity in the costing process. Furthermore, even as operators dedicate significant spend to planning and capacity optimization, they also need to keep an eye on profitability, which is challenging due to limited views into capacity and utilization.

Compounding the above challenge is the lack of granular-level visibility and real-time insights. Most of the time, CSPs tend to average the margin values and, hence, struggle with cost allocation parameters. This results in limited insights into the cost and revenue segments. Furthermore, data volumes involved in underlining telco revenue generation processes are increasing, and CSPs often lack a unified view across various sources such as networks, partners, and products. The dearth of insights into the real-time performance of products can result in poor decision-making across the CSP organization, negatively impacting profitability. Thus, CSPs need advanced skillsets in cost accounting to map the cost of individual products or bundled segments of voice and data traffic. Any discrepancies in accounting increase with the inability to determine the accurate price of a particular product or technology.

Poor data management is another obstacle. To assess profitability, CSPs need transactional data about cost and revenue, as well as metadata about the transactions. When this information is lacking, it diminishes CSPs’ ability to identify which products or services are profitable. Managing and analyzing large volumes of data for different cost and revenue items in the context of dynamic changes in the metadata (such as new products, new add-ons, and promotions) is a herculean challenge without the right platform.

Operators are also trying to merge or bundle multiple services, products, and technologies, resulting in the creation of complex cost allocation models. This is exacerbated by traditionally siloed operations among key telecom stakeholders that lack cross-functional knowledge and do not possess a common ground for their operational activities. It compromises stakeholders’ ability to understand the specific profit and network asset costs involved in individual products’ revenue generation. The result is ineffective cost modeling and inaccurate cost allocations during new product launches.

Throughout the year, financial reports should inform CSPs whether they are profitable across assets, product innovation, service consumption, and more. Without key information on new and old revenue streams, CSP staff cannot make the right decisions, which severely impacts company margins and overall profitability.

How does margin assurance help?

Margin assurance uses various profitability trends such as KPIs across dimensions like Region, Subscriber Segments, Revenue Segments, months, and more to calculate and arrive at the bottom line of a complex mix of service offerings. It defines a holistic view of cost allocation and provides a real-time assurance and margin automation. It enables profit computation, flexible cost allocation, and effortless cost modeling, allowing operators to widen their scope of impact with a massive increase in