Summer Training Report On: in Partial Fulfillment For The Award of The Degree

SUMMER TRAINING REPORT ON
CAPEX AND OPEX SAVING SOLUTIONS FOR TELECOM INDUSTRY

For
S.M.Creative Electronics Ltd
BSMC Power Systems .
BY
SRIKANT YADAV
B-55
In Partial Fulfillment for the award of the degree
Post Graduate Diploma In Business Management
20092011
New Delhi Institution of Management
NEW DELHI INSTITUTION OF MANAGEMENT
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SUMMER TRAINING REPORT ON
CAPEX AND OPEX SAVING SOLUTIONS FOR TELECOM INDUSTRY

For
S M CREATIVE ELECTRONICS LIMITED BSMC POWER SYSTEM
Under the supervision
Of
HIMANSHU RAGHAVA
Submitted BySrikant Yadav
Submitted toMonika Nijhawan
Roll : B-55
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ACKNOWLEDGEMENT
It is a great sense of satisfaction and a matter of privilege to me to work at S M
Creative Electronics Limited .I wish to express my heartiest thanks to S M Creative
Electronics Limited for providing me the opportunity to undergo training in their
esteemed organization.
I would like to take this opportunity to thank Director CRC Manoj NDIM and my
special indeptness to Monika Nijhawan our project in charge whose guidance was a
great support and all the members of the Institute that were always ready to assist me.
It gives me immense pleasure to express my gratitude towards all the individuals
who have helped me in completing this project. I am extremely
grateful to Mr. Vikas Gupta (MARKETING HEAD OF S M CREATIVE
ELECTRONICS LIMITED) granting permission to carry out the project work
in his department. Special thanks to my project guide Mr. Himanshu Raghava
(Marketing Manager, S M Creative Electronics Limited ) for his invaluable
guidance during the project period which helped me in completing the project
successfully he helped me out in understanding the subject .
SRIKANT YADAV
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DECLARATION
I Srikant Yadav student of New Delhi Institution of Management (2009-2011)

declare that every part of the Project report on Capex and Opex for Telecom
Industry that I have submitted is original.
I was in regular contact with the nominated guide and contacted number of times
for discussing the project.
Date of project submission:-______________
<<Signature of the Student>>
Facultys Comments:
__________________________________________________________________
__________________________________________________________________
_________________________________________________________
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EXECUTIVE SUMMARY
Through this project I have tried to get the knowledge about Opex and Capex for
Telecom Industry. Its been a learning experience working in this project .The main
objectives of the project are:
1.To understand capex and opex structure in the industry.
2.To have the awareness about capex and opex workings.
3.Overall opinion about capex and opex.
4.Cost saving initiatives.
5.Industry environment.
6.Market position.
This project was carried out through published reports and through company
respondents.Through this project I learnt the various concepts of Capex and Opex.
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CONTENT TABLE
S.N.
TOPICS
Pg. No.
1.
INTRODUCTION
8-15
2.
MANAGEMENT
16-18
3.
OVERVIEW OF BSMC
19-24
4.
BEGINNING OF TELECOM SECTOR
25-28
6.
HOW BSMC PRODUCTS SAVES ON CAPEX & OPEX
29
5.
MEANING OF CAPEX AND OPEX
30-38
6.
OPEX OPERATIONS
39-41
7.
PROBLEMS ON CAPEX AND OPEX
42-45
8.
INDIAN TELECOM TRENDSETTER IN TERMS OF 46-47

CAPEX AND OPEX
9.
OVERCOMING THE OPEX OPTICAL TO TELECOM 48-53
10.
PROFITIBILITY IN ASIA-PACIFIC
CONVERTING CAPEX INTO OPEX
54
11.
CAPEX AND OPEX WORKINGS
55-56
12.
FIXED MOBILE CONVERGENCE IN EMERGING 57-62
13.
MARKETS
OPEX MARGINS
63
14.
CONCLUSION
64-66
15.
BIBLIOGRAPHY
67
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MANAGEMENT
Sanjay Trehan
Managing Director
Sanjay Trehan did his B Com (Honours) from Delhi University followed by MBA
from XLRI Jamshedpur.
He worked in different divisions of an Indian Company-Mekaster-before founding

S M Creative Electronics Ltd with Col S D Maini.
He has 26years experience in Telecom Industry with a through knowledge on the

rapidly growing India Telecom segment from fixed line to wireless and Submarine
cable network. He nurtured the company from a single product to multi-product,
multi-industry servicing company in the last 17 years.
Brig.R.Mohan (Rtd)
Director
A telecom graduate with vast experience in Telecom Industry and Operations.
After a long rewarding tenure in the Indian Army (Corps of Signals), took charge
of Alcatel Operations in India and retired as President-Alcatel India.
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Col S.D Maini (Rtd)

Chairman Emeritus
Col.S.D.Maini is the co-founder of S M Creative Electronics Ltd in 1992, along
with Sanjay Trehan.
He was commissioned in the Corps of Electrical and Mechanical Engineers

(EME), Indian Army in 1950. Later, he joined Bharat Electronics Limited (BEL),
the premier defense electronics company in India and he was instrumental in
setting up Ghaziabad, Panchkula, and Kotdwar Plants of BEL and retired from
BEL in 1985 as Executive Director (Northern Units). He actively takes part in
product design, development & engineering activities and quality assurance
Vikas Gupta
Head-Telecom Power Division
Vikas Gupta is an Electronics Engineer & has over 12 years of experience in the
Telecom Power. He joined SMCEL in 1996 as a Research Engineer and later
Technical Head. Lately, he has been looking after the Manufacturing & Sales
activities as well.
His areas of expertise include - Sales & Marketing, New Product Development,
Domestic & International customer relationships, Strategic Planning & running
profit centre.
He handles business operations of SMCEL-Subsidiaries Trehan Electronics
International Ltd-Bangladesh and BSMC Power Nigeria Ltd-Lagos.
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S.K.Gupta
Head-Finance & Accounts
S.K.Gupta is a Chartered Accountant with more than 20 years experience. He has
been working in the organisation since last 7 year as Head (Finance).
He worked with various organizations under various capacities and has rich
experience in the field of Financial Planning, Accounts, MIS, Fund Management,
Budgeting, Costing, Taxation
and
building internal
financial
controls.
His greatest strength is Proficient knowledge in related field, Positive thinking, and
Analytical approach, Hardworking, Sincerity and Integrity.
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OVERVIEW
BSMC Power Systems an ISO 9001:2000 organization, was formed in 1995 as a

50:50 joint venture between S.M Creative Electronics Ltd. & Benning, Germany.
Later in 2004, BSMC was merged with and become a division of S.M. Creative
Electronics Ltd.
The Core competencies of BSMC are founded in its strong technology base for
manufacturing of state of the art DC Power Systems & Providing Telecom
Infrastructure Products & Solutions. This strength enables us to develop
internationally competitive products, provide world-class partnerships, and add
value through customization , integration and technical support. We provide O&M
of landing stations and passive infrastructure for cable landing station &
Submarine cable landing station solutions.
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BSMC has grown significantly and diversified its activities from merely
manufacturing to providing turnkey power solutions including various
infrastructure products & Solutions for Telecom, Gas and oil, Power Line
communication and Power Utilities Networks. As a result of our expansions, we
have crossed the border limits and today we have our 100% owned, full fledged
subsidiaries / branch offices in Singapore , France, Nigeria, Sri Lanka, Bangladesh,
Afghanistan, and our exclusive partners in South Africa, Czech Republic, Vietnam
etc.
Our products are approved and working with leading Telecom operators such as
Roshan, AWCC, Grameen phone, Airtel, Tata Communications, MTN, TIGO,
TELENOR, Vodafone, Multi-Links ( A Telecom SA Company), Power Grid
Corporation of India, Gas Authority of India to name a few.
Experience and execution of IMEWE Submarine Cable landing Station Project of

Telecom Egypt added another feather to the BSMC cap of activities
Research & development

In-house State-of-the Art R&D facility specializes in developing customized power
systems and turnkey power solutions for applications in Telecom, Railways,
Defense and Nuclear installations etc. BSMC R&D Center is approved by The
Ministry of Science and Technology, India.
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Quality policy
BSMC believes in and strives to maintain the highest quality standard of its
turnkey power solutions, products and service. BSMCs endeavor to upgrade and
improve the quality never stops.
Customer support
We believe in high ethical standards and establishing long term relations with our
customers, through total satisfactions for them in our products and after-sales
support.
Product R
InfrasItructure
BSMC Corporate Headquaters are located at prime location in National Capital

region with a beautifully constructed building at Electronic City of Gurgaon.
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Surrounded by corporate like MUL, Aricent, Alcatel, TCS and others, the office
incorporates professional atmosphere at its location following all the industrial and
environmental regulations. Not only the Headquarters, BSMC has taken care of all
its units specifically to its location and construction to employ
Ease of operation
Easy approachability
Motivated Staff
Approachable Customer
Professional culture
Quality productivity
BSMC Infra is equipped with

Beautifully constructed factory in foothills of Himalaya.More than 30,000 sqft
Factory Covered Area.More than 195 EmployeesMulti Located Customer Service
CentresHighly qualified & experienced team of professionalsFull Fledged Design
Engineering CentreLatest Testing and Machinery set-up.
Quality Procedure
Customer Confidence
Quality certification is a fundamental requirement for all manufacturing units nowa-days, but at BSMC , we strongly believe in Quality and our management always
conveys on Zero Compromise on quality issues. Our Quality Management
System ensures :
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Quality Assurance
Quality Control
Quality Improvement
Besides manufacturing, our emphasize is to apply Quality management not only in

the manufacturing process but also in Finance, Administration, Sales and
Marketing, Design Engineering etc. Courtesy to our efficient quality team
supported strongly by the Management and all colleagues, BSMC enjoys sky level
customer confidence in it and is always appreciated by the customer by repeated
business transactions. Today BSMC power systems are installed at more than
40,000 sites in various parts of the world.
In its endeavor to achieve total customer satisfaction, SMCEL has obtained ISO
9001:2008 Certification for design, implementing, testing and maintenance of
Power Supplies.
SMCEL runs a continuous quality management system (QMS) assessment

program with STQC, Standardization Testing and Quality Certification (STQC) ,
an attached office of the Department of Information Technology(DIT),
Government of India. With a number of successful external audits, SMCELs
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quality management processes and procedures have been repeatedly reported to

demonstrate a very high level of compliance with the ISO 9001:2008 Standard.
SMCELs management team and personnel are strictly committed to maintaining
and constantly improving the SMCEL QMS in conformity with customer quality
objectives and requirements via regular management reviews, internal audits,
customer feedback and quality awareness training.
The SMCEL quality assurance team has designed and documented a set of internal
processes to ensure that the companys R&D operations comply with the
guidelines set down by the standard.
SMCEL's Quality Process
On-going collection of various quality and performance matrix.
Summing up and reporting all quality metrics on a quarterly basis
Motivation of Quality Circle
Recording and storing all tests and associated documents with references to
be provided to the customer along with related deliverables
RCA (root cause analysis) process for operations improvement and

prevention of potential quality issues
SMCEL's performance management policies include the following quality

assurance initiatives:
Crystal Clear communication with customer at all levels ( technical,

operation etc. to identify customer requirements and grasp the client's vision
of how SMCEL can meet them)
Comprehensive documentation reviews (internal, external)
Well-prepared conferences with customers
Stringent code inspection
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Innovative product verification strategies
Quality and excellence form an integral part of our business process to ensure the
delivery of reliable solutions on our customers' terms, including their most
stringent time requirements. We do our utmost to make the notion of 'quality' more
tangible and comprehensible, defining it as a crucial element of service delivery.
We realize that high quality services combined with organizational effectiveness
serve the launching pad to business success of our customers. Therefore, we
continuously improve our design, development and testing procedures, evaluating
achievements and taking the necessary measures to update our quality model and
quality control practices.
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BEGINNING OF TELECOM SECTOR
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Product Range
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How BSMC Products Saves on Capex and Opex

Site Infrastructure & Power Management System or SIMS, is a combination of
various Functional Blocks, that facilitates management of Unmanned Telecom
Sites. This is a complete standalone site manager which makes maximum
Utilization of Grid Power. BSMC Power Systems India are one of the most trusted
Site Infrastructure Management System (SIMS) suppliers worldwide. This can be
ordered with various combinations to suit every site or need. Built in Class-B & C
Lightning and Surge protection, RFI/EMI/EMC/EFT filters. SIMS meets
international standards i.e. CE, UL etc.
S
CAPEX Optimization
Eliminates all discrete blocks such as
AVR+IT, Generator ATS Panel, Surge
Arrestors, Air-conditioner controller, AC
Distribution etc.
Saving on OPEX
Minimizes Generator Run Time by utilizing
Grid Power even if two phases are available
Does battery cycling by precisely observing
battery voltage and shelter temperature.
No Human Intervention after Installation.
Fully Integrated Unit allows faster network rollout.
Minimizes bulky & lengthy cable routing & terminations.
Remote Site Status Communication on 5 hand phones and two remote
servers/computers/laptop
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Capex vs Opex
The optical networking industry has recognized that the industrys health depends
on lowering service provider operational expenses as well their capital
expenditures. Equipment vendors have made significant efforts to address this
need, and optical component vendors have also taken this issue seriously.
But perhaps the component vendors are barking up the wrong tree? Id like to put
forward the case for paying more attention to lowering capex than opex.
The drive to lower opex in optical networking originated from analyses that Ciena
Corp. (Nasdaq:CIEN) conducted in the late 1990s on the predicaments of U.S.
interexchange carriers. Ciena showed that data traffic was rising rapidly, revenues
from data traffic were growing at one-seventh this rate, and costs associated with
data traffic were growing faster than revenues.
McKinsey & Co. and Goldman Sachs & Co. continued this work in 2001, when
they maintained that service providers could not solve their financial problems
simply by reducing capex. Service provider costs needed to fall at 30 percent a
year, but since capex made up less than 30 percent of total spending, service
providers needed to reduce opex as well. McKinsey and Goldman Sachs concluded
that service providers needed to reduce operating expense at a rate of 24 percent a
year.
Equipment manufacturers have embraced these recommendations and have been
promoting their systems as lowering capex and opex. One optical networking
equipment manufacturer Photuris Inc. stated at NFOEC 2002 that its new
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product could save 50 percent on opex versus systems in use today. In addition, the
manufacturer maintained that for every dollar invested in its equipment, the
product saved as much as seven dollars in opex.
These assertions are encouraging for the optical networking industry. They also
raise expectations that optical components can be developed that have parameters
that create quantifiable opex savings. Defining such parameters, however, seems
elusive. In addition, statements one hears at different levels of the optical
networking supply chain suggest that searching for opex parameters may not be as
rewarding as concentrating instead on those that relate directly to capex.
For example, service providers are intensifying their payback requirements on new
equipment. New equipment can often incur increased initial costs, for features that
enable greater savings during the life of the equipment. If a service provider had
required a payback period of three years on a new kind of optical networking
equipment, then the provider may now be requiring payback to be demonstrated in
just one year. The shorter recovery period places more of a premium on delivering
the biggest financial advantage upfront in other words, cutting capex.
Moreover, it is not clear how well service providers can quantify optical
networking opex in legacy networks or how much these costs can really be
lowered. Technology planning engineers at service providers point out that opex
incorporates many factors beyond the direct cost of provisioning, maintaining, or
protecting a wavelength. These engineers agree that equipment that allows for
point-and-click lighting of wavelengths does have the potential to provision
services faster and minimize the cost of sending technicians into the field. Service
provisioning costs, however, are complex and incorporate many other factors.
Lighting a wavelength is just one of many costs in the process, with others from
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operations, administration, provisioning, and maintenance creating bottlenecks that

are more significant to the total cost. Technician costs are also not variable, as
service providers cannot readily eliminate this function. Union contracts with
service providers, as well as prudence against unforeseen scenarios, encourage
service providers to retain their technicians.
Technology planning engineers also point out that that the remote, automated
capability of next-generation optical networking equipment can increase service
provider costs. Using this feature requires that DWDM equipment and routers be
populated with transceiver boards in advance of live traffic. Yet, having a DWDM
transmitter and receiver, for example, sitting idle until traffic is turned up is asking
a service provider to leave tens of thousands of dollars of inventory unused. In a
tight economic climate, a service provider is motivated to preserve cash rather than
purchase capital that is not immediately generating revenue.
Such complexities concerning opex suggest that the optical component vendor
should concentrate on what can be quantified in selling to the intermediary, the
equipment vendor. There are clearly some parameters that do affect opex that can
be quantified. Size and power consumption are among two of the obvious ones.
Real estate and cooling costs are significant expenses for service providers, so any
savings that component manufacturers can provide will help everyone.
Optical components that are inherently geared for lowering opex by being
dynamically and remotely tunable, however, are struggling to take off. One can
read about design-ins of widely tunable lasers and dynamic spectrum equalizers,
for example, but their vendors complain that revenues are disappointing. Worse,
they are not taking market share from earlier, less sophisticated versions of these
products.
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An executive from a tunable laser manufacturer told me privately at NFOEC that

his full C-band products were simply overkill for any business of significant
revenue. He said that six nanometers was sufficient for applications that could
actually ship, as these applications were for sparing and inventory management.
The incremental cost for eight 100GHz tuning range was sufficiently small to
justify these static applications, but the price premium for an even wider tuning
range was just too high. The slow acceptance of optical components specifically
for highly automated optical networks suggests that less dynamic optical
components provide a more valuable mix of capex and opex savings.
I recommend to my optical component clients that they rely on the mix that has
worked most successfully over the history of optical communications. A reduction
in the cost per bit per second per kilometer is the argument that justified singlechannel TDM transmission in the 1980s and WDM in the 1990s. Architectures
have varied and are still evolving today, but the metric of $/bit/s/km continues to
be the most persuasive, largely because it is the most simple to quantify and use for
comparisons.
The optical component vendor can differentiate himself in $/bit/s/km by improving
either the numerator or the denominator. The vendor can lower the price, while
keeping the same distance-bandwidth product; or the vendor can preserve the
price, while adding dbs to the link budget. Of course, with pressure on saving
money so strong these days, customers value improvements to the numerator more
highly.
How much of an improvement do equipment manufacturers require to be
motivated to adopt a more powerful technology or more economical product?
During the boom, one heard from the service provider community expectations of
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10x improvements in first-installed cost. These targets were, however, for

complete overhauls of existing networks rather than for incremental improvements.
No service provider today has the available capital to invest in a brand new
network.
Current targets seem to be more consistent with historical expectations, based on
incremental build outs, upgrades, and rehabilitations. Optical component vendors,
prior to the boom, were used to equipment vendors expecting reductions of at least
15 to 20 percent to justify engineering redesigns. Today, with competition intense
for every available socket, equipment manufacturers are expecting much steeper
declines. Some equipment manufacturers are saying that the overall material cost
of the board has to fall at least 15 percent to justify a redesign. If the optics on the
board makes up just 25 percent of the material cost of the board, as may be the
case in a metro system, then the optics have to fall 60 percent so that the net cost
declines 15 percent.
The challenge to the optical component vendor is to meet these stiff expectations in
a differentiated, sustainable manner. Significant improvements in cost per Gbit/s
per km are difficult to achieve, especially in the numerator. Still, offering
improvement on the price-performance ratio is more valuable than making
promises that are not as easily quantifiable. Any optical component sales engineer
will tell you that in a competitive bid, link budget and price virtually always trump
footprint and power consumption. Specifications even more remotely removed
from first cost, such as those relating to maintenance; find themselves even lower
on the priority list. After achieving leadership on price-performance, the vendor
also needs to offer other benefits that demonstrate its product as distinctive in a
crowded field. In addition, the vendor has to prove long-term viability, either with
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cash reserves or a partnering relationship with a major supplier. These three areas
are essential for success.
In conclusion, optical component manufacturers should definitely address opex
issues in their development and manufacturing of new products. Increasing
functionality, reducing size and power consumption, decreasing the number of
fiber connections, enhancing reliability, etc., are all valuable to the health of the
industry. Given the questions raised above, however, the component manufacturer
seems more likely to increase his ability to increase sales by concentrating first on
lowering capex and making decisions concerning opex subordinate. Such
recommendations on decision-making criteria may seem to place the optical
component vendors health ahead of those of the industry, but the ambiguities in
transforming service provider needs into quantifiable parameters at the optical
component level strongly suggest such behavior
DEFINITION
Capital Expenditures Refers to the cost of developing a product or system. OPEX
(operating expenditures) are the ongoing costs for running it. For example, the
purchase of a printer is the CAPEX, and the annual paper and ink cost is the
OPEX. For larger systems, OPEX may also include the cost of human operators
and facility expenses such as rent, electricity, heating and air conditioning.
An operating expense, operating expenditure, operational expense, operational

expenditure or OPEX is an ongoing cost for running a product, business, or
system. Its counterpart, a capital expenditure (CAPEX), is the cost of developing
or providing non-consumable parts for the product or system. For example, the
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purchase of a photocopier is the CAPEX, and the annual paper, toner, power
and maintenance cost is the OPEX. For larger systems like businesses, OPEX
may also include the cost of workers and facility expenses such as rent and
utilities.In business, an operating expense is a day-to
day expense suchas sales and administration, or research & development, as
opposed to Production, costs, and pricing. In short, this is the money the business
spends in order to turn inventory into throughput. Operating expenses also
include depreciation of plants and machinery which are used in the production
process.
On an income statement, "operating expenses" is the sum of a business's operating
expenses for a period of time, such as a month or year.
In throughput accounting, the cost accounting aspect of Theory of
Constraints (TOC), operating expense is the money spent
turning inventory into throughput. In TOC, operating expense is limited to costs
that vary strictly with the quantity produced, like raw materials and purchased
components. Everything else is a fixed cost, including labour unless there is a
regular and significant chance that workers will not work a full-time week when
they report on its first day.
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What Does Capital Expenditure - CAPEX Mean?

Funds used by a company to acquire or upgrade physical assets such as property,
industrial buildings or equipment. This type of outlay is made by companies
to maintain or increase the scope of their operations. These expenditures can
include everything from repairing a roof to building a brand new factory.
Capital Expenditure - CAPEX

The amount of capital expenditures a company is likely to have depends on the
industry it occupies. Some of the most capital intensive industries include oil,
telecom and utilities.
In terms of accounting, an expense is considered to be a capital expenditure when

the asset is a newly purchased capital asset or an investment that improves the
useful life of an existing capital asset. If an expense is a capital expenditure,
it needs to be capitalized; this requires the company to spread the cost of the
expenditure over the useful life of the asset. If, however, the expense is one that
maintains the asset at its current condition, the cost is deducted fully in the year of
the expense.
WhatDoes OperatingExpense Mean?

A category of expenditure that a business incurs as a result of performing its
normal business operations. One of the typical responsibilities that management
must contend with is determining how low operating expenses can be
reduced without significantly affecting the firm's ability to compete with its
competitors.
Also known as "OPEX".
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Operating Expense
For example, the payment of employees' wages and funds allocated toward
research and development are operating expenses. In the absence of raising prices
or finding new markets or product channels in order to raise profits, some
businesses attempt to increase the bottom line purely by cutting expenses.
While laying off employees and reducing product quality can initially boost
earnings and may even be necessary in cases where a company has lost its
competitiveness, there are only so many operating expenses that management can
cut before the quality of business operations is damaged.
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CAPEX OPERATIONS
Capital expenditures (CAPEX) refers to the money spent to acquire and maintain
the physical assets of a company. These assets are most commonly referred to as
plant, property and equipment (PPE) on the balance sheet. Manufacturing
companies tend to have large CAPEX and usually spend more money on
maintenance than service firms. For technology-rich companies, CAPEX might
also refer to the cost of developing a product or system. Either way, it is a number
the investment community uses to measure a firm's investment in future revenuegenerating activities. A company with low CAPEX may have fewer expenses.
The Indian telecom market has become a trendsetter for the telecom operators in
the developed markets such as Europe and the US for efficient ways to reduce their
capex and opex at a time of tough economic challenges. A recent report by E&Y
on the short-term prospect of telecom sector in the developed markets, has
suggested that telecom operators in developed markets need to unlock and reclaim
the full value of their networks.
The Indian telecom market is at least five years ahead of its American and
European counterparts in terms of hiving off passive infrastructure. Hiving off the
tower business into independent business units is going to catch-up in the
developed markets, Vincent de la Bachelerie, the global telecommunications
leader with E&Y told FE. Most of the incumbent operators in India, including the
countrys largest telecom operator, Bharti Airtel, Reliance Communications and
Tata Teleservices have hived off their tower business into separate business
entities.The report shows that telecom sector has been resilient across Europe and
America despite the recent global slowdown. Cost reduction has become high on
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the operators agenda making it difficult for the operators to justify huge
investments into the business networks.
The report titled The Power of the Pipe, further adds that Mobile Virtual Network
Operators (MVNO) have largely failed in the developed markets where they are
struggling to justify their business model. MVNOs typically buy bulk airtime from
the Mobile Network Operators (MNO) and sell it to consumers under another
brand. They dont add any value to MNOs services, their model hinges on a
strong marketing and distribution which can be easily done through a normal
distributor or a mass market retailer such as Carrefour, Vincent added.
The report was compiled from interviews from 18 telecom companies and industry
stakeholders across Europe and America. AT&T, France Telecom, Vodafone
Europe and Deutsche Telekom were among the participants.
Regulatory uncertainties especially in the area of spectrum surfaced as a big
challenge for the operators in current times. Investment incentivisation was rated
as the biggest issue facing the operators since the telecom operators were finding it
increasingly difficult to match the investments that investors, governments and
consumers were demanding.
Among the strategic objectives the participants unanimously voted for customer
value/centricity as the most important objective followed by service innovation and
cost efficiency.
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India & China to lead global telecom sector capex spend to over $ 224 bn by
2015
The demand for mobile services particularly in the
developing markets such as Indian and China will fuel
the capex of mobile service providers across the globe
to scale over $ 224.5 billion by the year 2015, says a
new research from market research firm, The Insight
Research Corp.
"Capital expenditures (capex) by telecommunications service providers globally is
expected to increase at a compound rate of 2.4 per cent, from USD 199.6 billion in
2010 to USD 224.5 billion in 2015," says the market research report.
While the developed markets would observe a slowdown in spend, the demand for
mobile services in developing markets will offset for this and result in overall
growth in capex. "This growth is expected to continue during the forecast period.
India's capex outlook is prima facia evidence of this trend," the report stated.
China however might see a comparatively slowdown in telecom gear spend due to
slowdown in mobile subscriber growth rates, rock-bottom equipment prices and
operator margin pressure.
The fixed line sector is expected to continue witnessing decline in capex spend.
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PROBLEMS ON CAPEX AND OPEX
Capital expenditures (capex) plummeted after the crash of the telecom bubble of
1999-2001. This correction for previous excesses, most prevalent in the U.S. and
Europe, has caused many carriers to spend below even maintenance levels,
creating service quality problems, network outages, delays in turning up service,
etc. Despite his capex drop, profitability remains elusive for many carriers: the ten
largest carriers worldwide booked an average net profit loss of 8% (most recent
fiscal year results). Revenue growth in most areas is modest (and negative in a few
places). As a result, the focus has shifted to operating expenses (opex). Many
service providers have announced plans for opex reduction through consolidation,
staffing cuts, OSS/software implementations, and other methods. Their suppliers,
in turn, have addressed opex constraints as a focus of product marketing pitches.
Cutting opex is tough to accomplish in practice, though. M&A activity can
increase opex in the short term, and technical methods of reducing opex are
limited, unproven, and require organizational changes in companies. Success to
date, on all accounts, has been mixed, despite the rhetoric. Significant reductions in
opex are central to sustained telco profitability, yet few carriers have achieved
success in anything more than gradual, incremental cost cutting.
Page 43
SituationinAsia-Pacific
In the Asia-Pacific region, service providers appear to be on the right track.
Helped by solid revenue growth, lower overall staffing expenses, a smaller
capex bubble, more limited competition, industrial policy favoring a stable
telecom sector, good economic growth, and one would hope some smart
strategic decisions on the part of carriers, net profit margins have grown from
10% in 2001 to 14% in 2003, for a group composed of 20 of the regions large
carriers (referred to as AP20 in this report) (Figure 1).
Margins have not improved in all regions or at all carriers, but the level of Asian
margins is much higher than other regions. This 14% average, in fact, is
comparable to the 2 best performing non-Asian carriers SBC and BT in
Standard & Poors list of the 10 largest global service providers. The growth in net
profits stems from stronger revenue growth (16%, versus 9% in 2002), capex/sales
(capex intensity) decline to (18% from 22% in 2002), and company investments in
affiliate companies. Opex also grew, by 14%, but, as in 2002, slightly slower than
revenue growth. The gap between revenue and opex growth is not wide, but
enough to differentiate Asia on the whole markedly from North America and
Europe.
Reducing Opex
Going forward, though, Asia cannot rest on its laurels. Asian carriers are beginning
to see more competition, increasingly saturated markets, and uncertain prospects
for new services. They will have to get serious about opex reduction soon, in order
to sustain the impressive results of recent past. Opex cuts typically require upfront
investments in process or technology change, and take years to achieve real results.
Hence, Asian carriers should consider the following options:
Page 44
- Staff cuts: direct staff costs are between 25-50% of total opex among Asian
carriers, so must be addressed. However, staff should be shrunk as a side effect of
other efforts that change how the network is operated and services or provided;
otherwise, quality of service and brand value will decline.
- Mergers and acquisitions: M&A activity aimed at growing market share and
integrating network resources within a specific market should be approached with
caution. More scale brings better bargaining power with suppliers and (possibly) a
stronger brand, but the integration process is very expensive and distracts carriers
from everyday business needs. M&A aimed at entering new markets, and in the
process achieving greater scale (and reducing supplier and capital costs) is of
potentially greater benefit (e.g., SingTels Optus acquisition).
- Software/OSS: some of the best opportunities for opex reduction are in building
new software/operational support system (OSS) platforms that automate and/or
simplify processes that are currently manual. By some measures, OSS spending in
Asia-Pacific is well over $5B per year. OSS investments also face obstacles to
success; for example, automating provisioning a potential huge time and costsaver is complicated by heterogeneous networks and the use of homemade OSS
systems. Regardless, this is an area that carriers must attack to begin cutting opex
dramatically.
- Automatic control planes: control planes in accord with the ITUs ASON and
ASTN models, in particular GMPLS, can enable unified control management of
the network layers (packet, TDM, wavelength, fiber) in a way that should cut the
cost of network operations substantially. Most interest in GMPLS, though, comes
from carrier labs; given the potential impact of it, and the need for at least 5 years
to implement properly, control planes should soon be a front-burner issue within
the network planning groups.
- Metro Ethernet: using Metro Ethernet (ME) technology (whether on switches or
Page 45
multi-service provisioning platforms) promises to deliver data services much

cheaper than their legacy alternatives. Opex is lower in all stages of the service:
initial provisioning, bandwidth upgrades, service additions, and site additions.
Since many carriers are experiencing some growing pains with ME deployment,
though (especially in the area of performance monitoring), carriers will need to
implement carefully and learn from other carriers mistakes.
- Network outsourcing: both PCCW and Telecom New Zealand using two very
different approaches are experimenting with outsourcing network operations
requirements. While too early to gauge success, both efforts should be studied
carefully by carriers interested in cutting the cost of running and maintaining the
network.
While the burden of implementation is on service providers, equipment and

software vendors must develop solutions to the opex obstacle, and work closely
with their customers to ensure product visions turn into reality.
Page 46
INDIAN TELECOM A TRENDSETTER IN TERMS OF CAPEX AN OPEX

The Indian telecom market has become a trendsetter for the telecom operators in
the developed markets such as Europe and the US for efficient ways to reduce their
capex and opex at a time of tough economic challenges. A recent report by E&Y
on the short-term prospect of telecom sector in the developed markets, has
suggested that telecom operators in developed markets need to unlock and reclaim
the full value of their networks.
The Indian telecom market is at least five years ahead of its American and
European counterparts in terms of hiving off passive infrastructure. Hiving off the
tower business into independent business units is going to catch-up in the
developed markets, Vincent de la Bachelerie, the global telecommunications
leader with E&Y told FE. Most of the incumbent operators in India, including the
countrys largest telecom operator, Bharti Airtel, Reliance Communications and
Tata Teleservices have hived off their tower business into separate business
entities. The report shows that telecom sector has been resilient across Europe and
America despite the recent global slowdown. Cost reduction has become high on
the operators agenda making it difficult for the operators to justify huge
investments into the business networks.
The report titled The Power of the Pipe, further adds that Mobile Virtual Network
Operators (MVNO) have largely failed in the developed markets where they are
struggling to justify their business model. MVNOs typically buy bulk airtime from
the Mobile Network Operators (MNO) and sell it to consumers under another
brand. They dont add any value to MNOs services, their model hinges on a
strong marketing and distribution which can be easily done through a normal
distributor or a mass market retailer such as Carrefour, Vincent added.
Page 47
The report was compiled from interviews from 18 telecom companies and industry
stakeholders across Europe and America. AT&T, France Telecom, Vodafone
Europe and Deutsche Telekom were among the participants.
Regulatory uncertainties especially in the area of spectrum surfaced as a big
challenge for the operators in current times. Investment incentivisation was rated
as the biggest issue facing the operators since the telecom operators were finding it
increasingly difficult to match the investments that investors, governments and
consumers were demanding.
Among the strategic objectives the participants unanimously voted for customer
value/centricity as the most important objective followed by service innovation and
cost efficiency.
Page 48
Overcoming the Opex Obstacle to Telecom Profitability in Asia-Pacific

Description: - Improving operating profits can be accomplished by either growing
revenues or cutting costs. Since revenues are flat, at best, among service provides in
North America and Europe, their focus has turned to reducing capital spending
(Capex) drastically in 2001-2. Carries in Asia-Pacific (AP), however, have kept
profit margins high due to solid revenue growth, lower staffing expenses, smaller
capex bubble, more limited competition, government policies favoring a stable
telecom sector, good economic growth, and some smart strategic decision on the
part of carries. AP carries reduced capex in 2002-3, but operating costs (excluding
depreciation) have not yet been attacked aggressively. As revenue growth slows in
the years ahead, carries in AP must diligently reduce opex burdens in order to keep
profit margins high, and continue to attract investors. Technology suppliers
hardware vendor, software firms, and system integrators have a unique
opportunity to help Asian carries take on this task. While some of the operating cost
excess is related to heavy customers acquisition costs, adverting/marketing, and
inefficient corporate structures, much more is related to operating and maintaining
the network. The staff needed for these tasks often cost less, on average, than their
peers in North America and Europe, but cutting opex may require smart staffing
reductions. Carries must Choose or migrate to products that offer real opex
efficiencies. Ideally, this will mean improvement in overall life cycle costs,
including the initial capex cost. They also should find ways to turn up, monitor and
repair service more efficiently (possibly through new control planes). Staff layoffs
may be avoided or minimized for carries that can re-task employees to growth
market or new service areas. This report offers the following data and analysis to its
readers: - Section I: Executive Summary Provides a concise review of the analysis
and conclusions of report. Section 2: Service provider results 2001-3 presents
Page 49
aggregate measure of 2001-3 performance, for 20 larger Asian carries, plus regional
breakdowns and analysis. Section 3: Opex Segmentation presents two views of
how best to segment opex, from the ITU and the US FCC. Section 4: Leading AP
Carries: examines trends at a few of the best performing service providers in AsiaPacific. Section 5: Opex Reduction Strategies addresses some of the common
methods of reducing opex and their effectiveness. Overcoming the Opex obstacle
to Telecom Profitability in Asia-Pacific addresses a central issue driving financial
results and stretigy moves at Asias telecom service providers. This report arms
Asian carriers, their partners, and suppliers with the inside needed to address opex
intelligently as top-line growth slows in the region.
Contents:-Table of contains list of figures report Description Notes
on
Methodology Section 1: Executive Summary Background Situation in Asia-Pacific

Reducing Opex Section 2:Service Provider Results 2001-2003 Aggregate
Revenues, Opex, And Operating Income Capex Net Margins Regional Japan China
Korea Other Section 3: Opex Segmentation Itu Frameworks Fcc Frameworks
Section 4: Leading And Lagging AP Carries Leaders Telecom Indonesia Chunghwa
Telecom China Mobile Hong Kong Singtel Optus laggagds Hanaro Telecom pccw
Section 5: Opex Reduction Strategies Staff Mergers And Acquistions The Software
Issue Automatic Control Planes Gmpls Metro Ethernet Outsourcing The Network
Telecom New Zealand Pccw Section 6: Recommendations.
Summary:- Section 1: Executive Summary Background Capital expenditures
(capex) plummeted after the crash of the Telecom bubble of 1999-2001. This
correction for previous excesses, most prevalent in the U.S. Europe, has caused
many carries to spend below even maintenance levels, creating service quality
problems network outages, delays in turning of service, etc. Despite his capex drop,
Page 50
profitability remains elusive for many carriers: the ten largest carriers worldwide
booked an average net profit loss of 8% (most recent fiscal year results). Revenue
growth in most areas is modest (and negative in few places). As a result the focus
has shifted to operating expenses (opex). Many service providers have announced
plans for opex reduction through consolidation, staffing cuts, OSS/software
implementations, and other methods. Their suppliers, in turn, have addressed opex
constraints as a focus product marketing pitches. Cutting opex is tough accomplish
in practice though. M&A activity can increases opex in the short term, and
technical methods reducing opex are limited, unproven, and require organizational
changes in companies. Success to date, on all account, has been mixed, despite the
rhetoric. Significant reductions in opex are central to sustained telco profitability,
yet few carriers have achieved success in anything more than gradual incremental
cost cutting. Situation in Asia Pacific in the Asia Pacific region, service
providers appear to be on the right track. Helped by solid revenue growth, lower
overall staffing expenses, a smaller capex bubble, more limited competition,
Industrial policy favoring a stable telecom sector good economic growth and one
would hope some smart strategic decision on the part of carriers, net profit
margins have grown from 10% in 2001 to 14% in 2003, for a group composed of
20 of the regions large carriers (referred to as AP20 in this report) (Figure 1).
Margins have not improved in all regions or at all carriers, but the level of Asian
margins are much higher than other regions. This 14% average, in fact, is
comparable to the 2 best performance non-Asian carriers SBC and BT in
standard & poors list of the 10 largest global service providers. The growth in net
profits stems from stronger revenue growth (16%, versus 9% in 2002), capex/sales
(capex intensity) declined to (18% from 22% in 2002), and company investments in
affiliate companies. Opex also grew, by 14% but as in 2002, slightly slower than
Page 51
revenue growth. The gap between revenue and opex growth is not wide, but enough
to differentiate Asia on the whole markedly from North America Europe.
Reducing opex going forward though, Asia cannot rest on its laurels. Asian carriers
beginning to see more competition, increasingly saturated markets, and uncertain
prospects for new services. They will have to get serious about opex reduction
soon, in order sustain the impressive results of recent past. Opex cuts typically
require upfront investments in process are technology change, and take years to
achieve real results. Hence Asian carriers should consider the following options:Staff cuts: direct staff costs are between 25-50% of total opex among Asian carriers
so must be addressed. However staff should shrunk as a side effect of other efforts
that change how the network is operated and services are provided otherwise,
quality of service and brand value will declined mergers acquisitions: M&A
activity aimed at growing market share and integrating network resources within a
specific market should be approached with caution. More scale brigs better
bargaining power with suppliers and (possibility) a stronger brand, but the
integration process is very expensive and distract carriers from everyday business
needs. M&A aimed at entering new market, and - in the process achieving greater
scale (and reducing supplier and capital costs) is of potentially greater benefit (e.g.,
SingTels Optus acquisition) Software/OSS: some of the best opportunities for
opex reduction are in building new software/operational support system (OSS)
platforms that automate and or simplify processes that are currently manual. By
some majors, OSS spending in Asia Pacific is well over $5B per year. OSS
investment also faces obstacles to success, for example, automating provisioning
a potential huge time and cost-saver is complicated by heterogeneous networks
and the use of homemade OSS systems. Regardless, this is an area that carriers
must attack to begin cutting opex dramatically. Automatic control plans: control
Page 52
plans in accord with the ITUs ASON and ASTN models, in particular GMPLS,
can enable unified control management of the network layers (packet, TDM,
wavelength, fiber) in a way that should cut the cost of network operations
substantially. Most interest in GMPLS, though, comes from carriers labs; given the
potential impacted of it, and the need for at least 5 years to implement properly,
control planes should soon be a front-burner issue within the network planning
groups. Metro Ethernet: using Metro Ethernet (ME) technology (whether on
switches are multi - service provisioning platforms) promises to deliver data
services much cheaper than their legacy alternatives. Opex is lower in all stages of
service: initial provisioning bandwidth up grades, service addition, and site
additions. Since many carriers are experiencing some growing pains with ME
deployment, though (especially in the area of performance monitoring), carriers
will need to implement carefully and learn from other carriers mistakes. Network
outsourcing: both PCCW and telecom New Zealand using to very different
approaches - is experimenting with outsourcing network operations requirements.
While too early to gauge success, both efforts should be studied carefully carriers
interested in cutting the cost of running and maintaining the network. While the
burden of implementation is on service providers equipment and software vendors
must develop solutions to the opex obstacle, and work closely with their customers
to ensure product visions turn into reality.
Page 53
CONVERTING CAPEX INTO OPEX

Leading telecom players have taken a beating on their capital expenditure (capex)
plans affter having touched their peak in the last fiscal. For the current fiscal,
Bharti Airtel, Reliance Communications and Vodafone Essar have chalked out
their capex plans, altogether pegged at $6.5 billion, down 30% as against thes
outlay for the last fiscal.
Owing to the fact that almost all the telecom circles in the country have been
penetrated by leading players, the slip of the capex in the current fiscal is looking
obvious. Now, the main focus of these players will be the need to spend on
network upgradation and marketing or operational expenditure (opex).
Telecom service providers, of late, are in the process of hiving off the passive
infrastructure assets like towers to separate companies and outsourcing non-core
operations, including IT and call centres. And now, the trend is all set for
converting capex into opex.
Page 54
CAPEX AND OPEX WORKINGS

An operating expense, operating expenditure, operationalexpense, operational
expenditure or OPEX is an ongoing cost for running a product, business, or
system. Its counterpart, a capital expenditure (CAPEX), is the cost of developing
or providing non-consumable parts for the product or system. For example, the
purchase of a photocopier is the CAPEX, and the annual paper, toner, power and
maintenance cost is the OPEX. For larger systems like businesses, OPEX may also
include the cost of workers and facility expenses such as rent and utilities.
In business, an operating expense is a day-to-day expense such
as sales and administration, or research & development, as opposed to Production,
costs, and pricing. In short, this is the money the business spends in order to
turn inventory into throughput. Operating expenses also include depreciation of
plants and machinery which are used in the production process.
On an income statement, "operating expenses" is the sum of a business's operating
expenses for a period of time, such as a month or year.In throughput accounting,
the cost accounting aspect of Theory of Constraints (TOC), operating expense is
the money spent turning inventory into throughput. In TOC, operating expense is
limited to costs that vary strictly with the quantity produced, like raw materials and
purchased components. Everything else is a fixed cost, including labour unless
there is a regular and significant chance that workers will not work a full-time
week when they report on its first day.
In a real estate context, operating expenses are costs associated with the operation
and maintenance of an income producing property. Operating expenses include
accounting expenses
license fees
Page 55
maintenance and repairs, such as snow removal, trash removal, janitorial

service, pest control, and lawn care
advertising
office expenses
supplies
attorney fees and legal fees
utilities, such as telephone
insurance
property management, including a resident manager
property taxes
travel and vehicle expenses

Travel expenses are defined as those incurred in the event of travel required
for professional purposes.
For this purpose, travel is defined as the simultaneous absence from
the residence and from the regular place of employment. It is prompted by
professional or company purposes and likely does not concern the travellers
private life, or concerns it only to a small degree. Travel expenses include
travel costs and fares, accommodation expenses, and so-called additional
expenses for meals. For the self-employed (contractors and freelancers), the
expenses constitute business expenses.
leasing commissions
salary and wages
raw materials
Page 56
Fixed-Mobile Convergence in Emerging Markets - The Impact on Capex and

Opex
The convergence of fixed and mobile telecommunications in emerging economies

is still in its infancy, and even though next-generation networks already dominate
capital expenditures, bona fide fixed-mobile platforms and services are rare. A
handful of greenfield service providers and market challengers have chosen all-IP
infrastructure for their WiMAX networks and started installing IMS platforms to
support business fixed-mobile convergence (FMC) services, such as IP Centrex
and VoIP. We believe that the IMS architecture, with its support for both legacy
and IP networks, holds solid long-term promise for emerging-market operators.
However, migration to an all-IP network in earnest wont happen for years, since
many emerging-market operators have adopted a wait-and-see strategy to learn
from IP pioneers in North America and Western Europe, such as AT&T, BT, KPN
and Telekom Austria.
As all-IP networking waits on the sidelines, a growing number of providers are

reaping the benefits of scale, running multiservice operations and integrating their
fixed and mobile divisions. Most incumbent operators never sold their mobile
arms; others increased their ownership in previously spun off operations to 100%.
And in China and Russia, fixed-mobile integration has begun, with significant
implications for the telecom industry in those markets. Key findings we publish in
this report include the following:
Page 57
- Fixed-mobile service bundles are the first step on the road to convergence. Many
operators in emerging markets already offer packages of mobile voice and fixedbroadband Internet services to business and home users.
- WiMAX is starting to create waves in most emerging markets as a substitute for

fixed networks, despite its slow start. A number of greenfield WiMAX operators
have chosen an all-IP architecture, pioneering convergence and influencing overall
market dynamics by prompting competitors to expedite investment in nextgeneration networks.
- Case studies in China and Russia show that integration of fixed and mobile
operators will have a significant impact on the telecom industry structure and longterm investment plans.
Naturally, integration causes concern among equipment manufacturers: What

impact will it have on Capex?
The new report, Fixed-Mobile Convergence in Emerging Markets: The Impact on

Capex and Opex, examines the early FMC choices telcos have made in emerging
markets and analyzes the impact of these choices on the overall direction of
telecom investments and the level of operating expenses.
Page 58
Key questions answered

- What are the key drivers of fixed-mobile convergence, and how do they differ
between mature and emerging markets?
- Who will launch FMC in emerging markets?
- What benefits will fixed-mobile convergence offer emerging-market industry
players?
- Will mergers of fixed and mobile operators result in greater operational
efficiency? If so, when and how?
- What drives Capex in emerging markets today? And will the strong Capex
growth continue?
Target audience
Integrated operators in emerging markets

Identify successful strategies for introducing and promoting FMC offerings; draw
on the experience of others in planning for changes in Capex and Opex.
Equipment and application providers

From the case studies of China and Russia, develop an understanding of how the
introduction of FMC in a market will affect Capex and Opex over both the short
and long terms, and acquire insight into the challenges facing emerging-market
operators in network rollouts and operations. Use these insights to successfully
position your equipment and services as well as to enhance your value proposition.
Page 59
Financial services, investment firms

Receive a thorough grounding in the salient issues facing fixed-mobile M&A and
integration in emerging markets today. Use this analysis to understand who is best
positioned to succeed and to assess upcoming opportunities in emerging
telecommunications markets.
Mobile operators
Understand the drivers behind FMC, why the FMC path is critical in the long run,
and when to pursue it. Get a head start in understanding the impact of 3G and
broadband deployments on traffic, future Capex and Opex.
Fixed operators
Anticipate changes in the telecom industry resulting from fixed-mobile integration
and convergence. Position yourself to take advantage of sharing access to fixed
infrastructure with mobile network operators.
Page 60
OVERCOMING THE OPEX OBSTACLE TO TELECOM

PROFITABILITY IN ASIA
Improving operating profits can be accomplished by either growing revenues or
cutting costs. Since revenues are flat, at best, among service providers in North
America and Europe, their focus has turned to reducing operating costs, after
reducing capital spending (capex) drastically in 2001-2. Carriers in Asia-Pacific
(AP), however, have kept profit margins high due to solid revenue growth, lower
staffing expenses, a smaller capex bubble, more limited competition,
government policies favoring a stable telecom sector, good economic growth, and
some smart strategic decisions on the part of carriers. AP carriers reduced capex in
2002-3, but operating costs (excluding depreciation) have not yet been attacked
aggressively. As revenue growth slows in the years ahead, carriers in AP must
diligently reduce opex burdens in order to keep profit margins high, and continue
to attract investors.
Technology suppliers hardware vendors, software firms, systems integrators
have a unique opportunity to help Asian carriers take on this task. While some of
the operating cost excess is related to heavy customer acquisition costs,
advertising/marketing, and inefficient corporate structures, much more is related to
operating and maintaining the network. The staff needed for these tasks often cost
less, on average, than their peers in North America and Europe, but cutting opex
may require smart staffing reductions. Carriers must choose or migrate to products
that offer real opex efficiencies. Ideally, this will mean improvements in overall
life cycle costs, including the initial capex costs. They also should find ways to
turn up, monitor and repair service more efficiently (possibly through new control
planes). Staff layoffs may be avoided or minimized for carriers that can re-task
Page 61
employees to growth markets or new service areas.
This report offers the following data and analysis to its readers:
- Section 1: Executive Summary provides a concise review of the analysis and

conclusions of the report.
- Section 2: Service Provider Results 2001-3 presents aggregate measures of
2001-3 performance, for 20 large Asian carriers , plus regional breakdowns and
analysis.
- Section 3: Opex Segmentation presents two views of how best to segment opex,
from the ITU and the US FCC.
- Section 4: Leading AP Carriers: examines trends at a few of the best performing
service providers in Asia-Pacific.
- Section 5: Opex Reduction Strategies addresses some of the common methods of
reducing opex and their effectiveness.
Overcoming the Opex Obstacle to Telecom Profitability in Asia-Pacific
addresses a central issue driving financial results and strategic moves at Asias
telecom service providers. This report arms Asian carriers, their partners, and their
suppliers with the insight needed to address opex intelligently as top-line growth
slows in the region.
Page 62
Page 63
CONCLUSION
Carrier capital expenditure (Capex) is undergoing a dramatic transformation under

the combined effect of factors ranging from demand for additional capacity to
convergence and network evolution towards next-generation networks (NGNs).
The analysis of operator capital spending and the assessment of the business
opportunity for telecoms OEMs has traditionally been confined to carrier spending
on network infrastructure. As the size and allocation of operator Capex shifts
dramatically in response to industry dynamics, the Opex line item in operators
income statements has become a holy grail for vendors.
Today, mobile operators, for instance, spend three times more on Opex than
Capex, or a total of US$400500bn annually. Not all of that Opex spending is
available to equipment suppliers and vendors, however. Although many operators
have outsourced business functions such as IT, call centers, and other areas,
Network Services is the focus of most of the outsourcing that pertains to the
equipment supplier and vendor market. Today, Network Services is an US$80bn
spending area; we believe that US$3035bn of this is directly accessible by the
major telecommunications vendors, like Ericsson, Alcatel-Lucent, Nokia-Siemens,
Motorola, and their peers.
This 25-page study helps to quantify operator network capital and operating
investments worldwide. It examines how network-related spending among
different functions is allocated by operator type, mobile, wireline incumbent and
wireline challenger. Conducted online, this survey of roughly 100 operator
network executives offers critical insight into the priorities and needs fueling
Page 64
operator decision making and helps vendors stay competitive by diversifying

services offerings and appealing to operator sensibilities.
Sample Survey Questions

We asked 25 questions, including the following:
- What % of Opex is allocated to Network Opex? How will Network Opex:Opex
ratio change over the next three years?
- What % of network Opex is allocated to the operations and maintenance of the
core network?
- What % of network Opex is allocated to maintenance services? How will
maintenance Opex: network Opex change over the next three years?
- What % of maintenance expenditures is allocated to field maintenance, remote
support, software updates, repair and replacement, and the management of spare
parts?
- What % of network Opex is allocated to network optimization? How will it
change over the next three years? Who conducts network optimization for your
network?
Study results and analysis include:
- Raw data in Excel format
- 27 slide data presentation
Benefits
The Demystifying Opex & Capex Budgets study provides quantitative intelligence
on spending patterns of wireline and
mobile operators, offering insight into the overall market potential. The study
supports business planning activities of
vendors and equipment manufacturers with direct insight from their operator
Page 65
customers. It draws upon hard facts

derived from the operator survey to provide the most accurate opportunity
assessment.
This program assists vendors worldwide to:

- Quantify demand and operator spending by network area
- Identify the best opportunities to align capabilities and offers
- Develop more accurate forecasts to deploy resources and go-to-market execution
- Align service positioning and marketing with operators requirements
Page 66
BIBLIOGRAPHY
1.www.smcel.com
2.www.bsmcindia.com
3.www.investopedia.com
4.Company journals
5.Telecom journals
Page 67

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