Every responsible carrier business must measure the unit costs of the services it provides as a critical benchmark for determining
a pricing strategy for long-term survival.
Market-driven tactical pricing must be balanced with the fundamental requirement
to cover costs with a core margin in the long term. Operational efficiency improvements
can also only be made based on an initial understanding of the cost breakdown of
services.
An integrated service provider may deliver tailored solutions to customers in a
variety of service packages, drawing on core capabilities in PSTN, Internet, and
data connectivity. Understanding the underlying costs, and especially the common
network costs (the synergy which defines the modern carrier business) will depend
critically on the ability to relate each separate offering to a common, manageable
and forward-looking network cost model.
While enabling an operator to evaluate the impact of multiple pricing scenarios
on its short-term cashflow and long-term profitability, STEM (Strategic Telecoms
Evaluation Model) also automatically calculates the unit costs of all services provided
on a telecoms network, broken down at the modeller’s discretion into access costs
per line, backbone network costs per Mbyte or simply total costs per minute.
STEM is closely
integrated with Excel, allowing the analyst to benefit from the power of STEM’s
template replication technology: automatically reproducing sub-models across separate
regions or network areas for greater market segmentation and accounting separation,
while keeping the inputs and outputs compact and accessible.
Modelling the network business
STEM is optimised towards the rapid development of service costing models, enabling
the modeller to develop a high-level, GUI-driven view of the network business structure:
- Describe the network business in terms of the service packages offered to customers,
the underlying network capabilities which carry those services (such as PSTN, Internet
or server hosting), and then the specific technological configurations in the network.
- Model the individual factors which relate the connection and traffic load on the
network to the physical infrastructure, making critical allowances for geographical
deployment, forward planning, overhead capacity and redundancy.
- Extend the cost and revenue analysis to capture the human and administrative functions
of the business in the same consistent framework, factoring in the economic value
of these functions and elasticity of demand with respect to perceived quality of
service.
- Use a simple ARPU model to short-circuit the complexity of discounted calling schemes
and bundled-minutes packages and focus directly to the reality of users’ spending
constraints and the implications for the business model.
Service costing process
Cost allocation on a causal basis
Unlike an OSS-driven costing exercise, which may deliver unchallenged accuracy and
detail in the current or recent costs of a network, STEM links forecast demand scenarios
directly to forward-looking revenue and cashflow projections, enabling you to:
- measure the sensitivity of future profitability to variations in actual service
take-up on the basis of adaptable month-by-month model outputs up to 24 months ahead
- explore the potential for increased revenue yield on the fixed asset base of the
existing business through the re-configuration of service packages and the underlying
network
- evaluate offline the implications of tentative cost-cutting programmes, using product
and customer profitability metrics to balance engineering and service objectives.
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Overall revenue and charge per customer
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Service profitability by segment
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STEM’s intrinsic cost-allocation mechanism automatically associates network costs
with those services which require the corresponding capacity. Where multiple services
share the same capacity, costs are allocated in proportion to demand by default.
Optionally, and for each individual element, these proportions can be artificially
weighted or driven by revenue rather than demand. This causal model determines robust
benchmarks for service pricing decisions based on fully-allocated and activity-based
cost results, plus direct-cost results which identify the cost of the fully efficient
network for optimal competitive pricing.
Our expert practitioners can work with you to help develop these ideas as they apply to a business, working
closely with the STEM development team to extend the existing algorithms where necessary
to meet the exacting requirements of our clients.
Professional network modelling tool
STEM is purpose built for creating cost models of large networks and is optimised
to manage very large, repetitive model structures. The built-in cost-allocation
functionality is made feasible by the logical separation of structure, data and
generated calculations which enables these models to be agile with respect to modification
and extension. It would be almost impossible to guarantee the integrity and consistency
of such calculations if they were made on an ad hoc basis.
STEM has the power to communicate business logic, and to iterate model structures
with speed and confidence. Decision makers will have greater confidence in models
built on a reliable, industry-standard business-modelling platform.