Have you heard the saying people want their cake and to eat it, too?

This is probably how telco chief executives and financial officers believe their investors are instructing them to act:

“Improve customer experience AND keep costs low!”

Telco industry veterans are likely used to this, and the reward for conquering this challenge is great. To help out, let’s discuss a holistic way of tracking these conflicting goals.

Welcome to the fourth article in our telco economics series. We conclude by discussing how the previous three metrics we explored can together be a good marker for how healthy your telco’s progress is in weathering a challenging financial environment.

A Holistic View of A Telco’s Financial Health

A holistic view must consider how well your telco handles present and future revenue and costs.

To refresh your memory, here are the three main metrics we covered;

Diversified Average Revenue Per User (DARPU) helps us track how well we monetize beyond core B2C connectivity offerings.

Net Promoter Score (NPS) helps us track our customer experience improvements. Customer experience is now becoming a matter of life and death for telcos.

Earnings Before Interest, Taxation, Depreciation and Amortisation (EBITDA) Margin helps us keep costs under control while we upgrade our service experiences.

‍

Now let’s dive in:

Diversified Average Revenue Per User (DARPU)

Slower connectivity revenue growth around the world is forcing telcos to find new sources of revenue beyond selling voice, data, and SMS services.

Annual connectivity revenue growth rates have hovered between 1 and 3 percent recently. B2C revenues still make up 70 percent of average telco revenue and can’t be ignored. 5G’s use cases are ramping up, but mainly for B2B clientele. To grow B2C revenue, telcos need to diversify beyond selling connectivity services.

To calculate diversified ARPU, you can divide up revenue from all sources by the total number of subscribers during a given period. You can then segment diversified ARPU into core and non-core sources of revenue. 

Here’s a list of core and non-core sources of telco revenue:

• Core revenuesome text
  • Mobile voice, messaging, and data
  • Fixed voice and broadband
• Non-core revenuesome text
  • B2C Contentsome text
    • Traditional Pay TV
    • OTT Video Content and Services - e.g. Netflix
  • Lifestylesome text
    • Health and Fitness
    • Gaming
    • E-sports
  • Finance some text
    • Digital Payments and Commerce
    • Financial Services
    • Utilities
  • Cloud - Providing cloud services for storage and computing.
  • Internet of Things - e.g. Smart home
  • E-commerce*
  • Other lifestyle partnership-related services such as travel lounge benefits*

We go through this in greater detail in our diversified ARPU article.

Net Promoter Score (NPS)

A great customer experience is critical to survival as our B2C audience growth slows. Tracking your customer experience can indicate future cost savings and referrals. 

Generating loyalty via rewards and great customer experiences saves costs, as retention can be up to 50 times cheaper than acquisition. Happy customers can become great brand advocates (superfans) and get valuable referrals for your telco.

Here’s an excerpt from our Net Promoter Score article about the link between customer satisfaction and a telco’s financial health:

‍

1. Lower Churn, Higher Loyalty, and Retention: 

Customers satisfied with their telco experience are less likely to switch providers, leading to lower churn rates. This, in turn, increases the average customer lifetime value—a key driver of profitability in the telco industry.

Lower churn also saves a lot of money. One Canadian telco in 2017 revealed that it cost almost 50 times less for them to keep an existing customer than to acquire a new one, with retention costs of C$11.04 and C$11.74, respectively, while average SAC in Canada weighed in at a whopping C$521.

‍

2. Increased Referrals and Brand Advocacy: 

NPS scores of 50 and above indicate a large base of promoters who are willing to recommend your telco brand to others. They have become genuine brand advocates who can drive great word-of–mouth marketing and organic growth

3. Outstanding customer experience: 

An NPS score of 60 or higher suggests that these companies are delivering an outstanding customer experience that exceeds user expectations. This can be a good way to track if your team has been optimizing customer journeys correctly.

These tweaks can include intuitive user interfaces, reliable performance, helpful customer support, and consistently meeting user needs. For digital-only mobile operators (DMOs), this will refer to the entire digital customer journey.

‍

4. Competitive advantage: 

Maintaining such high NPS scores is a remarkable achievement in the highly competitive digital sector. It signifies that these companies have built a strong competitive advantage through superior product quality, user experience, and customer satisfaction.

5. Room for improvement: 

Even with NPS scores above 60, there is always room for further improvement. Companies with these scores can still analyze feedback from detractors and passives to identify enhancement areas and continue raising the bar for customer experience.

‍

6. Improving customer targeting: 

Not all customer segments are profitable.

Research has shown that 1 in 5 customers could even destroy telcos' value.  These customers are expensive to acquire and churn so quickly that you will lose money dealing with them. 

Segmenting customers based on their NPS could shed light on keeping valuable segments happy while better understanding what our detractors are experiencing.

In our Net Promoter Score article, you can find out how we hit an NPS score of 50 in our home market of Singapore and get more details on customer satisfaction.

Cost Reduction: EBITDA Margin

‍

You still need to balance the costs of providing these improved customer experiences. With revenue growth so thin, sharp rises in costs can wipe out any potential profits.

The total cost of ownership (TCO) approach is still relevant when considering which service upgrade investments to make. At Circles, we use 5-year TCO benchmarks to find avenues to reduce various CAPEX and OPEX costs for our ideal digital mobile operator model.

‍

‍

You can check out our article on cost reduction to see other CAPEX-related benchmarks from McKinsey that we use, as well as the EBITDA margins of 20 of the world’s largest telcos.

‍

How All This Applies to the Ideal Digital Mobile Operator (DMO)

We selected these metrics to ensure that our telco brands and those of our partners can monitor our financial health during today’s challenging telco environment.

We created Circles to challenge the old telco status quo, in which bad profit practices like confusing billing, lock-in periods, and poor customer service were the norm. Why not shake up the industry and, together with other international telco partners like you, create an ideal DMO experience?  

Our approach targets digital natives in various countries. They are tech-savvy and comfortable around fully digital storefronts. They are also hungry to get as much out of their digital experiences as possible. With that, we go with a fully digital experience with no physical footprint, making this a fully digital mobile operator (DMO) approach.

An ideal DMO needs to be accountable for providing a great customer experience while being financially sustainable. While these are challenging targets, these are the metrics that ideal DMO brands need to hit:

‍

1. Diversified ARPU - 8-12% Enterprise Value to Revenue (EV/Revenue) that comes from diverse sources

2. NPS - 60 and above

3. EBITDA Margin - Lower than 5-Year Industry TCO Benchmark

‍

We use these three metrics as well.

For diversified ARPU, we innovate new revenue streams from online shopping, ride-hailing partnerships, and content, just to name a few. Our innovation engine continues to innovate and experiment with different B2C offers to hit this target.

Companies with an NPS score of 60 and above have achieved exceptional customer satisfaction and loyalty. They have built substantial brand equity, a loyal user base, and an established competitive advantage, positioning them well for growth and success.

Meanwhile, our telco brands need to monitor their EBITDA margins and ensure they don’t rise above the industry average 5-year total cost of ownership benchmark.

Our initial success in Singapore in 2016 allowed us to help partners like KDDI in Japan and e& in South Asia to bring the ideal DMO experience internationally.

‍

In the end, balancing today’s telcos' challenges is never easy. With these metrics, we can at least track our progress holistically and adjust our strategy if needed.

These metrics also apply to our concept of an ideal DMO, which we continue to refine in our markets and with our international partners worldwide.

These only scratch the surface of all the holistic telco economic metrics we should be tracking. Talk to us today to find out how else we can bring our telcos to the next level!

‍

Contact us today!

‍