It seems like a paradox.

Telcos face increasing pressure to enhance customer satisfaction, cut costs, and diversify revenue streams in response to slowing growth in connectivity revenues - demands that initially seem at odds. 

According to Boston Consulting Group (BCG), these goals can be achieved by reshaping the operating model and improving process efficiency.

To succeed, CEOs and CFOs must prioritize and select the most efficient investments, making concepts like Total Cost of Ownership (TCO) more crucial than ever.

Optimizing Costs in the Digital Mobile Operator Model: A TCO Benchmarking Approach

Total Cost of Ownership’s Definition

Total Cost of Ownership takes a comprehensive, long-term approach to evaluating investments by factoring in the initial capital expenditure (CAPEX) and the ongoing operating expenses (OPEX).

By comparing the total cost of ownership of various investment options against their potential returns, decision-makers can more effectively determine the optimal path forward.

At Circles, we used TCO to identify strategic areas for cost reduction in our ideal Digital Mobile Operator model.

The model’s cost components were benchmarked against 5-year TCO data to ensure accuracy. This was further enriched with:

• Insights from official request for information (RFI) 
• Request for proposal (RFP) documents
• Data that was validated through expert interviews with vendors and operator procurement teams.

CAPEX - Transforming Infrastructure Costs with a SaaS Platform Approach

According to Boston Consulting Group, streamlining processes can significantly reduce costs while maintaining efficiency and effectiveness¹—a strategy we adopted in our ideal DMO model.

Our approach centers around a robust SaaS platform consolidating all telco functions into a single, end-to-end, full-stack software solution. This eliminates the need for multiple vendors and reduces several cost factors, including:

• Development and set up fees from having multiple vendors involved
• Integration costs for 3rd party modules
• IT workforce costs needed to maintain and upgrade software from multiple vendors
• Change request costs from multiple vendors to suit the telco’s needs
• Infrastructure costs of mixing on-premises or cloud infrastructure that could drive up hosting costs

OPEX - Streamlining Departmental Costs with a Tech-Driven Approach

Developing TCO benchmarks for telcos presents a challenge because telecommunications companies often report costs differently in their annual reports and financial data. 

Using our SaaS platform, we standardized these costs in our benchmarks, allowing us to make meaningful comparisons across our OPEX categories.

With these insights, we developed targeted strategies to reduce costs further across various departments within our ideal DMO approach:

• IT & Cloud Costs: 
  • Using a single, end-to-end cloud-native stack to reduce on-premises infrastructure costs and IT setup and integration costs.
• Sales and Marketing: 
  • Focused Acquisition: As shown in our earlier research, we target high-value, digitally savvy customer segments - Savvy Selectors and Digital Vanguards.
  • Personalized Targeting: Behavioural targeting via their preferred digital medium, e.g. video streaming platforms and social media.
• Customer Operations:
  • Seamless User Journey: Optimising customer journeys through data gathered at all touch points.
• Central Functions:
  • Process Automation: Automate a significant percentage of workflows and key processes

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Impact on Earnings Before Interest, Depreciation and Amortization (EBITDA)

Our approach has led to meaningful cost-efficiency gains across key expense categories, directly enhancing EBITDA margins.

From our approach, we obtained these cost-efficiency results at different cost categories:

Benchmarking Success: EBITDA Margins of Leading Telcos (2021-2023)

To further help guide your telco, here are the EBITDA margins of 20 major international telcos and their averages from 2021 to 2023. These were gathered and calculated from their annual reports:

Driving Financial Efficiency: The Impact on EBITDA

EBITDA margin is critical for assessing how effectively a company converts revenue into operational profit. By adopting our Digital Mobile Operator (DMO) model, telcos can unlock significant cost-efficiency improvements across various categories, directly impacting EBITDA margins.

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Safeguarding Financial Performance for Telco CFOs

For telco CFOs, the DMO approach, anchored by a unified SaaS platform, provides a crucial safeguard against the financial risks of digital transformation. By consolidating all telecom functions into a seamless, end-to-end system, this model reduces the likelihood of costly integration errors often arising from fragmented technology investments. 

Additionally, by adopting an "outside-in" approach—focusing on customer needs and leveraging external benchmarks—the DMO model ensures that digital initiatives are cost-effective and strategically aligned with market demands, offering telco CFOs greater confidence in protecting and enhancing their company’s financial performance.

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The DMO Advantage: Enhancing Financial Performance

Transitioning to a DMO model isn’t just about adopting new technology but fundamentally improving financial performance. Here’s how our approach can help you achieve this:

• Reduced Infrastructure Costs: Streamlining through a SaaS-based, end-to-end full-stack platform significantly cuts CAPEX.
• Optimized Operational Expenses: Centralized, automated processes reduce OPEX, driving higher EBITDA margins.
• Strategic Customer Engagement: Targeted marketing and seamless customer journeys generate more efficient revenue.

As the telecommunications industry evolves, embracing the DMO model is becoming essential—not just for staying competitive but for achieving superior financial performance. Our benchmarks show that telcos adopting this approach are seeing notable improvements in their EBITDA margins.

We hope these insights prove valuable as you consider the next steps for your telco. Contact us today to learn how our DMO model can transform your business.

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