Insights

5

5

min read

Optimizing Telco Financial Performance

Cost Reduction with a Techco Playbook

Outline

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.
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

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:

Circles 14 EBITDA Margins.csv
Telco FY 2021 EBITDA Margins FY 2022 EBITDA Margins FY 2023 EBITDA Margins
Bharti Airtel 50.39% 50.50% 54.28%
Reliance Jio 45.02% 49.18% 51.80%
Telenor 43.90% 43.90% 42.96%
Ooredoo 43.65% 40.22% 41.54%
Deutsche Telekom 40.05% 40.56% 41.82%
Verizon 38.91% 36.04% 36.92%
China Mobile 36.70% 35.10% 33.80%
Telstra 35.43% 34.10% 33.82%
BT 35.00% 36.00% 38.00%
Telefonica 34.59% 32.14% 28.02%
Vodafone 34.30% 32.98% 30.01%
T-Mobile 33.61% 34.96% 37.46%
KDDI Corp 32.96% 31.36% 29.34%
AT&T 32.64% 11.13% 34.50%
NTT Docomo 30.79% 30.87% 31.87%
SK Telecom  30.70% 30.24% 30.49%
SoftBank 30.61% 26.50% 27.41%
Orange 29.85% 29.82% 29.54%
China Telecom 28.19% 27.08% 26.64%
Singtel 24.56% 25.21% 25.46%
Made with HTML Tables

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.

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.

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.
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. Click the button below to learn how our DMO model can transform your business.

Get Your Free SaaS Demo

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Personalizing the Customer Experience at Every Touchpoint

 One of the most immediate and impactful uses of AI is in personalization. Telcos have long recognized that customer experience is more than just a differentiator—it’s central to loyalty and long-term success. AI enables telcos to create customer journeys that are tailored based on actual behavior and preferences.             

Complicated Billing and Bill Shock
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Complicated Billing and Bill Shock
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Complicated Billing and Bill Shock
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Complicated Billing and Bill Shock
“Why am I being charged for this?!"
The telco industry has been notorious for poor customer service - in some cases, marketing professors even point to older telco ‘bad profit’ practices as poor examples of customer relationship management. Examples like these
This lack of transparency repulses customers and frustrates those who want to switch to better deals.

Heading

Content
Complicated Billing and Bill Shock
“Why am I being charged for this?!"
Complicated Billing and Bill Shock
“Why am I being charged for this?!"
Complicated Billing and Bill Shock
“Why am I being charged for this?!"
Complicated Billing and Bill Shock
“Why am I being charged for this?!"

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Optimizing Telco Financial Performance

Cost Reduction with a Techco Playbook

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23 Aug 2024

Optimizing Telco Financial Performance

Cost Reduction with a Techco Playbook

Written by

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.
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

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:

Circles 14 EBITDA Margins.csv
Telco FY 2021 EBITDA Margins FY 2022 EBITDA Margins FY 2023 EBITDA Margins
Bharti Airtel 50.39% 50.50% 54.28%
Reliance Jio 45.02% 49.18% 51.80%
Telenor 43.90% 43.90% 42.96%
Ooredoo 43.65% 40.22% 41.54%
Deutsche Telekom 40.05% 40.56% 41.82%
Verizon 38.91% 36.04% 36.92%
China Mobile 36.70% 35.10% 33.80%
Telstra 35.43% 34.10% 33.82%
BT 35.00% 36.00% 38.00%
Telefonica 34.59% 32.14% 28.02%
Vodafone 34.30% 32.98% 30.01%
T-Mobile 33.61% 34.96% 37.46%
KDDI Corp 32.96% 31.36% 29.34%
AT&T 32.64% 11.13% 34.50%
NTT Docomo 30.79% 30.87% 31.87%
SK Telecom  30.70% 30.24% 30.49%
SoftBank 30.61% 26.50% 27.41%
Orange 29.85% 29.82% 29.54%
China Telecom 28.19% 27.08% 26.64%
Singtel 24.56% 25.21% 25.46%
Made with HTML Tables

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.

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.

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.
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. Click the button below to learn how our DMO model can transform your business.

Learn More

Insights

Diversified ARPU

A Strategic Lever for Sustainable Growth in a Challenging Market
Insights

Telco Digital Transformation: Why the Clean Slate Full-Stack Approach is Mission Critical

How You Can Overcome Common Pitfalls Holding Telcos Back
Insights

Telco Digital Transformation

Data Migration Risks and Mitigation Strategies