prepaid ocs convergence model

© 2012 Karthik Ethirajan, all rights reserved

Business Case for Prepaid OCS Convergence Karthik Ethirajan March 2012

2 © 2012 Karthik Ethirajan, all rights reserved

Agenda

Prepaid Market Overview Prepaid Market in North America

Tier 1 Carriers and New Entrants

Prepaid OCS Upgrade Question Current Situation Analysis

Industry View on Convergent Charging

OCS Upgrade: Issue & Analysis

Net Savings Analysis Framework

Cost Analysis of OCS Convergence OCS Cost Model Structure

Cumulative Cost Savings

PMO and FMO Cost Comparison

Cost Comparison of Major OCS Components

CAPEX Breakdown

Impact of Changes in Prepaid Business

Impact of Project Delay

Summary of Findings Cost Analysis Summary

Recommendation


Prepaid Market in North America

Mobile prepaid market growth has been stagnant in Canada, while US shows some

progression

Mobile prepaid market has shown zero growth in Canada, while postpaid market

experiences small increase to population penetration

In 2013, Canada can expect a 1% increase in prepaid subscriptions

Implications

Source: Pyramid, 2011

Stagnant CDN

Growth

Expected US

Growth

Prepaid Market Overview



Tier 1 carriers have had a steady hold on the prepaid market share

1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11

BCE 26.8% 26.3% 26.0% 26.2% 25.6% 25.2% 24.4% 23.5% 22.4% 21.5% 20.7%

Rogers 18.2% 17.8% 17.9% 17.8% 17.4% 17.4% 17.9% 18.4% 18.2% 18.3% 18.9%

TELUS 19.5% 19.3% 19.1% 18.7% 18.8% 18.2% 18.0% 18.0% 18.1% 17.6% 17.3%

Prepaid Share of Subscriptions- Tier 1 Carriers

Stagnant/

Declining

Incumbents face

decreasing market share

and ARPU with prepaid,

primarily due to stiff

competition from new

entrants who are

aggressively targeting this

segment

Heightened

Competition

Source: Strategy Analytics , BMI 2011

In order to stay competitive, MNO may need to upgrade its OSS/BSS to reduce

cost and to offer new products bundles and service plans Implications

Prepaid Market Overview

Competitors Monthly Prepaid vs. Postpaid ARPU

CAD


Agenda




Industry View on Convergent Charging and Ericsson Experience







CAPEX Breakdown




Recommendation


Current Situation Analysis

Key Questions

The overall objective of the project is to determine the most cost effective way to upgrade

OCS platforms to support present and future Prepaid and other business needs

Should MNO upgrade to a converged OCS or

maintain two OCS platforms ?

Does the CAPEX for the impending SurePay

upgrade sufficiently offset the CAPEX required

for consolidating the two OCS platforms ?

What is the payback period for the initial

investments from the cost efficiencies realized

through a converged OCS platform ?

How does changes in Prepaid business climate

impact our project cost/plans ?

What are the implications of delaying the

project by one or more years ?

Possible Outcomes

Maintain PMO by upgrading

SurePay and keeping both OCS

platforms operational Op

tio

n 1

Transform to FMO by retiring

SurePay, upgrading SAP-CC and

adding SCP using Ericsson / BT Op

tio

n 2

Transform to FMO by retiring

SurePay, upgrading SAP-CC and

adding SCP using MNO IT Op

tio

n 3

Prepaid OCS Upgrade Question


Industry View on Convergent Charging

Support marketing initiatives such as

cross-selling and upselling of service

bundles

Key Findings Infonetics Global Research Report, Sep 2011

Business

Drivers

Supplier

Selection

Criteria

System

Integration

Product reliability (most important),

service and support, vendor reputation

and customer references

Subscriber data management, customer

relationship management systems and

policy management systems


0% 20% 40% 60% 80% 100%

Integration Effort

Software development(or CR) often needed

Testing

Complexity of configuration

Multiple platforms neededto be updated

Billing Challenges CSPs Face in Meeting Time-to-

Market for Launching New Products and Services

Billing operations are increasingly an

obstacle to responding to industry

changes

Key Findings How CSP can Transform Telecom Billing Operations

to Support a New Convergent, Digital Business

Business

Drivers Transforming billing capabilities is key to

the success of CSP’s new business

strategies

OCS upgrade requires careful cost/benefit

analysis, detailed project plan and

implementation by an experienced provider



• Call control

• Rating

OCS Platform

SurePay SAP-CC

Vendor

Market Prepaid Prepaid

Network Support

CDMA: Voice, Data HSPA: Voice

CDMA: SMS HSPA: Data, SMS

Client Satisfaction

Low TBD

Revenue Opportunity

Supports legacy revenue streams only

Enables new revenue streams

Operating two OCS platforms is NOT cost effective

Issue Analysis

Technical

Analysis

Business

Case

• Solutions Architecture

Recommendations

• Solution Integration Impacts

• Data Migration Impacts

• Operations Impacts

• Managed services

• Develop an operational

model to quantify cost

savings

• Estimate CAPEX

requirements

• Prepaid market research

• Estimate incremental

revenue from new voice and

data bundles

• Subscriber charging & billing

Explore converging OCS to a single platform




SurePay + SAP-CC

CA

PE

X

SAP-CC

0

OP

EX

Operational

Cost Savings

Incremental

CAPEX

Net Savings

Cost savings from upgrading to SAP-CC OCS is the net of operational cost savings from

a converged OCS platform with initial incremental CAPEX requirement

• SurePay is a legacy OCS that

has a higher operating cost

• However, SurePay needs to be

upgrade in the near term

• SAP-CC is a new converged

OCS with a lower operating cost

• However, retiring SurePay

requires high CAPEX

0

Fixed

Cost

Variable

Cost

Platform

Growth &

Sustainment

Variable

Cost

Fixed

Cost

Platform

Growth &

Sustainment

PMO

FMO



Agenda











CAPEX Breakdown




Recommendation


OCS Cost Model Structure

Model Inputs General Notes / Model

Assumptions

Model Outputs

Present Mode of Operation (PMO)

• Both SurePay and SAP-CC

OCS are operational

• SurePay handles voice

• SAP-CC handles HSPA data

and SMS

• SurePay needs upgrade

Future Mode of Operation (FMO)

• PMO OCS platforms converges

to SAP-CC and SCP

• SAP-CC handles voice, data

and SMS

• SurePay is retired

NPV Analysis

– Net cost savings after 1

year / 3 year / 5 years

Cost Analysis

– PMO vs. FMO costs

– CAPEX breakdown

– Compare OCS platforms

OCS COST (2012-18)

• Fixed Costs

• Data Center

• Personnel

• Variable Costs

• Utilities

• Data Storage

• Hardware AMC

• Software AMC

• Care

• CAPEX

• Platform

• Growth & Sustainment

PMO – SAP-CC

PMO – SurePay

PMO – Transformation

FMO – SAP-CC

FMO – SCP

FMO – Transformation

Prepaid Subs (2012-18) • CDMA subs • UMTS subs

Breakeven Analysis

– Cumulative cost savings of

PMO vs. FMO

Sensitivity Analysis

– Prepaid growth

– Delaying FMO

OCS Cost Model



Cost Analysis of OCS Convergence

-$12

-$10

-$8

-$6

-$4

-$2

$0

$2

2H12 2013 2014 2015 2016 2017 2018 2019

Higher initial CAPEX resulted in a negative NPV. However, YoY cost savings from

OPEX improved NPV and cost breakeven is achieved during 2Q 2019

-$8

-$7

-$6

-$5

-$4

-$3

-$2

-$1

$0

NPV Cost Savings

• The initial CAPEX is offset by OPEX

savings YoY

• Cost breakeven is achieved during 2Q

2019

• Large CAPEX resulted in negative NPV

during the initial years

• 5 Year NPV is -$2.7 million


1 Yr

NPV

3 Yr

NPV 5 Yr

NPV

Breakeven

Point

($ millions) ($ millions)




The CAPEX delta between PMO and FMO peaked at $7.2 million in 2012 and OPEX

delta is $1.79 million per year after the transformation

OPEX Cost Comparison

• FMO costs are higher initially due to large

CAPEX compared to PMO

• FMO costs are lower than PMO in the

subsequent years of operation

• FMO OPEX costs for SAP-CC is close to

PMO levels even after taking on new

functionalities

• SurePay of PMO has the highest OPEX

• SCP of FMO has the lowest OPEX

PMO vs. FMO Costs

1 Yr

NPV

3 Yr

NPV 5 Yr

NPV

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

SAP-CC SurePay / SCP Total

PMO Opex

FMO Opex

-$16

-$14

-$12

-$10

-$8

-$6

-$4

-$2

$0

2H12 2013 2014 2015 2016 2017 2018

PMO Costs

FMO Costs

($ millions)

($ millions)

$1.79M YoY

OPEX Savings

$7.2M Peak

CAPEX




Costs of SurePay (PMO), SAP-CC (PMO & FMO) and SCP (FMO) are compared below

Cost Categorization

• SCP carries the lowest Fixed Cost of all components

• SurePay operational costs are bundled as the

maintenance cost essentially charging no additional

license fees

• SAP-CC and SCP operational costs are split

between low annual maintenance costs and

moderate license costs

• SurePay upgrade (PMO transformation) and

SurePay retirement / SAP-CC upgrade (FMO

transformation) requires high investment

• Fixed Cost includes development and operational

personnel

• Variable Cost includes maintenance costs

• License Cost includes licensing for capacity

expansion and feature enhancements

• Transformation Cost includes system integration cost

SAP-CC, SurePay, SCP Cost Comparison

$0 $5,000,000 $10,000,000 $15,000,000

Fixed Costs

Variable Cossts

License Costs

Transformation Costs

SCP

SurePay

SAP-CCKey Differences

CAPEX


CAPEX Breakdown


Total CAPEX spend for FMO is more than twice that of PMO. Platform and G&S CAPEX

for FMO exceeds PMO by $5.60 million and $4.56 million respectively

FMO CAPEX

• PMO CAPEX is spread over 3 years

• Total CAPEX spend in PMO is $6.87

million

• Platform CAPEX is 21% of Total CAPEX

• G&S CAPEX is 79% of Total CAPEX

• FMO CAPEX is spread over 3 years

• Total CAPEX spend in PMO is $17.04

million

• Platform CAPEX is 41% of Total CAPEX

• G&S CAPEX is 59% of Total CAPEX

PMO CAPEX

($ millions) ($ millions)

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2012 2013 2014 Total

Growth & Sustainment

Platform

$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

2012 2013 2014 Total




Growth in Prepaid business has an incremental effect on overall costs. Decline in

Prepaid has no effect on cost.

Key Insights

• FMO OPEX is twice as sensitive as PMO OPEX to

Prepaid growth

PMO OPEX cost increased by 7% and 13% when

Prepaid growth was 10% and 20% respectively

FMO OPEX cost increased by 14% and 28%

when Prepaid growth was 10% and 20%

respectively

• NPV Cost Savings (difference between PMO and

FMO costs) is much less sensitive to Prepaid growth

PMO OPEX cost increased by 7% and 13% when

Prepaid growth was 10% and 20% respectively

• Decline in Prepaid has no effect on PMO or FMO

OPEX and NPV Cost Savings

Costs built in based on peak subscriber demand

stays permanently

Prepaid Growth Sensitivity on Costs

($4)

($3)

($2)

($1)

$0

$1

$2

$3

$4

$5

NPV Cost Savings PMO Opex FMO Opex

20% Prepaid Growth

10% Prepaid Growth

0% Prepaid Growth

-10% Prepaid Growth

-20% Prepaid Growth

($ millions)




Any delay in implementation of FMO will reduce the cost benefits and increase the time

to achieve breakeven. Analysis assumes that no PMO transformation costs are incurred

because of the delay.

5-Yr NPV Cost Savings

• If FMO is delayed by 1 year, cost

breakeven period moves by 1.3 years

• If FMO is delayed by 3 years, cost

breakeven period moves by 3.3 years

• If FMO is delayed by 1 year, 5-yr NPV Cost

Savings is reduced by $0.8 million

• If FMO is delayed by 3 years, 5-yr NPV

Cost Savings is reduced by $2.9 million


($ millions)

($ millions)

-$12

-$10

-$8

-$6

-$4

-$2

$0

$2

$4

$6

$8

2H12 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

FMO No Delay FMO 1 Year Delay FMO 3 Year Delay-$6

-$5

-$4

-$3

-$2

-$1

$0

No

Delay 1 Yr

Delay

3 Yr

Delay

Breakeven

Point 1.3 Yrs 3.3 Yrs

$0.8M

$2.1M


-$12

-$10

-$8

-$6

-$4

-$2

$0



Any delay in implementation of FMO will reduce the cost benefits and increase the time

to achieve breakeven. Analysis assumes that both FMO and PMO transformation costs

are incurred because of the delay.

5-Yr NPV Cost Savings

• If FMO is delayed by even 1 year, cost

breakeven will not be achieved for over 10

years

• If FMO is delayed by 1 year, 5-yr NPV Cost

Savings is reduced by $4.9 million

• If FMO is delayed by 3 years, 5-yr NPV

Cost Savings is reduced by $7 million


($ millions)

($ millions)

No

Delay 1 Yr

Delay 3 Yr

Delay $4.9M

$2.1M

-20

-15

-10

-5

0

5

10

2H12 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

FMO No Delay FMO 1 Year Delay FMO 3 Year Delay

Breakeven

Point


Agenda











CAPEX Breakdown




Recommendation


OCS Platform Cost Analysis Summary

Summary of Findings

Implementation of FMO will result in a 5 year NPV of -$2.7 million

Cost breakeven will be achieved in 2Q 2019 following FMO

transformation

Total CAPEX spend for FMO is more than twice that of PMO.

CAPEX delta is $10.17 million. CAPEX spend is spread over 3

years.

FMO operation will result in a cost saving of $1.79M each year after

transformation compared to PMO operational costs

SurePay has high annual cost ($1.6M AMC) and it includes license

cost for Prepaid subscribers

SAP-CC and SCP has lower annual cost ($1.1M AMC) but charge a

license fee for capacity

Growth in Prepaid business has an incremental effect on overall

costs. Decline in Prepaid has no effect on cost as once costs are

built in (based on peak subs) it cannot be taken out

Any delay in implementation of FMO will reduce the cost benefits

and increase the time to achieve breakeven

Baseline Assumptions

• All costs are adjusted to a PV of June

30, 2012

• 2012 costs are accounted for the 2nd

half of the year only where applicable

• PMO and FMO transformation is

expected to take 18 months

• No project delay means the

transformation will be complete by

end of 2013

• Prepaid market forecasts a decline of

10% in subscriber growth

• Some costs (e.g., customer care) that

are not expected to change between

PMO and FMO are not accounted for

Model Risks

Model output is sensitive to a few inputs

that are being refined. They are:

• Personnel cost data

• BT cost for SurePay retirement

• Ericsson SI cost


Recommendation

Summary of Findings

Initiate FMO as the first step towards realizing a converged OCS platform

across MNO business groups

Choose <XYZ> based on pricing, initiative and industry standing

Recommended

Approach

Option 1:

Keep PMO

“Status Quo”

Option 2:

FMO with Ericsson

“OCS on Steroids”

Option 3:

FMO with BT

“OCS D-I-Y”

Pros

Cons

• CAPEX is lower than that of

FMO transformation

• Prepaid may not be a growth

market

• No scope for adding service

bundles or other new products

• SurePay still requires upgrade

• High OPEX cost

• Upkeep and maintenance of

two OCS platforms

• SAP-CC/SCP is a flexible OCS

platform that can handle new

Prepaid and other products

• OPEX cost savings of

$1.79M/Year

• High CAPEX, exceeds PMO

by $10.17 million

• Limited experience working

with Ericsson

• Same benefits as Option 2

• Higher cost than Option 2

CAPEX: $17.04 million

OPEX: $1.78 million

NPV: -$2.7 million


OPEX: $3.57 million

NPV: N/A


OPEX: $1.78 million

NPV: -$7.1 million

Strategic

Alignment

prepaid ocs convergence model

Documents