CONFIDENTIAL Example Benchmarks in a CAPEX Project Summary
CONFIDENTIAL Example Benchmarks in a CAPEX Project Summary This report is solely for the use of client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Mc. Kinsey & Company. This material was used by Mc. Kinsey & Company during an oral presentation; it is not a complete record of the discussion.
BENCHMARKING CONSIDERATIONS IN A CAPEX PROJECT Benchmarking of overall CAPEX/OPEX indicators Best practice project benchmarks Source: Team analysis • Top level CAPEX/OPEX productivity was benchmarked base on public, operator-group-wide information – CAPEX over revenues, as a function of revenue growth – CAPEX per line – Revenues per employee – Lines per employee • Note that these numbers allow for indicative conclusions only, since it is not fully possible to account for distorting effects (e. g. , level of outsourcing, group composition/ structure, varying access line growth, etc. ) • Numerical as well as conceptual best practice benchmarks will besystematically used for – Review of business cases (SDH/DWDM, Passportization, Operating systems, Broadband) – Investment tool development (e. g. , non-recurrent business case, controlling) 1
BENCHMARKING OF OVERALL CAPEX INDICATORS – CAPEX/REVENUES OUTSIDE-IN ANALYSIS Percent 1999 2000 Bezeq KPN Sonera Portugal Telecom Deutsche Telecom British Telecom Tele Danmark Telefonica France Telecom Italia Swisscom Attention: Whole telecom groups included Source: Annual reports, Epsicom, analyst reports 2
BENCHMARKING OF OVERALL CAPEX INDICATORS – CAPEX/LINES OUTSIDE-IN ANALYSIS EUR 1999 2000 Bezeq KPN Telefonica Tele Danmark British Telecom Deutsche Telecom Portugal Telecom Swisscom Sonera Telecom Italia France Telecom Attention: Whole telecom groups included Source: Annual reports, Epsicom, analyst reports 3
BENCHMARKING OF OVERALL CAPEX INDICATORS – CAPEX VS. REVENUES OUTSIDE-IN ANALYSIS CAPEX in percent of revenues Average 2001/2003, percent • Existing correlation British Telecom Bezeq France Telecom KPN Deutsche Telefonica Portugal Telecom Sonera Telecom Swisscom Teleco Danmark m Italia between CAPEX and revenue growth in most operators • Swisscom as renown case of „Best Practice CAPEX Management“ Revenue Growth CAGR 2001 -2003, percent Source: UBS Warburg; team analysis 4
BENCHMARKING OF OVERALL OPEX INDICATORS Revenues/employee 2000, EUR thousand OUTSIDE-IN ANALYSIS Lines/employee 2000 Bezeq Telecom Italia Portugal Telecom Sonera KPN Swisscom Tele Danmark Deutsche Telecom British Telecom France Telecom Telefonica Attention: Whole telecom groups included Source: Annual reports, Epsicom, analyst reports 5
BEST PRACTICE BENCHMARKS – PROJECTS (1/3) EXAMPLES Key benchmarks Project Benchmark Digitalization Degree of digitalization Assessment methodology • Differentiated roll-out External/ internal Description E Ratio of lines digitalized to total number of lines in European markets E • Pin-pointing Revenues • Overall E Value assessment methodology for differentiated digitalization strategy per ABC area Value assessment methodology for pin-pointed digitalization E Total telephony revenues per subscriber (residential vs. business) • VAS E Voice mail penetration Competition Digitalization requirements Revenue impact E E E I Switch line card reserves Supplier market share Switch end-of-life horizon Digitalization value I I Estimated penetration and spending level for various value-added services Voice mail penetration rates in various European countries Expected customer loss due to competition over time Regulatory requirements to digitalize Changes in customer revenues due to digitalization (showed no significant effect) Ratio of ports not actually used relative to the installed capacity Market share of switching equipment suppliers per region Expected life-time of various switch types Value creation potential of various digitalization strategies (e. g. , mass digitalization, differentiated digitalization by ABC area) Source: Team analysis 6
BEST PRACTICE BENCHMARKS – PROJECTS (2/3) EXAMPLES Key benchmarks External/ internal Description Project Benchmark SDH/DWDM Saving levers Traffic rerouting Reserve levels • Transmission capacity • Tributary cards Capacity utilization E E Common areas of potential savings/CAPEX optimization Concept for optimizing routing/rerouting of traffic E E I Tributary card/rack reserves I PDH reserves Point-to-point links Ring closures I I I Capacity utilization of links Reserve levels of tributary cards per ABC area Capacity utilization/constraint development across various regional rings Reserve levels of tributary cards and associate equipment across regions PDH equipment available/removed across regions Criteria for point-to-point link usage Requirements for ring closures and traffic rerouting across obszars Passportization approach E Degree of passportization I Passportization unit cost I Competitive impact I OPEX I&M I Passportization Source: Team analysis Scope and approach of passportization (including degree of passportization) for European operators Number of lines passportized/to be passportized per region (logical and physical layer) Spendings to passportize one line per region (actual and planned) Comparison of wait-lists, service applications, and possibility for direct connection per ABC area Staff for installation and maintenance per obszar 7
BEST PRACTICE BENCHMARKS – PROJECTS (3/3) EXAMPLES Key benchmarks Project NOM/NOL Neostrada Benchmark External/ internal Description Saving levers E Adaptation expenditures I Software upgrade cost per vendor Technological basis E Adaptation expenditures I Planning reserves Hi. S equipment purchase plans ADSL unit cost I I Comparison of x. DSL and Hi. S technological platform (including cost assessment) Cost of required Neostrada adaptations across regions per cost category (including best/worst practice spendings) Funding reserve levels across regions Purchased but not installed Hi. S equipment across regions Plans for purchasing Hi. S equipment in 2002 across regions Comparison of actual prices vs. assumed planning prices across regions Source: Team analysis Common areas of potential savings based on practices at European operators (especially in software area) Cost of NOM/NOL adaptations across regions per cost category (software, interconnection point construction, signaling, other) 8
BEST PRACTICE BENCHMARKS – TOOLS (1/2) EXAMPLES Key benchmarks Tool Benchmark External/ internal Description ABC Methodology classification CAPEX, OPEX, revenues E Investment handbook Methodology E Subscription cost E Cost sharing Competition Sewage cables New technologies E E Unit cost fiber/copper/ducts Maintenance cost I I Radio access provisioning Radio access systems I I Source: Team analysis I Best practice methodology applied by other (world-wide) operators Detailed information on CAPEX to build lines, OPEX to maintain access network and revenues per line/switch across regions and obszars Best practice methodology applied by other (world-wide) operators Monthly telephony subscription fee schedules for various operators Availability of financing through municipalities Licenses of domestic carriers per area Cost comparison of sewage cables across different vendors Comparison of new technologies from other operators (e. g. , DWDM, next generation network) Maintenance cost for fiber optic lines, aerial lines and multiplexers across obszars (day-to-day maintenance, renovations, repairs) Average cost of radio access provisioning across obszars Cost of radio access system for different vendors (with respect to maintenance, specifications) 9
BEST PRACTICE BENCHMARKS – TOOLS (2/2) EXAMPLES Key benchmarks External/ internal Description Tool Benchmark Business case Methodology E Best practice methodology (concept and process) applied by other European operators Controlling Methodology KPIs E E Best practice methodology applied by other operators Identification of relevant key performance indicators based on practice at other operators Investment Office Organizational setup E Tool-set Mission statement Dimensioning E E E Structure, roles and responsibilities for units/sub-units of Investment Office Tool-set available to support investment/budgeting process Scope/mission of Investment Office Staffing levels for Investment Office units/sub-units considering scope, investment volume POTS unit cost E Switch capacity utilization E Budget Source: Team analysis Cost to build one new POTS, including breakdown into cost categories (access network vs. transmission network) Ratio of number of lines actually connected relative to the installed capacity 10
BENCHMARKING OF GDP PER CAPITA OUTSIDE-IN ANALYSIS EUR thousand 1999 2003* Israel Denmark Finland France Germany Italy Netherlands Portugal Spain Switzerland United Kingdom *Forecast Source: WEFA: WMM 11
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