ITU / BDT Regional Network Planning
Workshop with Tool Case Studies for the
Arab Region
Cairo - Egypt,
16–
16– 27 July 2006
Business Planning and Modeling
Oscar González Soto
ITU Consultant Expert
Strategic Planning and Assessment
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 1
Business Planning and Modeling
Content
• Role of business Planning today. Basic concepts
• Telecom business modeling
• Typical evaluation results
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 2
Business Planning and Modeling
Definition of business plan
A Business Plan presents the calculation of the financial indicators
that enable the managers to evaluate the financial performances of an
entreprise in order to take decisions.
A Business Plan summarises the results of the planning process:
• the objectives to reach ( subscribers demand, sales)
• the description of all activities requested by the project;
• the future revenues expected from the project;
• the planned expenses (investment and operations);
• the accounting statements and the financial indicators
characterising the profitability of the project.
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 3
Business Planning and Modeling
Types of business plans
plans
Strategic Business Plan for evaluating a strategy:
• aid for making internal decisions for the whole company
(strategic guidelines at the national level, all markets)
Tactical Business Plans for specific projects :
• aid for making internal decisions for a particular area, or a
market segment: IN, mobiles, IP
Short term Business Plans for management control :
• aid for monitoring the implementation of projects
• preparation and follow-up of budgets,
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 4
Business Planning and Modeling
Iterative process for evaluation
Strategic objectives, strategic guidelines
modifications
Marketing planning
modifications
Network planning
modifications
Operations planning
Human resources
planning
modifications
Business Plan
Evaluation
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 5
Business Planning and Modeling
Interaction between analysis and business plan
Analysis
SWOT
Pricing
Service portfolio
Technologies used
Action plans
Business Plan
Costs models
Revenues
Financial indicators
Evaluation
Sensitivity studies
what parameters to improve, how to adjust models
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 6
Business Planning and Modeling
Business model structure
Demand
Human
Resources
Tariffs
Corporate
Customers
Revenue
Ordinary
Customers
Revenue
OPEX
CAPEX
Evaluation with Ratios and financial indicators :
NPV, IRR, pay-back, EVA, ROCE
July 2006
slide 7
ITU/BDT Network Planning/ Business Planning - O.G.S.
Business Planning and Modeling
Services Revenues calculation
Customers Services
Telephone
connection fee
rental fee
local calls
ld calls
idd calls
Mobiles
Leased
lines
Data
Video
Added
value
services
Total Revenues
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 8
Business Planning and Modeling
Expenses calculation
Customers
Services
Network
construction
operations
extension
Customer Care
provisioning
repairing
call center
CAPEX
July 2006
Marketing
Billing
Labour Costs
Administrative
& general costs
OPEX
slide 9
ITU/BDT Network Planning/ Business Planning - O.G.S.
Business Planning and Modeling
Financial Statement
Income Statement:
Net income = revenues - expenses
Balance Sheet:
Company capital = Assets - liabilities
Cash flow statement :
Cash balance = Inflows - outflows
All fundamental financial indicators are carried out
with the elements of these 3 statements
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 10
Business Planning and Modeling
Financial indicators calculation
The most useful economical indicators are :
- Net present value (NPV)
- Internal rate of return (IRR)
- Discounted Payback period (DPP)
- Net cash flow (NCF)
- Discounted cash flow (DCF)
- Operating income
- Revenue per service/service class
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 11
Business Planning and Modeling
The purposes of the accounting statements
Income statement
to analyze potential profit
is the profit enough ?
Balance statement
to analyze the financial structure
how to finance the development
enough / too much equity ? Enough/ too much debt
Cash-Flow statement
to make payments at every due date
to have the right cash at the right time
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 12
Business Planning and Modeling
Income statement
OPEX
Revenues
-
CAPEX
+
EBITDA
Depreciation
Taxes
-
Earning before income taxes,
depreciation and amortization
--
EBIT
Earning before interests,
and income taxes,
Net Income
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 13
Business Planning and Modeling
CAPEX: Capital Expenditures
CAPEX contribute to extend the fixed assets, and they
are depreciated over an economic life time
CAPEX are necessary for extending the business or
for improving the range of services provided by the
operator.
Examples :
• Purchase of land & buildings,
• Network construction
• Purchase of information systems (hardware & software )
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 14
Business Planning and Modeling
OPEX=
OPEX Operations Expenditures
OPEX are expenses which don't contribute to extend the fixed
assets, and consequently are not subject to depreciation
OPEX are necessary for running the company,
- Technical operations (switching, transmission, local loop,..)
- Commercial operations (marketing and sales)
- Administrative operations (support,..)
Examples :
- Labor costs for operations,
- Travelling expenses, periodic administrative costs,
- Rental of equipment, rental of cars, rental of buildings
- Interconnection fees
July 2006
slide 15
ITU/BDT Network Planning/ Business Planning - O.G.S.
Business Planning and Modeling
Income statement
Cost of
sales
Total
revenues
(sales)
Operating
expenses
Gross
margin
Income
EBITDA
from
operations
Other
incomes
July 2006
Depreciation
Taxes
Interests
EBIT
ITU/BDT Network Planning/ Business Planning - O.G.S.
Dividends
Net
income Retained
earnings
slide 16
Business Planning and Modeling
Cash Flow
Inflows
Revenues, funds
Cash
balance
Out
flows
IRR
NPV
CASH FLOWS
OPEX
July 2006
CAPEX
Working
Capital
changes
Taxes
slide 17
ITU/BDT Network Planning/ Business Planning - O.G.S.
Business Planning and Modeling
INFLOWS and OUTFLOWS
Customers
Sales of services
(operating income)
Shareholders
Increase of equity
(capital increase)
Banks, lenders
Increase of debt
(credit, loans)
INFLOWS
cash flow
OUTFLOWS
Labour
costs
Training
Staff
July 2006
Technical
Network
& admini&
equipment strative
Tax
expenses
Suppliers
Service
providers
Government
Debt
repayment
with
interests
Banks,
lenders
ITU/BDT Network Planning/ Business Planning - O.G.S.
Dividends
Shareholders
slide 18
Business Planning and Modeling
Business domains and trends
Illustration case for customer categories and revenues
300-500
3-8%
Small& Medium
Enterprise
8%
SOHO (1-2 people)
10-20%
High-End
Residential
60-70%
Operator
70-120
60-80
30-55
L-E Residential
Classes Of
Customers
Growing revenues
Growing Volume
>3000
Large Corporations
0.5- 1%
business
feasibility
as a
function of
mix of
categories
Revenues/Month (Euro)
“Customer stratification should be analyzed per country”
July 2006
slide 19
ITU/BDT Network Planning/ Business Planning - O.G.S.
Full capacity cost
Cost per unit
Business Planning and Modeling
Importance of Modeling
Economy of scale per technology and size
u1
u1 = a1+ B1 / S
u2 = a2+ B2 / S
u2
m1
m2
X
M1
t1 = a1 S + B1
t2 = a2 S + B2
t2
t1
m1
m2
X
M1
Equipment size
M2
M2
Equipment size
Impact by occupancy or fill-in degree
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 20
Cost per Line (Monetary units)
Business Planning and Modeling
Importance of Modeling
Economy of scale through time
Price per line for two Greenfield scenarios
1 200
1 000
800
Suburban
600
Rural
400
200
0
0
1
2
3
4
5
6
7
8
9
Years since start
Impact by customer volume
July 2006
slide 21
ITU/BDT Network Planning/ Business Planning - O.G.S.
Business Planning and Modeling
Importance of Modeling: Deployment Strategies
C: Balanced between COOP
and demand satisfaction
Equipment Deployment:CAPEX
Solution B
(Once for all)
B: High risk,
CAPEX
and OPEX
Solution C
(Optimized)
Solution A
(yearly)
Demand
forecasts
A: High OPEX by installation
costs risk to satisfy demand
Years
Major impact on CAPEX and OPEX
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 22
Business Planning and Modeling
Key Factors in competition:
competition: Business feasibility
Business feasibility space as a function of volume and ARPU
Revenues per
customer/yea
(ARPU)
Non feasible by lack of payment capability,
churn or regulation constraints
Feasibility area:
users range
r2 $
r1 $
Non feasible by
low NPV and IRR
Feasibility area:
tariff range
n1
n2
Volume of Customers/type
Feasibility space highly dependent on country size and economical level
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 23
Business Planning and Modeling
Role of Business Planning
Evaluations to be based on robust techno-economical tools due to
high number of alternatives and complexity
Case study for medium size country with mixes of customer classes
and triple play services domains:
–
Multiservice IP Network with integrated operation available
– Three service categories: Voice, Data/Internet, Video distribution
– Modeling demands, multiservice traffic flows, dimensioning, network
resources, CAPEX, OPEX and financial results for different levels of
competition
– Evaluate differential future Cash-flows, NPV, IRR, etc. for a 10 years
period
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 24
Business Planning and Modeling
Example for whatwhat-if economical analysis
Network NPV for new multiservice network operator
Effects of the mix of services on Reference Scenario ( Low Competition)
7e+08
4
6e+08
1
5e+08
4e+08
Euro
3e+08
2
2
3
3
2e+08
4
1e+08
0e+08
Y0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
Y10
1
Internet
Internet &
VoDSL
Internet &
Video
All
Services
(reference)
-1e+08
-2e+08
Year
July 2006
slide 25
ITU/BDT Network Planning/ Business Planning - O.G.S.
Business Planning and Modeling
Example for whatwhat-if economical analysis
Network NPV for new multiservice network operator
Effects of the mix of services with decreased revenues (30%) in High Competition
5e+08
4
4e+08
1
3e+08
2
2
2e+08
Euro
0e+08
3
Y0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
-1e+08
-2e+08
July 2006
Internet &
VoDSL
3
1e+08
Y9
Y10
Internet
4
Internet &
Video
All
Services
(reference)
1
Year
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 26
Business Planning and Modeling
Summary Remarks
• Ensure proper modeling of key techno-economical factors and
professional tools
• Focus on multiple customers, multiple services domains
• Take benefit of all economies of scale
• Maintain business indicators within benchmark margins in
competition
July 2006
ITU/BDT Network Planning/ Business Planning - O.G.S.
slide 27