Telecom CAPEX is rising, slowly but surely

I had a couple of interesting meetings in London this week. Both were related to telecom operator’s valuation and both were sharing the same issue: “Is there any way to optimize the CAPEX investments projected by operators?”. Non-minor task. CAPEX is normally intensive due to the heavy network deployments operators have to do to acomplish regulators requirements, market demand and new P&S delivery.

Telecom CAPEX is rising, slowly but surely. This makes operators to look for ways to reduce it as much as possible without affecting the business. Infonetics Research says that the growth in wireline and mobile services outside of the US is helping the sales of telecom equipment. They forecasted a 5% growth for 2006 to $203.1 billion versus $192.8 billion in 2005 and they were nearly right!. The highest growth has been in Europe where France Telecom, British Telecom and DT are the big spenders. In Asia Pacific, KDDI, Telstra and KT are the big spenders.

We normally conduct what we call a “technical due dilligence” in those operators willing to look for investment efficiency. For those of you with a tehnical due dilligence request from your client, here’s how we face this type of engagements:

Our technical due diligence service identifies material business risk associated with the deployment and operation of networks, systems and services. Current and future risks are identified and quantified, and recommendations on how to mitigate these risks given. Typically, investment banks and financial institutions use our services as part of major due diligence exercises during M&A transactions. Alternatively, we are engaged to undertake vendor due diligence to speed the sale process and maximise the value of the sale.

We typically utilise a four-step approach to technical due diligence:

* assess technical risks associated with current networks and system assets, and with organisational processes associated with operation of those assests and the services run on them
* assess the future technical risks of current major change programmes considering future business and market objectives
* reconcile current and future network, systems and operational plans with the business and market requirements
* identify and quantify any remedial and new activities to mitigate current risks.

For at least the duration of the business/market plan, we identify any gaps between the business and market plan requirements and the current and planned network and support systems capability, in terms of:
* functionality
* quality of service
* capacity
* resilience
* geographic coverage.

In addition:
* We recommend any technical and operational actions and estimate associated incremental investment costs to address any gaps
* We highlight any unrealised technical or operational benefits
* We carry out a physical inspection of assets and audit operational processes during visits to a sample of key sites
* We undertake a high-level comparison of network and operational performance against that of similar organisations, high-lighting performance benefits and risks and providing recommendations for any required performance improvements
* We undertake a high-level assessment of the organisation in terms of structure, scope of functions and staff capability.

Through our extensive track record in the sector, we have developed a robust set of KPIs and other benchmarks for a wide range of organisational types.  As a result, clients benefit extensively from our ability to identify best-in-class performance and hence highlight organisational risks and performance gaps in target companies.

Hope it helps. Best regards


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