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More on Telco 2.0 Metrics

Having got back from hols on Monday, I have been musing about Telco metrics and KPI’s in light of the great postings in the blogosphere that we referred to yesterday.

The more I think about this, the more it is clear there are 3 types of metrics:

  1. Investment
  2. Operational
  3. Financial

Investment metrics are the early warning signals that ensure the company is aligning execution with strategy and investing in the right areas. These are the long-term leading indicators of where an operator is seeking to position itself in 3-5 years time (and how well an operator might perform then). An example of this might be investment in NGN technologies that support the stated strategy - e.g. in 21CN in BT’s case which supports its move to being an ‘open platform’ IP company.

Operational KPI’s are the immediate lead indicators for the financial ones. In today’s current world, Subscribers (especially active ones) are used as a lead indicator for revenue growth (rationale being that if you add incremental subs this quarter you will see increased revenue in subsequent ones). ARPU falls somewhere between an operational and financial metric because, although higher ARPU should equate to higher overall revenue (therefore financial measure), it can also be manipulated by promotions, discounts etc. and therefore is an operational tool.

True Financial measures reflect the financial performance of the company - cashflow, ROI etc. These are the backward looking measures that tell you how well the company has performed over the preceding financial period.

I think the long- and short-term leading-indicator Investment and Operational measures are the interesting ones for (a) management and (b) the investment community seeking to see if companies are on the right track in an industry that is in the throes of disruptive change.

There are 2 separate issues relating to current Operational & Financial metrics (I haven’t really thought through the issues with Investment ones yet):

  1. They are inconsistently applied or “fudged” as Dean Bubley neatly puts it.
  2. They are the wrong measures for the future Telco 2.0 world. This has been been much less widely considered by analysts and the blogosphere. Martin (Geddes) who is a co-writer on the Telco 2.0 blog is, to my knowledge, the only person who has really alluded to in a post on Telepocalypse a couple of months ago and he raises lots of ideas about future metrics in his recent post on PSTN 2.0.

We want to explore this second point over the next few months:

For example, below is a chart showing the typical current Financial and Operational measures for a Mobile Operator. Analysts (and senior management) measure the financial health of the company using the Key KPI’s (a mix of Operational and Financial) and managers use the Operational KPI’s to manage the business (and are themselves evaluated using these measures).

Click to see full image.

But are these the right measures?

Revenue mix is changing for operators - there is a move away from voice and application revenues to new sources of revenue (from advertisers, third-party application providers etc.). Remember BT, for example, now only makes 10% of its revenue from voice. This makes subscriber numbers and ARPU numbers less relevant. For example, if you make money from sources upstream, like Google, then number of users/subs and revenue per user/sub does not directly influence total revenue. Also, in a world where users can move around from service provider to service provider AND potentially have relationships with several service providers, sub numbers and churn are also less important.

Future Investment and Operational metrics need to reflect these business model changes, tie in closely with future value sources for a Telco (ie be aligned with the strategy) AND be lead indicators for financial health. So, for example, if a Telco has the vision of being an open platform upon which developers create lots of exciting apps and services, an Investment KPI might be Spend on Open Source NGN Service Platform and an Operational KPI might be Number of Open API’s offered or API Usage by Third-Party Developers.

Over to You
This is not easy to think through (well not for me anyway). We would love to get your input on the Investment, Operational (and Financial) measures that companies and analysts should be using in the Telco 2.0 world. We will continue beavering away on this and, with your help, will look to publish an indicative list of measures (with explanations) in early autumn. Get your thinking caps on!

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What you explained makes a lot of sense and I think some operators do practice them internally for specific projects or departments. For example, I remember in 1 of those projects where the kpi was the number of applications we introduced to the marketplace.

However, I feel that when the management reports its kpi to investors, the focus is mainly on the financial numbers.

I guess the issue is how to include the other non-financial kpis as a mainstream kpi to investors.

This does sound very interesting and logical. I am sure many people have struggled with aligning KPIs with where they want to be rather than with where they are today. This does make sense in the case of internal reporting and can be easily incorporated especially the ones related to new product development and spends. However as far as public reporting goes my guess would be that most of the companies wont have such details in publicly available information making it virtually impossible for outsiders to gauge the company performance on such KPIs.

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