As bandwidth demand explodes and capacity solutions proliferate, rigorous planning analysis can greatly improve decision making across all functions
By Charles Cieutat, Stefan Bewley and Moe Kelley, Altman Vilandrie & Company
It is difficult not to hear about exploding growth in bandwidth demand and data consumption in the news, from wireless network congestion with the iPhone to Netflix accounting for 20% of peak hour traffic in the U.S. Less widely discussed but generating equal attention in board rooms is the bandwidth demand growth in the business market. AV&Co. research suggests the top 20% of all business locations purchase at least 10Mbps of bandwidth and the number increases substantially if very small businesses are excluded. Moreover, 55% of businesses said they are limited by the current bandwidth of their connection, or will be within 12 months.
Operators are scrambling to keep up with this demand, constantly investing in network capacity expansion solutions to merely keep service deterioration at bay. Today's approach tends to be reactive and ad hoc: Managers add capacity in the way that makes the most sense to them at the times that keep the network from breaking. But consumer and business demand varies widely by location, demographics, type and size of business and other factors. And the right solution and most impactful level of investment can vary widely based on products offered, competition and other local factors.
Instead of continuing to spend under old paradigms, savvy executives are beginning to ask new questions:
- At the highest level, where should I spend my limited capital resources?
- What is the relative return on investment of different possible solutions to expanding capacity or enhancing capabilities? And does this change based on future demand and new customers?
- Where are my coverage gaps and how should I address them in the face of future demand?
- Which partnerships with alternative operators provide the best incremental coverage?
Why Have a Variety of Bandwidth Capacity Solutions?
If network operators had unlimited funds, they would build fiber to all end-users to satisfy rapidly increasing bandwidth demand. However, all network providers are facing capital constraints, and legacy infrastructure plays an important role in finding cost effective solutions. Therefore no one technology fits all needs. Operators are constantly making difficult network investment decisions with fundamental tradeoffs between cost, coverage, and performance. Operators have a similar set of options depending on their legacy infrastructure (Exhibit 1).
A Framework for Network Planning Analysis
While the strategic necessity of multiple network solutions is now clear to operators, planning and investment decisions are becoming increasingly difficult. We have seen clients benefit from detailed network planning analysis based on end-user bandwidth demand, existing network capabilities and the economics of each capacity investment option. This assessment must be both highly detailed and broad - detailed enough to evaluate each individual service location and broad enough to optimize decisions across the entire network. Additionally, the analysis needs to extend beyond a snapshot of the current situation to be continuously updated and forecast future demand and supply.
Although most operators have developed analytical tools for network planning, few tools contain the necessary level of detail and provide the comprehensive geographic review of consumer and business demand. Additionally, most tools are reactive and rely on trigger points for ad hoc capacity investment. These deficiencies limit the ability of these tools to be key decision making instruments across the organization. Understandably, creating a more complete network planning approach is a complex endeavor. Management will need to support a cross-functional effort that aggregates internal and external data. The internal customer and bandwidth data will need to be aggregated across silos and synthesized. The external data should incorporate market competitive considerations and market bandwidth demand, which can be challenging because buyers do not always understand the amount of bandwidth they are purchasing or over what timeframe their needs are likely to change.
Key success factors for a network planning analysis are to:
- Compare existing customers' historical bandwidth demand to market demand. A large difference in the distribution of demand may highlight a gap in the ability to serve all customers.
- Use detailed geographical data. The analysis must align market data for each consumer and business location with internal network data.
- Segment the market. Primary research and analysis helps categorize existing and potential customers based on bandwidth demand, telecom spend, and other important characteristics.
- Understand the competitive landscape. Certain competitors may be planning to dramatically increase bandwidth capacity, requiring a similar response to remain competitive. Investment in some markets will have a much greater impact on churn or customer acquisition than others, depending on the level of competition.
- Incorporate the costs of each network capacity solution. Combined with expected bandwidth demand and associated revenues, the capital and operating costs help determine the optimal investment strategy - and the optimal strategy can be very different from location to location.
- Link network planning to geographically-specific sales effectiveness. Network capacity planning must be informed by the expected bandwidth needs of new customers and upgrading existing customers.
Improving Decision Making
A network planning tool with the level of quantitative rigor described above has several cross-functional benefits. It can guide network decision makers on a range of activities such as network investment optimization, technology deployment prioritization, network capacity supply and redundancy, Type II partner negotiations, and network-related M&A diligence. For example, ILECs can prioritize fiber plant extensions, advanced DSL deployments, and Ethernet over Copper investments. MSOs can optimize capital budget tradeoffs between service group reconfiguration, node splitting, DOCSIS upgrades, and fiber loops or lateral deployments across multiple geographies as well as consumer and business markets. CLECs can evaluate the financial return of new Ethernet over Copper deployments and prioritize Type II fiber partners based on their ability to provide incremental coverage.
Going Beyond Network Planning
In-depth network planning analysis can also empower employees across the organization to make faster and better tactical decisions. Marketing and sales executives can improve product planning, geographic sales organization, and the identification of additional sales opportunities. Product executives can align their broadband products to the same demand and supply insights as the network planning team. Financial analysts can more accurately forecast revenues and operating costs by understanding the addressable market that can be served with existing network capacity.
Confident network planning and other functional decision making requires users to be engaged in the process and actively debate the insights provided by the network planning analysis. Its success also requires strong support from top management, which should ensure that all functional groups contribute and benefit from the planning effort.
The effort is rigorous, intense, and cross-functional, but the rewards can be dramatic improvement in capital efficiency, return on marketing spend and, ultimately, customer satisfaction.
Charles Cieutat is a Consultant and Stefan Bewley and Moe Kelley are Directors at Altman Vilandrie & Company, which provides management consulting in communications, media, Clean Tech and related technology sectors. Charles can be reached at [email protected]. Stefan can be reached at [email protected]. Moe can be reached at [email protected]