Cost Management Approach for Mobile Business

Large telecommunication operators do not always reap potential cost advantages, A.T. Kearney study said

Dubai (20 April 2009) — Large telecommunication operators often do not have the competitive edge over their smaller counterparts in terms of cost performance, a study by leading global management consultancy, A.T. Kearney, said. Often, cost advantages for big operators are not reaped due to operational inefficiencies and complexities. The preconceived perception is that operator size is one of the deciding factors for overall cost performance, but the study highlighted that isn’t necessarily the case.

Size advantage often is offset by numerous inefficiencies, such as increased cost of communications, duplicated efforts and inertia. However, smaller operators – those with less than two million customers – are often able to operate leaner structures and therefore run more efficiently. Small operators are therefore considered more cost competitive and can make faster adjustments to costs and prices optimizing bottom-line impact, the report said.

Dr. Karl Deutsch, vice-president and head of Telecoms at A.T. Kearney, Middle East, said that some small operators are even starting to become more successful than their larger competitors. “In the Middle East we started observing that operators are entering

into very competitive markets, which are dominated by incumbent players as small entrants. However, these small entrants, with their lean cost structures, are becoming even more successful than their large incumbent rivals,” he said.

Size is often presented as a root cause for cost inefficiencies. Arguments for large operators focus on their size and the inherent benefits, such as the ability to scale fixed costs in networks and IT, a stronger bargaining position with suppliers and internal sharing of best practices. For years, as high fixed costs associated with the mobile industry dominated competitive strategies, the belief was that larger operators with a higher market share spread their fixed costs across their larger customer base. Smaller operators, on the other hand, used low prices as a means of increasing their market share. In fact, 75 percent of the panel in the study believed that operator size is the one of the deciding factors for overall cost performance.

However, there has been a recent shift in operator’s strategies, with many now turning fixed costs into variable costs, an approach that favours a benchmarked operational excellence model to reduce costs, designed by A.T. Kearney. From renegotiation supplier contracts to a full scale cost improvement program, these measures look for quick wins in the short term, medium activities such as supplier contracts , business operational processes and demand adjustments to long term structural changes. Emre Gurkan, principal at A.T. Kearney Middle East said: “Typically, 30-60 percent of the identified performance gaps can be realized within 2 years, which paves the way for a sustainable cost reduction program, creating a cost-conscious culture and changing the mindset of shareholders, managers and employees.”

An example includes Etisalat’s entry into Saudi Arabia and Egypt. Within the first year Etisalat was able to garner a considerable market share and turn a profit, attributed to their aggressive approach coupled with lean cost structures.

About A.T. Kearney

A.T. Kearney is a global strategic management consulting firm known for helping clients gain lasting results through a unique combination of strategic insight and collaborative working style. The firm was established in 1926 to provide management advice concerning issues on the CEO’s agenda. Today, we serve the largest global clients in all major industries. A.T. Kearney’s offices are located in major business centers in 33 countries. During our 80 year history, we have provided management consulting services to most major corporations and governments around the world. From our fast growing Middle East office in Dubai, A.T. Kearney actively contributes to the growth and the build-up of an industry and service economy in the region. For more information, visit www.atkearney.com