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Set your profitability profile: What cost means to 5G operations

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When communications service providers (CSPs) made the jump from 3G to 4G, they were still, fundamentally, in the same business of providing connectivity and communications services. The technology may have changed, but the way they operated remained similar. So, too, did their cost profiles.

With 5G, that’s no longer the case.

5G enables all-new business models and use cases, including B2B2X partnerships between CSPs and enterprises. And with those new opportunities will come dramatic changes to operations methods and procedures, with corresponding changes to both operating expenses (the bottom-line dollars and cents required to run the network) and operational cost profiles (the structures and models used to assess the profitability and viability of a service, looking at areas such as income versus expenses, ratio of equipment costs to personnel costs, and so on).

So when’s the right time to start shifting the cost profile behind your operations for 5G? We suggest now.

Don’t ignore your OPEX

You wouldn’t buy a new house without first carefully evaluating the related expenses like insurance, taxes and utilities. By that same principle, you shouldn’t build a network without planning for all the operations-related costs that will come with it — and with 5G, those will be quite substantial. While most of the upfront attention is usually placed on buying the network equipment, about 60 percent of a network’s lifecycle costs actually fall on the operating expense (OPEX) side of the equation. This is going to hold true with 5G, especially given that new operational approaches will be needed to support new services and business models.

That means it’s important to get your OPEX projections right from the very start. You also need to budget now, not later, for enhancements to your operational systems and processes so you can manage those costs. Otherwise, when cost savings are needed, you’ll fall back on the classic “belt-tightening” routine. But simply cutting costs here and there after the fact won’t deliver the savings you’ll need.

As you can see in the figure below, costs are going to rise sharply at first during the 5G migration. This is partly because 4G/LTE technologies will be running in parallel with 5G, and partly because virtualizing the network and managing slices will be done in a more manual way in the early going, increasing total cost of ownership (TCO). A key part of bringing that down is planning for and implementing full-scale operational automation. Once you’re fully automated, your OPEX and TCO both come down drastically.

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The hallmarks of a good cost profile

Clearly, setting up the right cost profile in the initial phases of your 5G investment — as you’re buying the gear that goes into the network and the software to run it, not as an afterthought — can help avoid unhappy surprises on the profit and loss statement down the road. Ultimately, optimizing OPEX is about doing the right things and doing things right, by being both cost-efficient and cost-effective. It’s a holistic endeavor that accounts not just for technology but also your people and processes.

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The sweet spot is the upper-right quadrant of the table above. Old-school, after-the-fact cost-cutting won’t help you get there: it will just place you somewhere along the table’s bottom row. Increasing headcount won’t do it, either: it will be too expensive and not optimal enough. Again, automation and artificial intelligence will be essential to becoming more cost-effective and cost-efficient.

A solid cost profile must account for the people, processes and technologies that can help make automation happen. In turn, that will lead to more strategic spending choices that will eliminate technological duplication, allow older networks to run more economically, and ultimately deliver more simplified operations across the board.

Every service provider will have their own strategy for competing in the 5G era. Some want to grow footprint and market share, while others want to break into new verticals by offering innovative new services. By embedding the right cost profile directly into your initial capital investment program, you can be sure that your 5G strategy (whatever that might be) will unfold profitably.

Additional resources: 

Find out more on our Operations in 5G – Lower cost webpage.

Share your thoughts on this topic by joining the Twitter discussion with @nokianetworks or @nokia using #Telcos #Operations

Bill Stanley

About Bill Stanley

Bill drives Nokia’s operations portfolio marketing with a keen focus on how the industry needs to evolve and change as we move into the 5G era. This includes working within the standards organizations as they evolve to new 5G specifications and interpreting the implications to network service providers and how they must evolve their operations to position themselves to best succeed going forward. Having completed events in many locations in the US, he also enjoys training for and running races and triathlons overseas when his schedule allows. 

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