APAC Telcos feel the bite as Operating Cost and Foreign Exchange results in the decrease of Profit by 25% to 37%

[Prepared by Ajar Arranges and Stephen D Brown]

SUMMARY.

Critical facts that has culminated in generating 25% to 37% loss in profit for APAC Tier-One Telcos:

1. Telcos data traffic increase does not translate to synchronized revenue but has translated reduced ARPU (As in case of Indonesian Telecommunications, 350% increase in data traffic during 2010 compared to 2008)
2. Telcos offering non-tiered packages for high-speed broadband for wired and mobile users.
3. Penetration of Smart phones moves past 53% while users increase communications using social media, text, video, VoIP and email on their mobile phones
4. Telcos offering Cable TV along with VoIP phones for wired users in a non-tiered, flat-rate packages
5. Telcos maintaining circuit-switched infrastructure at core and aggregation network instead of converting aggressively to an Optical Packet Transport network.
6. Telcos that provide backhaul has started carrying LTE traffic for Tier-2 Telcos where traffic generated ranges from 120Mb-300Mb per-user, per-tower and per-carrier.
7. Telcos direction to utilize packet-based infrastructure has been a hybrid carrying packet-based traffic on E1s and limited to SDH granularity, instead of eliminating E1s and allowing for tuning geographical bandwidth requirements by any granularity of 1Mb using Connection Oriented Ethernet.
8. Projected event where packet-traffic (both voice and data) supersedes voice-traffic on circuit-switched networks is ahead of schedule by 4 years and will be reached by 2013
9. Telcos have focused in increasing profit by cutting CAPEX by purchasing equipment tied to financing packages offered by vendors with low-cost equipment but with higher operating costs.
10. Telcos internal culture will resist the merger of the traditionally divided disparate departments of Data and Voice. When the base technology that transports both voice and data traffic becomes Connection Oriented Ethernet, the disparate departments of Data and Voice will be merged. This would mean that technical expertise for Access, Aggregation and Core becomes Ethernet. This will definitely allow for management of higher traffic volume with less man hours, reduced training cost, and transportable expertise across access, aggregation and core parts of the network.
11. Knowledge of Packet based Optical Transport among senior decision makers within telcos is zero to bare minimum in APAC (survey in Singapore, Malaysia, Indonesia).
12. Majority of the telcos Senior Execs see Packet based Optical Transport as a technical issue, not realizing the devastating impact on profitability in allowing the infrastructure to remain circuit switched. Without the mandate and leadership of Senior Exec of the Telcos, technical middle management will be slow to recommend to senior decision makers to move to Connection Oriented Ethernet. Technical engineers will be slow to recommend moving to Connection Oriented Ethernet, as this would provide a path to the merger of both the Data and Voice divisions within traditional Tier-1 telcos.

OPPORTUNITY.

This provides excellent opportunity for short-selling telcos shares’, specifically, Tier-1 telcos that have offered non-tiered data packages. Profits for backhaul providers and long haul providers would increase dramatically as data traffic surges ahead. (This may vary as some providers may have negotiated non-conducive contracts). 

This also provides excellent opportunity targeting senior executives of telcos by headhunters. As profit decreases, senior exec of telcos may choose to transfer out. Depending on the terms of contract, execs may require moving, to maintain a positive personal track record. 

As profit of Tier-1 telcos drop, telcos may apportion part of infrastructure or business divisions to be sold to maintain appearance of profitability. This provides excellent opportunity in asset acquisition of specific telcos infrastructure.  This process will become more apparent in the first quarter of 2012

ANALYSIS.

APAC regional Tier-1 telcos will face increase in revenue's ranging from 3% to 9% along with rapid increase in data traffic. Unfortunately, due to operational cost, the profit will decrease from 25% to 35%. Since APAC telcos do not manufacture their own equipment, relative to the wording of the Telco-vendor supply contract currency clause, a portion of the decrease in profit will be compounded due to currency exchange and further aggravated due to conditions within bridge financing provided by vendors to certain telcos. Nevertheless, majority of the loss of profit will be due to increase in operational cost. 

The rapid increase of operational cost is directly related to the increase in the volume of packet-based data traffic in comparison to Circuit-Switched voice traffic. (4:1).  Parameters used were totaled on the basis of equivalent kilobits of transmitted voice along with higher burst increases in the frequency of establishment of circuits within the circuit switched infrastructure that the packet based traffic flows through.  

The limited granularity of Circuit-Based transport network, with restricted grooming hierarchy, forces under utilization of overall bandwidth. The attempt by telcos by increasing the volume of fiber is likened to increasing number of lanes to cater for multiple trains – unfortunately, the trains are only one cabin long and the number of trains increased to 600% of norm.  This results in severe under utilization of bandwidth within paths and over utilization, by 200%, of available paths in the existing path-termination plan.

ASSESMENT OF SOLUTION.

The solution is for telcos to move to a, purely, packet-based transport network using the technology of Connection Oriented Ethernet. Telcos that invest in packet based backhaul networks with Connection Oriented Ethernet in major metropolitan area will be able to reduce operating costs within 4 months of deployment. Telcos' that implement COE over MPLS-TP will have a further advantage of reducing operational cost by 32% over 5 years as done by Verizon in the United States.  

Based on discrete interviews conducted, it is noted that majority of the senior decision makers within telcos in APAC’s ability to asses impact of this drastic change is technically limited. 

Therefore, the opportunities outlined still hold true.  Telcos in Singapore may not be severely impacted by local activities, but foreign activities by Telco based in Singapore will result in negative consequences on profitability.

Prepared by Ajar Arranges and Stephen D Brown - Randall & Deloitte Consultancy.

EXTRACTS FROM NEWS.

The occurrences of events that reflect the above analysis have started as predicted. The following are the news extracts.

INCREASE IN REVENUE BUT SEVERE DECLINE IN PROFITS.

Malaysia: Telekom Malaysia records revenue of MYR 2.30bn.

Business Times Malaysia, 25 Nov 2011,  p.B4:-

Telecommunications firm Telekom Malaysia (TM) has posted revenue of MYR 2.30bn (EUR 541.76mn USD 722.06mn) in third quarter of 2011, rising by 5.8% from same quarter of 2010. Its net profit declined by 31% to MYR 302mn because of unrealised foreign exchange loss on borrowings. The firm's earnings before interest, tax, depreciation and amortisation (Ebitda) grew by 7% from MYR 759.50mn to MYR 812mn.

Malaysia: Telekom Malaysia posts revenue of MYR 2.10bn.

The Sun (Malaysia), 26 May 2011,  p.15:-

In Malaysia, telecommunication firm Telekom Malaysia (TM) has posted revenue worth MYR 2.10bn (EUR 487.04mn USD 685.38mn) in first quarter ended 31 March 2011. Its net profit declined by 32.8% from MYR 242.90mn a year before to MYR 163.30mn in the first quarter of 011. Also, normalised net profit jumped by 40.3% from MYR 87.20mn to MYR 122.30mn.

Malaysia: Axiata's third quarter revenue up 4%.

Business Times Malaysia, 01 Dec 2011,  p.BT2:-

Malaysia-based telecommunications firm Axiata Group's (Axiata) revenue rose 4% from MYR 3.94bn (EUR 920.78mn USD 1.24bn) a year ago to MYR 4.19bn in the third quarter of 2011. The growth was attributed to its key operating firms' operational improvements. However, its pre-tax profit decreased from MYR 1.04bn to MYR 9.63mn.

Malaysia: Maxis posts lower pre-tax profit of MYR 746mn in third quarter.

Business Times Malaysia, 01 Dec 2011,  p.BT2:-

In the third quarter of 2011, Malaysia-based telecommunications firm Maxis recorded a decline in group-level profit before tax from MYR 815mn (EUR 190.47mn USD 256.03mn) a year earlier to MYR 746mn. The decrease is due to investment the firm made on its coverage and network. Meanwhile, its revenue increased to MYR 2.24bn, up 4% from MYR 2.21bn. The firm posted lower pre-tax profit from MYR 2.3bn a year earlier to MYR 2.24bn in the first nine months of 2011. Similarly, its revenue declined from MYR 6.55bn to MYR 6.53bn.

Indonesia: Telekomunikasi Indonesia posts revenue of IDR 34.46tn.

Jakarta Post, 30 Jul 2011,  online:-

State-run telecommunication firm Telekomunikasi Indonesia (Telkom) has posted revenue of IDR 34.46tn (EUR 2.83bn USD 4.06bn) in first half of 2011, rising by 2.2% from IDR 33.71tn in first half of 2010. Its net profit decreased by 1.5% from IDR 6.03tn to IDR 5.94tn due to operational expenditure that increased to IDR 23.53tn.

Singapore:SingTel’s Second-Quarter Profit Falls as Currency Trims Regional Earnings.

Bloomberg, 10 November 2011;by Robert Fenner

Singapore Telecommunications Ltd. (ST), Southeast Asia’s biggest phone company, reported a drop in second-quarter profit as a stronger currency added to lower contribution from regional units such as Bharti Airtel Ltd. (BHARTI) Net income declined 1.2 percent from a year earlier to S$881.5 million ($683 million), or 5.5 Singapore cents a share, SingTel, as the Singapore-based company  is known, said in a statement today. Profit was expected to be S$876 million, according to the median estimate of five analysts surveyed by Bloomberg News. Bharti Airtel's pre-tax profit amounted to SGD 131mn, translating to a drop of 37%.

OPERATORS LOOKING TO DISPOSE ASSETS.

Indonesia: XL Axiata looks for potential buyer of 7,000 BTS.

Antara, 24 Nov 2011,  online:-

Indonesian mobile phone operator XL Axiata is seeking potential investors to buy its 7,000 base transceiver stations (BTS) at the price between IDR 14tn (EUR 1.16bn USD 1.55bn) and IDR 15tn. The move came as the company intends to concentrate on its core business, according to President Director Hasnul Suhaimi. However, XL Axiata has not fixed a due date for the buying process. The company has 9,000 to 10,000 BTS across the country so far. Goldman Sachs had been named as the arranger for the sale of the BTS. In 2009, the company has once failed to sell its 7,000 BTS.

UNPLANNED DATA TRAFFIC INCREASE.

Indonesia: 2010 sees a 350% hike in data traffic.

Kompas, 14 Apr 2011,  online:-

According to Nanot Harsono, a member of the Indonesian Telecommunications Regulatory Body, data traffic in Indonesia increased by 350% during 2010 compared to 2008. On the other hand, the country saw no increase in voice traffic as it remains stagnant because the people felt sufficient using Facebook, BlackBerry Messenger or Yahoo Messenger and they have little time to use voice service for communication.

REDUCTION OF ARPU.

ARPU DECREASE.

Asia Pacific: Ovum unveils prediction on data, voice, mobile revenues.

The Nation, 29 Sep 2010,  online:-

Data firm Ovum has predicted that mobile revenues in Asia Pacific region will hike to USD 310bn (EUR 228.38bn) in 2015 from USD 267bn in 2010. Overall connections are predicted to jump to 3.8bn from 2.6bn. Mobile voice revenues in the region are estimated to decrease to USD 176bn in 2015 from USD 182bn in 2010 due to declining average revenue per user (ARPU) in competitive markets. Revenues in saturated markets like Hong Kong, South Korea,

Japan and Australia are predicted to decline. However, the revenues in growing markets like China, Indonesia and India will grow although ARPU is decreasing. On the other hand, revenues from mobile data services in the region are expected to expand to USD 133bn in 2015 from USD 84bn in 2010 because more users will use social media, text, video and email on their mobile phones.

Statement of Requirement.

For access of sensitive information, secure locations and assets; designated, on-duty staff conduct identity authentication.

The SOP to authenticate a person’s identity is dependent on the ability, of the on-duty staff, to visually verify the person’s appearance in relation to the person’s identity card or based on the memory of the on-duty staff.

This authentication process of the person is subjective and creates a situation where:

• sensitive information may be compromised
• an avenue where secure location penetration exists
•  loss of assets or unauthorized transfer of assets is possible

Once the identity has been visually verified and authenticated, the security level of the person must be clearly identified.  Preferably, this security level may be changed by central command to cater for empowerment of staff at critical situations to take charge based on the chain of command or removal of privileges based on intelligence.

Authentication Requirement

Consistent authentication of a person’s identity can be done using biometric.

The biometric system must meet the following requirements:

International Standards Requirement

1. Attain and comply to the Common Criteria for Information Technology Security Evaluation  (ISO 15408) with a minimum level of Evaluation Assurance Level 2
2. False reject rate (FRR). The probability that a biometric system will fail to verify a genuine should be 0.01% or better
3. False accept rate (FAR). The probability that a biometric system will fail to reject an impostor must be 0.00008% or better

Biometric Systems uses part of the physical body. The biometric device must meet the following requirements in relation to the part of the body that is used to authenticate the person.:

Basic Operational Requirements

1. The body part may be dirty or moist and the biometric system must still perform accurately.
2. The body part’s skin may be shriveled due to continuous exposure to water and the biometric system must still perform accurately.
3. The body part may be swollen due to exposure to metal or allergens and the biometric system must still perform accurately.
4. The body part may be exposed to normal temperature variations, and the biometric system must still perform accurately.
5. Severed body parts may not be used to authenticate. The biometric device must discern that the body part used is attached to a person who is deceased.
6. Non-intrusive. Does not require penetration of skin. Does not require any form of light to penetrate the eyes.
7. Contactless. Does not require contact between the sensor and the part of the body that is being scanned.

Biometric Systems captures and stores the biometric information in a digital form that is known as the biometric template.

Digital Encryption Requirements

1. Template is encrypted for storage this will make it difficult to be hacked
2. Template for a person from one organization cannot be used for the same person in a different organization.  This means that the template is locked with an organizational id that is globally unique
   

Ergonomic Requirements

1. The biometric device does not require to be placed at a specific height
2. The biometric device does not require a person to remove his contacts, goggles or glasses, or rings.

Certain older applications may not run or become unstable unless you have printer installed. This will always ensure your OS thinks you have a printer.

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Source Code

Source code for the CC PDF Converter is available as a zip file here, or browse through it here.

The code is written in C++, and includes project files for Microsoft Visual Studio 6. Additional source files for libraries used to compile the source are needed from different locations; the links to those sites are detailed in the 'Building.txt' file that can be found in the archive.

CC PDF Converter uses the following open source projects:

• Redmon, a port monitor redirector (slightly patched)
• GhostScript, used to create PDF files from the print PostScript output (with a minor addition)
• libPNG and zlib, to display PNG images and to put license images into the document
• XMLite, a simple XML parser by Kyung-min Cho, slightly modified
• and SQLite, an lightweight embedded database engine to access the local license database

The CC PDF Converter and its source code is licensed under GPL.

1. BACKUP BACKUP BACKUP

Your hard disk must have a least 3 partitions. The first partition must have all your operating system and all your installed development tools.  15GB would be just nice.

Ensure that you have a C: partition that has not been DOTNETYUCKED.

The second partition will house a folder named D:\ACR\01BASE\. The ACR will contain a partition backup of the C:\ partition.

How do you do this. You must first get a software called Acronis Home Edition. Boot the computer up with the CD and click on the button Manage Safe Zone.  Create a Safe Zone of about 1Gb.  This will copy the Acronis application into you a hidden partition on you hard disk. 

Reboot your machine without the CD and you will see "Hit F11 for Acronis" on the boot screen. Hit F11 and you may use your keyboard or mouse to activate Acronis

Backup the C: partition into the D:\ACR\01BASE folder. Make sure 2 important flags are turned on when you are doing this backup

1. Ensure that the archive is Split at 700Mb per file.  A 700Mb file will allow for easy copying and reduce the chances of corruption.
2. Ensure that Validate backup is  selected.
    

After this build a directory structure in the D: drive

The second partition would be where you would be doing your work. In a Folder Named "D:\AAWORK\02FEB\PROJECTABREVIATION\"

The second partition will house portable tools that have been installed an fully functional. In a folder Named D:\TOOLS_PORTABLE_APPS\

The second partition will house a folder name D:\TOOLS_CORE\ that will contain installers of applications that are to be installed in the C:\ partition.

The second partition will house a folder name D:\TOOLS_DEV\ that will contain installers of applications that are to be installed in the C:\ partition that are development tool related.

If you are generating tables that you would use for reports, etc; then the primary key should have the field property of Auto Number.

If the data is from user interaction, the record should have a primary key that is generated by your stored procedures.

The generated primary key must meet the following requirement:

• The order of the records in the table as the records are appended must be the same as the order of the records when retrieved based on the primary key.

Some database systems require you to preallocate the space that you would be using for your table. This is because, the primary key is automatically generated by using a hashing algorithm that represents the physical location of the record on the specific disk,sector, partition,etc information.  This provides high speed access of the record with one specific penalty. If you copy the records out to another hard disk, the keys and all foreign keys would have to be regenerated.  MySQL does not use this method.

So what are the components of a generated Primary Key. Unlike many theories, having a very long primary key has proven to be useful.

1. Always start with an upper case alphabet; “A” will work well.  This will help when exporting data to different applications that would automatically treat a string with a number in the beginning as numeric and truncate the non-numeric that follows.
2. Insert chronological information. (i.e. YYYYMMDDHHMMSSS)
3. Followed by a 5 digit running number with leading zeroes (i.e. NNNNN)
4. Followed by a 3 digit random number with leading zeroes.
5. Followed by a 12 character tag with leading A’s. This tag should represent some piece of machine information of the user’s system that was used to add the record.  Getting the IP from MySQL from within a stored procedure is tricky so, the preference here is to get the Hard Disk Serial or Microprocessor ID and pass it along to the stored procedure from the client application.  This is useful for audit certification. Allows you to track the physical computer system that was used to add the record after authentication of identity was established.

The time for MySQL Stored Procedures has arrived. The development arsenal to make MySQL stored procedures ubiquitous is here in the form of Debugger for MySQL .

In the spirit of the old Sidekick and Turbo Pascal there now is Debugger for MySQL!!!!  If we weren't such a litigious society, the gods of programming would rightfully bestow the title "Turbo MySQL" to this wonderful application.

The Debugger for MySQL is an integrated IDE that allows for writing, executing, and debugging MySQL stored procedures, independently.

First of all, when you install the application you realize that IT’S NOT HEAVY!!!!. It has not been DOTNETYUCKED (am coining this word here to mean that the application does not require another 230Mb worth of installation files to be installed while connected to the internet where those files may be updated whilst you are not aware making all your testing of your application void as the framework which you used has changed).

If anyone out there has hesitated using stored procedures on MySQL, it’s time to burn the Flavian and cross over now.

This book is a good place to start.