PDNetno.13793AhlbergJonas-TOBergstrandH2kan-NYCairnsAlastair-TOCapitalDate:Practice:Shelfholding(s):Corefor:SICCodes:DocType:NumberofPages:Keywords:Tools/frameworks:Use:Contact:Efficiency:AnEmergingPriorityforTelcosSanitizedstudywork05/96TelecommunicationsPractice4813-TelephoneCommunicationsExe.RadioPDDoc69Benchmarking,CapitalStructureManagement,ProfitImprovement/CostReductionStrictlyInternalAhlhergJonas-TO;BergstraudH&an-NY;CairnsAlastair-TOCurrentchangesintheindustryaredrivingtelcostolookatreducingtheircapitalexpendituresonbasicservice.Recentexperiencesuggeststhatsignificantreductionsinannualcapexareachievablewithoutimpairingservicequafity:YCapitalefficiencyislikelytobecomeakeyvaluedriverintheemergingenvironment.fExperiencefromoneLECclientindicatesthatareductioninannualcapitalexpenditureofupto20percentispossiblewithoutimpairingservicequafity.Afurther10percentcanbesavedbydifferentiatingserviceacrosswirecenters.~Multipleinitiativesaswellasafundamentalshiftinmanagementstyleandcultureneedtobepursuedinordertocapturethefullpotentialofthisopportunity.Copyright@1995McKinsey&Company,Inc.PDNetisaProprietaryDatabaseThisdocumentisforusebyMcKinseystaffonlysndmaynotbedistributedoutsidetheFirmZX0322-May/96-TO/JNAC/emCapifdeticiency...CONFIDENTIALCapitalefficiency:anemergingpriorityfortelcosJonasAhlberg-TOH&kanBergstrand–NYAlastairCairns-TOPDDocument–NorthAmericanTelecomPracticeMay1996Thisreporti.ssolelyforthe@ofclientpersonnel.Nopartofitmaybecirculated,quoted,orreproducedfordistributionoutsidetheclientorganizationwithoutpriorwrittenapprovalfromMcWy&Company.Z0322-May/96-TO/JA/AClemCapita/efficiency...CAPITALEFFICIENCY:ANEMERGINGPRIORITYFORTELCOSCurrentchangesintheindustryaredrivingtelcostolookatreducingtheircapitalexpendituresonbasicservice.Recentexperiencesuggestathatsignificantreductionsinannualcapexareachievablewithoutimpairingservicequality.TCapitalefficiencyislikelytobecomeakeyvaluedriverintheemergingenvironment.~ExperiencefromoneLECclientindicatesthatareductioninannualcapitalexpenditureofupto20Y0ispossiblewithoutimpairingservicequality.Afurther5-1OYOcanbesavedbydifferentiatingserviceacrosswirecenters.1~Mtitipleinitiativesaswellasafundamentalshiftinrnanagernentstyleandcultureneedtobepursuedinordertocapturethefullpotentialofthisoppotiity.ZX0322-May/96-TO/JNAC/emCapita/eficiency...CAPITALEFFICIENCYKEYVALUEDRIVERCurrentchangesinthetelecomindustryarelikelytomakecapitalefficiencyakeyvaluedriverforTelcosgoingforward.Thetelecomindustryisverycapitalintensive,evencomparedtootherindustriestypicallyreferredtoas“capitalintensive”ThereisawidevariationincapitalspendingandservicelevelsamongLECS,butwithoutanyobviouecorrelation,raisingissuesaboutcapitalefficiency.Withtheemergingenvironmentlesssupportiveofinvestment,capitalefficiencyistiereforelikelytobecomeakeyvaluedriver.McKinaeyexperienceindicatesthatasignificantimprovementincapitalefficiencyispossible.However,itiealsoclearthatthisrequiressubstantialchangesandmulti-yearprograms.2ZX0322-May/96-TO/JNAC/emCapita/efficiency...Thetelecomindustryisverycapitalintensive,evencomparedtootherindustriestypicallyreferredtoas“capitalintensive”.CAPITALEXPENDITUREINCAPITALINTENSIVEINDUSTRIESPercentageofrevenues,averageover1984-94RBOCS.7%ElectricutilitiesAirlinessII13.5%IRailroads112.4%‘asuti’itiesmg”o‘tee’-paniesm,’.S&P500Average=7.17.Source:COMPU...
