Sustainable Investment Model
Carriers across the industry are facing lower returns as technological advancement and the proliferation of international cloud providers puts pressure on unit prices. Many are at the point where efficiency initiatives are almost continual and are offering incremental improvement to their costs and bottom line.
There is a growing recognition among carriers that collaboration on investment can help ease the pressure and joint procurement is one avenue that’s being explored.
Through alliances, joint ventures or even consortiums, carriers can leverage their scale to secure more favorable terms from vendors while giving suppliers greater certainty on demand for their products.
This so-called joint procurement can take three forms. The first is a formal structure with the sole purpose to make procurement more efficient and can be executed via Buyin, which is a GLF facilitated approach, or leaders-follower models like Vodafone’s procurement company. It operates across several geographies to drive economies scale and includes a broad range of products.
For example, Deutsche Telekom and Orange form a joint venture in 2011 to help manage procurement for their local operations and combines more than €25 billion of annually costs to target savings of €1.3 billion within three years.
A less structured approach would be bi-lateral agreements between carriers in specific countries or regions to optimize procurement costs. This would help smaller businesses leverage the scale of the leading local player.
Finally, platforms like the GSMA’s marketplace and Machnation allow vendors to tender for work or make recommendations. However, the existing platforms have yet to reach a reasonable scale.
For international wholesale carriers, here are the main opportunities to explore:
- Customer-premises equipment, which generally includes telecom hardware like routers and network switches, are a key area for procurement collaboration. The cost of such equipment is transparent, so any savings would be immediately identified and are unlikely to lead to competition concerns.
- The promotion of carrier-led partnerships could help scale-up informal relationships and further reduce procurement spending.
- The creation of a global carrier procurement network would lead to industry-wide benchmarking of services and allow prices to be validated anonymously. A matching service could bring procurement teams together and drive further efficiencies.
- There are several existing carrier alliances for joint procurement in operation today, which could engage other parties to boost collaboration.
© 2019 Delta Partners.