Building the IMS Business Case: Tactical and Strategic Considerations

By Ronald Gruia

This result is intuitively obvious, given that the services allow the carrier to generate revenues and the faster they are introduced, the sooner the operators can start monetizing their IMS network infrastructure. However, the benefits of deploying more applications go above and beyond earlier revenue accretion.

OPEX Savings

For instance, in terms of OPEX, the savings also increase with the number of deployed applications. In the traditional stovepipe environment, the rollout of new point solutions is a rather complex process, given the multiple integrations that are necessary. In the IMS architecture, given that common elements are reused in a horizontal fashion, the systems integration is a lot simpler. For example, in terms of customer provisioning, since the data is stored in one centralized database (the HSS or Home Subscriber Server), the time required by a field technician to perform a subscriber activation or deactivation is not dependent on the number of applications. The savings in terms of operational expenditures can be substantial, since whenever a new subscriber is added or deleted, the amount of time required for an operator staff member to enter the data is fixed, instead of being dependent on the number of applications.
I n pitching IMS solutions to service providers, many telecom equipment vendors typically state (as part of their business cases) that the ROI for IMS is stronger when deploying multiple applications. In other words, deploying five to six IMS services will yield a shorter payback period than implementing two to three apps.
Furthermore, since everything is now stored in one place, the IT staff only has to manage one single platform rather multiple platforms, freeing up scarce and expensive engineering resources. The savings again are significant, since every database server typically requires one person-day per month from an IT perspective. So for an operator having five applications and two databases for each, the resulting IT cost would be 10 person-days per month, which can be collapsed into one person-day per month for a single database.

Another benefit is reduced churn, since the blending of services that is enabled by IMS will enhance subscriber stickiness, making it less likely for end-users to switch to another service provider. The reduction in churn is directly proportional to the number of applications that a customers subscribers to (the higher the number of services, the lower the attrition rate). It would be reasonable to estimate that a bundle of five IMS applications can reduce the churn rate for an operator by as much as 15 percent compared to the churn for services deployed in a point solution architecture. The ramifications of a lower rate of attrition can be significant considering the high CPGA (Cost Per Gross Addition) of some operators, which are usually in the vicinity of $300.

All of these factors are summarized, in a scenario for a sample European mobile operator. The case assumes certain IMS take rates, churn reduction, time per IMS subscriber addition and deletion, as well as a discount rate (taken to be seven percent) and number of IMS applications (five). The OPEX savings due to IMS adoption are significant, with an NPV (from 2006 through 2011) of roughly $50.3 million (for a total subscriber base of 16.2 million subs in 2011 and an IMS base of 4.3 million subs in that same year). The apportioning of savings depicted in the simple example does not include other factors such as lower maintenance, training/ documentation, footprint, and electricity costs.

The IMS Decision: Tactical or Strategic?

Having covered OPEX savings and the argument that the ROI for an IMS solution is more attractive with a higher number of applications initially deployed, the next question is how are carriers responding to this message? In other words, how would an operator “decode” the message that IMS makes sense from many considerations (new opportunities for higher ARPU, a more “distributed” CAPEX in “cap-and-grow” style rather than a big, single monolithic investment, lower OPEX), however that the payback period can be made shorter with a higher number of services initially deployed? Is the tipping point of a service provider’s decision to deploy IMS due to tactical or strategic considerations? Is the tipping point of a service provider’s decision to deploy IMS due to tactical or strategic considerations?

A quick carrier survey reveals an entire gamut of answers to the above questions. Some operators, such as Vodafone, are more focused on the longer-term strategic picture of IMS. (Vodafone announced at 3GSM that it chose Ericsson and Nokia as its preferred IMS vendors, which means that all of its companies opting to embrace IMS will have to decide between these two players.) As such, these early adopters are not typically concerned with decisions such as what will be the first five or six IMS applications that they will deploy once they wrap up their IMS infrastructure rollout. They might just know that maybe the first app will be push-to-x (talk, video, etc.) and the second one a presence and location-based service. Others will definitely follow in the future, but they are not concerned with these decisions right now, and regard IMS as a key and strategic core network infrastructure investment, with a payback period in the vicinity of three years.

At the other end of the spectrum, other service providers are more concerned with the first five applications to be deployed within the new framework, should they consider embracing IMS. For these operators, the IMS pitch really becomes the individual business cases for five or six IMS apps, which typically have a much shorter payback period associated with them (typically a six–12 month horizon as opposed to three years). This group of carriers might typically remain sidelined and choose to wait until further issues such as handsets, bandwidth and QoS are resolved, or new IMS applications are born, since they find it more difficult to cost-justify the investment based on stricter timelines.

Conclusion

Network equipment vendors should highlight all the benefits that IMS can deliver, but emphasize the key strategic benefits due to an IMS deployment. Some of these can be realized in the shorter term, while others are more forward-looking, however NPV calculations and other simulation tools can play an instrumental role in further convincing the carriers to make a commitment to the technology. The number of apps initially deployed will impact the ROI calculations, but this point should be ideally highlighted later in the sales process, as the business case should be strategic (i.e., more advanced core networking infrastructure) as opposed to tactical (i.e., number and type of applications initially deployed).


Ronald Gruia is Program Leader and Senior Strategic Analyst at Frost & Sullivan covering Emerging Communications Solutions. For more information, please visit www.frost.com. (news - alerts)

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