BCG Round 1 Case: Telecommunication Troubles

• The candidate should breakdown the profitability of the Telco client in an insightful and relevant way
• While terminology is important, it is more important to acknowledge 'common sense' and business judgment - i.e. a candidate may refer to the towers etc. as "Infrastructure" instead of "Network", that is perfectly acceptable
• A strong candidate should not just describe the driver tree, but also share hypotheses (e.g. our client could have potentially faced a fall in # of subscribers due to increased churn and shift towards competitors
• A strong candidate should also talk about next steps. In this case, this would mean where they would start the analysis. A strong candidate should realize the most intuitive data to ask for first is the current financials to understand how the profitability has changed

Additional clarifying information if the candidate asks for it before frameworking:

• Client operates in a fairly large developing country
• The market structure is typical of the telecommunications industry with only 5-6 (oligopoly) players
• Client's goal is to stop the loss in profit and reverse the trend
• Profit has fallen by about ~2B (local currency) or ~3% over the past few years

Candidates should interpret this graph to understand where the problem could lie, whether in the revenue side or cost side

First, candidates can calculate the profit and note that it is decreasing from ~11M in CY-4 to ~9M in Current Year

Next, candidates should identify that revenue does not seem to be the problem, this is because the customer base and revenue been increasing. 

• A strong candidate will note that the average revenue per customer actually stays flat throughout the time period, which from a business judgment POV is not great but definitely not causing the drop in profit.

Candidates should now explicitly call out that Cost is the problem.

Given this is a candidate led case, a strong candidate should push for the next logical step to investigate the cost breakdown further to identify what exactly is the problem, rather than just jumping to solutioning at this stage

Candidates should be able to sift through the numbers and apply 2 lines of logic here:

1. Which cost categories are increasing over the years?
2. Out of the cost categories that are increasing, which are the biggest (causing the most problems)?

Based on the line of reasoning above, candidates should note that network OPEX has increased the most. 

A strong candidate should naturally then push to investigate and hypothesize on potential reasons for this increase

What do you think drives the cost variability of the cell tower leases between the different players in the market?

Data Interpretation

The key observation from the graph is that our client (Convo Telco) has a higher total cost for their cell tower leases versus competition. 

A good candidate will calculate the total cost (~3.5B) and link place it in context of the Network Opex -> it is about ~30% of Network OPEX and it is a sizeable amount. 

Brainstorming

The potential reasons for driving cost variability of the tower leases could be structured as follows:

1. # of towers (or leases): Because the graph only shows an absolute amount of cost, we do not know how many towers each company has and therefore this could be a key driver of the difference in cost (e.g. a larger telco would have higher cost because they will have more towers).
2. Cost per lease
   1. External
      1. Location: Prime real estate, commercial areas would cost higher than rural reas
      2. Regulation: There may be regulatory costs or taxes that are specific to certain zones or types of towers
      3. Tower features: Maybe certain towers take up more space or command a higher cost due to increase complexity and burden on the landowner (e.g. maintenance)
   2. Internal
      1. Negotiation process: Given this is a negotiation process (which a candidate could have found out by clarifying questions), maybe some companies are better at negotiating than others

The client tells you that indeed their key problem now is high cell tower lease rates, due to a lack of negotiation capacity to conduct proper negotiations. The client wants to add new negotiators to help the current network negotiating team in negotiating contracts. How many new negotiators would he need and how much would it cost him? Please refer to the following assumptions

A strong candidate would state that this additional cost would need to be weighed against the potential benefits or cost savings that could be achieved by having a bigger negotiating them

We were brought in to help identify what are the potential causes of the drop in profitability for you.

 Based on the current analysis, the key cause of the fall in profitability lies in your cost

• Network OPEX is the key driver which has risen the most over the past couple of years from 8.3B to 11.1B
• Further analysis showed that we have higher cell tower lease costs compared to the competition due to a lack of negotiation capacity which could be a likely culprit of the increase in the cost

We suggest hiring an additional ~40 negotiators (at an annual cost of 0.6M) that could help to improve the negotiation process and potentially reduce our cell tower lease costs.

As a next step, we would suggest quantifying the potential benefits of having these new negotiators, and also to look into the next largest cost buckets that have increased (e.g. Labour)