Writing the Business Plan Geoff Huston

Whats the Business Objective? zLong Term ISP business zGrowth and Sale zNational Agenda zLeverage from other activities zRisk protection

Business Planning Process zIdentify Market opportunity zIdentify Costs zModel Tariffs zModel Business Requirements

Market Identification zDefine Market segment ysize yuptake ycompetitive position ymarket position

Identifying Costs zcapital costs zrecurrent costs zmarketing costs zstaff and administrative costs

Capital Costs zequipment ycore routers xcapital cost depreciation at 30% p.a. yaccess servers xcapital cost depreciation at 30%pa xcapital cost per access port charged to customer

Capital Costs yservice platforms xratio of service platforms to customer numbers xdepreciation at 30% pa ystaff equipment xfixed capital cost per staff member xcan be converted to recurrent via capital depreciation at a rate of 30% pa

Recurrent Costs zequipment housing costs yequipment location costs zlease line costs ytelco leases yradio equipment costs xcan be converted to recurrent cost of ownership at 20% depreciation of capital value

Marketing costs zadvertising zstaff zpublications, seminars, other marketing activities zTotal can be considered as a connection cost per client

Staff and Administrative costs ztechnical support staff yusually fixed number ystaff churn cost (30%) zsupport desk staff yusually incremental off the customer base zadministrative staff yusually fixed number zOther administrative costs ybilling costs ydebt risk factor

Lets put this together for a medium sized national ISP zCost Totals zCost proportions zScaling overheads as a percentage of capacity costs zgeneration of the business model via marginal cost examination

Costs zLeased Line costs - recurrent expenditure

International Line costs

Domestic Line costs

Marginal Transmission cost

Marginal Cost yCalculate staff and equipment costs as a fixed overhead on the traffic volume - this allows the business to generate working capital to expand

Capital Investment cost yThe enterprise will require initial capital investment which must generate positive earnings, which must be factored into the model

Retail Pricing Model zUse a 64K access line as the basic unit of connection zAssume an average line loading of business usage yaverage line occupancy of 20% zDetermine retail pricing from marginal cost at average line occupancy zFlat Rate pricing

Retail Pricing Model

Risk Reduction zReduce risk of over exposure by using high and low volume tariff steps

Stepped Retail Tariff

Additional Services zOffer services at a variety of access speeds zUse differential tariffs to encourage reselling zUse a flater tariffs to strength direct retail position

Additional Services

Dial Access zTransmission is a minor cost for dial access zAlso must factor in: ymodem capital cost and limited service life yphone support with large after hours component ymarketing cost ycustomer churn rate ytarget market capture level (competitive price sensivity)

Dial Access

The Business Challenge zHow to manage exponential GROWTH

The Business Plan zEstablish tariff position zEstimate Market size for the service zCalculate Revenue zCalculate service provision costs zRevenue - costs = bottom line

Estimate Demand

Calculate Revenue

Scale the Network zEstimate communications capacity to service the client base

Estimate Costs zFactor in service provision costs

The Bottom Line Am I winning or losing at this tariff and market level?