1. Managing Costs Strategically - A Road to Success By Manoj Misra Head of Regulatory(SP) Vodafone-India

2. Controlling Overheads for Target Costing (A decision making problem – needs ABC Approach)

3. Telecom Industry at a glance

5. Telecom Industry's Financial Performance Statement of Industry's Financial Performance (Rs. in Crore) S. No.Particulars2012-132011-12 1Revenue from Telecom services191145176597 2Total Revenue202074185930 3EBITDA3113225562 4EBITDA Margin15.41%13.75% 5Operating Expenditure of telecom Industry170942160369 6Opex as % of Total Revenue84.59%86.25% 7Capital Employed297430327939 Source: TRAI's Annual Report 2012-13 and Vodafone-India Analysis

6. Cost structure and profitability of the wireless segment S. NoParticulars20082013 1EBITDA Margin36.50%15% 2OPEX as % Revenue63.50%85% 3PBIT Margin21.40%10% 4RoCE19.50%7% 5Opex-Capex Ratio Opex67%71% Capex33%29% Total Costs (Opex+Capex)100% Source: TRAI

7. 7 What do we mean by ‘cost’ – accounting definitions Accounting definitions of cost are based on two concepts – Operating expenses – Depreciation to account for fixed assets Operating activitiesFixed assets Annual opexDepreciation charge e.g., network maintenance, Other staff costs e.g., depreciation on network equipment Accounting definition of cost +

8. 8 What do we mean by ‘cost’ – economic definitions When estimating the (economic) cost of a service, it is necessary to consider a third aspect, the economic cost of capital. Operating activitiesFixed assetsCapital Annual opexDepreciation chargeCost of capital e.g., network maintenance, Other staff costs e.g., depreciation on network equipment Capital employed * WACC Economic definition of cost ++

9. Generally accepted Regulatory Practices for Assessment of Telecom Pricing/Network Services Assessment of Level of competition – Know about the SMP operator and its present marketing strategy – Position of assesse company in the relevant market – Regulatory Norms for SMP operator Assessment of management expectation – Understand the management expectation about the market and product – Risk assessment of proposed product Assessment of required revenue of product / Network service – Estimation of cost of services based on golden regulatory principles that whatever efficient costs have been incurred to provide the network services should be covered from the service/ product. – Cost will include both Capex and Opex including reasonable rate of return (WACC) Approach for estimation of cost of service – Identification of sources of data i.e. annual statutory accounts, Regulatory accounts – Cost modeling for estimation of cost of service i.e. FAC Vs. LRIC – Cost base i.e. Historical cost Vs. Current cost

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