The Ledger

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The Ledger

Posted by Ross Chapman

Telecommunications M&A 2015: the CFO is central

What’s happening to companies in the telco, media and technology sector is interesting, if not surprising. BT’s acquisition of EE from Deutsche Telekom for £12.5bn will allow BT to sell quad play bundles of mobile, home phone, broadband and television to customers. Many expect this deal to cause a new wave of consolidation, signaling that acquisition is an effective way for operators to respond to increasing demands for digital content and quad-play services.

Telecommunications CFOs will carry the weight of M&A

This will be a busy time for telecom and media CFOs. They are expected to be the wizards behind the curtain that can make these acquisitions successful. In the BT deal, for example, investors expect the merged entities to achieve £3bn in cost savings.

Telecommunications CFOs 2015 strategic objectives

Telecom CFO Goals 2015 M&A

How do you win the quad-play arms race?

Many telco and media CFOs will be worried about more than the post merger integration challenges and realizing cost synergies.

With multiple operators able to offer quad-play services, there is a lot of debate as to how operators will differentiate their offerings when other providers can also offer combined services.

In many cases, such as with BT in the UK, acquisitions will be focused on combining mobile services with existing Internet, TV and fixed line offerings. The theory, as well described by the Wall Street Journal, is “that operators can discount bundles of services to win subscribers and then offset the saving from lower customer churn.”

Clearly, bundling services is attractive to both consumers and providers, but operators will still need to differentiate their offerings with value-added services, attractive packaged propositions and competitive prices. Good examples include the T-mobile ‘data stash’ promotion in the US and Vodafone’s Sky Sports mobile TV offer in the UK. Similarly, EE has formed a mutually-beneficial partnership with Deezer, helping the music service to achieve up to 6 million cash-paying subscribers globally while expanding into new geographies.

Delivering value-added services prompts CFOs to re-think key capabilities

Industry dynamics will push telecommunications CFOs and finance teams to have the following capabilities:

  • Revenue accounting & the ability to dynamically bundle and unbundle products & services
  • Royalty management
  • A streamlined finance office delivering financial insight, transparency and control

Accounting for revenue

Capturing and accounting for revenue is a real challenge for many operators, particularly as services offerings expand and customers demand more personalized packages. Traditional telecom IT environments are characterized by disparate operational (OSS) and billing (BSS) systems and accounting for revenue is no easy task.

New international accounting standards (IFRS 15, FASB Topic 606) are forcing operators to change the way they account for revenue. But change does not come easy. One leading operator publicly discussed the IT systems investment required to address the standard stating, , "because of the differences in individual customer contracts we feature in our industry, the model, as proposed, would require us to account separately for tens of millions of contracts. This would require [us] to implement new IT systems, solely for the purpose of revenue recognition."

The ability to allocate, track and account for revenue and costs from individual components of a bundle will enable operator CFOs to optimize the profitability of consumer offerings.

Royalty management

As telecommunication operators offer media services, they will also need to be able to account for rights and royalties. Paying royalties for IP usage often requires managing complex rebates and revenue share agreements. It becomes challenging very quickly with hundreds of millions of transactions (such as downloads of music) and with a complex array of rights owners. Aptitude Software has worked with many digital media companies to implement royalty management systems – operators will find they need similar capabilities as they bundle media services and form revenue sharing agreements with digital providers.

Supercharged financial reporting and processing

Telco CFOs that are adding new revenue streams through acquisition will need to consolidate reporting and identify cost synergies while delivering complete financial transparency to key stakeholders: the CEO, shareholders, business managers and employees. Rather than ripping and replacing the systems of the acquired company or forgoing the benefits of integrated information by keeping systems disparate, Aptitude Software solutions enable a single point of data integration and centralized finance and accounting policy. Using this structure allows telecommunications firms to drive value from M&A activity through better integrated businesses, heightened financial insights, as well as improved finance operations..

Conclusion: The TMT CFO’s challenge

Reduce costs, deliver new services, integrate new businesses – it’s only possible with true financial control

Nowhere will CFOs feel the pressure to reduce costs while growing revenues more than in competitive TMT industries. In this environment, those CFOs with the best information will have a natural advantage.

Aptitude Software works with finance teams at leading telecommunications, media and high-tech companies, providing quick-to-implement, fit-for-purpose software solutions to supercharge reporting, uncover profit drivers or comply with new regulatory requirements. To find out more about our platform for digital finance, please contact us at info@aptitudesoftware.com.

 

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