How much does it cost THEM?

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Dopefish

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#11368 18-Jan-2007 11:14

I'm just curious what to what it costs Telecom
for their mobile services. I mean it's
quite expensive to use a mobile phone so
is it expensive for telecom to use cell towers?
Of course there is the cost of powering the cell
towers with electricity and probrably the cost of
upgrading them and maintaining them. So do all
these cell tower costs add up to a lot of money
or is Telecom profiting hugely (I wouldn't
be surprised and maybe that's fair enough)
off us?

freitasm

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#58249 18-Jan-2007 12:01

And while at this, why Telecom? AFAIK Vodafone is not cheaper...

tonyhughes

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#58250 18-Jan-2007 12:17

Dont forget the towers didnt magically appear - they have to lease the land, get resource consent, buy and install towers, all before they make a single cent, they have already spent hundreds of thousands of dollars per tower.

antoniosk

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#58295 18-Jan-2007 19:43

tonyhughes: Dont forget the towers didnt magically appear - they have to lease the land, get resource consent, buy and install towers, all before they make a single cent, they have already spent hundreds of thousands of dollars per tower.

Then they have to buy the mobile phones, warehouse and distribute, create shops, support a dealer chain with staff and sales incentives, create and test new products like truetones, provide customer service, pay for the technical development.

AND THEN

they have to deal with bad debt, doubtful debt, returns from customers who change their mind, breakages and repairs under warranty, claims that I didn't call that number or download that porn and so on.

It's hard yakka being a telco sometimes....

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riahon

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#58297 18-Jan-2007 20:00

Aww c'mon guys you're going to scare Tex away.

Dopefish

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#58320 19-Jan-2007 08:18

antoniosk:
tonyhughes: Dont forget the towers didnt magically appear - they have to lease the land, get resource consent, buy and install towers, all before they make a single cent, they have already spent hundreds of thousands of dollars per tower.

Then they have to buy the mobile phones, warehouse and distribute, create shops, support a dealer chain with staff and sales incentives, create and test new products like truetones, provide customer service, pay for the technical development.

AND THEN

they have to deal with bad debt, doubtful debt, returns from customers who change their mind, breakages and repairs under warranty, claims that I didn't call that number or download that porn and so on.

It's hard yakka being a telco sometimes....

Okay so it's not as cheap as I thought. But I still wonder what it costs Telecom and Vodafone per SMS and Call
someone sends.

Filterer

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#58323 19-Jan-2007 08:42

Dopefish:
Okay so it's not as cheap as I thought. But I still wonder what it costs Telecom and Vodafone per SMS and Call
someone sends.

The cost for one extra sms or call? Nothing nada zip.

But it doesn't make sense to ask this question, a business model would not survive if it was based on marginal cost.

You must factor in the fixed investment and fixed costs that Telecom has. Any business that makes less then 10% profit on its investment may as well shut its doors and deposit all of its money into the bank to gain interest. I think you will find the TNZ profit percentage on its investment is not terrible high. Anyone with a figure?

pɐǝɥ sıɥ uo ƃuıpuɐʇs

TinyTim

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#58335 19-Jan-2007 12:03

Filterer:
Dopefish:
Okay so it's not as cheap as I thought. But I still wonder what it costs Telecom and Vodafone per SMS and Call
someone sends.

The cost for one extra sms or call? Nothing nada zip.

But it doesn't make sense to ask this question, a business model would not survive if it was based on marginal cost.

You must factor in the fixed investment and fixed costs that Telecom has. Any business that makes less then 10% profit on its investment may as well shut its doors and deposit all of its money into the bank to gain interest. I think you will find the TNZ profit percentage on its investment is not terrible high. Anyone with a figure?

The 10% depends on how risky the business is - higher for a risky business, lower for a sure-thing business. I'd imagine you could argue mobile is fairly sure-thing these days.

If return on investment = EBIT/assets then let's try some back of the envelope calcs using figures from the Telecom annual report:

p58: Mobile revenue = 869 million, total revenue = 5815; mobile = 15% of total (though should probably attribute some interconnect revenue to mobile too)

Total EBIT = 217 but I'll add back in the Australian writeoff of 1301 because that's not related to the mobile n/w, and pro-rate mobile based on revenue: 15%*(217+1301) = $227 million

Mobile depreciation: $16 million decrease = 21.1% (p54) so = $59.8 million (down from $75.8 million). Perhaps average asset life is 10 years so asset value when new was 10 times that at $598 million, and lets say the current value is (pluck a number out of the air) 50% that = $299 million current asset value.

ROI = 227/299 = 76% return.

Note I don't really know what I'm doing so this could be totally off base. However looks pretty good to me.

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grant_k

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#58336 19-Jan-2007 12:10

TinyTim: Mobile depreciation: $16 million decrease = 21.1% (p54) so = $59.8 million (down from $75.8 million). Perhaps average asset life is 10 years so asset value when new was 10 times that at $598 million, and lets say the current value is (pluck a number out of the air) 50% that = $299 million current asset value.

ROI = 227/299 = 76% return.

Note I don't really know what I'm doing so this could be totally off base. However looks pretty good to me.

The trouble with doing it this way is that the apparent return increases every year until such time as the equipment is replaced, at which point the return looks rather sick for the next couple of years.

A fairer way I think would be to take the original purchase price of the assets and use the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) figure instead of EBIT, presuming this is available.

I'm not an accountant either, but it strikes me as a more realistic approach. Anyone with any better ideas?

TinyTim

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#58339 19-Jan-2007 13:45

Grant17:
TinyTim: Mobile depreciation: $16 million decrease = 21.1% (p54) so = $59.8 million (down from $75.8 million). Perhaps average asset life is 10 years so asset value when new was 10 times that at $598 million, and lets say the current value is (pluck a number out of the air) 50% that = $299 million current asset value.

ROI = 227/299 = 76% return.

Note I don't really know what I'm doing so this could be totally off base. However looks pretty good to me.

The trouble with doing it this way is that the apparent return increases every year until such time as the equipment is replaced, at which point the return looks rather sick for the next couple of years.

A fairer way I think would be to take the original purchase price of the assets and use the EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) figure instead of EBIT, presuming this is available.

I'm not an accountant either, but it strikes me as a more realistic approach. Anyone with any better ideas?

That's probably possible - the annual report certainly has EBITDA, and it also has capex for wireless for this year. If older annual reports also had capex then it'd be a case of going back as far as the CDMA network rollout (assume the AMPS network is practically written off by now and doesn't come into the equation).

I might have to leave that as an exercise for someone else (my timesheet doesn't have an entry for mucking around on Geekzone)

EDIT: this method would omit shared costs like site costs, which as mentioned above are quite expensive and make up a reasonably large proportion of the cost. Possibly not so big for Telecom as many of their sites are old and were obtained when it was relatively easy (and could possibly even be treated as sunk costs) but it'd be a major issue for a new wireless operator like Econet or Woosh.

However reviewing the capex each year may show that the annual spend is rather consistent, and that there is not going to be a time when everything needs replacing all at once (so EBIT/assets may be ok).