In today’s accelerated marketplace for interconnect voice, many carriers and solution providers are struggling with assessing the value of their interconnect voice management platform. How much is it worth? It’s a question worthy of analysis to determine what the contributing factors are that allow assessment of worth/value to be derived. Interconnect voice management is complex and touches many aspects of a carrier's operations: Routing, Pricing, Product, Sales, Buying, Finance, NOC, etc.
How do you assess the value of a platform that touches practically every organization and manages almost every aspect of this critical function?
One way worth exploring is to take the classic top-down approach. Let’s take a pure interconnect player (wholesaler), start with a $1.00 of margin and then decide how they would allocate the dollar to specific costs.
Let’s look at the components:
Network: SBCs, Switches, Bandwidth, interconnects, co-lo, power, etc.
IT: Supporting all computers, phones, MIS systems, (monitoring, Reporting, etc.)
Finance: Includes staff salaries and systems
Sales/Buying: Includes staff, salaries and commissions
Product: Includes staff salaries
Interconnect Management System: The suite of tools that specifically manage the business
Cash Reserves: Cash needed to maintain the “float” (period between payables and receivables)
NOC: Staff Salaries and Tools
So, if we take that $1.00 of margin and we start allocating, we might arrive at the following:
That’s why wholesale net margins are in the single digits and why volume is the critical component of wholesale revenues.
The biggest cost drivers of any interconnect operations are: Network, Interconnect Management and Sales.
Collectively, they represent 65% of the costs. That’s why they are typically capitalized and, therefore, the expense is amortized. But, because it is amortized, the choices carriers make on which solutions to purchase are critical. They have long shelf lives. They can’t easily be replaced. We estimate a 7-10 year replacement cycle. That is approaching switch replacement cycles. So, carriers are making strategic decisions when purchasing these interconnect voice management systems. Because they are strategic, they are going to comprise significant investments in both capital and resources. So they must be approached with great care and attention.
What do you think? Do you think your interconnect voice management solution represents 20% of your interconnect margin? Should it be more? Less?