How to optimise a $ 500 million investment for a large telco?

Our client was a large mobile operator that needed to decide how they should develop a 4G mobile network. The client was considering buying 20,000 base stations with a total investment value exceeding $500 million. They needed a detailed business case to decide which cities 4G base stations should be deployed in.

The selection of proper cities was completed

There were more than 1,000 cities in the country and we needed to develop a prioritization model. We gathered available information about each of the city: what is total population, what is the area in each of the city, how many people have 4G enabled smartphones, what is their current data usage, how much money are they spending on data services. The ideal candidate for 4G network expansion would be a city with the following characteristics: large population, small area, high 4G handset penetration, high expected data ARPU, low or moderate investment requirements.

Each selected city required an individual approach

Based on the gathered information we developed a detailed business case for each of the city taking into account expected costs and revenue over the reasonable time horizon in the future. We had to fully understand the technological solution – which costs are fixed, which costs are variable and how they change when more data customers are added to the network or when customers increase their data usage. Each city had a separate NPV model. An excel file with 1,000 NPV models. It was a challenging task.

We found out that investing in more than 40% of the locations would not generate positive returns for the company. Our recommendation was that the client was better off by proceeding with a smaller amount of 4G base stations - 10,000 instead of 20,000 as many cities were not ready for 4G adoption.