One of the major trends in telecom today is “triple play” in which one provider offers a package deal for voice, broadband Internet and television services in a bid to increase revenues and improve market positioning. Considered to be an opportunity to reap huge profits, the bundling of these services has become more of a necessity to remain competitive and stay in business, according to a report by Pyramid Research. The triple play business is a complex one, with lots of intricacies involved. So a financial model for a telecom service provider offering the full package of services needs to consider the various complexities involved.
Any startup needs to develop a realistic and thorough financial model for presentation to a venture capital, hedge fund or private equity fund in order to raise any type of financing. Financial model specialists developing a financial model for any startup, including a triple play telecom business, should aim to demonstrate the size of the market opportunity, to explain the business model, to show the path to profitability, to quantify the investment needs and to facilitate the valuation of the business.
In the case of a triple play telecom service business, financial model planners need to remember and take into account that while the bundling of services increases average revenue per user (ARPU) and is a key factor in reducing churn, the margins in this business are likely to be slimmer than that earned in single play offerings. Telcos need to offer the combined package at a price that is lower than the total of each service would be individually. And the quality of service will have to be at least as good as, if not better than, the services offered by single-play competitors. This is bound to result in the elimination of a number of smaller companies that don’t have the dollars to compete in that sort of an environment.
The assumptions for developing a financial model for triple play businesses should take into account that a triple play offering does not necessarily increase broadband market share and may decrease margins as telcos bid for premium content. The financial statements and financial ratios involved in a model should be based on these facts.
An appropriate financial model for a triple play telecom business should constitute the following financial statements:
- The statement outlining sources and uses of funds
- Assumptions made during the preparation of a profit and loss account and a balance sheet
- Cash flow statement
- Operating expense detail and the headcount plan
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April 15, 2009 at 2:57 pm |
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