Cash on the line:
Telecommunications operators and working capital management 2014
Most operators have made significant strides in improving WC management in recent years, although they largely differ in how quickly they delivered these efficiencies and to what degree.
Cash on the line 2014 is the latest in a series of working capital (WC) management reports based on EY research.
The results from our analysis of leading telecommunications operators in Europe in 2013 shows an improvement in net trade WC performance compared with 2012, following relatively little change in performance between 2012 and 2011.
In contrast, North American operators saw their net trade WC performance deteriorate in 2013 relative to 2012, marking a break with the steady improvement seen in previous years.
This report is based on a review of the net trade WC performance of the largest telecommunications operators (by sales) headquartered in Europe (15 operators), North America (6 operators in total, composed of 4 US and 2 Canadian operators) and seven other regions and countries (34 operators in total across Africa and Middle East, Asia-Pacific, China, Central and Eastern Europe, India, Latin America and Russia).
Our research indicates that the leading 15 European operators have up to €24 billion unnecessarily tied up in WC, equivalent to 7.5% of their combined sales. For the six main operators in North America, the corresponding figure is US$9.9 billion, equivalent to 3.0% of their combined sales.
Capitalizing on opportunities
To capitalize on this opportunity, leading operators will need to focus on a number of key initiatives, including:
- Managing WC as a strategic initiative, including taking a balanced approach to cash, costs, customer experience and risks
- Improving billing and collection and enhancing dispute management
- More effectively managing payment terms for suppliers
- Strengthening relationships with technology leaders to ensure access to their market and product expertise
- More effectively managing interconnection agreements
- Improving demand forecasting processes
- Managing consumer financing solutions for devices better
- Increasing use of supply chain financial solutions
- Aligning executive compensation with the appropriate WC performance measures
Operators may also be able to identify additional opportunities for releasing cash in non-trade WC areas.
For 2014, we expect WC results to show even wider divergences among individual operators, reflecting the relative success or failure of their efforts to adapt their business models to this new and evolving landscape.