Target Audience

• Engineers and technologists

• Planners and project managers

• Technical managers and upper level management

• Anyone responsible or involved with telecom and/or IT financial issues

Key Questions Answered

• What is engineering economy and how should it be applied to telecom and media projects and initiatives

• What are best practices in real-world network financial management decisions

• How do economic decisions relate to network planning issues and network operations issues

• What are the revenue models that can be utilized in the new telecom media business environment

• What are the best practices to plan and operate media driven networks using basic fiscal management processes

More on the Report

Since 2004, a new kind of telecom service provider has emerged: one that provides video, music, and telecom services - the converged carrier. This carrier can look like a plain old telephone company, cellular carrier, cable television company, Internet Service Provider (ISP), and media company. In fact these carriers all look alike. They appear to be providing all of the same services and content but they use different network access technologies. The following questions come to mind: “If all of these carriers are providing the same services and content, how do they finance the networks? Networks are not created equal. Networks of differing technologies have different cost structures. Given the different cost structures but the similarity of services, how do you create sufficient differentiation to attract customers and still make money?”

Engineering Economics for Telecom & Media Technologists is a practical guide towards planning and operating a media driven network using basic fiscal management processes. This is a back-to-basics book. This book is partly an engineering economy textbook and real-world network financial management handbook. This book is blunt and to the point. This book is to be used by all technologists operating in this new realm of broadband multimedia. This publication will direct the technologist to think about driving revenue generation. While this publication will not mention company names, the examples given may be familiar to many readers.

This publication will raise network planning issues and network operations issues. Network planning and operations has always been based on costs optimization and meeting customer needs. Engineers make many kinds of economic decisions to address a multitude of economic problems. These economic issues can be characterized as engineering economy. Engineering economy is primarily concerned with engineers making economic choices. Engineering economy teaches the engineers how to decide upon the best course of action amongst a large number of potential choices within the context of what is most attractive economically.

This publication will discuss revenue models that can be utilized in the new telecom media business environment. Meeting customer needs assumes revenue generation. Carrier and vendor technologists will benefit from this handbook by understanding the financial drivers behind operating a network. The basics of money articulated in this book will be of value to those who create and sell hardware and software.

Introduction

Chapter 1: The Engineer’s Financial Role

The Impact of Multimedia Content

What are the Cost Elements of the Network?

Cost versus Revenue versus Income

Fiscal Understanding: The Engineering Economic Study Is A Decision Tool

Examples: The Need For Economic Study

Example 1.1:

Figure 1.3: Trans Atlantic Company XYZ Balance Sheet

Example 1.2:

Example 1.3:

Example 1.4:

The Objectives of the Economic Analysis/Engineering Economic Study

The Engineering Economic Study Processes

What Engineering Economic Studies Do NOT and Are NOT

Basic Points

Summary

Questions

Answers

Chapter 2: Basic Telecom Accounting

Accounting Concepts

Telecom Accounting Classifications

Assets

Intellectual Property: Technology, Software and Content – As Assets

Liabilities and Owner’s Equity

Balance Sheet

Shareowner’s Equity

Table 2.1 Telecommunications Carrier Balance Sheet

Operating Revenues

Operating Expenses

Income

Income Statement

Relationship of the Balance Sheet and the Income Statement

After Income: Earnings and Profit

Summary

Questions

Answers

Chapter 3: Capital Expenditures and the Nature of Costs

Capital Expenditure Policies

Example 3.1: Capital Expenditure Policies in a Healthy Company

Example 3.2: Capital Expenditure Policies in an Unhealthy Company

Capital Expenditure Policy Structure

Capital Expenditure Policy: Rules and Objectives

Revenue

Gross Profit

Break- Even

Fixed Capital Investment

Working Capital

Income Tax Rate

Depreciation

Interest

Net Profit/Operating Profit

Rate of Return on Investment

Payout/Payback Period

Discounted Rate of Return

Minimum Return Rate

Example 3.3:

Example 3.4:

Capital Expenditure Policy: Summary

Cost Expenditures: When Can You or Should You Spend Capital?

Nature of Costs

Plant Operation Costs

Capital Costs

The Nature of First Costs

Material

Installation

Miscellaneous Loading

Engineering

Charges Occurring During Construction Which Are Added to the Plant/Equipment Investment Accounts

The Nature of Continuing Costs

Maintenance Expenses

Depreciation Expenses

Advertising

Travel

Commercial

Employee Payroll, Pensions, and Benefits

Rents

Accounts Payable and Accounts Receivable

General Administration

Outsourcing

Engineers’ Outsourcing Concerns

Cost Expenditure Policies and Capital Expenditure Policies -Harmonization

Summary

Questions

Answers

Chapter 4 - Depreciation

Attributes of Depreciation

Intangible versus Tangible

Example:

Salvage, Scrap, and Junk Value

Estimating the Useful Life of the Asset

Methods of Depreciation

Straight-Line Method

Example 4.1: Straight-Line Method

Declining-Balance Method

Example 4.2: Double-Declining-Balance Method

Sum-Of-The-Years-Digits Method

Example 4.3: Sum-Of-The-Years-Digits Method

The Sinking-Fund Method

Example 4.4: The Sinking-Fund Method

Which Depreciation Method Do You Use?

Content and Depreciation

Summary

Questions:

Answers:

Chapter 5: Business Planning and Organizational Theory

Business Plan

Components of the Business Plan

Strategy

Strategic Planning

Strategic Planning - Market Segment & Size

Strategic Planning - Value: The Story

Strategic Planning - Distribution

Scope and Scale of Execution

Tactics

Tactical Planning - Value: The Product’s/Service’s Intrinsic Value

Tactical Planning - Value: The Value Proposition

Tactical Planning - Distribution: Sales

Equipment and Technology Sales Distribution

Content Distribution

Tactical Planning - Distribution: Marketing The Product

Technology Trials – A Marketing Tool

Marketing Mobile Content

Tactical Planning - Distribution: Warehousing and Delivering the Product

Tactical Planning – Other Aspects

Vision - Binding Strategy and Tactics

Where Do Vision, Strategy, and Tactics Lead The Company?

Organizational Theory

Basic Organizational Functions

Basic Telecom Carrier and Vendor Organizational Functions

Manufacturing and Carrier Organizational Structures

Content Company Organizational Structures

Multiple Organization Tracks – Measuring Performance

Vertical and Flat Organizational Structures

Organized Product Creation

Departmentation

Product Departmentation

Functional Departmentation

Product Departmentation versus Functional Departmentation

Financial Relationships

Summary

Questions

Answers

Chapter 6: Mathematics of Money

Time is Money and Money is Time

Interest: Income and Penalty

Equivalence

Present Worth and Future Worth

Annuity

Example 6.1:

Example 6.2:

Time-Value of Money

Future Worth of a Present Amount

Present Worth of a Future Amount

Equipment and Service Value Over Time – Present and Future

Annuities

Annuities: Present and Future

Future Worth of an Annuity

Annuity for a Future Amount

Present Worth of an Annuity

Annuity from a Present Amount

Rates of Return – Effective and Nominal

Dispersed Retirements

Summary

Questions

Answers

Chapter 7: Cost Analysis

Cost Estimation Methodologies

Order-of-Magnitude Estimation

Historical Data

Cost Indexes

Example: Cost Indexes

Cost Ratios: Cost-Capacity Relationship

Semi-Detailed Estimates

Buffer/Contingency Allowance

Detailed Estimates

Cost Estimation – Capital Investment Component

Depreciable Fixed Investment

Non-depreciable Fixed Investment

Expensed or Amortized Investment

Research and Development

Engineering/Supervision

Start-up Costs

Cost Estimation – Operating Cost Component

Direct (Variable) Operating Costs

Indirect (Fixed) Operating Costs

Summary

Questions

Answers

Chapter 8: Break-Even Analysis

Break-Even Analysis

Elements of the Break-Even Analysis

Total Revenue from Sales

Direct Costs

Indirect Costs

Total Costs

Gross Profit

Loss

Break-Even Point

Example:

Break-Even Analysis

Mathematical Representation

Example:

Graphical Representation

Effect of Changes

The Linear Cost-Volume Relationship

The Non-Linear Cost-Volume Relationship

Running a Sensitivity Analysis – Managing Uncertainties

Certainty, Uncertainty, Risk, and Reward

Summary

Questions

Answers

Chapter 9: Evaluating Investments and Market Driven Strategies – How?

The Investment Decision Framework and Drivers

Qualitative Decision Framework

Quantitative Decision Framework

Investment Decisions Out of Necessity

Replacement of Worn-Out and Obsolete Equipment

Repairs to Buildings and Facilities

Repairs and Replacements of Equipment, Buildings, and Facilities Due to Natural Disasters

Meeting Government Regulations for Health and Safety

Research and Development

Security

Payback Period (PP)

Payback Period Based on Average Yearly Gross Profit

Payback Period Based on Average Yearly Net Profit

Payback Period Based on Average Yearly Cash Flow

Example 9.1: Payback Period

Return On Investment

Example: Return on Investment

Cost-Benefit Analysis

Example: Cost – Benefit Analysis

What Happens If the Quantitative Framework Fails?

Example 9.2: Break-Even Analysis of an Investment Decision Made Out of Necessity

Keeping It Simple

Integrating The Investment Evaluation with the Market Strategy

Business Plans

Components of the Business Plan - Review

Strategy

Tactics

The Investment Evaluation and the Market Strategy – Integration Process

Taking a Step Back

Example 9.3

Integration

Summary

Questions

Answers

Chapter 10: Corporate Planning:  The Art Behind Integrating The Engineering Economic Study and the Business Plan

Organization - Personnel

Organizing the Management thought Processes – Adaptive Planning

Adaptive Planning Plus Organizational Structure Equals Integration

Integrating Engineering Economy Study Results and Corporate Planning

Assessment

Assessment: Environment

Assessment: Strengths and Weaknesses

Assessment: Opportunities and Threats

Strategic Analysis

Decision Making

Decision Making by the Engineer

Setting Objectives

Resource Analysis

The Final Phase – Planning Implementation

Implementation – The Customer View

Fundamentals versus Experience

Summary

Questions

Answers

Chapter 11: Project Planning & Cost Control

Detailed Estimates

Chapter 12: Business & Revenue Models

The Impact of Content on Wireless and Wireline Telecom

The Conversion of Mobility and The Internet

The Challenges

Glossary