Finance, Commerce and Strategy (1 day)

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Course Outline

Section 1: Creating Value - An Engineer’s Role (1.5 hours)

This section analyzes how engineers contribute to the process of creating shareholder value by initially looking at how companies actually create value.
This section also explains and defines key terms such as ARPU, Operating Costs and Capital Expenditure as well as EBITDA and EBITDA margins and finally, Free Cash Flow.
Following this, the section defines the notion of network capital expenditure and network operating costs, in each case examining their impact on the creation of shareholder value.
The section also introduces the role of strategy and its part in creating value and examines the financial performance of the telecoms sector.

Section 2: What Accountants do with Network Expenditure (1.5 hours)

This section provides a high level and straight forward discussion of the process of accounting for network capital expenditure, in addition to network expenses and capitalisation policies. In so doing, the section begins by defining network fixed assets and work in progress, as well as explaining the rationale for “capitalising” internal resources.
The basics of accounting and double entry book keeping are explained, followed by an explanation of the accounting for the depreciation of network assets.
The section concludes by considering the financing of network expenditure, addressing the crucial question of whether or not telecoms companies are actually creating value in today’s market.

Section 3: The Economics and Strategy of Networks (1.5 hours)

The issue of how telecoms networks make financial gain from their networks is addressed in this section. This is achieved through an initial discussion of the economics of telco companies, explaining economies of scale and linking this into strategy and the importance of competitive advantage.
Moving on, the section discusses models of competitive advantage such as “lock in”, “network effects”, “switching costs” and “standard wars”.
The section concludes by initially answering the question “do networks provide a source of competitive advantage?” In addition, network investment is analyzed from the perspective of the city.

Section 4: Making Better Commercial Decisions (1.5 hours)

This concluding section describes how network plans are incorporated into the investment decision making process. As such, the section provides an overview of the typical decision making process before going on to review and discuss the common techniques to support decision making.
With respect to these techniques, the concepts of Discounted Cash Flow Analysis, Pay Back and Return on Investment are examined, in addition to the notion of Break Even Analysis.
The section finishes by examining the expected levels of performance in the telco sector before ultimately discussing the commercial drivers behind convergence.

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