STEM help / Basic concepts

3.1 STEM and financial modelling

STEM is a decision support tool which allows you to develop financial models of complete telecoms operators, or of some of the services and networks they employ, e.g., access networks, cellular networks or overlay networks.

STEM helps you to answer critical questions in telecommunications, such as:

  • How much does the network cost?
  • What is the return on investment?
  • How do we allocate the overheads?
  • What are the main cost drivers?
  • How much do individual products and services cost, and what are the returns?
  • What new opportunities should we explore?
  • What risks do we face?

STEM allows you to model the relationships between demand for telecommunications services (measured in terms of connections and traffic) and the resources that an operator must deploy – including network equipment, staff, vehicles, land and buildings and other overheads – in order to meet that demand over a period of typically 5 to 20 years.

STEM models encapsulate the design rules that planners would use to dimension a network to meet the specified demand, and include details of service tariffs and resource costs, whether they are capital expenditure or operating expenses. STEM can then produce forecasts of the profit and loss account, cashflow and balance sheet of the operator, network or services being modelled.

When faced with investment decisions in a market with rapidly changing business conditions (including the advent of new technologies and services, and a volatile regulatory environment) STEM enables you to set out the options in a structured way, and to examine the financial consequences of each one.

The results generated include key measures of the cost of pursuing a strategy: capital expenditure, operations and maintenance expenditure, cashflow, revenue, profit, and service costs; all calculated on a year-by-year basis (or by quarter, or by month).

 

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