You size the network for peak. So price it for peak.
A telecom network is a capacity machine. It is built and paid for to carry the busiest hour, not the average one. Yet network cost is routinely spread by average volume or by subscriber headcount, which charges the steady, off-peak customer the same as the one who drives the peak. The result is a cross-subsidy nobody chose, and an idle-capacity cost nobody books.
Cost and Profitability Consulting · 150+ models since 2010 · TDABC
Network capacity cost in telecom is a peak-driven, shared cost, and allocating it by average volume mis-prices every subscriber and plan. Kaplan and Anderson put practical capacity at 80 to 85 percent of theoretical, and industry research shows most organisations never measure the cost of the unused slice. TDABC computes a capacity cost rate per network resource and assigns it by peak consumption through time equations, so each plan and segment carries its real share and the cost of idle capacity becomes visible. We hold no telecom-specific capacity benchmark; the logic of capacity costing is what we apply.
The busy hour sizes the cost, not the monthly total.
A network is dimensioned for the busiest hour it must survive, and the capital and operating cost follow that peak. A subscriber who consumes heavily at peak through a congested cell costs far more to serve than one whose identical monthly total is spread across quiet hours. Average-volume allocation erases that difference and charges them the same, so the steady off-peak customer subsidises the peak-heavy one without either party knowing.
Peak, not average, drives the cost
The network is built for the busy hour. A customer who consumes heavily at peak costs far more than one with the same monthly total spread across quiet hours, and average-volume allocation erases it.
Idle capacity is paid for in full
Capacity reserved and not used still costs money. Kaplan and Anderson put practical capacity at 80 to 85 percent of theoretical, and the unused slice is almost never measured.
Headcount allocation punishes the wrong plans
Spreading network cost by number of subscribers makes high-volume, off-peak plans look expensive and low-volume, peak-heavy plans look cheap. The cost signal points the wrong way.
Capacity decisions run without a cost signal
Investment in new capacity is justified on coverage and demand, rarely against the true cost of the capacity already standing idle. The idle slice never enters the business case.
PEAK CAPACITY, NOT AVERAGE VOLUME
Illustrative analogue from a large IT organisation, not a telecom benchmark. Cost follows the peak the network is built to carry, not the average it reports.
Price the capacity, then book the idle slice.
The capacity cost rate is the cost of a network resource divided by its practical capacity, the 80 to 85 percent of theoretical it can actually sustain. Assign that rate to each plan by the peak demand it drives, add the reserved and standby capacity attributable to it, and make the share of unused capacity explicit rather than burying it in a blended rate. The cost then lands on the plan that caused it, and the idle slice finally appears on the page.
Plan capacity cost = peak demand share x capacity cost rate per resource
+ reserved / standby capacity attributable to the plan
+ share of unused-capacity cost (made explicit, not buried)
Capacity cost rate = practical capacity cost / practical capacity
(practical capacity = 80-85% of theoretical)
Illustrative structure, not a measured benchmark. The peak-share term and the explicit idle-capacity term are what average-volume allocation hides.
Peak-capacity pricing, from an adjacent sector.
A large IT organisation moved to peak-capacity pricing across several time zones, charging internal consumers for the capacity they drove at the busy hour rather than a flat average. Capacity that had looked free was suddenly priced, and consumption shifted toward the quiet hours. A telecom network is the same kind of shared, peak-driven asset, so the logic transfers directly: charge cost to the peak each plan drives, not to the bytes it averages, and the idle slice stops hiding. This is an illustrative analogue from an adjacent sector, anonymised and with adjusted figures, not a telecom benchmark.
Frequently asked questions
- How should telecom network cost be allocated?
- By the capacity each plan or segment drives at peak, computed through a capacity cost rate, not by average volume or subscriber count.
- What is the cost of unused network capacity?
- The cost of capacity reserved and built but not used. Kaplan and Anderson put practical capacity at 80 to 85 percent of theoretical, and this idle cost is almost never measured.
- How does capacity costing relate to TDABC?
- The capacity cost rate is the engine of TDABC; it converts the cost of a resource into a rate per unit of practical capacity, then assigns it by consumption.
- Do you have a network-cost benchmark for telecom?
- No. We apply the capacity-costing method and transversal evidence to your own network data.
Find the idle capacity your average is paying for.
The Profit Check needs no data upload. It points to where your network capacity cost and your plan pricing are most likely out of line, and what pricing for peak is worth.
- Duration
- 12 to 15 minutes
- You receive
- Score, 7 dimensions, sector benchmark
- Price
- Free, no email needed
Proof
A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.
Read the case study →Who you would be talking to
Miguel Guimarães, Founding Partner
Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.
Call +351 910 313 731
Workshops20-21 Oct · Online, ZoomReserve a seat
Reviewed by
Miguel Guimarães
Founding Partner, Cost and Profitability Consulting
More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.
About the author →Published
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- 1Time-driven activity-based costing: ABC made simple and scalable
- 2Cost-to-Serve Analysis
- 3The Whale Curve
- 4TDABC vs ABC
- 5Make-or-Buy and Relevant Costs
- 6Cost-Volume-Profit (CVP) and Break-Even Analysis
- 7Customer Profitability Analysis
- 8Methods & Frameworks: how we cost, defensibly
- 9TDABC for Financial Services
- 10How to calculate cost to serve, step by step