ITUITU-APT Workshop on NGN Planning
16 – 17 March 2007, Bangkok, Thailand
Convergence Strategy and Trends
Oscar González Soto
ITU Consultant Expert
Strategic Planning and Assessment
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 1
Convergence Strategy and Trends
Content
• Convergence Dimensions
• Convergence drivers
• Cost structure and savings
• Economies of scale
• Competition Level
• A stair case strategy and evolution trends
• Business trends per
category
• Migration steps towards universal operation
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 2
Convergence Strategy and Trends
Convergence dimensions
Convergence is taking place at several levels
At Network level
• One network for all service types: NGN, IMS
At Service level
• Fixed, Nomadic, Mobile, Interactive and Broadcasting, etc.
At radio Access level
•DECT, WiMax, 3G, etc.
At Operational level
•OSS, Billing, etc, for all customer classes
At Terminal level
•2G, 3G, PDA, etc.
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 3
Convergence Strategy and Trends
Convergence dimensions
Convergence steps at network level
• Starting with the 5 current separated networks based on TDM ( PSTN,
IN, SS7, Mobile, Data ATM/IP)
• Migrating to single IP based NGN at core segment
• Migrating at IP based NGN at Edge and Access Segments
• Incorporating partial pre-IMS open service architecture
• Incorporating full end-to-end IP mode with IPv6
• Implementing full IMS functionality
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 4
Convergence Strategy and Trends
Convergence profiles
Level of convergence
Convergence Domain
Separated
Implementation
Low level
convergence
Medium level
convergence
Full
convergence
Network
Services
Access
Operations
Terminals
Present Mode
of Operation
Partial
Convergence Profile
Ambitious
Convergence Profile
Migration profile driven by: Initial status, Market development, Economy of
scale and Operator Strategy
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 5
Convergence Strategy and Trends
Content
• Convergence Dimensions
• Convergence drivers
• Cost structure and savings
• Economies of scale
• Competition Level
• A stair case strategy and evolution trends
• Business trends per
category
• Migration steps towards universal operation
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 6
Convergence Strategy and Trends
Key Factors:
Factors: Cost structure and savings
– High cost impact of network infrastructure layer: > 60% in
Greenfield areas of which > 70% in access segment.
– Dimensioning and cost evolving in 3 phases through time:
– A) Accessibility due to Geo
coverage either physical or radio
– B) Equipment in Ports/users as customers grow
– C) Capacity in Traffic due to increase of multiservice applications
– Significant savings by resources and equipment sharing within
an operator due to convergence at network layers : i.e.: 30%
– Additional savings inter-operators due to cost sharing of noncore equipment (buildings, towers, etc.) > 20%
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 7
Convergence Strategy and Trends
Key Factors:
Factors: Economies of scale
Economies of scale are an inherent characteristic to the telecom
technologies that impacts on solutions, evolution and also now survivability
in competition
– The five dimensions of the economy of scale:
• By Size of the systems
• By Technology capabilities
Larger systems cheaper per unit
New technologies with higher capacity
• By Traffic efficiency with the occupancy
Higher utilization for a given
GoS when more servers
• By customers Density
Quadratic increase with coverage radio
• By Volume of purchasing
March, 2007
Discount per volume in log scale
ITU/BDT/ Convergence Strategy O. G.S.
slide 8
Convergence Strategy and Trends
Key Factors:
Factors: Competition level
Different Levels of Competition
– L1) Monopoly for all geographical areas, customer classes and
service types
– L2) Limited monopoly per area and/or service types while free
operation for niche operators
– L3) Moderate competition for all network segments and services
– L4) High competition for high revenue customers and services
– L5) Aggressive competition for all areas, customers and services
“Efficient telecom implies different competition levels as a
function of country size and development status”
March, 2007
slide 9
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Trends
Key Factors:
Factors: Competition level
Business feasibility space as a function of volume and ARPU
Revenues per
customer/year
(ARPU)
Preasure by payment capability,
churn or regulation constraints
r1 $
n1
Volume of Customers/type
ARPU is limited by the economical development level and fixed costs
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 10
Convergence Strategy and Trends
Key Factors:
Factors: Competition level
Business feasibility space as a function of volume and ARPU
Revenues per
customer/year
(ARPU)
r2 $
Preasure by
required NPV and IRR
n2
Volume of Customers/type
Business feasibility limited by positive NPV
March, 2007
slide 11
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Trends
Key Factors:
Factors: Competition level
Feasibility space highly dependent on country size and economic level
Revenues per
customer/year
(ARPU)
Preasure by payment capability,
churn or regulation constraints
Business Feasibility
area:
r1 $
r2 $
Preasure by
required NPV and IRR
n1
n2
Volume of Customers/type
Business feasibility limited by positive NPV and payment willingness
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 12
Convergence Strategy and Trends
Business domains and trends
Illustration case for customer categories and revenues
>3000
Large Corporations
3-8%
Small& Medium
Enterprise
8%
SOHO (1-2 people)
Operator
300-500
70-120
10-20%
60-70%
60-80
High-End
Residential
Growing revenues
Growing Volume
0.5- 1%
30-55
feasibility
as a
function of
mix of
categories
L-E Residential
Classes Of
Customers
business
Revenues/Month (Euro)
“Customer stratification should be analyzed per country”
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 13
Convergence Strategy and Trends
Content
• Convergence Dimensions
• Convergence drivers
• Cost structure and savings
• Economies of scale
• Competition Level
• A stair case strategy and evolution trends
• Business trends per
category
• Migration steps towards universal operation
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 14
Convergence Strategy and Trends
Business domains and trends
Example of Value Added chain and operators movements to gain
economy of scale and market
Network
nucleus
Applications
and Services
Application Service Providers
Agreements and
merging
• Agreements with
wholesale operators
Local
Access
• Acquisition/merging of
service providers
• Development of new
access loops and
Unbundling
Access Providers (CAPs)
Mobile Service Providers (MSPs)
• Agreements with content providers
• New multi-service
development
• Agreements with
content and
application service
providers
Metropolitan
network
Backbone Service Providers (BSPs)
Internet Service Providers
(ISPs)
• Agreements with
content providers
and e-commerce
Edge
Established Service Providers (ESPs
(ESPs))
March, 2007
slide 15
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Trends
Migration steps
Extension for new
customer types
“staircase” for leading growing alternatives
Upgraded Telcos
Customers for
connectivity
Classic Telcos
Conventional voice
and data services
March, 2007
Extension for new
services domains
+ Services of IN,
VPN and Mobile
ITU/BDT/ Convergence Strategy O. G.S.
slide 16
Convergence Strategy and Trends
Migration steps
+ Customers for
new services
Extension for new
customer types
“staircase” for leading growing alternatives
Extended Telcos
Upgraded Telcos
Customers for
connectivity
Classic Telcos
Conventional voice
and data services
March, 2007
Extension for new
services domains
+ Internet and video
Distribution (triple play)
+ Services of IN,
VPN and Mobile
slide 17
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Trends
Migration steps
+ Customers for
end applications
+ Customers for
new services
Extension for new
customer types
“staircase” for New Universal Telcos
New Universal Telcos
ASPs
ISPs
Extended Telcos
Upgraded Telcos
Customers for
connectivity
Classic Telcos
Conventional voice
and data services
Extension for new
services domains
+ Services of IN,
VPN and Mobile
+ Internet and video
distribution (triple play)
+ e-applications
and Hosting
Specific migration and timeframe to be optimized for the country
context and regulatory conditions
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 18
Convergence Strategy and Trends
Migration steps
Revenue level
(ARPU)
Evolution of revenues with service domains
ASP
Video and multiservice
voice revenues
IN and data
Time and Extension for new
services domains
Conventional voice
and data services
+ Services of IN,
VPN and Mobile
+ Internet and video
distribution (triple play)
+ e-applications
and Hosting
Convergence strategy is fundamental to be competitive and to grow
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 19
Convergence Strategy and Trends
Role of Business Planning
– Forecast solutions, costs and revenues
– Evaluate future Cashflows, NPV, IRR, ROI, etc.
– Perform “What-if” analysis for optional alternatives on Volume of
customers, customer mixes and services domains
– Perform benchmarking with “best in class” operators
– Decision making on strategy and actions in competition
based on quantified evaluations
– Recommend alternatives and actions to ensure success
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 20
Convergence Strategy and Trends
Role of Business Planning
Evaluations to be based on robusts techno-economical tools due to
high number of alternatives and complexity
Case study performed for medium size country with mixes of
customer classes and services domains:
–
Multiservice IP Network with integrated operation available
– Three service categories: Voice, Data/Internet, Video distribution
– Modeling demands, multiservice traffic flows, dimensioning, network
resources, CAPEX, OPEX and financial results for different levels of
competition
– Evaluate differential future Cash-flows, NPV, IRR, etc. for a 10 years
period
March, 2007
slide 21
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Trends
Role of Business Planning
Effects of the mix of customers on Reference Scenario: Low competition level
Network NPV
8e+08
7e+08
Euro
6e+08
5e+08
SOHO and
Small
Enterprise
4e+08
All
Segments
(reference)
3e+08
Residential
2e+08
1e+08
Y0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
Y10
0e+08
-1e+08
•
March, 2007
Year
SME and SOHO with quicker recovery but less NPV and company value at
medium term
• “All customer segments” case with much better behavior
ITU/BDT/ Convergence Strategy O. G.S.
slide 22
Convergence Strategy and Trends
Role of Business Planning
Effects of the mix of services on Reference Scenario: Low competition level
Network NPV
7e+08
6e+08
Internet
5e+08
Euro
4e+08
Internet &
VoDSL
3e+08
Internet &
Video
2e+08
All
Services
(reference)
1e+08
Y0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
Y10
0e+08
-1e+08
-2e+08
•
Year
Major impact of service classes on NPV and company survivability
• Single service classes without future
• High benefit of “all services” case
March, 2007
slide 23
ITU/BDT/ Convergence Strategy O. G.S.
Convergence Strategy and Trends
Role of Business Planning
Effects of the mix of services on typical scenario: Medium competition level
Network NPV
5e+08
4e+08
Internet
Euro
3e+08
Internet &
VoDSL
2e+08
Internet &
Video
1e+08
Y0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
0e+08
Y10
All
Services
(reference)
-1e+08
-2e+08
•
March, 2007
Year
Increase of competition level amplifies the previous effects on feasibility: big
differences between service mixes
• Data only or single service classes without feasibility at medium term
• Very robust behavior for the “all services” case
ITU/BDT/ Convergence Strategy O. G.S.
slide 24
Convergence Strategy and Trends
Recommendations
• Perform proper modeling of key techno-economical
factors for business evaluation of convergence
alternatives
• Focus on extended services for multiple customer types,
multiple services domains
• Take benefit of all economies of scale
!! Which convergence will happen ?
Combination Driven by Market, Economy of scale and
Competition !!
March, 2007
ITU/BDT/ Convergence Strategy O. G.S.
slide 25