ITU / BDT workshop
Ljubljana,, Slovenia,
Ljubljana
1-3, December 2003
IMT 2000
Lecture
3.3.2
Economical Evaluation of 2G to 3G Migration and
Tool based case study
Oscar González Soto
ITU Consultant Expert
Strategic Planning and Assessment
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 1
Economical Evaluation for 2G to 3G
Content
• Factors in the 2G to 3G
evolution
• Key economical issues
• Migration steps and architectures
• Techno-Economical and Business modeling
• Demand, services and revenues
• Network Resources and sharing factors
• Tool based case study
• STEM tool summary
• Case study demo and results
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 2
Economical Evaluation for 2G to 3G
Key Economical Factors
– Dominant dimensioning criteria evolving in 3 phases:
– Geo coverage due to propagation and capacity at first phase
– Ports/users as customers grow in a second phase
– Traffic increase due to applications at latest phase
– High cost impact of network infrastructure
– Significant savings by resources and equipment sharing
– Business profitability as a function of Revenues for new
services, Take-up rate and Cost of Ownership
Impact on business?
What-if analysis
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
Lecture NP - 3.3.2 - slide 3
Economical Evaluation for 2G to 3G
Key Economical Factors
• Dimensioning and investment trough time
Investment level
per year
Infrastructure for
geo-coverage
Ports/channels for
customers and traffic grow
Time
Deployment
December 1 -3
Launching
Expanding
ITU/BDT Economical Evaluation - O.G.S.
Maturity
Lecture NP - 3.3.2 - slide 4
Economical Evaluation for 2G to 3G
Key Economical Factors
• Evolution for unitary costs and revenues
Cost per
port/customer
Revenues
Dominant Infrastructure
component
Take-up rate with
diffusion law
Dominant Ports/traffic
dependent cost
Launching
Expanding
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
Time
Maturity
Lecture NP - 3.3.2 - slide 5
Economical Evaluation for 2G to 3G
Network Evolution steps
Grow for
Bandwidh
UMTS
Capacity &
GSM/EDGE
Services
GSM/GPRS
GSM
Time for Geo-coverage and Deployment
Migration strategy is strongly dependent on country
Geo-structure and has to be customized
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 6
Economical Evaluation for 2G to 3G
Modeled architectures
Applications
SS7
Network
HLR
BTS
RNC
MSC
SGSN
PSTN/IP/NGN
Network
GGSN
GPRS
GWs
BTS
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
NMC
Lecture NP - 3.3.2 - slide 7
Economical Evaluation for 2G to 3G
Considered Services
Technology
GSM
GPRS/EDGE
UMTS
Services
Revenues
Voice
Time function
Data/circuit 9.6Kbps
Subscription/Time function
Data/circuit up to 64Kbps
Data/packet up to 144Kbps
Subscription/Time function
Subscription/Message/
Information volume function
Voice
Time function
Data/circuit up to 384Kbps
Data/packet up to 2Mbps
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Subscription/Time function
Subscription/Message/
Bandwidth/Information
volume function
Lecture NP - 3.3.2 - slide 8
Economical Evaluation for 2G to 3G
Infrastructure Sharing Scenarios
Sharing Levels (new sites)
Leasing Levels (existing)
– A) No sharing
– Renting space/towers to others
– B) Site and Tower
– Leasing space to others
– C) Site, Tower and BST
– Both Renting and Leasing
– D) Full access segment
– None
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 9
Economical Evaluation for 2G to 3G
Network Systems Modeling
– Customer Segments (business, residential) and Services (Voice and
Data low/medium/high speed)
– Sites and Base Stations at Urban, Suburban, Rural and Hot spots
– Backhaul per geo-scenario
– Core Network with the specific network elements in the architecture
– Transport for voice, circuit mode data and packet mode data
– Interconnection for voice and data
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 10
Economical Evaluation for 2G to 3G
STEM tool summary
Objective : STEM by
“Analysys”
(in Cambridge) is a business decision
Business
Planning
making support tool that enables the
analysis of business models and cost
assignment for Telecommunication
Networks and services over a period
of time.
The Analysys STEM network investment modelling tool is a
product of Analysys Consulting Ltd, Cambridge, UK
contact: robin.bailey@analysys.com
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
Lecture NP - 3.3.2 - slide 11
Economical Evaluation for 2G to 3G
STEM tool summary
• Capabilities
–Service Demand Projection
–Evaluation of network resources and associated investment (CAPEX)
–Evaluation of revenues for given tariffs and installation rate
–Modeling multiple resource lifetimes
–Modeling multiple time periods
–Modeling of demand elasticity
–Interrelation between network growth and operational cost (OPEX)
–Cost assignment as a function of utilization rates
–Produces automatically the standard financial results like Cash Flow,
Profit & Loss, Balance Sheet and many others
–Interfacing to other MS Windows applications like Excel, Word,....
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 12
Economical Evaluation for 2G to 3G
Tool activity flow
Replacement
of Resources
Resource
Depreciation &
Decommissioning
Demand
Parameters
Incremental
Demand
for service
Total
Incremental
Demand for
Resources
Tariff
and
Revenue
Resources Costs
(And trends)
Incremental
Resource
Supply
Production
& Costing
of Resources
Service
costs &
charges
Input data
Tariff
Policy
Others costs
(Admin/mkt)
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
Phase of
calculation
Lecture NP - 3.3.2 - slide 13
Economical Evaluation for 2G to 3G
Macroscopic and microscopic approach to
modelling
Examples:
One Resource used to model all
BTSs in a mobile network
Macroscopic
December 1 -3
Intermediate
approach
BTSs grouped by area type,
e.g.
urban/suburban/rural/highways
Microscopic
BTSs modelled one by one
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 14
Economical Evaluation for 2G to 3G
Example of tool results for business analysis
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 15
Economical Evaluation for 2G to 3G
Example of tool results for business analysis
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 16
Economical Evaluation for 2G to 3G
Case study: Scenario Modeling
min RNC for
coverage
site sharing for
new roll-out
total
bandwidth
SGSN-GGSN
STM-1 installed
units
RNC-MSC
STM-1s
installed units
RNC
GGSN
SGSN
Bus GSM voice
Bus GSM voice
erlang B
Bus GSM voice
customers
Bus GSM low
spd cs
GGSN min to
cover
subscribers
None
Bus GPRS low
spd ps
Shared BS site
Bus UMTS
voice erlang B
SGSN min to
cover
subscribers
Bus Voice
bandwidth site only
site &
basestation
Full
• Inputs specified through Excel
• Detailed model of network
functions
Bus GPRS hi
spd ps
site sharing for
new roll-out
suburban
UMTS BS
rural UMTS BS
RNC
Backhaul E3
(shared)
• Scenarios for different levels
of sharing
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
Lecture NP - 3.3.2 - slide 17
Economical Evaluation for 2G to 3G
Case study: Resources modeling
• Network resourcesare associated to Network elements per type
• Resources modeled by capacity, utilization, physical lifetime and
depreciation policy
• Capital cost structure modeled with trends over time
• Operational costs modeled for: Maintenance, Churn,
Decommissioning, Connection, Rental, Usage and Operation
costs
• Models keeps track and history for all these capital and
operational costs components for later reverse cost allocation
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 18
Economical Evaluation for 2G to 3G
Case study: Economical modeling
• Tariffs for connection, rental and usage
• Modeled demand elasticity to the three tariffs
• Differentiated physical and economical lifetimes
• Cost allocation per service and customer segment as a function of
consumed resources
• Models and calculates all standard economical and financial values
with more than 100 pre-programmed functions including:
– service revenues and costs, service cash-flows, market segment revenues and
costs, resource incremental units, resource operating costs, network revenue and
expenditure, network operating profit, network NPV, network IRR, network
depreciation and amortization, network assets, network balance sheet, etc.
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
Lecture NP - 3.3.2 - slide 19
Economical Evaluation for 2G to 3G
Case study: LifeLife -Demo and results
None
site only
site &
basestation
Full
site sharing for
new roll-out
Bus GSM voice
Bus GSM voice
erlang B
Shared BS site
suburban
UMTS BS
rural UMTS BS
RNC
Backhaul E3
(shared)
Bus GSM voice
customers
Bus GSM low
spd cs
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Bus UMTS
voice erlang B
Bus Voice
bandwidth
Bus GPRS low
spd ps
Bus GPRS hi
spd ps
Lecture NP - 3.3.2 - slide 20
Economical Evaluation for 2G to 3G
Case study: LifeLife -Demo and results
Service Demand - Connections
umts: Working Model, Connections
7e+06
6e+06
5e+06
4e+06
3e+06
Network Capital Expenditure
2e+06
Customers
1e+06
umts, Network, Capital Expenditure
0e+06
6e+08
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
Con GSM voice
site only/Offer
own GSM sites
5e+08
site &
basestation/Offer
own GSM sites
4e+08
Con UMTS voice
3e+08
EUR
Full/Offer own
GSM sites
2e+08
None/Offer own
GSM sites
1e+08
0e+08
2000
2002
2004
2006
2008
2010
Year
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
Lecture NP - 3.3.2 - slide 21
Economical Evaluation for 2G to 3G
Case study: LifeLife -Demo and results
Resource Unit Utilisation
umts: site only/Rent space on other GSM sites, GSM base stations
14.000
12.000
10.000
Redundant Units
Planned Units
8.000
Deployment Units
Units
Utilisation Units
6.000
Used Units
4.000
2.000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Year
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 22
Economical Evaluation for 2G to 3G
Case study: LifeLife -Demo and results
Resource Unit Utilisation
umts: Working Model, RNC-MSC STM-1s
90
80
70
60
Redundant Units
Planned Units
50
Deployment Units
Units
40
Utilisation Units
Used Units
30
20
10
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Year
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
Lecture NP - 3.3.2 - slide 23
Economical Evaluation for 2G to 3G
Case study: LifeLife -Demo and results
Resource Unit Utilisation
umts: site only/Rent space on other GSM sites, internet connection charge
4.000.000
3.500.000
3.000.000
Redundant Units
2.500.000
Planned Units
Deployment Units
2.000.000
Utilisation Units
Units
1.500.000
Used Units
1.000.000
500.000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Year
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 24
Economical Evaluation for 2G to 3G
Case study: LifeLife -Demo and results
Function Operating Costs
umts: site only/Rent space on other GSM sites, suburban UMTS BS function
14e+06
12e+06
10e+06
Churn Cost
8e+06
Maintenance Cost
Operations Cost
EUR
6e+06
Operating Costs
4e+06
2e+06
0e+06
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Year
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
Lecture NP - 3.3.2 - slide 25
Economical Evaluation for 2G to 3G
Case study: LifeLife -Demo and results
Service Cashflows
umts: site only/Rent space on other GSM sites, GSM services
18e+08
16e+08
14e+08
12e+08
Cashflow
from
Operations
10e+08
Cashflow
before
Financing
8e+08
EUR
6e+08
4e+08
2e+08
2000
0e+08
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-2e+08
Year
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 26
Economical Evaluation for 2G to 3G
Case study: LifeLife -Demo and results
Service Cashflows
umts: site only/Rent space on other GSM sites, UMTS services
14e+08
12e+08
10e+08
Cashflow
from
Operations
8e+08
Cashflow
before
Financing
6e+08
EUR
4e+08
2e+08
2000
0e+08
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
-2e+08
Year
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
Lecture NP - 3.3.2 - slide 27
Economical Evaluation for 2G to 3G
Case study: LifeLife -Demo and results
Network Capital Employed
umts: site only/Rent space on other GSM sites, Network
16e+09
14e+09
12e+09
Total Assets
10e+09
Surplus
Cash
8e+09
Current
Liabilities
EUR
6e+09
Capital
Employed
4e+09
2e+09
0e+09
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Year
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 28
Economical Evaluation for 2G to 3G
Case study: LifeLife -Demo and results
Network NPV and Terminal Values
umts: site only/Rent space on other GSM sites, Network
25e+09
20e+09
NPV (Zero
Terminal
Value)
15e+09
NPV
(EBITDA
Multiplier)
EUR
NPV
(Perpetuity
Rate)
10e+09
5e+09
0e+09
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Year
ITU/BDT Economical Evaluation - O.G.S.
December 1 -3
Lecture NP - 3.3.2 - slide 29
Economical Evaluation for 2G to 3G
Actions for profitability
!! Joint Techno-economical evaluation at all phases !!
Cost per
port/customer
Revenues
Decrease unitary costs by
Infrastructure sharing
Increase ARPU with
new services
Promotional law
Increase cash -flow with
high take-up rate through
marketing actions
Diffusion law
Launching
December 1 -3
Expanding
ITU/BDT Economical Evaluation - O.G.S.
Maturity
Time
Lecture NP - 3.3.2 - slide 30
Economical Evaluation for 2G to 3G
Conclusions
Key economical factors have to be considered with
dynamic models and validated
High impact of sharing factors and take-up rate in the
profitability
High number of country and technology scenarios to be
analyzed
Powerful support tools needed
December 1 -3
ITU/BDT Economical Evaluation - O.G.S.
Lecture NP - 3.3.2 - slide 31