ITU / ITC Regional Seminar on Network Evolution to
Next Generation Networks and Fixed Mobile
Convergence
CEE, CIS and Baltic States
Moscow (Russia), 2727-30 April 2004
Convergence Strategy for Universal Operators
and role of Business Planning
Oscar González Soto
ITU Consultant Expert
Strategic Planning and Assessment
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 1
Convergence Strategy and Business Planning
Content
• Key factors in Evolution
• Cost structure and savings
• Economies of scale
• Competition Level
• A stair case strategy for a universal operator
• Business trends per category
• Migration steps towards universal operation
• Convergence at Network, Services and IT platforms
• Architectures for convergence per domain
• Business planning
April, 2004
and impacts of competition level
ITU/BDT/ Convergence Strategy O. G.S.
slide 2
Convergence Strategy and Business Planning
Key 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%
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 3
Convergence Strategy and Business Planning
Key Factors: Cost structure and savings
Investment Splitting in Greenfield Access + Local
Network Cost Composition
for metropolitan scenario
4%
5% 5%
Infrastructure Cost for Outside
Plant (OSP)
4%
7%
12 %
OSP
74%
OSP
PSTN access
PSTN core
DATA Overlay
Transport
April, 2004
25 %
Civil Works
51 %
13 %
Primary
Secondary
Civil Works
Engineering
Management
ITU/BDT/ Convergence Strategy O. G.S.
slide 4
Convergence Strategy and Business Planning
Key Factors: Cost structure and savings
Dimensioning and investment trough time per domain
Investment level
per year
Infrastructure for
geo-coverage
Traffic & applications
dependent equipment
Ports/channels
equipment
Time
Deployment
April, 2004
Launching
Expanding
Maturity
ITU/BDT/ Convergence Strategy O. G.S.
slide 5
Convergence Strategy and Business Planning
Key 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 several dimensions of the economy of scale:
• By Size of the systems
• By Technology capabilities
• By Traffic efficiency in the resources utilization
• By customers Density
• By Volume of purchasing
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 6
Convergence Strategy and Business Planning
Cost per unit
Key Factors: Economies of scale by size
u1
u1 = a1+ B1 / S
u2 = a2+ B2 / S
Full capacity cost
u2
m1
m2
X
M1
M2
Equipment size
t1 = a1S + B1
t2
t2 = a2S + B2
t1
m1
m2
X
M1
M2
Equipment size
Impact by size , occupancy or fill-in degree
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 7
Convergence Strategy and Business Planning
( log. scale)
1000
100
Transmission capacities
45 Mb/s
90-135 Mb/s
10
400 Mb/s
1.2-1.7 Gb/s
1
2.5 Gb/s
10 Gb/s
40 Gb/s
0.1
2000
1995
1990
1985
1980
0.01
1975
Cost indexfor Transmission unit (b/s/km)
Key Factors: Economies of scale by technology
Source: AT&T data reproduced by Word Bank and TeleGeography Inc.
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 8
Convergence Strategy and Business Planning
Costs per circuit and year (US$)
Capacity and costs: Transatlantic Cables,
10'000
Source:
Note:
100'000
Circuit costs,
Decreases 72% p.a.
1'000
10'000
1'000
100
100
10
10
Circuit Capacity
Increases 89% p.a.
1
TAT-8
PTAT-1
1988
1989
TAT-10
1992
TAT-12/13
1996
AC-1
1999
1
Flag
Atlantic
2001
TAT-14
2000
Capacity in en Circuits (64 kbit/s, 000s)
Key Factors: Economies of scale by technology
ITU, adapted from FCC.
Circuit Costs for an average utilization of 18%, compression factor of 5:1 and cycle life of 20 years
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 9
Convergence Strategy and Business Planning
Key Factors: Economies of scale by traffic efficiency
Impact on efficiency increase for a given quality with
traffic and group size (non-linear effect)
Resource Efficiency
0.9
0.8
0.7
0.6
0.5
0.4
0.3
P = 0.02
0.2
0.1
5
10
15
20
25
30
35
40
Offered Traffic (Erlangs)
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 10
Convergence Strategy and Business Planning
Cost per line ( Monetary units)
Key Factors: Economies of scale by density
Metropolitan and suburban scenarios
300
250
200
150
Metropolitan total
Metrop. infrastructure
100
Suburban total
Sub. infrastructure
50
2 477
2 235
2 355
2 112
1 990
1 870
1 747
1 625
1 504
1 381
1 259
1 139
894
1 016
774
651
529
0
Density (subscribers per KM²)
High impact of customer density in cost per line and
higher impact on Rural (up to 20 to 1)
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 11
Convergence Strategy and Business Planning
Key Factors: Competition level
Different Levels of Competition
– Monopoly for all geographical areas, customer classes and
service types
– Limited monopoly per area and/or service types while free
operation for niche operators
– Moderate competition for all network segments and services
– High competition for high revenue customers and services
– Aggressive competition for all areas, customers and services
“Efficient telecom implies different competition levels
as a function of country size and development status”
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 12
Convergence Strategy and Business Planning
Key Factors: Competition level
Key factors for survivability in competition
– Push for new services
– Imaginative pricing strategies and bundles
– Actions for market share capture and better take-up rate
– Actions do minimize churn
– Actions to decrease Cost of Ownership and share common
resources
– Business profitability positive and within or better than
indicators benchmark
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 13
Convergence Strategy and Business Planning
Key Factors: Competition
Business feasibility space in competition as a function of volume
Revenues per customer/year
Non feasible by payment capability,
churn or regulation constraints
Feasibility area:
users range
r2 $
r1 $
Feasibility area:
tariff range
Non feasible by
low NPV and IRR
n1
n2
Customers/type Volume
Feasibility space highly dependent on country size and economical level
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 14
Convergence Strategy and Business Planning
Content
• Key factors in Evolution
• Cost structure and savings
• Economies of scale
• Competition Level
• A stair case strategy for a universal operator
• Business trends per service categories
• Migration steps towards universal operation
• Convergence at Network, Services and IT platforms
• Architectures for convergence per domain
• Business planning
and impacts of competition level
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 15
Convergence Strategy and Business Planning
Business domains and trends
Illustration for customer categories and revenues
Large Corporations
3-8%
Small& Medium
Enterprise
8%
SOHO (1-2 people)
10-20%
High- End
Residential
>3000
Operator
300-500
70-120
60-70%
Classes Of
Customers
60-80
Growing revenues
Growing Volume
0.5- 1%
30-55
business
feasibility
as a
function of
mix of
categories
L-E Residential
Revenues/Month (Euro)
“Customer stratification should be analyzed per country”
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 16
Convergence Strategy and Business Planning
Business domains and trends
Trends for new application revenues in the future
Growing importance
for % revenue with
time
Application Management and
Operation
xSP
~
45%
Services and customization
(integration and personalization)
~
30%
Network Connectivity
(and value added nodes)
~
25%
Source Ovum, IDC
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 17
Convergence Strategy and Business Planning
Business domains and trends
Example of Value Added chain and operators movements to gain
economy of scale and market
Applications
and Services
Application Service Providers
• Agreements with
content providers
and e -commerce
Network
nucleus
• Agreements with content providers
April, 2004
Metropolitan
network
Backbone Service Providers ( BSPs)
Internet Service Providers
(ISPs)
• New multi-service
development
• Agreements with
content and
application service
providers
Edge
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)
Established Service Providers (ESPs
(ESPs))
ITU/BDT/ Convergence Strategy O. G.S.
slide 18
Convergence Strategy and Business Planning
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
Extension for new
services domains
+ Services of IN,
VPN and Mobile
+ Internet and video
distribution
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 19
Convergence Strategy and Business Planning
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
+ e-applications
and Hosting
Specific migration and timeframe to be optimized for the country
context and regulatory conditions
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 20
Convergence Strategy and Business Planning
Content
• Key factors in Evolution
• Cost structure and savings
• Economies of scale
• Competition Level
• A stair case strategy for a universal operator
• Business trends per service categories
• Migration steps towards universal operation
• Convergence at Network, Services and IT platforms
• Architectures for convergence per domain
• Business planning
and impacts of competition level
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 21
Convergence Strategy and Business Planning
Network Layer Modeling
IP
Voice Mail
SMP
SCP
Service and Control level
VoIP
TVoDSL
VOD
UMS
e-applications
SMS-C
IN
HLR/AuC TSC
EIR
SSW
BTS
SSP
TEX
MSC
SSP
Int’l
BSC
POP/LEX
WLL/Mobile
Functional level
Fixed NB/BB
GW
DATA/IP
LL
NGN network
Transport/SDH/WDM
Infrastructure and Cable level
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 22
Convergence Strategy and Business Planning
Evolution towards NGN
From initial networks towards target network
NMC
SCP
OSS
SS7
Mob
LEX/TEX
Services
Softswitch
Control
Transport/Media
NAS
Access
gateway
Data
ATM/IP
TDM
Distributed Switching
Packet
Network
IP/MPLS/CAC
LEX
Access
gateway
PCM
Other
Networks
Access
gateway
DSL
RSU
POTS
Trunk
gateway
MUX/DSLAM
Wireless
gateway
ISDN
DLC
HDSL/XDSL
Migration steps and timeframe to be studied/optimized for each country context
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 23
Convergence Strategy and Business Planning
Example of Requirements for new BB applications
Minimum and suitable speeds required by application
Tele-working
VideoConferencing
Tele or E-learning
Tele-medicine
Video Telephony
Near VoD
Movies-on-demand
Audio-on-demand
Telegames
Home Shopping
Electronic Banking
Elect. Newspaper
Digital TV
10
100
1000
10000
Kilobits/second
By: Plannedapproachinc.com
April, 2004
Minimum
Suitable
ITU/BDT/ Convergence Strategy O. G.S.
slide 24
Convergence Strategy and Business Planning
Converged Services for BB and NB
BB user:
BB or IP services
Session Controller
SIP Phones
SIP, HTML
SIP, HTML
WLAN
SIP
home
gateway *)
POTS Phones
Applications
signalling gateway /
Media gateway
controller
Megaco/
H248/
Megaco/
H248
NB user:
Basic Principle:
- Session controllers
and application servers
contain applications
shared by all types of
users.
- Each terminal can
participate according to
its capabilities.
POTS
Expanding the IP services** reach
to NB users
access gateway/
trunk gateway
TDM access node/
TDM switch node
POTS Phones
** e.g. IP Centrex, Multiparty multimedia conference services and like, Unified Messaging services, Click-to-dial, Browse and Talk,...
By: Alcatel *) Initially, POTS phones are expected to be controlled through Megaco/H248 via a network media gateway
controller. Later, the home gateway may be fully SIP based in which case it contains the POTS mediation function.
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 25
Convergence Strategy and Business Planning
Towards Converged Platforms and Services
Customers, Customer classes and Wholesale/Retail chain
BSS
Connectivity
Voice/data
fixed
Voice/data
mobile
Portals
CRM
E-Business
Office
ERP, etc
SLA
Customer Perceived Services
Telecom Service Enablers
Applications
Enablers
Information
Systems
Enablers
OSS
Management
Network & Systems Infrastructure
Servers & Storage Infrast.
Building and Physical Network Infrastructure
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 26
Convergence Strategy and Business Planning
Towards Converged Platforms and Services
Customers, Customer classes and Wholesale/Retail chain
BSS
Connectivity
Voice/data
fixed
Voice/data
mobile
Portals
CRM
E-Business
Office
ERP, etc
SLA
Customer Perceived Services
Telecom Service Enablers
Information
Systems
Enablers
Applications
Enablers
Network & Systems Infrastructure
Optical CxC, Switches and Mux
SDH CxC , ADMs, Rings
IP/ ATMRouters and Switches
BST, MUX, DSLAMs, NTs, etc.
OSS
Servers & Storage
Servers, LAN switches,
LANs, Disks, etc.
Management
Building and Physical Network Infrastructure
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 27
Convergence Strategy and Business Planning
Towards Converged Platforms and Services
Customers, Customer classes and Wholesale/Retail chain
BSS
Connectivity
Voice/data
fixed
Voice/data
mobile
Portals
CRM
E-Business
Office
ERP, etc
SLA
Customer Perceived Services
Telecom Service Enablers
Databases, OS,
Telecom Platforms,
Mobility platforms
IN plat., Firewall
Traffic shaping
Applications
Enablers
DB, OS, App. Platf.,
Directory servers,
Domain names,
Transaction manag .
Network & Systems Infrastructure
Information
Systems Enablers
DB, OS,Inf. Platf.
Languages,
Load Balanc.,
OSS
Management
Servers & Storage
Building and Physical Network Infrastructure
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 28
Convergence Strategy and Business Planning
Towards Converged Platforms and Services
Customers, Customer classes and Wholesale/Retail chain
- Service Level Agreement
Management
- Service activation
Connectivity
Voice/data
fixed
Portals
CRM
Voice/data
mobile
E-Business
Office
ERP, etc
- Invoicing
- Billing
- Customer care
Customer Perceived Services
Service Enablers
Information
Systems
Enablers
Applications
Enablers
Network & Systems Infrastructure
- Service management
- Quality/performance mgt
Servers & Storage
- Provisioning
- Inventory
- Application monitoring
- Application management
- NE/DC management
- NE/DC supervision
Building and Physical Network Infrastructure
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 29
Convergence Strategy and Business Planning
Content
• Key factors in Evolution
• Cost structure and savings
• Economies of scale
• Competition Level
• A stair case strategy for a universal operator
• Business trends per service categories
• Migration steps towards universal operation
• Convergence at Network, Services and IT platforms
• Architectures for convergence per domain
• Business planning
April, 2004
and impacts of competition level
ITU/BDT/ Convergence Strategy O. G.S.
slide 30
Convergence Strategy and Business Planning
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
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 31
Convergence Strategy and Business Planning
Role of Business Planning
Evaluations to be based on robusts techno-economical tools due to
high number of alternatives and complexity
Case study for medium size country with mixes of customer
classes and services domains
– Multiservice IP Network with integrated operation
– 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 future Cashflows , NPV, IRR, etc. for a 10 years period
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 32
Convergence Strategy and Business Planning
Role of Business Planning
Effects of the mix of customers on Reference Scenario: Low competition level
Network NPV
8e+08
7e+08
6e+08
SOHO a n d
Small
Enterprise
Euro
5e+08
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
•
Year
SME and SOHO with quicker recovery but less NPV and company value
and medium term
• “All customer segments” case with much better behavior
ITU/BDT/ Convergence Strategy O. G.S.
April, 2004
slide 33
Convergence Strategy and Business Planning
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
1e+08
Y0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
Y10
All
Services
(reference)
0e+08
-1e+08
-2e+08
•
April, 2004
Year
Major impact of service classes on NPV and company survivability
• Single service classes without future
• High benefit of “all services” case
ITU/BDT/ Convergence Strategy O. G.S.
slide 34
Convergence Strategy and Business Planning
Role of Business Planning
Effects of the mix of services on typical scenario: Medium competition level
Network NPV
5e+08
4e+08
Internet
3e+08
Euro
Internet &
VoDSL
2e+08
Internet &
Video
1e+08
Y0
Y1
Y2
Y3
Y4
Y5
Y6
Y7
Y8
Y9
Y10
0e+08
All
Services
(reference)
-1e+08
-2e+08
•
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
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 35
Convergence Strategy and Business Planning
Recommendations
• Ensure proper modeling of key factors and professional tools
• Focus on multiple customers, multiple services domains
• Take benefit of all economies of scale
• Maintain business indicators within benchmark margins in
competition
• Be in the forefront for the new services introduction
and
!! Base decisions on joint Technical and Economical evaluation
at all phases !!
April, 2004
ITU/BDT/ Convergence Strategy O. G.S.
slide 36