ITU/BDT Regional Seminar on
Costs and Tariffs for Member Countries of the Tariff Group
for Africa (TAF)
Midrand, South Africa, June 2005
NGN services and business planning
Oscar González Soto
ITU Consultant Expert
Strategic Planning and Assessment
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 1
NGN services and business planning
Content
• NGN driving services
• Services motivation and market issues
• Key economical factors and Convergence
• Cost factors and economies of scale
• Convergence
• Tariff structures and revenue trends
• Business modeling and evaluations
• Support to Business and Design
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 2
NGN services and business planning
Driving Services for Residential
• VoIP
• Content delivery
• Video on demand
NGN à Enabler for multiservice Convergence
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 3
NGN services and business planning
VoIP
• Context
– Access to plain telephone services with different levels of quality
of service from a data line (e.g. DSL or Wireless) and reduced
pricing
– Computer to computer/ user to computer / user to user
• Interested customer segments
– Corporate: based on VPN VoIP
– SME / SOHO / homeworkers: based on IP Centrex
– Residentials: Secondary line
– Residential: Primary line
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 4
NGN services and business planning
VoIP
• Motivation
– End-user
• Access to different tariff schemes and cost saving
• Enabler for IP services (CTI) => e.g. IP Centrex, Browse and Talk
– Operator
• Add value to BB delivery for emerging operators
• Defensive position for incumbent operators
– Operator concerns
• Cannibalization (incumbent)
• “Free services”
• Interconnection
• QoS and regulatory obligations (e.g. for primary line: power feeding,
emergency service, localization,... )
• End to end quality supervision
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 5
NGN services and business planning
Content Delivery
• Context
– Access to paid content with different quality levels
- Music: (> 25% of total market) à Exploit Win-Win legal solutions
- Games: (> 50 million users) à Need for BB and quick reaction time
- Gambling: à Need for BB and short delay
• Motivation
– End-users
• Trusted relation with operators
• Integrated contract
– Operators
• Capitalize on their access to users with increase of revenues through
marginal investments
• Get share of e-commerce and increase business chain
– Content providers
• Ease of use for distribution channel;
• Operators as trusted party
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 6
NGN services and business planning
Video on demand
• Context
– Access to movies on a per-demand basis (from DSL line or
Wireless) (VoD, NVOD, iTV)
• Motivation
– End-users
• Accessibility/Control / personalization of video content
– Operators
• Capture a part of entertainment value chain
• Uplifts DSL demand
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 7
NGN services and business planning
Video on Demand drivers and issues
• Revenue Drivers
– Share of revenue depending on value chain
– Possible payment intermediation
• Market
– Fundamental service for the triple play operation
– High interest and fastest growing market
– Candidate for convergence in broadband
– Willingness to pay per movie, per subscription and per time unit
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 8
NGN services and business planning
Driving Services for Business
• VPN
• IP Centrex
• Multimedia Conferencing
• Unified messaging
• ASP
NGN à Enabler for Multiservice Convergence
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 9
NGN services and business planning
Virtual Private Network - VPN
• Context
– Set of communication capabilities provided over a private
network using a common telecom infrastructure shared by
several companies
• Motivation
– More efficient and customized operation
– Homogeneous solutions for all company
– Private numbering plan
– Services integration
– Security management
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 10
NGN services and business planning
Virtual Private Network - VPN
• Market issues
– Cost benefits: Balance between tariff levels for competing services
(PSTN & leased line services)
– CAPEX versus OPEX expenses over a period of time
– Need for skilled telecom staff
– Provision of VPN features
– Billing and Management
– Service Delivery Process Planning
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 11
NGN services and business planning
IP Centrex
• Context
- Provides PBX-like voice / CTI services to enterprises
- Main targets: SOHO/SME and teleworkers
• Motivation to users
- No CAPEX investment from non-core business (telecom)
- No operation staff to be trained and employed
- Deployment follows company's pace (growth or reduction)
- Easier cost management (against move, obsolescence, traffic
patterns)
- Multi-site converged service (e.g. for homeworkers)
- Willingness to pay: 8-15 Euros per month
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 12
NGN services and business planning
IP Centrex
• Motivation to Operators
• Offer voice services on top of (deployed) data-VPN,
• Move up the value chain providing core-business (voice) services
• Reduce churn to in-house solutions and competitors
• Possible bulding block for an SME bundle
• Associate to Voice and Data VPN for full Virtual Company
solution (Phones, PBX, Mobiles)
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 13
NGN services and business planning
Multimedia Conferencing
• Context
– Multi-party room-based or PC-based multiservice conference (with
document sharing, Instant Messaging facilities,...)
– Non-IP users allowed in voice
– Room-based quality with "NetMeeting - like" ease of use and services
• Market Issues
– Threat of "free" web conference?
– Cannibalization of ISDN visioconf (leased lines; BRA)?
– Willingness to pay: 0.5 to 0.7 $ /min per user
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 14
NGN services and business planning
Multimedia Conferencing
•
Motivation
– For End User
•Teleconf. shares time and costs and improves efficiency.
•Intermediate step between phone call and face to face visit
•Lower cost / better user friendliness than ISDN room-based visioconf.
– For Operator
•Incremental value on data/voice
•Brick for package to business segment or vertical service (distance
learning; home working…)
•Lower cost to operate Visioconf. helpdesk
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 15
NGN services and business planning
Unified Messaging
•
Context
Retrieve from anywhere any message from any
device: e-mail, voice mail, SMS, MMS, Fax
• Motivation
– To End-User
• Main target: Businesses,Teleworkers
• Productivity gain, ease of use, time-critical information
management
– To Operator
• Move up value chain in Business segment (competes with
enterprise-related EVS/Messaging)
• Leverage Mobile services
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 16
NGN services and business planning
Unified Messaging
• Market Issues
– Service partly offered by advanced IP-PBX systems
– Benchmark with Mobile penetration
– Check competitive positioning vs. Mobile operator
– Interest to be a component for a bundle in the business segment
– Willingness to pay around 1 to 3 $/employee/month
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 17
NGN services and business planning
ASP
• Context
- ASPs provide a contractual service offering to deploy, host, and manage
access to an application residing in a facility other than the customer’s site.
• Motivation
– To en user
•
•
•
•
•
Solution to lack of internal IT resources
Potential cost savings and better cost control
Easier and faster software implementation
Gives access to otherwise unaffordable applications (SMEs)
Access to latest technology and superior connectivity
– To operator
• Enlarge value chain business to the applications and
• Empower attractive bundling for business customers
• Increases participation in e-business
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 18
NGN services and business planning
ASP
• Market Issues
– Customer acceptance culture due to external control
– Availability of network performance, reliability and robustness
– Enhancement of applications towards web-enabling capabilities
– Some services partly offered by advanced IP-PBX systems
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 19
NGN services and business planning
ASP
VALUE ADD SERVICES
High
Web Hosting Application Hosting
Main applications and projected value/revenue added
Extended Enterprise Applications
(e-commerce, CRM, CTI, etc.)
Back-end Enterprise Applications
(ERP, payroll / HR)
Basic Enterprise Applications
(email, groupware, collaboration, etc.)
Co-location Web
$15,000
Hosting
per month
Dedicated Web
$400 to $900
Hosting
$40,000+
per month
$15,000to $40,000
per month
$5,000 to $15,000
per month
per month
Shared Web Hosting
$30 - $100 / month
Low
Low
MONTHLY RECURRING REVENUE
High
Source: Cherry Tree & Co
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 20
NGN services and business planning
Content
• NGN driving services
• Services motivation and market issues
• Key economical factors and Convergence
• Cost factors and economies of scale
• Convergence
• Tariff structures and revenue trends
• Business modeling and evaluations
• Support to Business and Design
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 21
NGN services 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%
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 22
NGN services 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 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
• By Volume of purchasing
June 2005
Quadratic increase with coverage radio
Discount per volume in log scale
ITU/BDT NGN services and business planning - O.G.S.
- slide 23
NGN services and business planning
( log. scale)
1000
Transmission capacities
45 Mb/s
90-135 Mb/s
100
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 index for Transmission unit (b/s/km)
Key Factors: Economies of scale by technology
Source: AT&T data reproduced by Word Bank and TeleGeography Inc.
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 24
NGN services 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
P = 0.02
0.3
0.2
0.1
5
10
15
20
25
30
35
40
Offered Traffic (Erlangs)
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 25
NGN services 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
2 355
2 235
2 112
1 990
1 870
1 747
1 625
1 504
1 381
1 259
1 139
1 016
894
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)
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 26
NGN services and business planning
Key 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”
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 27
NGN services and business planning
Key Factors: Competition level
Business feasibility space as a function of volume and ARPU
Revenues per
customer/year
(ARPU)
Non feasible by lack of payment capability,
churn or regulation constraints
r2 $
n2
Volume of Customers/type
ARPU is limited by the economical development level and fixed costs
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 28
NGN services and business planning
Key Factors: Competition level
Business feasibility space as a function of volume and ARPU
Revenues per
customer/year
(ARPU)
r2 $
r1 $
Non feasible by
low NPV and IRR
n1
Volume of Customers/type
Business feasibility limitted by positive NPV
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 29
NGN services and business planning
Key Factors: Competition level
Business feasibility space as a function of volume and ARPU
Revenues per
customer/yea
(ARPU)
Non feasible by lack of payment capability,
churn or regulation constraints
Feasibility area:
users range
r2 $
r1 $
Non feasible by
low NPV and IRR
Feasibility area:
tariff range
n1
n2
Volume of Customers/type
Feasibility space highly dependent on country size and economical level
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 30
NGN Network Architecture
Cost drivers in NGN
•
Volume of customers per category
•
Bandwidth demand per origin/destination
•
Packet processing rates for control related functions
•
Variety of applications/services and related platforms
•
Content storage and location within the network
•
Leasing of physical or communication resources
Backward evaluation of contribution to services cost is essential to
calculate cost dependent tariffs, cash-flows and IRR
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 31
NGN services and business planning
Combined fixed and traffic dependent rates
90
1
80
70
60
2
3
4
50
40
30
20
10
0
0
30
60
Sub. 1
90
Sub. 2
120
150
Sub. 3
180
210
Sub. 4
Combined fixed and variable tariffs has best flexibility
for customers, operators and business
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 32
NGN services and business planning
Illustration for tariffs strategy in DSL
End user tariff
End user tariff
Bandwidth
On demand
Cap monthly
download
Voice calls
Voice service subscription
Voice calls
ISP service fee
ISP service fee
DSL subscription fee
DSL & voice subscription fee
Usage
June 2005
ITU/BDT NGN services and business planning - O.G.S.
Usage
- slide 33
NGN services and business planning
Revenue chain with multiple business players
Service
Provider
(open)
applications
Service
Provider
(retail)
wholesales
of services
End User
global subscription
Retailer
access
Access
Provider
Network usage
Connectivity
Provider
Increase of players for multiservice business specialization
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 34
NGN services and business planning
+ Customers for
end applications
+ Customers for
new services
Extension for new
customer types
Universal Telcos converge in order to increase value chain
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
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 35
NGN services and business planning
Migration steps
Revenue level
(ARPU)
Evolution of revenues with major 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 ensure business feasibility
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 36
NGN services and business planning
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
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 37
NGN services and business planning
Content
• NGN driving services
• Services motivation and market issues
• Key economical factors and Convergence
• Cost factors and economies of scale
• Convergence
• Tariff structures and revenue trends
• Business modeling and evaluations
• Support to Business and Design
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 38
NGN services and business planning
Support tools: Business
• Required functionality for Business tools
- Service Demand Projection
- Dynamic modeling for technology substitution and migration rates
- Dimensioning multiple flows (circuit and packet modes)
- Evaluation of network resources and associated investment
(CAPEX)
- Evaluation of revenues for given tariffs and installation rate
- Modeling multiple resource lifetimes
- Modeling of demand elasticity to tariffs
- Interrelation between network growth and operational cost (OPEX)
- Cost assignment as a function of utilization rates
- Generation of standard financial results like Cash Flow, Profit &
Loss, Balance Sheet, NPV, IRR, etc.
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 39
NGN services and business planning
Support tools: Business
Activity Flow in STEM to evaluate migration alternatives:
Replacement
Of Resources
Demand
Parameters
Incremental
Demand
for service
Tariff
and
Revenue
Resource
Depreciation &
Decommissioning
Total
Incremental
Demand for
Resources
Resources Costs
(And trends)
Incremental
Resource
Supply
Production
& Costing
of Resources
Service
costs &
charges
Input data
Tariff
Policy
June 2005
Other costs
(Admin/mkt)
ITU/BDT NGN services and business planning - O.G.S.
Phase of
calculation
- slide 40
NGN services and business planning
Support tools: Business
Type of STEM tool results
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 41
NGN services and business planning
Support tools: Business
Type of STEM tool results
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 42
NGN services and business planning
Support tools: Business
Example of multi-service bandwidth evolution in 3G
Bandwidth per service class of business customers
3.200.000
2.800.000
Mbit/s
2.400.000
2.000.000
Data bandwidth
1.600.000
1.200.000
800.000
400.000
0
2004
Voice bandwidth
2006
2008
2010
2012
Year
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 43
NGN services and business planning
Support tools: Business
Example of multi-service revenue evolution in 3G
Revenue per service type for consumer customers
28e+07
24e+07
20e+07
US$
Data services
16e+07
12e+07
8e+07
UMTS voice
4e+07
GSM voice
0e+07
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Year
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 44
NGN services and business planning
Summary of Key Factors
• Plan business and services first, later the network with
proven solutions.
• Analyze new business chain from content to delivery
•Take advantage from all economies of scale
• Design financial performance with best business
practices: compare and optimise NPV.
June 2005
ITU/BDT NGN services and business planning - O.G.S.
- slide 45