Cost Modeling
Eric Tyson
Bratislava 18th September 2001
Agenda
ŸBenchmarking
ŸAllocating switching and transmission costs
between calls, leased lines and other services
ŸIdentification of manpower activity costs
ŸFinding the appropriate input data
EU Benchmark Interconnect
Tariffs
Level of
interconnection
1999
best current practice
call termination
charges
( -cent per min)
2000
best current practice
call termination
charges
( -cent per min)
Local
interconnection
0.5 – 1.0
0.5 – 0.9
Single transit
interconnection
0.8 – 1.6
0.8 – 1.5
Double transit
interconnection
1.5 – 2.3
1.5 – 1.8
UK
Ita
ly
Ire
Lu
l
xe and
mb
o
Ne urg
the
rla
nd
s
Po
rtu
ga
l
Sp
ain
Sw
ed
en
Au
str
ia
Be
lgi
um
De
nm
ark
Fin
lan
d
Fr
an
c
Ge e
rm
a
Gr ny
eec
e(
*)
Euro-cents / minute
EU Benchmark Interconnect
Tariffs
3.50
3.00
2.50
2.00
Local
Single Transit
1.50
Double Transit
1.00
0.50
0.00
UK
Ita
ly
Ire
la
Lu
xe nd
mb
o
Ne urg
the
rla
nd
s
Po
rtu
ga
l
Sp
ain
Sw
ed
en
Fin
lan
d
Fr
an
c
Ge e
rm
an
y
Gr
eec
e
Au
stri
a
Be
lgi
um
De
nm
ark
Euro-cents / minute
Local interconnect tariffs
3.50
3.00
2.50
2.00
Local 1997
1.50
Local 1998
Local 1999
1.00
0.50
0.00
Single Transit Interconnect
tariffs
5.00
4.50
3.50
3.00
Single Transit 1997
2.50
Single Transit 1998
2.00
Single Transit 1999
1.50
1.00
0.50
UK
0.00
Au
str
i
Be a
lgi
u
De m
nm
ark
Fin
lan
d
Fr
an
Ge ce
rm
an
y
Gr
eec
e
Ita
ly
Ire
Lu
l
xe and
mb
Ne ourg
the
rla
nd
s
Po
rtu
ga
l
Sp
ai
Sw n
ed
en
Euro-cents / minute
4.00
UK
Au
str
i
Be a
lgi
u
De m
nm
ark
Fin
lan
d
Fra
nce
Ge
rm
any
Gr
eec
e
Ita
ly
I
Lu relan
xe
mb d
Ne ourg
the
rla
nd
s
Po
rtu
ga
l
Sp
ain
Sw
ed
en
Euro-cents / minute
Double Transit interconnect
tariffs
7.00
6.00
5.00
4.00
Double Transit 1997
Double Transit 1998
3.00
Double Transit 1999
2.00
1.00
0.00
Elements of Cost
Core Network
Switching Transmission
Retail
Overheads
Local Access
International
International
exchange
Transit/IN
Trunk
Switching
Trunk Tx
Trunk Exchange
Trunk Exchange
Trunk Tx
Trunk Tx
Local
Access/Local
Switching
Junction Tx
Local Exchange
Local Exchange
Local Access
RCU
Telephone
Telephone
Local Access
ŸDrop wire, Cables, DPs
ŸDucts
ŸRadio Local Loop
ŸRemote Concentrator Unit (RCU)
ŸRCU to host exchange transmission
ŸLocal exchange elements
Local Loop Elements
Local Switch
Radio antenna
RCU
Distribution frame
D Side E Side
Distribution
Pole
D Side
NTTP
Street pillar
E Side
Street cabinet
Local Access Costing Issues
ŸFAC v LRIC
–Current cost accounting
–RCU policy
ŸConnection v Traffic dependent
ŸSharing of network components
–leased lines
–core network
Switching
RCU
Local
Trunk
Transit
International
Intelligent Network
Local Switch
Trunks
Line Cards
Signalling
Common
Control
Switching
Matrix
Connection Dependent
Power and Air
Conditioning
Traffic Dependent
Accommodation
Software
Switching Cost Issues (1)
ŸTraffic dependent elements
ŸConnection dependent elements
ŸCall set up cost (all call attempts)
–Signalling
–Element of common control
–Element of switching matrix
–Power and air conditioning
Switching Cost Issues (2)
ŸTraffic cost (successful calls)
–Switching matrix
–Common control
–Billing
–Power and air conditioning
ŸTransit/Trunk switching network
Traffic Routing - Switching
Call Types
Local
Trunk
International
Local
Own Exchange/RCU
RCU/Local-Local/RCU
1 transit
2 transits
2
2
2
2
0
0
1
2
0
0
0
0
Regional
Local-local
1 transit
2 transits
2
2
2
0
1
2
0
0
0
National
1 transit
2 transits
3 transits
2
2
2
1
2
3
0
0
0
International o/g
1 transit
2 transits
3 transits
1
1
1
1
2
3
1
1
1
Total
% split of
number of traffic
Minutes
types
Minutes
of calls of Use of
Local
each type switching minutes
Trunk
minutes
2000000
0.55
0.4
0.05
1100000
800000
100000
0
=2L
=2L
=2L+T
=2L+2T
Total
2200000
1600000
200000
0
4000000
0
0
100000
0
100000
0.2
0.75
0.05
100000 =2L
375000 =2L+T
25000 =2L+2T
Total
200000
750000
50000
1000000
0
375000
50000
425000
0.4
0.5
0.1
600000 =2L+T
750000 =2L+2T
150000 =2L+3T
Total
1200000
1500000
300000
3000000
600000
1500000
450000
2550000
0.25
0.75
62500 =L+T+I
187500 =L+2T+I
0 =L+3T+I
Total
62500
187500
0
250000
62500
375000
0
437500
500000
1500000
250000
Transmission Networks
Basic Calls
Switching of Traffic
NTS Calls
IN Calls
Private Circuits
Transmission
Data Networks
All Calls
Telex/Telegrams
Transmission
Inter-Local exchange (Junction)
Trunk
Transit
International
Transmission Technologies
Duct
Cable
Transmission Systems (PDH/SHD)
Fibre
Radio
Transmission Costing Issues (1)
ŸService dependent
–Leased lines
–Data services
–Telex/Telegraph
ŸLocal access/Trunk network sharing
Transmission Costing Issues (2)
ŸFixed and distance related elements
ŸPDH and SDH technology
ŸSpare capacity
ŸWayleaves
ŸValue of assets (CCA v LRIC)
Traffic Routing - Transmission
Call Types
Junction
Trunk
Total
% split of
number of traffic
Minutes
types
International
Local
Own Exchange/RCU
RCU/Local-Local/RCU
1 transit
2 transits
0
1
0
0
0
0
2
3
0
0
0
0
Regional
Local-local
1 transit
2 transits
1
0
0
0
2
3
0
0
0
National
1 transit
2 transits
3 transits
0
0
0
2
3
4
0
0
0
International o/g
1 transit
2 transits
3 transits
0
0
0
2
3
4
1
1
1
International i/c
1 transit
2 transits
3 transits
0
0
0
2
3
4
1
1
1
Minutes
Use of
of calls of transmiss Junction
each type ion
minutes
Trunk
minutes
International
minutes
2000000
0.55
0.4
0.05
1100000
800000 =J
100000 =2T
0 =3T
Total
0
800000
0
0
800000
0
0
200000
0
200000
0
0
0
0
0
0.2
0.75
0.05
100000 =J
375000 =2T
25000 =3T
Total
100000
0
0
100000
0
750000
75000
825000
0
0
0
0
0.4
0.5
0.1
600000 =2T
750000 =3T
150000 =4T
Total
0
0
0
0
1200000
2250000
600000
4050000
0
0
0
0
0.25
0.75
62500 =2T+I
187500 =3T+I
0 =4T+I
Total
0
0
0
0
125000
562500
0
687500
62500
187500
0
250000
0.3
0.7
120000 =2T+I
280000 =3T+I
0 =4T+I
Total
0
0
0
0
240000
840000
0
1080000
120000
280000
0
400000
500000
1500000
250000
400000
Manpower Activity Model
ŸManpower is a very significant cost within any
operator
ŸManpower costs drive many other costs
ŸThe Manpower Activity Model assists the
collection and allocation of costs to specific
activities down to an individual employee for
input into CAM
Where is the input data?
Ÿ All over the company!
– General ledger
– Fixed assets register
– Manpower activity recording system
– Customer billing system
– Interconnect billing system
– Network monitoring and recording systems
– Building management dept
– R&D department
Conclusions
ŸCost allocation is a complex, time consuming
activity
ŸCost allocation is now essential but undertaken
for different reasons
– regulatory
– service pricing
–P & L
ŸDetailed input data is essential for cost
allocation
InterConnect Communications
Eric Tyson
Merlin House
Station Road
Chepstow
NP16 5PB
United Kingdom
Telephone: +44 1291 638400
Fax: +44 1291 638401
Email: erictyson@icc-uk.com
Website: www.icc-uk.com