convergence strategy for universal operators and role of

April, 2004 ITU/BDT/ Convergence Strategy O. G.S. slide 1

ITU / ITC Regional Seminar on Network Evolution to ITU / ITC Regional Seminar on Network Evolution to

Next Generation Networks and Fixed Mobile Next Generation Networks and Fixed Mobile ConvergenceConvergence

CEE, CIS and Baltic StatesCEE, CIS and Baltic States

Moscow (Russia)Moscow (Russia), 27, 27--30 April 200430 April 2004

Convergence Strategy for Universal OperatorsConvergence Strategy for Universal Operatorsand role of Business Planningand role of Business Planning

Oscar González SotoITU Consultant Expert

Strategic Planning and Assessment


Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningContent 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 and impacts of competition level


– 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 non-core equipment (buildings, towers, etc.) > 20%

Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningKey Factors: Cost structure and savingsKey Factors: Cost structure and savings


Investment Splitting in Greenfield Access + Local

Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningKey Factors: Cost structure and savingsKey Factors: Cost structure and savings

Network Cost Compositionfor metropolitan scenario

PrimarySecondaryCivil WorksEngineeringManagement

Infrastructure Cost for Outside Plant (OSP)

DATA Overlay

OSP

Transport

PSTN accessPSTN core

5 %

12 %

74%

4 %5 %

OSP

25 %

13 %51 %

4 %7 %

Civil Works


Convergence Strategy and Business Planning Convergence Strategy and Business Planning Key Factors: Cost structure and savingsKey Factors: Cost structure and savings

Dimensioning and investment trough time per domain

Investment levelper year

Time

Launching Maturity

Infrastructure for geo-coverage

Ports/channels equipment

Deployment Expanding

Traffic & applicationsdependent equipment


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

Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningKey Factors: Economies of scaleKey Factors: Economies of scale


Equipment sizem1

Cos

tper

un

itFu

llca

pac

ity

cost m2 X M1 M2

u1

u2

u = a + 1 1 / S

u = a + 2 2 / SB2

B1

Equipment size

t1

t2t = a S + B 1 1 1

t = a S + B 2 2 2

m1 m2 X M1 M2

Impact by size , occupancy or fill-in degree

Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningKey Factors: Economies of scale by sizeKey Factors: Economies of scale by size


0.1

1

10

100

1000

1975

1980

1985

1990

1995

2000

45 Mb/s

Co

stin

dex

for

Tran

smis

sion

un

it(b

/s/k

m)

Source: AT&T data reproduced by Word Bank and TeleGeography Inc.

( log. scale)

0.01

90-135 Mb/s

400 Mb/s

1.2-1.7 Gb/s

2.5 Gb/s10 Gb/s

40 Gb/s

Transmission capacities

Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningKey Factors: Economies of scale by technologyKey Factors: Economies of scale by technology


Capacity and costs: Transatlantic Cables,

Source: ITU, adapted from FCC.Note: Circuit Costs for an average utilization of 18%, compression factor of 5:1 and cycle life of 20 years

1

10

100

1'000

10'000

TAT-8

1988

PTAT-1

1989

TAT-10

1992

AC-11999

TAT-14

2000

Cos

tsp

er c

ircu

it a

nd

yea

r(U

S$)

1

10

100

1'000

10'000

100'000

Cap

acity

in e

n C

ircu

its(6

4kb

it/s,

000

s)

Circuit Capacity Increases 89% p.a.

Circuit costs, Decreases 72% p.a.

TAT-12/13

1996

Flag Atlantic2001

Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningKey Factors: Economies of scale by technologyKey Factors: Economies of scale by technology


0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

10

Res

ourc

e E

ffic

ienc

y

5 15 20 25 30 35 40

P = 0.02

Offered Traffic (Erlangs)

Impact on efficiency increase for a given quality with traffic and group size (non-linear effect)

Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningKey Factors: Economies of scale by traffic efficiencyKey Factors: Economies of scale by traffic efficiency


Metropolitan and suburban scenarios

High impact of customer density in cost per line and

higher impact on Rural (up to 20 to 1)

Density (subscribers per KM²)

Cos

t per

line

( M

onet

ary

units

)

0

50

100

150

200

250

300

529

651

774

894

1 01

6

1 13

9

1 25

9

1 38

1

1 50

4

1 62

5

1 74

7

1 87

0

1 99

0

2 11

2

2 23

5

2 35

5

2 47

7

Metropolitan total

Metrop. infrastructure

Suburban total

Sub. infrastructure

Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningKey Factors: Economies of scale by densityKey Factors: Economies of scale by density


– 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

Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningKey Factors: Competition levelKey Factors: Competition level

Different Levels of Competition

“Efficient telecom implies different competition levels as a function of country size and development status”


– 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

Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningKey Factors: Competition levelKey Factors: Competition level

Key factors for survivability in competition


Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningKey Factors: CompetitionKey Factors: Competition

Business feasibility space in competition as a function of volume

Revenues per customer/year

Customers/type Volume

Non feasible bylow NPV and IRR

Feasibility area: tariff range

Non feasible by payment capability, churn or regulation constraints

Feasibility area: users range

r2 $

n1 n2

r1 $

Feasibility space highly dependent on country size and economical level








• Business trends per service categories






Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningBusiness domains and trendsBusiness domains and trends

Illustration for customer categories and revenues

Revenues/Month (Euro)Classes Of Customers

60-70%

10-20%

8%

3-8%

0.5- 1%Large Corporations

Small& Medium Enterprise

SOHO (1-2 people)

L-E Residential

High-End Residential

30-55

60-80

70-120

300-500

>3000

Gro

win

g V

olum

e

Gro

win

g re

venu

es

Operator

business

feasibility

as a

function of

mix of

categories

“Customer stratification should be analyzed per country”



Growing importance for % revenue with

time

xSPServices and customization

(integration and personalization)

Application Management and Operation

Network Connectivity(and value added nodes) ~

25%

~ 30%

~ 45%

Source Ovum, IDC

Trends for new application revenues in the future



Example of Value Added chain and operators movements to gain economy of scale and market

Network nucleus Edge

Metropolitan

network

• New multi-service development

• Agreements with content and

application service providers

Local Access

Mobile Service Providers (MSPs)

• Acquisition/merging of service providers

• Development of new access loops and

Unbundling

Agreements and merging

Backbone Service Providers (BSPs)

• Agreements with wholesale operators Access Providers (CAPs)

Internet Service Providers (ISPs)

• Agreements with content providers and e -commerce

Application Service Providers

Applications and Services

• Agreements with content providers

Established Service Providers (Established Service Providers (ESPsESPs))


Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningMigration stepsMigration steps

“staircase” for leading growing alternatives

Conventional voice and data services

+ Services of IN, VPN and Mobile

+ Internet and videodistribution

Extension for new services domains

Ext

ensi

on fo

r ne

w

cust

omer

type

s

Classic Telcos

+ Customers fornew services

Customers for connectivity

Extended Telcos

Upgraded Telcos


Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningMigration stepsMigration steps

“staircase” for New Universal Telcos

+ e-applicationsand Hosting

Conventional voice and data services

+ Services of IN, VPN and Mobile

+ Internet and videodistribution

Extension for new services domains

Ext

ensi

on fo

r ne

w

cust

omer

type

s

Classic Telcos

ISPs

ASPsNew Universal Telcos

+ Customers for end applications

+ Customers fornew services

Customers for connectivity

Extended Telcos

Upgraded Telcos

Specific migration and timeframe to be optimized for the countrycontext and regulatory conditions














Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningNetwork Layer ModelingNetwork Layer Modeling

Transport/SDH/WDM

Infrastructure and Cable level

Int’lBSC

EIR

POP/LEX

TEX

Fixed NB/BB

SSP

SSPMSC

WLL/Mobile

BTSTSC

LL

HLR/AuC

DATA/IP

SSW

GW

NGN networkFunctional level

SMS-CVoice MailSMP

IP

SCPINService and Control level

VoIP VOD UMS e-applicationsTVoDSL


Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningEvolution towards NGNEvolution towards NGN

From initial networks towards target network

OtherNetworks

DLC

Control

Transport/Media Distributed Switching

DSL

Wirelessgateway

Softswitch

OSS Services

PacketNetwork

IP/MPLS/CAC

Accessgateway

Accessgateway

Accessgateway

Trunkgateway

SCP

TDM

POTS ISDN

RSU

LEX/TEX

LEX

PCM

DataATM/IP

MUX/DSLAM

NMC

SS7

HDSL/XDSL

NAS

Mob

Migration steps and timeframe to be studied/optimized for each country context


Convergence Strategy and Business PlanningConvergence Strategy and Business Planning

Example of Requirements for new BB applications

Minimum and suitable speeds required by application

10 100 1000 10000

Digital TVElect. Newspaper

Electronic BankingHome Shopping

TelegamesAudio-on-demand

Movies-on-demandNear VoD

Video TelephonyTele-medicine

Tele or E-learningVideoConferencing

Tele-working

Kilobits/second

Minimum SuitableBy: Plannedapproachinc.com


Converged Services for BB and NBConverged Services for BB and NB

By: Alcatel *) Initially, POTS phones are expected to be controlled throughMegaco/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.

BB user:

NB user:

SIP Phones

POTS Phones

home gateway *)

Session Controller Applications

SIP, HTML SIP, HTMLWLAN

POTS Phones

POTS

TDM access node/TDM switch node

access gateway/trunk gateway

signalling gateway / Media gateway controller

SIP

Megaco/ H248/

Basic Principle:- Session controllers and application servers contain applications shared by all types of users.- Each terminal can participate according to its capabilities.

BB or IP services

Expanding the IP services** reachto NB users

** e.g. IP Centrex, Multiparty multimedia conference services and like, Unified Messaging services, Click-to-dial, Browse and Talk,...

Megaco/H248




Building and Physical Network Infrastructure

Network & Systems Infrastructure Servers & Storage Infrast.

InformationSystemsEnablers

Applications Enablers

Telecom Service Enablers

Customers, Customer classes and Wholesale/Retail chain

Management

BSS

OSS

SLA

Customer Perceived Services

Connectivity Voice/datafixed

PortalsCRM

E-Business OfficeERP, etc

Voice/datamobile

Towards Converged Platforms and Services




Network & Systems Infrastructure Servers & Storage





Management

BSS

OSS

SLA

Optical CxC, Switches and MuxSDH CxC, ADMs, RingsIP/ATMRouters and SwitchesBST, MUX, DSLAMs, NTs, etc.

Servers, LAN switches,LANs, Disks, etc.



PortalsCRM


Voice/datamobile





Network & Systems Infrastructure Servers & Storage

Information Systems Enablers




Management

BSS

OSS

SLA

Databases, OS, Telecom Platforms,Mobility platforms IN plat., FirewallTraffic shaping

DB, OS, App. Platf., Directory servers, Domain names, Transaction manag.

DB, OS,Inf. Platf.Languages,Load Balanc.,



PortalsCRM


Voice/datamobile





- Service Level Agreement

Management- Service activation

- Service management- Quality/performance mgt

- Invoicing- Billing- Customer care

- Provisioning- Inventory

- Application monitoring- Application management- NE/DC management

- NE/DC supervisionNetwork & Systems Infrastructure Servers & Storage



Service Enablers




PortalsCRM


Voice/datamobile















– 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 Decision making on strategy and actions in competition

based on quantified evaluationsbased on quantified evaluations

– Recommend alternatives and actions to ensure success

Convergence Strategy and Business PlanningConvergence Strategy and Business PlanningRole of Business PlanningRole of Business Planning


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


Evaluations to be based on robusts techno-economical tools due to high number of alternatives and complexity


SOHO and Small Enterprise

All Segments (reference)

Residential

Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Year-1e+08

0e+08

1e+08

2e+08

3e+08

4e+08

5e+08

6e+08

7e+08

8e+08

Eur

o Effects of the mix of customers on Reference Scenario: Low competition level

Network NPV


• SME and SOHO with quicker recovery but less NPV and company value and medium term

• “All customer segments” case with much better behavior


Internet

Internet & VoDSL

Internet & Video

All Services (reference)Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Year-2e+08

-1e+08

0e+08

1e+08

2e+08

3e+08

4e+08

5e+08

6e+08

7e+08

Eur

o


Effects of the mix of services on Reference Scenario: Low competition level

Network NPV

• Major impact of service classes on NPV and company survivability• Single service classes without future

• High benefit of “all services” case


Internet

Internet & VoDSL

Internet & Video

All Services (reference)

Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10

Year-2e+08

-1e+08

0e+08

1e+08

2e+08

3e+08

4e+08

5e+08E

uro


Effects of the mix of services on typical scenario: Medium competition level

Network NPV

• 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


Recommendations

Convergence Strategy and Business Planning

• 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 !!

convergence strategy for universal operators and role of

Documents