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Contents
Introduction
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Introduction 4
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Introduction 6
Services
Technology
• Service set
• Technology and Conceptual issues • Traffic volumes
network architecture
• Accounting of wholesale
• Network nodes
costs and retail costs
Implementation
• Increments
• Depreciation method
• Weighted average cost of
capital (WACC)
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Introduction
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Proposed conceptual approach • Operator 8
for specific aspects, e.g. date of Efficiency • An average operator may include
inefficient costs
market entry
Transparency • Making a clearer technology choice
hypothetical new entrant – an enables transparency
operator entering the market now Reconciliation • Data for a new-entrant operator
with today’s modern network cannot be reconciled with
top-down accounts as there are
deployment
no new entrants in Portugal
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Proposed conceptual approach • Operator 9
1 4 9 13 17
We propose to model a hypothetical
existing operator
This will enable us to calculate the Mobile network
costs that are based on those incurred
Rolling out 2G in 2005/2006
by existing suppliers of mobile
termination in Portugal Launching service in 2006/2007
The characteristics of an actual Adding capacity with 1800MHz
modern network can be taken
into account Adding overlay with 2100MHz
The costs associated with the Operating 2G and 3G networks
deployment of network nodes in the long term
will be calculated using a modified
scorched-node approach, which will Progressive migration from
ensure a network design that is 2G to 3G
modern and reasonably efficient
Vodafone 2G (national)
Although the initial date of
Vodafone 3G
market entry and technology
TMN 2G (national) migration varies among
TMN 3G Portuguese operators, a
Optimus 2G (national)
consistent picture has
emerged from 2004 onwards
Optimus 3G
2001: Allocation of
3G licences
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Proposed conceptual approach • Technology 11
2 3
… as well as coverage and long-run
market share
Coverage (footprint) of the network
will be a key input to the model: EC Recommendation on
wholesale termination costing:*
the degree to which investments 20% market share for an operator
precede demand has an impact with efficient scale
on the unit cost of traffic
In order to reflect reality, the
modelled operator should offer Hypothetical mobile operator that:
national coverage: • rolls out a national network
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http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2009:124:0067:0074:EN:PDF
Proposed conceptual approach • Technology 12
5
The mobile radio technology is a
mix of GSM900/1800 and UMTS2100
Current spectrum allocation GSM/UMTS seems to be the
is similarly distributed: current efficient technology mix:
operators own similar amounts all existing operators
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Proposed conceptual approach • Technology 14
7 8
For the mobile core network, there are
3 similar plausible architectural options
(a) Separate (b) Upgraded (c) Combined IP Transmission
switching switching switching options
Internet Internet Internet
2G 3G Data routers
GSNs GSNs GSNs
and GSNs
Leased lines
PoI PoI
Self-provided
MSS PoI MSS
microwave
2G 3G
2G/ 2G/ links
3G 3G MGW MGW
MSC MSC
MSC MSC
BSCs RNCs
BSC / BSC / BSC/ BSC/ Leased and
RNC RNC RNC
RNC
owned fibre
network
2G radio 3G radio 2G radio 3G radio 2G radio 3G radio
layer layer layer layer layer layer
Proposed option
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Note: The model will output the cost per minute of mobile termination for the time series of 45 years
Proposed conceptual approach • Services 16
11
The model must capture all common
services (at a network* volume)
Mobile services
• On-net calls
• Outgoing to international, fixed and other mobile operators
• Incoming to international, fixed and other mobile operators
• Roaming in origination and termination
• SMS on-net, outgoing and incoming
• 2G packet data
• Low-speed 3G packet data (Release-99)
• High-speed 3G packet data (HSPA)
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*MVNOs and service provider volumes will be included in the modelled network operators
Proposed conceptual approach • Services 17
10 12
A traffic forecast based on current
market averages will feed the model
Mobile voice traffic in Portugal (2002–2010)
25 Price competition in Portugal has
led to very low on-net tariffs
that have driven
20
the main growth in traffic
Minutes (billions)
15
10
• The network will be
5 dimensioned on the basis of
both voice traffic and data
traffic requirements
0
•
2002
2003
2004
2005
2006
2007
2008
2009
2010
Traffic is forecast to reach
1300 minutes per annum,
Mobile->on-net Mobile->off-net mobile of which 21% is wholesale
termination traffic
Mobile->fixed Mobile->international
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Source: ANACOM
Proposed conceptual approach • Implementation 18
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Proposed conceptual approach • Implementation 19
15
1 Pure LRIC will be applied,
as recommended by the EC
The increments used in models to A small increment for
LRMC**
calculate the cost of mobile the marginal unit of
traffic
termination have evolved over
time, from LRMC to LRAIC, LRIC*
and pure LRIC nowadays
LRAIC An average increment
Pure LRIC defines the increment for multiple services
(e.g. traffic)
of an entire service and:
Total costs
considers the increment to be
all traffic of a single service
incremental costs are those
avoided when not offering the The increment of
LRIC an entire service
wholesale termination service (e.g. termination)
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Proposed conceptual approach • Implementation 21
16
2 There are several approaches to
depreciation in a cost model
Straight-line historical cost accounting Straight-line current cost accounting
300 300
250 250
Annual cost
Annual cost
200 Operating expenditures 200 Operating expenditures
50 50
0 0
year 0 year 1 year 2 year 3 year 4 year 5 year 0 year 1 year 2 year 3 year 4 year 5
Annual cost
250 400
Annual cost
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Graham Johnson
Graham.Johnson@analysysmason.com
Ian Streule
Ian.Streule@analysysmason.com