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TecnO-ecoNomICs of IP optimised networks and services

Deliverables

The Mobile Virtual Network Operator (MVNO) case in 3G era has been shown to be profitable both in large and small countries. The MVNO entry to 3G businesses represents a profitable option for both Mobile Network Operaor (MNO) and the MVNO. Furthermore as new technologies and new ser-vices appear and the m-commerce, location-based commerce and short-range commerce is continuously developed, the MVNO for 3G becomes a viable and win-win situation for all actors. According to the TONIC study, the interconnection price, usage of the services and tariff levels have the greatest impact on the profitability, followed by the market share. The initial position of the MVNO in the 2G world is mandatory for a successful business in the emerging 3G market. Business case for new MVNO without any brand name does not look lucrative. Marketing and entry costs in general can be a burden for a potential MVNO, but this can be over-come from a high brand firm or an already operating company. The results also show that for MVNO it is potentially very profitable expand its service offering by providing broadband services via WLAN. European mobile operators and service providers interested in entering the 3G market, as well as regulators, can exploit this information. There can be also wider audience for this report including investor companies, power companies (with or without telecom background) and furthermore, European mobile operators who could become MVNOs, outside their home market.
The access network is known as the most expensive part in deploying and operating a new network platform. The fixed broadband access network study provides essential information about the applicability of IP technologies in the access network, looking at their benefits and possible drawbacks from an economic viewpoint. Telecommunication companies, applications or content provider, industrial analysts and also academics can benefit of the conclusions and recommendations on the emerging fixed broadband network deployment. The network deployment alternatives are quite independent from the technical solutions and are expected to appear on a two-step basis: - The first FTTC architecture covers the short-term developments in the coming 2-5 years, - The second FTTH/O one faces the medium term developments in 5-10 years. Offering broadband services for both residential and business customers using the same access plat-form is worth the investment in case of a FTTC architecture for dense urban and urban areas. Only the dense urban area is profitable for both FTTH/O- architectures and technologies. In particular a FTTH/O architecture for urban and suburban areas, neither the Ethernet nor the ATM PON solution does lead to a positive business case especially considering the risk profiles. Further, we see that the FTTH/O architecture enables an easy bandwidth upgrade for the customers and is therefore most future proof. The equipment investments of ATM or Ethernet based network architectures under comparable conditions are in the same range. Therefore investment decisions should consider more the existing network of the operator. In opposite to earlier LMDS investigations carried out focussing on single family housing segment in earlier ACTS projects, e.g. OPTIMUM and CRABS, the new hybrid fixed and wireless system that has been studied seems to be an realistic alternative and possibly a complementary solution in an urban environment. The analysis of the ISP business model and business case shows, that the financial results are nearly independent of the area type. This is due to the fact, that investments concern mainly fixed costs, and are not really affected by the volume of customers. This conclusion definitively differentiates the ISP business case from the network operator business case, which is strongly dependent on infrastructure investment.
The major achievement of this work package has been the definition of detail methods used for performing Techno-economic evaluation. Furthermore this methodology has been integrated into a software tool for techno-economic calculation. This tool has been applied in evaluating projects of different scale and technologies. The adoption of alternative financial and strategic methods, e.g. real options approach and game theory, can be included in the tool and this has been succeeded during the second year of the project. The coexistence of methodology and tool invigorates the improvement of business opportunities among participants since detail evaluation could be done for future telecommunication investments. The overall outcome affects the consumers in view of the fact that innovative services and networks can be evaluated in a short period of time for prompt implementation. In addition the formulation of the methodology and tool is suitable for Universities purposes (studies/lessons in techno-economics) as it is simple and comprehensive simultaneously. During the construction of the four Business cases a detail cost components database has been developed. The usefulness of this database is in providing a comprehensive reference cost description of the major network elements used in the implementation of wire line or wireless networks. The tool and methodology developed by TONIC have been used by participants for numerous independent studies in addition to four TONIC cases. It has proved to be suitable platform for quick techno-economic scenario analysis in knowledgeable hands.
One of the four main fields of activity in TONIC has been the dissemination of the results generated. In order for TONIC results to have impact on decision makers, they must be made available. In brief TONIC has presented some 50 conference/journal papers and has arranged a dedicated workshop on techno-economics. The consolidation, and publication of techno-economic guidelines based on the project work and results give to the world-wide community the opportunity to share the key findings from this project, addressing strategic issues faced by those involved in telecommunications business. Through the workshop on techno-economics and the publication of several papers in journals and conferences based on business case results, the results achieved have been disseminated to maximal audience. This gives the telecom actors outside the consortium a possibility to elaborate and exploit TONIC results in their own decision-making. Especially the workshop dedicated on techno-economics was unique in content when compared against general telecom events. It was relevant for people at all levels, from managers and decision makers to component and system researchers, interested in the economic performance of network architecture in different situations. The conclusions of the workshop establish pertinent recommendations to policymakers, network operators, and service providers regarding communications investment strategies. In addition, the independent seminars and lessons organised in Europe, e.g. in France, Greece and Portugal, concerning telecommunication investment policy ensures the further exploitation of project framework offering to students and telecom employees a high education level. As an unofficial continuation to TONIC, the project consortium is also seeking for options to publish a book about the results. This would consolidate all results, findings and conclusions in one volume.
The study has shown that a reasonably positive business case for the UMTS is possible for operators with substantial market share ( ~30%). This is contrary to the depressing view dominating the industry analysts¿ reports today. Even the high license costs in large countries and the obligations on network rollout do not prevent a long-term profitability, due to the fact that the licence period in most cases is long. Yet the pressure from subsequently emerging technology generations, and on the other hand competition on the most advanced users, drive for as early as possible utilization upon the UMTS investments and licensed bandwidth. This is also in the interests of the citizens and economy as a whole in getting the most developed and efficient platform for advanced ubiquitous telecommunication and data services. A positive impact was shown when the operator combines UMTS services with complementary public WLAN services. However, the direct impact of WLAN deployment on the profitability of overall UMTS case is not crucial, while indirect impact may be significant. For example customers demand for seamless WLAN as compulsory add-on to UMTS service, when choosing the operator. The often-expressed concern that the rise of public WLAN will destroy the 3G-business case is not justified. Instead, WLAN is a complementary, rather than a competing solution for 3G operators. Reports are drawn into the overly pessimistic view of today, partially because they ¿forget¿ the long-term economic prospects seen in the previous and current 2G markets. One must not only look for extremely short payback period, or current short-term obstacles, but also remember the long-term opportunities, which are pointed out by the TONIC business case results. The risk of delayed UMTS deployment and take-up, which can ruin the business case economically, should be fought back in all frontiers including UMTS operators, vendors, investors and application, content and service development/provisioning business, as well as regulatory and standardisation bodies. Telecommunication companies, applications or content providers, investment organisations, industrial analysts, national regulatory authorities, EU and multinational bodies, and also academics can benefit of TONIC conclusions and recommendations on the emerging mobile broadband services delivered through combined UMTS and WLAN networks.
The results of the study show that a substantial subsidisation is needed if every household in Europe should be offered broadband services. The main findings from this analysis show that the cost of providing broadband services to rural areas in the Nordic and parts of the central European country was significantly higher compared to the southern European country. The main reason for this is that the number of houses in the rural area clusters is significantly lower, particularly in the Nordic countries. In addition the labour cost related to the deployment of broadband infrastructure are significantly higher in Nordic countries. On the other hand we found that the differences between GDP per capita between urban and rural areas are significantly smaller in North of Europe compared to Southern Europe, and as a consequence this influence the willingness to pay for telecommunication services. The subsidisation per connected rural household (in the areas which need subsidisation) in the Nordic country is in the order of 3000Euro compared to 300Euro for the southern European country. The results achieved provide valuable information for policymakers and for the EU Commission concerned with the additional support measures for offering broadband communication to these areas/sectors. However some reservations have to be made with respect to the results. In the Portuguese case, the study is based on real demographic and geographic data. In the large European country case, the study is based on data from the existing telecommunication network, and in the Nordic country case, a more generic model is applied with some critical demographic and geographic parameters benchmarked. Secondly, it is shown that the results are sensitive to changes in the model parameters for some of the cases. Future changes in cost and price structures may of cause also influence the business cases.
The penetration of mobile telecom services has increased tremendously during the last years. The Nordic countries are still in the lead due to the early deployment of the Nordic Mobile Telephone System (NMT) and GSM, but the gap between Nordic countries and the rest of Europe is now de-creasing rapidly. One reason for this is that in the Nordic countries, the penetration is already close to the natural saturation level where everybody has the service. Another major reason for similar penetration evolution across Europe is the introduction of prepaid services, which make the adoption tress hold level lower. TONIC forecasts of mobile subscribers and mobile subscriptions show that there will be very small gaps in the overall penetration level between different countries. This is also reflected in the detailed country group forecasts by TONIC, which is developed for the Nordic countries, countries in central Europe and Southern European countries. These forecasts are used in Business Case 1 (BC1) and BC2 in the project. Market analysis working group has applied comprehensive forecasting methods on the following mobile system generations: -2G ¿ digital mobile systems such as GSM -2.5 G ¿ HSCSD, GPRS, EDGE -3G ¿ UMTS -3.5G ¿ ubiquitous roaming among 3G and WLAN systems The forecast model fits substitution effects between mobile system generations quantifying the near forthcoming turning point for GSM penetration and later upcoming turning point for 2.5G. The decrease in 2G and 2.5G is caused by the rapid growth of UMTS and WLAN especially from 2005 onwards. The analyses show that UMTS and WLAN penetration in Southern Europe will be delayed compared with the penetration in other European countries. The Average Revenue Per User (ARPU) is also lower in Southern Europe compared with other countries. Specific models are developed to forecast broadband subscriptions and broadband traffic generated in the network. Both the business and the residential market are covered. Forecasts for fixed access technologies have been developed, e.g. for technologies HFC, ADSL, VDSL and LMDS. A battle has started between incumbent operators and cable operators in Western Europe. Especially the evolution of broadband services in Germany, Sweden and Denmark speeds up the broadband demand in Europe in general. Germany reached already 2 million DSL accesses at the end of 2001. In some countries the cable operators have rather high broadband market shares since they have started broadband deployment earlier than the incumbent operators. The forecasts show that DSL access technology within short time will be the dominating technology in Europe. However, in areas were there exists cable networks the competition is intensive and the broadband penetration higher than normal. The situation in Europe is different from North America where forecasts show that cable modem technology based on HFC during the next years still will have more than 50% of the market. Fixed wireless broadband access based on technologies like LMDS is for the moment rather expensive. A lot of operators plan to utilise the technology, but it will take some years before the technology is cheap enough to compete with DSL and HFC. The broadband country group forecasts, used as input to BC3 and BC4 show that the broadband penetration growth faster in the Nordic and central European countries compared Southern European countries. The delay in broadband penetration is estimated to be 2-3 years. The Tonic forecasts show dramatic changes in broadband demand for the coming years. New technology and new system generations will be adopted. The identified demand for new technology has significantly impact on operators, incumbents, service providers, broadband content providers, and equipment vendors. LLUB and wholesale speeds up the broadband penetration and generates an open market with more competitors and new players. The Tonic forecasts will constitute an important element in strategy plans for the players on the future mobile and fixed network.

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