National and Kapodistrian UNIVERSITY OF ATHENS
Incorporating risk analysis into telecom investment projects
Dr. Dimitris VAROUTASLecturerUniversity of Athens Dept of Informatics & Telecommunications
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National and Kapodistrian UNIVERSITY OF ATHENS
Agenda
UoA in modeling telecom investmentsRisk analysis in telecom investmentsn The problemn The methodologiesn The tools
Some examplesn Broadband access networksn 3G-WLAN business cases
Conclusions & Discussion
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National and Kapodistrian UNIVERSITY OF ATHENS
UoA Technoeconomic activities
Conduct technotechno--economic evaluationseconomic evaluations for telecommunication investment projects like:
w Next generation mobile networks and servicesw Fibre access evolutionw Broadcast convergence
Formulate pertinent recommendationsrecommendations to policymakers, network operators and service providers regarding communications investment strategies. DemandDemand modellingStudy the riskrisk and externalitiesexternalities effects in communicationsPromotion and disseminationdissemination of the results
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Consolidation of results and guidelines for deployment scenarios
Information gathering / exchange
Common framework
Network Studies
Guidelines
Standards, Research projectsand field trials
Other Sources
Commonconclusions
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Steps in technoeconomic modelling
Marketing Strategy Services
Network Technology
ComponentsCost
MarkerShare
Prices Revenues
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Risk and uncertainty are the only certain factors
Marketing Strategy Services
Network Technology
ComponentsCost
MarkerShare
Prices Revenues
RISK RISK RISK RISK RISK
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National and Kapodistrian UNIVERSITY OF ATHENS
Risk in marketing strategy
Lucrative segments of markets/areas/servicesSuitable models for the evaluation of the segmentsn Diffusion or choice based
modelsn Market studies or expert
reportsn Cross technology models n Cross country models
Diffusion Rates
0,00
0,05
0,10
0,15
0,20
0,25
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Years
Rat
e
Actual Gompertz I Gompertz II Linear Logistic
Box-Cox FLOG TONIC
E.g. Can we evaluate and forecast the number of innovators and imitators?
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Risk in evaluating services
Which are the profitable applications and servicesn Online or offline
servicesn Determinants of
telecom servicew Ratew Distancew Mobility
Hedonic Price Index Evolution
y = 0,0396x + 0,7633
0
0,2
0,4
0,6
0,8
1
1,2
98/97 99/98 00/99 01/00 02/01
Years
Hed
on
ic i
nd
ex
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Risk in choosing the network technology
Can we take lessons for existing technologiesNeed for risk analysis in new technologiesn xDSLn WLAN
Fibrein the loop
Digital Subscriber
Line
WirelessCellular Systems
HybridFibreCoax
SatelliteSystems
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National and Kapodistrian UNIVERSITY OF ATHENS
Risk in evaluating pricing concepts
Appropriate pricing modelsEvaluation of price models in real or simulated situationsUnified price indicesn across technologiesn across servicesn across countries
Need for new approaches in econometric modelsn Price elasticityn User behaviorn Externalitiesn Cross technology
effects
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Risk analysis outputs
Selection of technologies based on actual costsConcentration Non profitable casesCalculation of “costs per user” and “costs per subscriber”Optimum solutionRest value calculations
Critical componentsRenegotiation of components’ purchase costsProfitable services Detailed analysis of services costsRules and guidelines for viable casesMarket opportunities
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An example
Fixed BB telecommunication investments
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Main cable
Cabinet(Cab)
Distributioncable
Subscriber location
Local Exchange (LE)
CentralExchange (CE)
Core network-
- Fibre cable
- Active Optoelectronic
- WAN Interfaces
-
- Active
Copper cable
- VDSL interface
- Passive couplers- Passive couplers
NT NT
Ethernet (P-t-P) FTTC
NT
Customers < 750m
ATM
OLT
ONU
NT NT
ATM (P-t-MP) FTTC
NT
Customers < 750m
ONU
ATM STM4
OLT
ONT ONT
PON
ATM
ATM (P-t-MP) FTTH/O
...
GbE
100BaseFx
Ethernet (P-t-P) FTTH/O
...
The Fixed BB scenarios
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ATM Ethernet ATM EthernetDense Urban 29,45 mill € 29,40 mill € 18,31 mill € 7,47 mill € Urban 18,13 mill € 18,06 mill € -9,11 mill € -22,30 mill € Suburban -34,42 mill € -38,21 mill € -279,49 mill € -295,32 mill €
ATM Ethernet ATM EthernetDense Urban 66,8 % 56,2 % 46,1 % 21,5 %Urban 30,8 % 29,7 % no return no returnSuburban no return no return no return no return
ATM Ethernet ATM EthernetDense Urban 3,8 4,3 5,5 7,5Urban 5,3 5,7 no return no returnSuburban no return no return no return no return
Net Present Value (NPV)
AreaFibre to the Cabinet Fiber to the Home/Office
Area
Internal Rate of Return (IRR)FTTC FTTH/O
Area
Pay back Period [years]FTTC FTTH/O
Financial results
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0 Mill €
5 Mill €
10 Mill €
15 Mill €
20 Mill €
25 Mill €
30 Mill €
35 Mill €
40 Mill €
45 Mill €
Dense UrbanATM
DenseUrban
EoVDSL
Urban ATM UrbanEoVDSL
Suburban ATM
SuburbanEoVDSL
Cable_Infrastructure
Duct_Infrastructure BuildingInfra
CPE_Equipment
Cabinet_EquipmentLEX_Equipment
CEX_Equipment
Cable Infrastructure
Duct Infrastructure Building Infrastructure
CPE Equipment
CabinetEquipmentLEX Equipment
CEX Equipment
1 Mill €
2 Mill €
3 Mill €
4 Mill €
5 Mill €
6 Mill €
7 Mill €
8 Mill €
9 Mill €
10 Mill €
DenseUrbanATM
DenseUrban
EoVDSL
Urban ATM UrbanEoVDSL
SuburbanATM
SuburbanEoVDSL
Cabinet Equipment
LEX Equipment
CEX Equipment
Zoom in:
0 Mill €
CAPEX figures
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0
10
20
30
40
50
60
70
80
90
100
FTTC– ATM,Dense Urban
FTTCEoVDSL,
Dense Urban
Probability of NPV < 0 [%]
FTTC– ATM,Urban
FTTCEoVDSL,Urban
FTTH/OEoVDSL,
Dense Urban
FTTH/OEoVDSL,Urban
[%]
Scenarios
Financial risk in fixed BB investments
National and Kapodistrian UNIVERSITY OF ATHENS
An example
3G and WLAN investments
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The idea for 3+/4G networks
Roaming
Airport
Hotel & Conference
Publicspace
Office
Home
Trainstation
Wide area Cellular Datacom
Local Area WLAN Datacom
Roaming
Airport
Hotel & Conference
Publicspace
OfficeOffice
Home
Trainstation
Wide area Cellular Datacom
Local Area WLAN Datacom
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Transmission rate - Mobility
(2007-2010?)
IMT-2000
1 10 1000.1
Mob
ility
/Dep
loym
ent A
rea High Speed
/Nationwide
Static/Indoor
Walking/Premises
Moderate Speed/Citywide
Transmission Bit Rate (Mbit/s)
Millimeter-waveLAN
(2001)
(2002)Wireless LAN
2G3G
Systems BeyondIMT-2000
Target Area of Service Beyond IMT-2000
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WLAN Roaming
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ARPU EstimationsTONIC yearly ARPU estimations
0
100
200
300
400
500
600
700
800
90020
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Eu
ros
BB Internet
Internet
SMS
BB streaming
video streaming
audio streaming
videoconf
video calls & gaming CS & PS
voice CS+PS
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Sensitivity analysis
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
Low Value 183 253 453 748 1.037 1.033 971 964 948 953
High Value 1.714 1.643 1.444 1.147 860 864 926 932 961 943
UsageTotal
PenetrationEnd Market
ShareStart Market
ShareOAM UMTS BTS
Marketing Multiplier
Terminal Subsidy
WLAN Building Begin
Churn
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Risk factors
Risk in marketing parametersn Market sizen Market sharen Service determinants
Risk and uncertainty in network parametersn Technology costsn Technology changesn Cost components evolutionn Area characteristics
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Some ideas on telecommunications investments in developing countries
Demand forecastingn Effects of cross-country diffusion processesn Competition level
Technology selectionCritical mass effectsCommunications or telecommunications
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Conclusion
Risk analysis is a critical issue for telecom investment projectsNeed for specific problem statement,
methodology and tools development Research is needed as well as
coordination among key players