The WIK-Model

Bottom-up cost analysis for the telecommunications network

The WIK-Model

Bottom-up cost analysis for the telecommunications network

Geneva, 14.12.1999

Dr. Frank Schmidt, WIKwww.wik.org kostenmodell@wik.org

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Content

What is the WIK-Model Main Characteristics Reasons for development

Structure of the WIK-Model Core network analysis Access network analysis Annualisation

The case for a bottom-up model

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What is the WIK-Model?Main Characteristics

Bottom-up network model Tool for forward-looking cost analysis Follows closely the LRIC (FL-LRAIC) methodology

Covers all parts of the network Subscribers access network Core/conveyance network

Independent of network operator data Strong network planning part High flexibility to cope with different network scenarios

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What is the WIK-Model? Partition model of the PSTN/ISDN

Subscriber Access Network

Access Network

Backbone Network

• local loop• MDF• SLIC

• Remote concentrator• ADM/SDH • Fibre rings

• Remote concentrator• ADM/SDH • Fibre rings

• Local exchanges• Transit exchanges• International gateways • DX4/SDH• Meshed fibre topology• POIs

• Local exchanges• Transit exchanges• International gateways • DX4/SDH• Meshed fibre topology• POIs

ANI SNI

traffic sensitive part traffic sensitive part non-traffic sensitivenon-traffic sensitive + traffic routing+ traffic routing

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What is the WIK-Model?Reasons for development

Regulation of a dominant carrier Overcoming the asymmetric information problem Understanding telcos network costs Identification of cost drivers/cost causality Making regulatory rate setting more transparent Developing a platform for discussion Identifying the reasons for diverging views

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What is the WIK-Model?Further applications

Estimating the cost of universal service long run incremental/avoidable cost of service provisioning

Calculating the cost of network roll-out Model does not demand data from an already existing

network Network planning part allows true “forward looking”

analysis Support of managerial decisions

Setting cost oriented tariffs Improving network efficiency

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Structure of the WIK-Model Main characteristics

Starting point: Demand Definition of the network and the relevant

elements Allocation of demand to network elements Dimensioning of network elements Calculation of investment and annual cost Calculation of service costs on the basis of

network usage

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Structure of the WIK-Model Input data

MDF-locations; number of lines census data carrier database if available

Demand: Outgoing traffic per average line local, national, international

Network design and engineering Technology, hierarchy, fill factors, ...

Investment and cost data Asset prices (MEA concept) Rate of return; asset lives

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Structure of the WIK-Model Network dimensioning

Starting with demand and MDF-locations the whole network is constructed endogenously

Therefore the model has built-in engineering modules with a high degree of flexibility

The resulting set of database files serves as the basis for cost analysis

The engineering part adds complexity to the model but allows an analysis independent from operators data

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Structure of the WIK-Model

WIK-Model

Subscribers access network

Core network/conveyance network

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Core network analysis

Core network model consists of various modules: Classification of nodes (remote, local, backbone..) Assignment of lower level to upper level nodes Generation of a traffic matrix Traffic routing and circuit group dimensioning

logical network layer Transformation of the logical network layer into an efficient

transport network transmission layer infrastructure layer

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Core network analysisStarting point: Initial node locations

Local exchanges for SpainDerived from census data

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Core network analysis Node classification and assignation

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Core network analysisAnalysis of a network cluster

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Core network analysis Network design in the functional layer model

Two-tier backbone network Upper level and lower level backbone nodes form

a meshed network structure Degree of meshing determined by thresholds

One-tier or two-tier access network Star or double star topology on the logical layer Ring structure on the transport layer Local switching functions in intermediate nodes

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Core network analysis Network design (logical layer)

4 International gateway

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Core network analysis Network design (transport layer)

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Core network analysisConstructing an efficient transport network

Heavily meshed logical layer between backbone nodes

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Core network analysisConstructing an efficient transport network

Calculation of an Calculation of an optimal biconnected optimal biconnected network topologynetwork topology

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Core network analysis Calculation of Investment

The network analysis yields a set of nodes with the corresponding traffic flows and

the number of main lines connected a set of links between nodes with the corresponding

traffic flows the realization of the logical network layer in the

transport network with the corresponding transmission equipment and outside plant

Investment is calculated network element by network element

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Access network analysis

Access network module has the following tasks: Identify customer locations

Manual work on the basis of maps With GIS-Interface if available

Group customers to network clusters Assign each cluster to MDF-Sites Find efficient cable routes within and between clusters Conduct detailed investment analysis

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Access network analysis

Model has been used to set tariff for unbundled local loop access in Germany

Model is available from German NRA Major extensions and modification are planned

Modeling of FITL network More sophisticated algorithms for calculating efficient

cable routes Interface to GIS-System to reach a more detailed

database (customer locations, roads, natural barriers...)

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Annualisation of Investment

Assets are valuated at actual prices Cost of capital and depreciation

Weighted average of cost of capital Economic depreciation as ideal solution Annuity with plant specific real interest rate as

practical approximation

Operating and maintenance cost Derivation of mark-ups for different plant categories

(switching equipment, transmission, cable...) Investment serves as a proxy cost driver

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The case for a bottom-up model

Dependence on incumbents database can be reduced significantly

Improved understanding of telcos network costs Transparent rate setting process

Model serves as a platform for discussion Reasons for diverging views can be identified

Not a substitute for top-down analysis; rather a useful complement

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Wissenschaftliches Institut für Kommunikationsdienste (WIK) GmbHPostfach 200053588 Bad HonnefGermany

Tel.: + 49 - 2224 - 9225-0Fax: + 49 - 2224 - 9225-66eMail: kostenmodell@wik.orgwebsite: www.wik.org

Wissenschaftliches Institut für Kommunikationsdienste (WIK) GmbHPostfach 200053588 Bad HonnefGermany

Tel.: + 49 - 2224 - 9225-0Fax: + 49 - 2224 - 9225-66eMail: kostenmodell@wik.orgwebsite: www.wik.org

Applications of the model so far:

Germany: Unbundled loop (1999), Interconnection (2000)

Austria: Interconnection (2000)