network operator financial model
DESCRIPTION
New technologies like LTE are changing the landscape of wireless communications by providing new cost points which enable greater range of applications. New spectrum is being auctioned and incumbent and Greenfield operators are rising to capitalize on this opportunity by providing unique and differentiated services ranging from residential broadband access and rural area connectivity to 4th generation personal broadband services. These technologies feature multiple antenna systems that deliver higher data rates with greater Quality of Service options than any current wireless technology. Furthermore, the all IP backbone extends the core network to the edge, reducing the cost of the infrastructure as well as the operational expense. This presents network operators with a myriad of options regarding network architecture, types and quality of service as represented by service level agreements, type and capability of equipment, deployment environments, and business model among many other options. Given the plathora of options, it is imperative that a comprehensive business model and fiancial analysis is constructed to guide deployment options, anticipate potential pitfalls, and develop solutions and contingency plans to anticipated problems. TSI developed its business case and financial model capabilities with such context in mind. Our tools are comprehensive and rigurous allowing sufficient details to ascertain important facts and trends.TRANSCRIPT
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Financial Modeling:Financial Modeling:Network Operator Network Operator Business CaseBusiness Case
1TSI Proprietary & Confidential
Making Broadband Wireless Reality
Business CaseBusiness Case
Telesystem InnovationsTelesystem Innovations
����Overview of Financial Modeling
2
����The Process for Financial Modeling – Step 1
> Network Architecture
– Number of Sites/Cells
> Coverage constraints (link budget, propagation model)
> Capacity constraints (subscriber profile and distribution, traffic model)
– Site configuration
> Omni, sectored
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> Omni, sectored
> Frequency plan
– Backhaul and Backbone Connection
> Backhaul from sites to central office
> Connection to communication backbones
Result: Determine main components of capital expenses incurred by an
operator – i.e. Capex Model
����The Process for Financial Modeling – Step 2
> Operational Assumptions
– Staffing Requirements
– Peering bandwidth, backhaul expenses
– Site leasing expenses (antenna & leasehold space)
– Equipment maintenance costs
– Spectrum license expenses
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– Billing expenses
– Marketing expenses
– Other expenses
Result: Determine main components of operational expenses – i.e.
Opex Model
����The Process for Financial Modeling – Step 3
> Market Assumptions
– Total Addressable Market (TAM)
> Adoption rate of new technology
> Ability of operator to sign-up new clients
– Subscriber Profile
> Business vs. residential
> Voice vs. data
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> Voice vs. data
> Usage rates
– Pricing
Result: Determine main revenue drivers – i.e. Revenue Model
����The Process for Financial Modeling – Step 4
> Output
– Annual revenue (revenue model)
– Annual cash flows (revenue, opex and capex models)
– Net present value
– Breakeven period
– Ratio analysis – key metrics of profitability
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> Scenario Analysis
– What-if…?
> Sensitivity Analysis
– Stress-test key assumptions
– Monte-Carlo simulation for statistical analysis of output
����TSI Advantage
> Experience– Years of Service Provider
experience in international markets - familiarity with actual operational challenges and cost models
– Vendor experience – developed 4G base stations, UEs/CPEs, ASN/Gateways and designed complete end-to-end networks
> Accuracy
Equipment Description Cost Comment
Backhaul Equipment 10,500$ Data Backhaul from POP to Super POP
802.16 Cell Site 64,500$ 6-Sector cell at $10,000/sector + $4500 Aggregation switch
Equipment Installation 5,000$ Installation cost per POP and Super POP
Peering Point Routers 19,500$ 1 PPR required at Super POP
Aggregation Switch 4,500$ 1 Aggregation switch required at super POP
Backbone Switch 10,000$ 1 Backbone switch required at super POP
Network Mgt. System 250,000$ 1 NMS required for networkCapital Expenditure Year 1 Year 2 Year 3 Year 4 Year 5
Total Annual CPE Cost 3,920,000$ 3,528,000$ 3,616,200$ 1,926,846$ 1,051,584$ Total Annual POP/Super POP
Equipment Cost1,098,500$ -$ 483,500$ 127,500$ 120,000$
Total CAPEX 5,018,500$ 3,528,000$ 4,099,700$ 2,054,346$ 1,171,584$
Operational Costs Year 1 Year 2 Year 3 Year 4 Year 5
NOC Costs 200,740 205,759 210,902 216,175 221,579
Roof Rights 72,000 72,000 86,400 100,800 115,200
Peering bandwidth 505,774 1,036,837 2,125,516 2,995,649 3,628,820
Backhaul bandwidth 611,520 705,600 1,128,960 2,069,760 2,352,000
Operating Budget 3,294,840 3,385,172 4,352,042 4,768,722 5,128,323
Total OPEX 4,684,874 5,405,367 7,903,820 10,151,106 11,445,922
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> Accuracy– Integration of advanced
technical (link budgets, capacity plans) and financial models to generate accurate business cases
> Reliability– Experience and accuracy allows
TSI to provide reliable solutions which enables our customers to make the right decisions
$(10,000,000)
$-
$10,000,000
$20,000,000
$30,000,000
$40,000,000
$50,000,000
$60,000,000
$70,000,000
1 2 3 4 5
Year of Operation
Do
llars
($)
Revenue Operating Profit Cash Flow
Total OPEX 4,684,874 5,405,367 7,903,820 10,151,106 11,445,922
Total OPEX as % of Net Revenue 62% 30% 21% 20% 19%
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