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Post-och telestyrelsen (PTS)

Presentation of the draft BU-LRIC+ Cost

models for fixed network services

Operators meeting 21st September 2017

21st September 2017

Presentation to the industryThis slideshow illustrates the models and documents issued by PTS. In case of

discrepancies with the models, the model reference paper, the model

specifications or the model documentation, statements within this slideshow

should be disregarded.

PTS – Operators meeting 21 September 2017

Agenda

2

1. Context

2. Main modelling assumptions

3. Modelling approach

4. Model implementation and usage


Team

• Marc LAMELOISE, Project leader

9-year experience in cost modelling;

Involved in several similar fixed network cost modelling projects

(Ireland, Croatia, Denmark, New Zealand, France, Luxembourg,

Kingdom of Bahrain, Gibraltar… ).

• Mohammed EL HIMDY, Consultant (Cost model)

Involved in a similar fixed network cost modelling project in Ireland.

• Alexandre JOURNO, Consultant (Cost model)

Involved in similar fixed network cost modelling projects in France,

New Zealand and Ireland.

• Martin ROUNDILL, GIS expert

Involved in a similar project in New Zealand.

3


Context

• As part of its role, PTS has imposed that Telia should provide a set of products

and services on the wholesale market for local access at a fixed location (Market

3a) and the wholesale market for fixed call termination (Market 1) on a cost-

oriented basis.

• To calculate these cost-oriented prices, PTS have until now used a cost model, the

Hybrid model v10.1 (HY model).

• TERA Consultants has been instructed by PTS to develop a new BU-LRIC+ model

based on the Swedish Road network and the exact building location to better

assess the price of these services.

• This presentation is a technical presentation of the draft BU-LRIC+ model and is

structured as follows:

Description of the main modelling assumptions;

Description of the modelling approach;

Description of the models implementation and how to use them.

4


Agenda

5

1. Context





The model follows a set of general rules arising from the

MRDMain model assumptions

• The modern efficient network for the fixed access network is based on FttH (point-

to-point), and all-iP (NGN) for the core network

• All network is 100% underground with no utilisation of FWA

In the hybrid model, part of the network was overhead and FWA was used at the edge of the

network

• Costs are valued using optimised replacements costs

• Costs are depreciated using a tilted annuity

• OPEX are derived from industry inputs:

They are adjusted depending on the size of the network (depending on the network dimension for

network OPEX or FTE count per service for non-network OPEX)

• The existing civil engineering infrastructure that can be reused is considered:

A 15% re-use factor has been used;

The reusable civil engineering assets are valued according to their book value, depreciated

through their remaining lifetime.

• For copper services costs, an economic adjustment to the fibre cost results is

performed:

Equivalent copper equipment’s unit costs, price trends are considered.

6

New

New

New


The network structure was optimized for the calculation Main model assumptions

7

• The modified scorched node approach has been followed:

the network roll-out follows the road network (when average data by access nodes type was used in the HY model);

existing nodes of the copper access network (access nodes) are the starting points of the modelling (smaller nodes

as FOS are dimensioned depending on the calculated demand and are outputs of the model)

The node structure has been cleaned in order to remove redundant nodes and the nodes to be dismantled by 2018

(~1700 nodes).

Following the Voronoï approach, end-users are connected to the closest access node following the road network.

• The network is optimized in order to minimize the distance of each line using road network and

buildings locations as a starting point.

Figure 4

Access

node 1

Access

node 2

Voronoi’ polygon’s boundaries

Real boundaries of the network

1

2

Comparison of real access node coverage area and

optimized access node coverage area

Buildings

Access node

1F 3F

4F

4F

3F

4F2F

2F

4F

14F

Premises

2F

Shortest path from the access node to buildings

New


A set of assumptions have been followed for demandMain model assumptions

8

Access model

• Passive demand (lines passed) depends on the dwellings/businesses to be

connected and is considered flat from year 2016

• The active demand is set for a national HEO which would deploy a nationwide

network excluding the most costly lines:

60% market share in urban areas;

100% market share un rural areas.

• No take-up is considered

• The demand then evolves in line with the number of active ports in the Core model.

Core model

• Derived to a large extent from PTS statistics (traffic, customer based)

• Representative of a 100% footprint

• Market share is consistent with the access

New

New


The footprint is restricted to the lines that a commercial

operator would deployMain model assumptions

• The footprint to cost the network of the modelled operator shall be national and be established

in three steps:

Establishing all buildings that are relevant to connect to the network comprising residential apartments, relevant

business locations, industrial and public buildings (agricultural and other buildings are not taken into account) as

well as secondary homes. This will determine a national network with 100 percent coverage.

Then, the footprint is restricted after excluding the most expensive lines by removing 15% of lines passed that

have the highest cost to connect to the modern network (Number of lines passed is used as the control variable).

Besides a further reduction of the footprint is performed to take into account the sites that would not be deployed

because the economies of scale at the access node level are limited due to the low number of active lines.

9

Full NetworkRestricted footprint for

all lines to be passed

Restricted footprint for

which only sites with

active demand are

deployed

Restricted footprint

for which only sites

with active demand >

50 lines are deployed

Total number of lines passed 5 647 131 4 799 995 4 726 084 4 554 409

Total number of buildings

passed2 650 393 1 844 323 1 780 260 1 634 363

Number of active access nodes 6 402 5 077 3 046

Network footprint depending on the active threshold scenario

-15%

New


Costs are allocated either using a capacity based

allocation or an EPMUMain model assumptions

• The capacity based allocation approach is used to allocate network costs:

• The EPMU approach is used to allocate non-network costs.

10

Asset class Capacity driver

Trenches Ducts

DuctsSurface of the cables inside of the

ducts

Fibre cables Fibres

Fibre access Switches Active customers

Edge and IP Core switches Traffic per node

New


Other model assumptionsMain model assumptions

• Access model assumptions:

NTPs and BDFs are excluded from the network cost to be recovered.

Final drop infrastructure that are part of the private domain (Vertical Trenches and sub-ducts) are

recovered through the one-off charge, when the remaining network assets (including final drop

cables and horizontal infrastructure are recovered through the monthly rental charge.

11

ODF

Network

termination

point

FOS

Distribution

Final drop

Architecture of the local access fibre network


Agenda

12

1. Context





Access network modelling approachModelling approach

13

Engineering rules,

Efficiency

algorithm,

Demographic data,

Shortest path

algorithm

Step 4 – Current asset

prices

Step 6 – Depreciation Step 7 – OPEX

calculation

Step 8 – Cost results

Step 5 – CAPEX

Step 1 – Node location

and coverage

Step 2 – Network

deployment at the

street level

Step 3 – Full network

deployment

Network

dimensioning

Network costing

Network cost

allocation

WACC, asset lives,

price trends


Each section is specified either urban or rural, from

which depend the trench type usedModelling approach

14

Network

dimensioning

Location Type of trench

Cross-trenches Asphalt

Urban trenches Bicycle

Rural trenches Grass

Final drop Ploughing

Legend

Section by trench classification

Urban

Rural

For illustrative purposes only


Road network and exact location of all Swedish buildings was

used for calculation Modelling approach

15


Network

dimensioning


Network roll-out follows a shortest path algorithmModelling approach

16

1 Starting point: the location and the coverage

areas of the existing copper exchanges are

used as the location and the coverage of the

modelled fibre network

2 Each building is linked to its parent exchange

using the shortest path algorithm

ODF


Cables deployed following the shortest path algorithm

Network

dimensioning

Legend: Warmest color corresponds to bigger cables


The access network is dimensioned section per sectionModelling approach

• The access network is dimensioned section per section (a section is a part of a road/street

between two consecutive intersections), knowing:

The demand of the section: the number of lines on the section plus on its rear area;

The features of the section: length, buildings location, number of dwellings per building, etc.

17

• First, the number and location of the

distribution points are derived.

• Then, the assets dedicated to each building are

dimensioned:

The final drop cables (length and size);

The dedicated civil engineering.

• Finally, the assets shared between the different

buildings of the section are dimensioned:

The cables and joints (size, length), according

to the local and rear demand and section

configuration;

The civil engineering, shared among access

network and core network.

Final drop cableFOS

FOS Distribution point

Dedicated trench

Dedicated subduct

Distribution cable

Final drop cable

Core cable

Joints

Reararea

Trench

Duct

Network

dimensioning


A set of engineering rules is followed for the access

model dimensioningModelling approach

18

• The access network dimensioning follows a set of engineering rules that either stem from

operators, the hybrid model or are cost-effective:

The section is trenched on one side or on

both sides according to the cost-efficient

solution.

Joints are deployed at the intersection with other

sections and along the section according to the

cables’ standard drum length.

Distribution points (FOS) are dimensioned given

their capacity and are deployed uniformly along

the section.

The final drop cable is then deployed from the

building to the closest distribution point

The distribution

cable is

dimensioned to

meet the local

demand and the

rear area demand

Access node

Jnt

FOS

FOSJntFOS Jnt

Rear areaDrum length

Jnt

Joint at the intersection with the minor side

Network

dimensioning


Civil engineering is shared between different type of

linksModelling approach

19


• The access network shares its trenches

with other networks:

The core network:

– Inter Exchange links,

– Core-IP links

– Submarine links;

Other utility networks (Cable TV, Electricity,

Water, other operators)

• The routes used by the HEO’s networks

have been modelled in order to capture

the relevant economies of scale/scope.

• Besides, sharing rates with other utilities

is differentiated between Urban/Rural

areas.

Core- links modelling

Legend

Core Links

IP- Red

IP

IP-Blue

Edge

Common

Metro

Horizontal

trenchDuct

Vertical

trench

Urban 16% 1% 24%

Rural 15% 1% 11%

Sharing rates with other utility networks depending on

the infrastructure

Network

dimensioning


The active demand is set for a national HEO based on

PTS’ market dataModelling approach

20

PTS market

statistics

(fibre, cable)

Active copper

line

Active access

demand

All platforms –

100% footprint

National level

Active access

demand

All platforms –

100% footprint

Distributed by

site

Active access

demand

All platforms –

Restricted

footprint

Distributed by

site

Sections / Number

and types of

building removed

Penetration by

type of

buildings

Coverage % of

each access

technology by

municipality

Active access

demand

HEO –

Restricted

footprint

Distributed by

site

Platform market

share HEO:

Urban: 60 %

Rural: 100%

ACCESS

CORE

Active CORE demand

HEO – 100% footprint

National level

PTS total market

statistics

(#subscribers, traffic)

HEO market share for core

services

Calibration (for 100% footprint)

Platform

CORE actives ports + LLU =

Access active lines


The HEO core network maps Telia’s network structureModelling approach

21

COMMON

Edge

CR

Two seperate Network

METRO "Common with redundacy"

• Telia has provided a file describing the

architecture of the core network, in 3+1

hierarchical levels:

The IP level, the higher level, made of two

parallel network of a dozen of nodes, the red

and the blue networks;

The Edge level, the second level of the core

network, made of 139 edge routers.

The Common level, the third level of the core

network, which connects all access nodes to

the Edge nodes.

The Metro level, a redundant level of the

core network, which provides additional links

among the Common and/or Edge nodes, in

order to ensure the reliability of the network.

Structure of the core network

Network

dimensioning


Core nodes are dimensioned based on downlink and

uplink demandModelling approach

22

• Core nodes are either switches (performing conversion between the electrical

signals used by the service provider's equipment and the fiber optic signals used

by the passive optical network) or routers (forwarding data packets between

computer networks).

• These nodes are dimensioned for each site according to downlink demand

(number of active end-users or number of ports of daughter sites) and uplink

demand ( number of ports needed to link parent core sites or inter-IP sites) - In

contrast with HY model where it was one-size-fits-all for each node type -

Network

dimensioning

Rack

Ca

rd 1

0G

Ca

rd 1

0G

Ca

rd 1

0G

Ca

rd 1

0G

Card

10G SFP

SFP

SFP

SFP

SFP

SFP

SFP

Edge A

Edge B

Core IP router

Core IP router

(twin)

Downlink traffic

Core IP router

Core IP router

Core IP router

SFP

SFP

SFP

SFP

Uplink traffic

Blue node

Example - Core routers’ configuration


Investment are depreciated using tilted annuity Modelling approach

• The costs are depreciated using a tilted annuity after calculating a depreciation

factor per asset using the following formula:

𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑓𝑎𝑐𝑡𝑜𝑟 =(𝜔 − 𝑝) × (1 + 𝑝)𝑡

1 −1 + 𝑝1 + 𝜔

𝑛

Where:

– 𝜔 is the nominal pre-tax WACC of 6.6% and 𝑝 the price trend for the asset

– 𝑛 the lifetime of the asset

– (1 + 𝑝)𝑡 the index for deriving the current price of the asset

23

Network Costing


Costing and pricing of the networkModelling approach

24

Network Costing

Network cost

allocation


Interconnection services cost is calculated following the

Pure LRIC cost standardModelling approach

25

• Similarly to the HY model, the Fixed Termination services, as well as the other voice services

(retail, origination, transit) use two specific assets:

The TDM (Time-division multiplexing) Gateways :

The IMS (IP Multimedia Subsystem)

• The costs allocated to the termination services are the incremental costs (or “Pure LRIC”) of

TDM and IMS associated with offering termination when already providing retail voice, voice

origination and transit, following 3 steps:

Dimensioning according to the total voice traffic (retail voice and origination, wholesale termination and transit);

Dimensioning according to the total voice traffic excluding the voice termination traffic;

The incremental inventory for the termination is assessed as the difference between the two latter.

• The voice service demand is assessed as follows:

The future number of voice subscribers is based on the 2013-2016 trends (geometric growth rate) for 2017-2019

and considered stable from 2020.

The traffic for the HEO is assessed based on the total market voice traffic (as published on PTS website)

multiplied by the HEO market share for voice services.

The market numbers of minutes are published on PTS website until year 2016. Forecasts for 2016 and further are

extrapolated according to the geometric growth rate for each individual service between 2013 and 2016. The

traffic is considered stable from 2020.

NB: No PSTN network, all the voice traffic is handled by the IP network.

Network cost

allocation


Agenda

26

1. Context





Interaction between the different cost modelsModel implementation and usage

27

Geomarketing

database

Access model

(MS Access)

Access model

(Excel)

Core model

Colocation

model

Consolidation

model

Unit costsUnit costs

Unit c

osts

Inventory

Road network

Core

links

Costs of

core infra

Demand modelLines

passed

Active

demand

Active

demand

Common costs and wholesale uplifts


Overview of the access model (MS Access)Model implementation and usage

28


Overview of the access model (MS Excel)Model implementation and usage

29

Unit cost

of assets

Import

from

ACCESS

Import

from

Demand

Inventory

Investment

Dashboard

Services

Export to

Core

model

Routing

matrix per

services

Annual

Capex

Opex

calculation

Demand

Export to

consolidat

ion Fibre

Export to

consolidat

ion

Copper


Overview of the Core modelModel implementation and usage

30

Demand per node Design rules Unit costs

Core demand

Total traffic

OPEX and

accommodationInvestment

Import from the

ACCESS model

Dashboard Services

Total costs

Traffic

Routing tables

Line-driven

assets

Traffic-driven

assets

TDM-IMS

Export to

consolidation

Import from

demand


Overview of the Colocation modelModel implementation and usage

31

Unit costsEquipment,

wages,

accommodation

DimensionSize of cables and

racks

ResourceHours of staff for

installing

services

Costs of servicesCAPEX and OPEX

Cost summaryCAPEX, OPEX and demand

DashboardWACC, price trends

Annual costCAPEX, annual cost, demand

ServicesUnit costs per service

Product listAnd demand for

the services


Overview of the Consolidation modelModel implementation and usage

32

Import from

Access - Copper

Import from

Access - Fibre

Import from

Core

Dashboard

ResultsImport from

Colocatio

Upift Calculation

Output

Services

presentation of the draft bu-lric+ cost models for fixed ... · tél. + 33 (0) 1 55 04 87 10 fax....

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