National and Kapodistrian UNI VERSI TY OF ATHENS Incorporating risk analysis into telecom investment projects Dr. Dimitris VAROUTAS Lecturer University of Athens Dept of Informatics & Telecommunications D.Varoutas@di.uoa.gr
National and Kapodistrian UNI VERSI TY OF ATHENS Agenda UoA in modeling telecom investments Risk analysis in telecom investments � The problem � The methodologies � The tools Some examples � Broadband access networks � 3G-WLAN business cases Conclusions & Discussion 2
National and Kapodistrian UNI VERSI TY OF ATHENS UoA Technoeconomic activities Conduct techno techno- -economic evaluations economic evaluations for telecommunication investment projects like: � Next generation mobile networks and services � Fibre access evolution � Broadcast convergence Formulate pertinent recommendations recommendations to policymakers, network operators and service providers regarding communications investment strategies. Demand modelling Demand Study the risk risk and externalities externalities effects in communications Promotion and dissemination dissemination of the results 3
National and Kapodistrian UNI VERSI TY OF ATHENS Consolidation of results and guidelines for deployment scenarios Guidelines Standards, Research projects Other Sources and field trials Common conclusions Network Studies Common framework Information gathering / exchange 4
National and Kapodistrian UNI VERSI TY OF ATHENS Steps in technoeconomic modelling Network Components Technology Cost Marketing Marker Services Strategy Share Prices Revenues 5
National and Kapodistrian UNI VERSI TY OF ATHENS Risk and uncertainty are the only certain factors Network Components Technology Cost Marketing Marker Services Strategy Share Prices Revenues RISK RISK RISK RISK RISK 6
National and Kapodistrian UNI VERSI TY OF ATHENS Risk in marketing strategy Diffusion Rates Lucrative segments of 0,25 markets/areas/services 0,20 0,15 Rate Suitable models for the 0,10 0,05 evaluation of the 0,00 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 segments Years Actual Gompertz I Gompertz II Linear Logistic Box-Cox FLOG TONIC � Diffusion or choice based models � Market studies or expert E.g. Can we evaluate and reports forecast the number of � Cross technology models innovators and imitators? � Cross country models 7
National and Kapodistrian UNI VERSI TY OF ATHENS Risk in evaluating services Which are the profitable applications Hedonic Price I ndex Evolution and services 1,2 y = 0,0396x + 0,7633 1 � Online or offline Hedonic index 0,8 services 0,6 0,4 � Determinants of 0,2 telecom service 0 98/97 99/98 00/99 01/00 02/01 Years � Rate � Distance � Mobility 8
National and Kapodistrian UNI VERSI TY OF ATHENS Risk in choosing the network technology Can we take lessons for existing Digital Satellite technologies Subscriber Systems Line Need for risk analysis Fibre in new technologies in the loop � xDSL Hybrid Wireless � WLAN Fibre Cellular Coax Systems 9
National and Kapodistrian UNI VERSI TY OF ATHENS Risk in evaluating pricing concepts Appropriate pricing Need for new models approaches in econometric models Evaluation of price � Price elasticity models in real or simulated situations � User behavior � Externalities Unified price indices � Cross technology � across technologies effects � across services � across countries 10
National and Kapodistrian UNI VERSI TY OF ATHENS Risk analysis outputs Selection of technologies Critical components based on actual costs Renegotiation of Concentration components’ purchase costs Non profitable cases Profitable services Calculation of “costs per user” and “costs per Detailed analysis of subscriber” services costs Optimum solution Rules and guidelines for viable cases Rest value calculations Market opportunities 11
National and Kapodistrian UNI VERSI TY OF ATHENS An example Fixed BB telecommunication investments
National and Kapodistrian UNI VERSI TY OF ATHENS The Fixed BB scenarios Core network - Active - Active Optoelectronic - - WAN Interfaces - VDSL interface ATM ATM - - Fibre cable Central Copper cable Exchange (CE) - Passive couplers - Passive couplers ATM STM4 GbE Local OLT OLT Exchange (LE) ONU Main cable ... PON Cabinet(Cab) 100BaseFx Customers Customers ONU < 750m < 750m Distribution ... cable Subscriber ONT ONT NT NT NT NT NT NT location ATM ATM Ethernet Ethernet 13 (P-t-MP) FTTC (P-t-MP) FTTH/O (P-t-P) FTTH/O (P-t-P) FTTC
National and Kapodistrian UNI VERSI TY OF ATHENS Financial results Net Present Value (NPV) Fibre to the Cabinet Fiber to the Home/Office Area ATM Ethernet ATM Ethernet Dense 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 € Internal Rate of Return (IRR) FTTC FTTH/O Area ATM Ethernet ATM Ethernet Dense Urban 66,8 % 56,2 % 46,1 % 21,5 % Urban 30,8 % 29,7 % no return no return Suburban no return no return no return no return Pay back Period [years] FTTC FTTH/O Area ATM Ethernet ATM Ethernet Dense Urban 3,8 4,3 5,5 7,5 Urban 5,3 5,7 no return no return Suburban no return no return no return no return 14
National and Kapodistrian UNI VERSI TY OF ATHENS CAPEX figures Zoom in: 10 Mill € 45 Mill € Cable_Infrastructure Cable Infrastructure 9 Mill € Cabinet Equipment 40 Mill € Duct Infrastructure Duct_Infrastructure LEX Equipment BuildingInfra Building Infrastructure 8 Mill € CEX Equipment 35 Mill € CPE_Equipment CPE Equipment 7 Mill € Cabinet_Equipment CabinetEquipment 30 Mill € LEX Equipment LEX_Equipment 6 Mill € 25 Mill € CEX Equipment CEX_Equipment 5 Mill € 20 Mill € 4 Mill € 15 Mill € 3 Mill € 10 Mill € 2 Mill € 1 Mill € 5 Mill € 0 Mill € 0 Mill € Dense Dense Urban ATM Urban Suburban Suburban Dense Urban Dense Urban ATM Urban Suburban Suburban EoVDSL Urban Urban EoVDSL ATM ATM Urban EoVDSL ATM EoVDSL ATM EoVDSL EoVDSL 15
National and Kapodistrian UNI VERSI TY OF ATHENS Financial risk in fixed BB investments 100 Probability of NPV < 0 [%] 90 80 70 60 [%] 50 40 30 20 10 0 FTTC– ATM, FTTC FTTC– ATM, FTTC FTTH/O FTTH/O Dense Urban EoVDSL, Urban EoVDSL, EoVDSL, EoVDSL, Dense Urban Urban Dense Urban Urban 16 Scenarios
National and Kapodistrian UNI VERSI TY OF ATHENS An example 3G and WLAN investments
National and Kapodistrian UNI VERSI TY OF ATHENS The idea for 3+ /4G networks Local Area Local Area WLAN Datacom WLAN Datacom Airport Airport Home Home Hotel & Hotel & Roaming Roaming Conference Conference Office Office Office Train Train Public Public station station space space Wide area Wide area Cellular Datacom Cellular Datacom 18
National and Kapodistrian UNI VERSI TY OF ATHENS Transmission rate - Mobility Target Area of Service Mobility/Deployment Area High Speed Beyond IMT-2000 /Nationwide Systems Beyond IMT-2000 3G Moderate Speed (2007-2010?) /Citywide 2G IMT-2000 (2001) Walking /Premises Wireless LAN (2002) Millimeter-wave Static LAN /Indoor 0.1 10 100 1 Transmission Bit Rate (Mbit/s) 19
National and Kapodistrian UNI VERSI TY OF ATHENS WLAN Roaming 20
National and Kapodistrian UNI VERSI TY OF ATHENS ARPU Estimations TONIC yearly ARPU estimations 900 800 700 600 BB Internet Internet Euros 500 SMS 400 BB streaming video streaming 300 audio streaming 200 videoconf video calls & gaming CS & PS 100 voice CS+PS 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 21
National and Kapodistrian UNI VERSI TY OF ATHENS Sensitivity analysis 1.800 1.600 1.400 1.200 1.000 800 600 400 200 0 Total End Market Start Market Marketing Terminal WLAN Building Usage OAM UMTS BTS Churn Penetration Share Share Multiplier Subsidy Begin 183 253 453 748 1.037 1.033 971 964 948 953 Low Value High Value 1.714 1.643 1.444 1.147 860 864 926 932 961 943 22
National and Kapodistrian UNI VERSI TY OF ATHENS Risk factors Risk in marketing parameters � Market size � Market share � Service determinants Risk and uncertainty in network parameters � Technology costs � Technology changes � Cost components evolution � Area characteristics 23
National and Kapodistrian UNI VERSI TY OF ATHENS Some ideas on telecommunications investments in developing countries Demand forecasting � Effects of cross-country diffusion processes � Competition level Technology selection Critical mass effects Communications or telecommunications 24
National and Kapodistrian UNI VERSI TY OF ATHENS Conclusion Risk analysis is a critical issue for telecom investment projects Need for specific problem statement, methodology and tools development Research is needed as well as coordination among key players 25
National and Kapodistrian UNI VERSI TY OF ATHENS Time for Questions & Answers D.Varoutas@di.uoa.gr
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