Presentation of the draft BU-LRIC+ Cost models for fixed network services Operators meeting 21 st September 2017 Post-och telestyrelsen (PTS) Presentation to the industry TERA Consultants 39, rue d’Aboukir This slideshow illustrates the models and documents issued by PTS. In case of 75002 PARIS discrepancies with the models, the model reference paper, the model Tél. + 33 (0) 1 55 04 87 10 specifications or the model documentation, statements within this slideshow should be disregarded. Fax. +33 (0) 1 53 40 85 15 S.A.S. au capital de 200 000 € RCS Paris B 394 948 731 21 st September 2017
Agenda 1. Context 2. Main modelling assumptions 3. Modelling approach 4. Model implementation and usage PTS – Operators meeting 21 September 2017 2
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. PTS – Operators meeting 21 September 2017 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. PTS – Operators meeting 21 September 2017 4
Agenda 1. Context 2. Main modelling assumptions 3. Modelling approach 4. Model implementation and usage PTS – Operators meeting 21 September 2017 5
The model follows a set of general rules arising from the MRD Main 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 New 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: New 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 New performed: Equivalent copper equipment’s unit costs, price trends are considered. PTS – Operators meeting 21 September 2017 6
The network structure was optimized for the calculation Main model assumptions • 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 New buildings locations as a starting point. Comparison of real access node coverage area and Shortest path from the access node to buildings optimized access node coverage area Buildings Premises 1F 3F 1 Access node 1 4F 2 Access 2F node 2 4F 4F 2F 14F Access node 4F 2F Voronoi ’ polygon’s boundaries Real boundaries of the network 3F PTS – Operators meeting 21 September 2017 7
A set of assumptions have been followed for demand Main model assumptions Access model New • 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 New • Derived to a large extent from PTS statistics (traffic, customer based) • Representative of a 100% footprint • Market share is consistent with the access PTS – Operators meeting 21 September 2017 8
The footprint is restricted to the lines that a commercial operator would deploy Main model assumptions • New 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. Network footprint depending on the active threshold scenario -15% Restricted footprint for Restricted footprint Restricted footprint for which only sites with for which only sites Full Network all lines to be passed active demand are with active demand > deployed 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 2 650 393 1 844 323 1 780 260 1 634 363 passed Number of active access nodes 6 402 5 077 3 046 PTS – Operators meeting 21 September 2017 9
Costs are allocated either using a capacity based allocation or an EPMU Main model assumptions • The capacity based allocation approach is used to allocate network costs: New Asset class Capacity driver Trenches Ducts Surface of the cables inside of the Ducts ducts Fibre cables Fibres Fibre access Switches Active customers Edge and IP Core switches Traffic per node • The EPMU approach is used to allocate non-network costs. PTS – Operators meeting 21 September 2017 10
Other model assumptions Main 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. Architecture of the local access fibre network Network termination point Final drop FOS ODF Distribution PTS – Operators meeting 21 September 2017 11
Agenda 1. Context 2. Main modelling assumptions 3. Modelling approach 4. Model implementation and usage PTS – Operators meeting 21 September 2017 12
Access network modelling approach Modelling approach Network Step 1 – Node location Engineering rules, dimensioning and coverage Efficiency algorithm, Step 2 – Network Demographic data, deployment at the Shortest path street level algorithm Step 3 – Full network deployment Network costing Step 4 – Current asset prices Step 5 – CAPEX WACC, asset lives, price trends Step 6 – Depreciation Step 7 – OPEX calculation Network cost allocation Step 8 – Cost results PTS – Operators meeting 21 September 2017 13
Each section is specified either urban or rural, from which depend the trench type used Modelling approach Network dimensioning Legend Section by trench classification Urban Rural Location Type of trench Cross-trenches Asphalt Urban trenches Bicycle Rural trenches Grass Final drop Ploughing For illustrative purposes only PTS – Operators meeting 21 September 2017 14
Road network and exact location of all Swedish buildings was used for calculation Modelling approach Network dimensioning For illustrative purposes only PTS – Operators meeting 21 September 2017 15
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