Post &Telestyrelsen. Bottom-Up LRIC Model Documentation March 2003

Transcription

1 Post &Telestyrelsen Bottom-Up LRIC Model Documentation March 2003

2 Post &Telestyrelsen Bottom-Up LRIC Model Documentation March 2003 PA Knowledge Limited 2002 Prepared for: Prepared by: Viveca Norman BU Modelling Team PA Consulting Group 123 Buckingham Palace Road London SW1W 9SR Tel: Fax: Version: Model documentation

3 FOREWORD This document has been prepared by the Bottom-up Modelling Team consisting of: Roger Steele (PA Consulting), Karl Wermig (PA Consulting), David Ramsbottom (PA Consulting) and Jasper Boe Mikkelsen (Andersen Management International). The purpose of this document is to help users of the bottom-up LRIC models to understand how they work and how they relate to the criteria set out in the Model Reference Papers (MRP). This document is complemented by a User Guide that provides additional guidance on how to operate the models. The User Guide also describes the models Excel in more detail. The views expressed in this document do not necessarily reflect those of PTS. i

4 TABLE OF CONTENTS Foreword i 1. Introduction Structure of this document The BU LRIC modelling process Structure of the models overview of each Definitions and priciples common to all models Consolidation model Definitions and assumptions Structure of Consolidation model The main functions of the Consolidation model Annualisation assumptions Working capital Functional area costs Other common costs Treatment of other services incl. retail Allocation of costs to services Core model Definitions and assumptions Structure of Core model Technical and volume inputs Cost inputs Network Design Rules Switching Transmission and infrastructure Routing factors Shared costs in the Core model Core model calculations Access model Definitions and assumptions Structure of Access model Modelling the Access network Modelling the access network: equipment at the scorched node and links to island sites Shared costs in the Access network Network elements for the Access network Co-location model Definitions and assumptions Structure of Co-location model Modelling Co-location services Direct costs in the co-location model 5-63 ii

5 5.5 Shared costs in the Co-location model Common costs in the Co-location model Other service costs included in the co-location model Sensitivity analyses Introduction Consolidation model Core model Access model Co-location model 6-71 Appendices AP iii Post &Telestyrelsen.28/3/03

6 1. INTRODUCTION 1.1 STRUCTURE OF THIS DOCUMENT This document describes the structure and principles used behind the Bottom Up Long Run Incremental Cost models (BU LRIC) that have been developed for PTS by the BU modelling team. The modelling team consist of members from PA Consulting Group and Andersen Management International. The BU LRIC model consists of several individual models that are inter-related and work together. Together, they form one LRIC model. This document uses the word model to mean both one of the individual models as well as the overall LRIC model that is formed by the combined individual models. This document does not describe in detail the Excel that is used to make each of the models this is described in more detail in the User Guide. In this document we do describe each of the four main models: Consolidation. This combines results from each of the models below and calculates the resulting service costs. Core. This calculates the cost of core network services and systems. It also includes some access costs. Access. This calculates the costs of access services such as raw copper. Co-location. This calculates the cost of services areas that may be used by other operators to co-locate equipment at TeliaSonera sites. Each model is described in overview in the sub section 1.3. Subsequent main sections describe each model is greater detail. A section that describes the model results and sensitivities is included (Section 6). The numerical values shown here are subject to change as inputs to the model are altered. Appendixes to this document describe how the model criteria have been met. Due confidentiality reasons a description of the source data used in the models has not been attached to this document. 1.2 THE BU LRIC MODELLING PROCESS The BU LRIC models have been created as part of a wider process that has been managed by PTS. This wider process includes: Defining and agreeing Model Reference Papers (MRPs) that specify purpose of the BU model and the criteria that the model must follow. The MRP also defines a top-down (TD) LRIC model that TeliaSonera will create. The BU and TD models will be compared and differences of each identified. This leads into a hybrid model process that will use the BU model as its basis. 1-1

7 The hybrid model will be developed using data from the TD and BU models. The overall process is therefore much more embracing than simply the BU model creation. This paper is not directly concerned with the other phases of work but clearly they have had an impact on the BU model development. A general feature of the wider process has been consultation. Consultations with the Swedish telecoms industry have been conducted at all stages of the process and opportunities have been given to influence the model structures and features. Within the BU LRIC project, the BU modelling team have communicated with industry members using a Bottom Up Working Group (BUWG) as the forum. The BUWG has given opportunities for its members to comment on the model structures. The progress of the model creation and planning have been reported on to the BUWG members. The resulting model is therefore the product of inputs not only of the modelling team itself but also the BUWG members that include PTS. The consultations with BUWG members have used discussion papers and open forum discussions at BUWG meetings. Additional one to one meetings or discussions with BUWG members have been conducted where required. The modelling team created a Model Specification. This document described the model functions and features, prior to model creation. It was agreed by PTS and the BUWG. Parts of the specification are re-used in this model description. Critical to the model are input data. This data has been supplied by BUWG members and other parties who have been invited to supply information. The results of the model depends on the quality of the input data. The modelling process has allowed each member to submit data for the model via the modelling team. This process has been used to help with the following: The BU modelling team examine the data and select the best values or to adjust the values when needed. The BU modelling team enables confidentiality to be maintained. Data that is used in the final model is given to PTS, but the source and actual values can be hidden, if required, in any released version of the model. The BU modelling process is completed after the BU models have been refined and reviewed. Following this stage, the model may be developed further as part of the comparison with the TD model and the development of the Hybrid model. This work is beyond the scope of this paper. 1.3 STRUCTURE OF THE MODELS OVERVIEW OF EACH In the following we give a general guide to each of the main models that together form the overall LRIC model. As mentioned previously the LRIC model consists of 4 components that are linked together: consolidation; core; access; and co-location models. These are shown in the diagram below. 1-2

8 Input data Input data Input data CoLo model Core model Access model Consolidation model: - transfer of costs - annualisation - common costs -consistency - costing services Overall structure of the models The models have some shared data - common data that is used by each model. This shared data is not extensive and so it is entered into more that one model. The consolidation model has a verification that enables checks to see that the different models are using the same data. This also allows one model to be adjusted so that cost data for one is different from the other a feature that might be useful under some scenarios. Each model is self-contained it carries out almost all of the calculations associated with its services. This enables each model to be developed independently. The structure shown reduces the number of inter-file links and this simplifies model management. The final results are calculated in the consolidation model. It is here that data from each model is collected and processed into the final service costs. As well as the models themselves some additional analytical work was required for some areas. These are referred to as off-line calculations as they do not form a part of the models. They are, however, no less important to the model since the off line calculations create input values for the models. The main off-line analysis concerns map and road analysis. This analysis has been made using of Graphical Information Systems (MapInfo) and paper maps. This work produced information about the road lengths and hence provides the basis for trench and cabling calculations. Cost inputs are often confidential. Some versions of the models will have disguised values. The user must trace to the source and check that the correct value is used. Version control is therefore important (this is up to the model users). The source data is identified by comments fields. The source name is identified by a code. The code can be traced back to the name of a source using a code sheet (this is confidential and is not normally available to all model users). The code sheet identifies which supplier delivered which input item value Consolidation model This model brings together the outputs of each of the main models. 1-3

9 Input data Mix of interconnect sites Input data CoLo Core No data feeds between models except Core to Access and Core to Colo CoC calc Working capital Common business Consolidated results - element or service Costs are sent to Consolidation model for results calculations. Other services incl. Retail business Cable TV Data & Other Common trench NB Line cards moved to Access in Consolidation model Annualisation Mark-up or allocations Input data Access Product costs Overview of the consolidation model The consolidation model collects the cost data from each model. Additional numerical data about the number of services, and other technical values are also collected. The data is linked into the consolidation model. The cost data is annualised. This annualisation converts the capital costs of equipment into average annual costs, based on the equipment lifetimes and price trends. Each cost items is given an allocation this defines what network element or service the cost relates to. The cost is then allocated and network elements are transformed into service costs using a routing / allocation table technique. The allocation allows cost items that were calculated in one model to be transferred to other services (thus access line cards or main distribution frame costs are calculated in core model but are used as part of access service calculations in the consolidation model). The routing tables are constructed using data supplied from the main models. The routing tables define how each product uses the network elements, and along with products volume data, it enables the services to the costed from the network element cost information. Additional inputs and calculations in the consolidation model allow mark-ups of common costs and the addition of working capital cost. The cost of capital (CoC) is a user-defined input that is used to calculate the annual cost of equipment based on the purchase price Core model The core model calculates the network systems and associated costs that are needed for a network operation of the scale of TeliaSonera. It calculates the cost of switching and transmission systems. The costs of building and overhead systems are also calculated. The core model therefore deals with the element costs that are 1-4

10 driven by traffic (call volumes and numbers of calls) in contrast to the access model, where costs are driven by number of customers. Staff or operation costs based on mark-ups are also calculated and included. The allocation of the staff cost to network elements is carried out in the consolidation model. The core model should be understood to have a different boundary to the core network. The core model also calculates costs of line card and the main distribution frame (MDF). These costs are part of the access network, but are included within the core model calculations. These access-related costs are allocated to access service costs in the consolidation model. The core model starting point is the volume data for each service. The PSTN/ISDN call services define the overall network size. This dimensioning of the network is done through a routing table that defines how each service uses the network. Additional inputs are required to define how non-ptsn services such as leased lines use the network. This gives an overall dimension for the network. The equipment needed to create the overall network is calculated next technical design rules are used to calculate the numbers and sizes of each element. Network costs that relate to other services (not PSTN services) are then excluded. The final costs of the many network elements needed for the PSTN services are finally exported to the consolidation model along with routing table data and volumes data. Off-line calculations are used to estimate inter-site distances and building costs per square metre. Key features of the core model are: A three layer switching hierarchy is assumed. There are Remote Subscriber Switching units (RSSs), Local Exchanges (LEs) and Transit Switches (TSs). The numbers of each may be altered and more than one may exist at any site. Additional international gateway and IN platforms are required. Circuit-switched voice technology is assumed. Voice over IP is not considered. Transmission is based on SDH (Synchronous Digital hierarchy). Transmission technology and layout is not constrained by the MRPs, however the transmission network must supply the level of service required. Rings are used to provide resilience. Optical systems are usually used, but microwave is also used. Some sites may be connected via spurs, due to local geographical features. 1-5

11 1.3.3 Access model The access model calculates the equipment and costs needed to create an access network for Sweden with the scope of services and demand as seen by an operator with SMP such as TeliaSonera. The access model calculates the amount of cables and equipment needed to connect from the Scorched Node site to the customer premises. The main items in the access network are copper cables ducts and trenching. Distribution nodes and splitting points are also required. Fibre is also used in the loop and fibre distribution links are also included. The access services are calculated in the consolidation model. This stage allows for additional costs that are calculated in the core model to be added to the cost calculated in the access model. LE LE Demux Lowest level Scorched Node(s) Line cards RSS RSM Line cards RSM Access Access Network Network Model Model FAM SDP SDP SDP Customer Site SDP SDP SDP NTP Fibre Copper Overall scope of the access network model The diagram shows that access model calculated costs from the scorched node via a tree- and branch style network to customer premises. Primary distribution points () may be used to split the cables. Secondary distribution points (SDP) can also be used to split the cables to the final drop-off points. These final drop of points or final splits are not shown and link the customer site to the cables in the street over the final drop. Not all links will have the need for primary and secondary splits as well as the final split the majority need only one distribution point. Fibre Access Multiplexers (FAMs) are used in the street (where needed) to provide optical systems links to copper final delivery to customers. 1-6

12 The costs of the cables and equipment are calculated using data about the populations and node sizes. Much of this analysis is carried by geotype and is done as an off-line analysis Co-location model This model calculates the systems and costs required to equip space in TeliaSonera buildings that is suitable for co-location space services. The main components of the co-location services modelled at different sites in the SMP operators network are: Location of equipment Installation and mounting of equipment Station wiring Placing Power, cooling and ventilation. Co-location is relevant in relation to switched interconnection, access to unbundled local loop, and for other potential purposes. However, the model only explicitly considers the co-location costs of the unbundled loop. However, the model takes account of sharing of costs between other co-location services and other increments. Unlike services in the core and access network, co-location services consist of relatively few cost categories. They are mostly standalone sub-products that may be combined by the operator who demands co-location. Therefore, although the colocation model is simpler in structure compared to both the core and access models, costs inputs are more detailed in order to capture costs at a sufficiently granular level. The main co-location cost is the cost of space. We assume that space in buildings is, in the long run, an incremental cost hence the building size is variable in the long run. Without this assumption the building costs would be fixed. 1.4 DEFINITIONS AND PRICIPLES COMMON TO ALL MODELS Some concepts and definition are used throughout this document and it is useful to understand the main ones. Scorched Node. This is a TeliaSonera site that has a voice switch or multiplexing equipment (Remote Subscriber Multiplexer - RSM) that has been used to replace a voice switch in recent times. The location and number of these nodes cannot be altered. The equipment within each may be altered (or scorched out ). A scorched node may contain several different types of equipment and it is typically a building varying from small hut to large exchange site in a city. A scorched node does not include small multiplexers that are used as part of the access network, typically in street cabinets or in basements of larger buildings. These are part of the access network. NB it is not permitted to scorch out one type of node completely (thus there must always be some RSSs, LEs and TSs the number of each cannot be set to zero). Geotype. Each site can be classified to be in one of several geotypes. A geotype depends on the density of subscribers per square km. Costs of services may 1-7

13 therefore vary by geotype. Geotypes enable the model to represent the diversity of areas in Sweden, whilst avoiding the need for detailed analysis and estimation for every one of the 10,000 or so switch zones. The geotypes used in the model are: 1. City: over 1,000 lines per km2 2. Urban: 100 to 1,000 lines per km2 3. Rural A: 10 to 100 lines per km2 4. Rural B: 1 to 10 lines per km2 5. Sparse: up to 1 lines per km2; at least one access network subscriber line. 6. Empty: no Access subscriber lines. Zone. Each scorched node is assumed to have an access zone around it. The subscribers in the zone connect to the node via the local access network for the zone. Subscribers are generally connected to the scorched node that they are closest to (with a few exceptions where local geography makes it more cost effective to connect subscribers to another nearby zone due to an obstacle such as a lake or due to local clustering of households). A zone is typically a few km (city) up to about 50 km in area (rural). The overall area covered by a node depends on the access technology used the limits of copper cables means that customers cannot be located very long distances from the node. The scorched node assumption means that the zones are effectively fixed. Note that there are many parts of Sweden that require no access zone at all, as there are no customers in the zone the zone has only lakes, forests and mountains with no population to service. These are allocated to the last of the geotypes listed above, and play no further part in the analysis of costs in the Access network. Fibre Access multiplexer (FAM). This is an item of electronics that multiplexes copper subscribers with fibre-accessed customers. The combined data is linked back to a scorched node via fibre optic link where the data is de-multiplexed. A FAM is typically in a street cabinet or larger customer-building basement. Remote subscriber multiplexer (RSM). This is a scorched node site that has multiplexing equipment. The RSM combines data and voice service from customers and transmits them over a fibre link to another scorched node site where they are demultiplexed and linked to other systems such as voice switched and data systems. Any voice-switch site may be converted to an RSM and vice versa under the Scorched node rules. The RSM will have copper line termination cards. Core-access demarcation. For ease of modelling the demarcation of the models and the services are different. The access service includes all equipment from the customer premises up the scorched node, including the line cards in the scorched node. Thus, access includes copper terminating line cards in the RSM and in a voice switch. The MDF is also included in the access network costs. The model demarcation, however, is at the scorched node, where the access model includes costs all the costs from the Network Termination Point (NTP) up to (and excluding) the scorched node site. The differences of core and access models and networks are illustrated in the diagram below. 1-8

14 Core Network Model Transit Switch (TS) TS Core Network Local Exchange (LE) LE LE Demux Line cards RSS RSM Line cards RSM Access Network Access Network Model SDP SDP SDP FAM Customer Site NTP SDP SDP SDP Fibre Copper Core and access network versus model demarcation The core model includes the line card and MDF calculations, even though these are access network cost items. Main distribution frame (MDF). The main termination point for copper access cables in a scorched node site. The copper pairs from the customer are linked from the MDF to the equipment in the scorched node. Spur. A path to one or more sites that has only one physical route. Ring. A logical or physical connection that has two paths that therefore can (optionally) provide alternative routes should one path round the ring fail. Logical versus physical link. The logical link (or links) is the path between two items of equipment. The physical path is the actual route taken by the data between the equipment. There may be two logical paths, but it is possible for these to be on the same physical path or on diverse paths. Capital versus operational costs. A fundamental feature of the BU model is the different determination of capital related costs and operational costs. Capital costs (or capex) are a result of the purchase and installation costs of the equipment. The total capital cost of a particular type of item is the cost of one item times the number of items required. The lifetime of the equipment and the price trends are also capital related data. They are used, along with the purchase costs to determine the average cost per annum the annualisation calculation is carried out in consolidation. The depreciation is calculated in the consolidation model (and is related to the capital cost). Operational costs are a result of the maintaining, operating and repairing the equipment once bought. This is an on going or annual cost. Operational costs are derived separately from the capital cost and the two items are not directly related. Functional areas and operational cost calculations. Operational costs are based on a definition of functional areas. These are areas of the business that are needed to carry out a set of related functions such as operational work on (say) switches. Functional areas are defined to have a set number of staff. The costs of this functional area are therefore independent of the capital cost. The models allocate the cost of the functional area to the capital items in proportion to a cost factor. The cost 1-9

15 factor is defined as a percentage of the capital cost the percentage is an initial estimate of the equipment capital cost as a fraction of the purchase cost. Costs are allocated pro-rata. Therefore if the capital cost of equipment varies, then the total operational cost is still fixed (it is defined by the functional area size). The allocation of the total operational cost will vary slightly. However, if every item s capital cost increases similarly, the allocation will remain the same. Base year. This is the starting year for cost and volume calculations. All primary data should be for this year. Future year data may be needed in some parts of the model, but these are by definition predicted values. Market forecasts of volumes for future years are typical examples that are required to enable the base year data to be extrapolated to ensure the network is dimensioned to cope with future demand. 1-10

16 2. CONSOLIDATION MODEL 2.1 DEFINITIONS AND ASSUMPTIONS The consolidation model uses the costs relating to core, access and co-location that are produced by each of the separate models. The costs are brought together in the consolidation model. This grand consolidated list of all cost categories is shown in the I_Cost Categories Sheet. The consolidation model produces the final cost of each service. It also undertakes some checks for consistency between the other three models. As well as annualised costs, any cost may be expensed, hence the cost is recovered as a one-off payment. Some cost items that are relevant to access or co-location services are typically treated in this way. Core PSTN costs would not normally be expensed. The model therefore calculates service costs as a mixture of one-off and annualised costs. The choice of annualisation or expensing is user-defined and it is essentially a pricing decision. 2.2 STRUCTURE OF CONSOLIDATION MODEL The consolidation model structure is captured in the navigation map. This is reproduced in the diagram below. Consolidation model - navigation map The consolidation model has three main stages input, calculations and output. The main functions of the consolidation model is the calculation of service costs from the cost category inputs of the core, access and co-location models, and the integration of functional area costs, including common business costs. 2-11

17 2.3 THE MAIN FUNCTIONS OF THE CONSOLIDATION MODEL The consolidation model carries out several key functions. They include: Annualisation of capital costs to give an annual cost. Optionally the cost item may instead be expensed (treated as a one-of cost) Calculation and recovery of costs relating to working capital Calculation of service costs. These functions are discussed in more detail in the sections that follow. The consolidation model contains come central data values and calculations, but its prime purpose is to consolidate all of the calculated costs from each model and calculate the service costs from these cost inputs. The design is based on disaggregated cost data. This approach based on a collation of cost data enables all costs that contribute to each service to be identified individually. The collated input costs from each model are annualised (or expensed). This involves adding together different cost types such as equipment costs, installation costs and operation costs to derive a single cost (annual or one-off) that represents the long-run cost that must be recovered. The assumed cost of capital, price trends, lifetimes and scrap values are combined in this calculation. The disaggregated approach also allows the user to use alternative annualisation formulae for any cost category. A number of different annualisation options have been provided. These are discussed in more detail in the next section. The annual cost of each cost category is allocated to network elements or services. The user is allowed the flexibility to define the allocation to use. The resulting element costs are then processed into service costs. Routing tables and other allocation/combinatorial techniques are used as required. The final cost of services is then subject to an uplift to give an equal mark-up approach to common business costs and costs related to working capital. A feature of the approach taken is that the costs, when input to the consolidation model, can be altered (or overwritten) to give another value and the results directly evaluated. This is approach to sensitivity analysis is not a normal action (it invalidates the true results), but it is easy to carry out. Another approach for sensitivity analysis is to alter the allocation of the cost category. If a cost category is not given an allocation (remove or delete the network element allocated to the particular cost category) then the cost is taken out of the service cost. It is easy to compare the new value with the normal value and hence see the sensitivity of any service to a particular cost category. This type of analysis is also referred to as the delta method the user can quickly see the difference or delta caused by any one cost. This means that the contribution of any one cost to a service can be easily seen. 2-12

18 2.4 ANNUALISATION ASSUMPTIONS Cost of Capital The cost of capital measures the opportunity costs of the sources of capital (debt and equity) invested in the company (the SMP operator). In March 2001, a study was conducted by BDO Consulting Group for PTS in order to establish the cost of capital for interconnection services in TeliaSonera s fixed network. Although the various parameters used in this study may have changed, PTS believes the methodology used is appropriate and should be used for estimating the cost of capital in the top-down and bottom-up models. This estimated value of 13.5% (nominal pre tax) is an input in the model, cf. CG 1 in the MRP Annualisation options The consolidation model offers a number annualisation options. These are: Straight-line depreciation Tilted Straight-line depreciation Sum of digits depreciation (front loaded) Standard annuity function Tilted annuity function Straight-line depreciation divides the asset s price by the asset s life to produce an annual depreciation charge. To calculate the annualisation charge, a capital charge is added. The straight-line annualisation factor used in the model is: SV CV (1 CoC) AL 1 + CoC, AL where CV is the capital value of asset, SV the scrap value of the asset, AL the asset life and CoC the cost of capital. Tilted straight-line depreciation takes account of expected price changes for assets. It will result in a steeper depreciation profile when prices are falling than unadjusted straight-line depreciation. The tilted straight-line annualisation factor used in the model is: where PT is the price trend. SV CV (1 CoC) AL 1 + CoC PT, AL The sum of year digits (SOYD) is a simple method for generating a front-loaded depreciation schedule. It may be a useful approximation if the asset s operating costs 2-13

19 are expected to rise or its price or the revenue it generates is expected to fall. The sum of years digits annualisation factor used in the model is 1,2 : SV CV (1 CoC) 2 AL + AL 1 + CoC The annuity approach calculates both the depreciation charge and the capital charge. A standard annuity calculates the charge that, after discounting, recovers the asset s purchase price and financing costs in equal annual sums. In the beginning of an assets lifetime the annualisation payment will consist more of capital charges and less of depreciation charges; this reverses over time resulting in an upward sloping depreciation schedule. The increase in the depreciation charge over time exactly counterbalances the decrease in the capital charge with the result that the annualisation charge is constant over time. The standard annuity function used in the model is: SV CV (1 CoC) AL CoC CoC A tilted annuity calculates an annuity charge that changes between years at the same rate as the price of the asset is expected to change. This results in declining annualisation charges if prices are expected to fall over time; for a large enough tilt the slope of the depreciation profile will also be negative. As with a standard annuity, the tilted annuity should still result in charges that, after discounting, recover the assets purchase price and financing costs. The tilted annuity function used in the model is: AL CV SV (1 CoC) AL CoC PT 1+ PT 1 1+ CoC AL As stated in the MRP the starting point for the bottom-up model, should be to use (tilted) annuities. The annuity approach has the advantages that the annualisation charge is independent of the age of the asset. The fact that the bottom-up model is (artificially) modelling new assets therefore becomes less of an issue 3. 1 Note the formula used is a simplified version of the sum of digits (front loaded) annualisation formula. This simplification is possible since the costs we are modelling are those for the first year in an asset s life. 2 Note that sum of years digits depreciation may also be back-loaded. This is the reverse of the depreciation under sum of years digits front-loaded. 3 Otherwise, it could be argued that the bottom-up model should not model the costs in year 1 but rather in year 3 or 5 for example. 2-14

20 However, the MRP also states (in CG 18) that choice of depreciation methodology may be justified by reference to a formal comparison between the different depreciation profiles and economic depreciation. International experience may also be used as justification to the extent that the annualisation methodology has been selected on a similar criterion (proxy to economic depreciation). We have not carried out a justification based on economic depreciation profiles. This is due to the significant practical and informational difficulties in estimating economic depreciation correctly. However, we note that the tilted annuity function is in line with the FCM methodology 4 recommended by the European Commission 5. The default annualisation formula used in the model is therefore tilted annuities 6. Note that the majority of equipment costs and installation costs are passed on to the consolidation model where they are annualised. However, there are a few exceptions. These are building costs and common site costs that are annualised in the core model Annualisation parameters Price trends, residual (scrap) values and equipment lifetimes are specified for all cost categories and are used in the calculations. These inputs are made in the separate core, access and co-location models. The consolidation model merely imports these values and then uses them in the annualisation process. The MRP does not provide specific guidance for the BU model on these parameters. However, the specific guidelines for the TD model indicate that the economic life of equipment is the appropriate measure for asset lives. Estimating the expected economic life of the asset will involve a degree of subjectivity. Although the engineering life or the physical life can be used as a starting point, the difficulty is to determine how much the asset life should be shortened to reflect the stranding of assets as a result of technological change or through changes in demand. The BU modelling team have asked for the BUWG to provide estimates of asset lives in the data requests submitted. With regard to price trends the BU modelling team have used evidence supplied by the BUWG of the likely changes in prices and international benchmarks where account also was taken of changes in the price in the recent past. 4 The tilted annuity meets the requirement of financial capital maintenance (FCM) in that it returns to the investor, in present value terms (using the cost of capital as the discount factor), the full cost of the asset. 5 Commission Recommendation on Interconnection in a Liberalised Telecommunications Market Part 1 Interconnection Pricing, 15 October Note that tilted annuities do not work well when asset prices are declining rapidly (understating costs) or where asset prices are rising over time (overstating costs but less than a lot of the other methodologies). Hence, using tilted annuities may result in understatement of core costs and overstatement of access. 2-15

21 2.5 WORKING CAPITAL The cost of the working capital is a percentage of the total working capital. For the purpose of bottom-up modelling the MRP states that the required level of working capital may be calculated as: (Debtor days sales) (creditor days total trade creditor related costs) + cash, where stock is assumed to be negligible and debtor days and creditor days refer to the weighted average. Only working capital, which is related to the operator's network (wholesale), may be included. Hence, working capital related to retail debtors and creditors cannot be included. Since there is likely to be a significant difference in working capital between the wholesale core and access business, the model calculates working capital for each of these businesses separately Debtors and cash The sales will be the sales revenue of co-location, core PSTN and access network services. These should be calculated assuming a cost-oriented price. Because the BU model does not calculate sales revenue, total annualised costs may be used as proxy, since they will equal the level of sales revenue if LRIC charges are set correctly. Determining the prudent level of cash to be held as working capital will depend on attitudes to risk and the perceived cost to an operator of suffering a cashflow crisis. The MRP indicates that a percentage increase in the debtor days may be used instead of a figure for the amount of cash a prudent operator requires. This is the method used. Applying these simplifications debtors and cash may be rewritten: n i = 1 DDi DWi 365 TC ( 1+ %increase in DD) where DD i = debtor days of debtor i=1,..,n DW i = is the weight assigned to the debtor i (a percentage of total annualised costs). TC = total annualised costs. We note that some services are paid for in advance hence some services will have negative debtor days and others will be a positive number of days (paid for in arrears). Since there a likely to be large differences in debtor days for access and 7 Note that the cost of working capital for the core business is used as a proxy for co-location services. 2-16

22 core services the model makes a distinction between the two. Data suggests that access debtor days will be negative while core debtor days will be positive Creditors The total trade creditor related costs should include costs of wages, electricity and other payments to suppliers, such as support contracts and equipment suppliers. The creditor costs can be determined from the total costs, excluding cost of capital. This is because equipment suppliers costs (annual capital expenditure) are approximately equal to depreciation and the remaining creditor costs as e.g. electricity, wages and other supplier costs may be regarded as related to operational cost. Sum of depreciation, electricity, wages and other supplier costs is the total cost produced by the LRIC model when the cost of capital is set to zero. Thus, the total cost when cost of capital is set to zero can be assumed equal to the creditor costs. Applying these simplifications, creditor related costs may be written as: j m CD j CW = j TC ex CoC, where CD j = creditor days of creditor j=1,..,m CW j = is the weight assigned to creditor j's. TC excoc = Total costs excluding the cost of capital Working capital formula The formula for the required level of working capital used in the model can therefore be summarised as follows: n m DD DW CD i j CW i j TC ( 1+ %increase in DD) - = i j = TC excoc The required level of working capital is determined using the above formula and using international benchmarks as input values. To calculate the working capital surcharge the total working capital value is multiplied by the cost of capital to get the cost of working capital. The cost of working capital is then calculated as a fraction of the total costs (sum of costs of core, access and colocation) and used to used to uplift the cost of services. We note that working capital could have a lower return than the return used for capital investment. This is possible since some of the working capital could be used to obtain a return from (say) short term bank deposits. We have chosen to apply the same return value for working and investment capital, because even an efficient operator may not realistically be able to obtain such a return. Also, agreeing on the expected fair return on working capital is not easy. As a result our estimate of the cost of working capital is potentially a slight over-estimate. 2-17

23 2.6 FUNCTIONAL AREA COSTS The MRP gives considerable freedom in the modelling of operating costs and other indirect non-network costs. The BU modelling team have considered a variety of options. Ideally, all operating costs and other non-network costs should be modelled from first principles. This involves: 1) identify the drivers of these costs, 2) identify the relationships between the cost drivers and classes of costs and 3) incorporate these relationships into the model. In practice however, such a modelling process is likely to be extremely complex, costly and time-consuming. Further, as the MRP notes this may result in activities being missed without a very detailed understanding of the SMP operator s operations. As a result, typically in LRIC models, operating costs and other non-network costs are estimated as a percentage of network capital investment. There are however, a number of potential problems with this approach. First, it assumes strict relationships between capital investment and operating and maintenance costs and that this is stable over time. Second, as operating costs are based on network investment, this approach tends to amplify any errors made in the determination of the appropriate level of network investment. Another approach would be to derive mark-up s using the actual operating costs of the SMP operator based on existing accounts. Although not forward-looking or necessary reflecting efficient costs, this approach would ensure the costs do reflect the situation of SMP operator. However, even if the SMP operator were fully efficient, any percentages derived would be inappropriate as capital investments would not be valued on the basis of their current replacement costs. The BU modelling team have therefore chosen a novel functional area approach, recognising that a pure mark-up based approach may not be satisfactory. The approach taken is a quasi top-down approach, encompassing estimates for the operational costs for the wholesale business, plus other relevant operational overheads. The approach used is to identify each operational (or functional area) that is needed. Each of these areas is dimensioned (e.g. X number of staff in department Y needed for every N local exchanges or for the entire company) in order to define the total operational costs expected for an efficient operator (using average cost per staff member). These results define the expected total staff costs required to run the domestic PSTN network of an operator with SMP in Sweden. This approach consists of several stages: 1. Define the operational areas to consider. 2. Define the size of each area. 3. Define the cost of each area. 4. Allocate the cost of each area to (say) switches or other network items, such that the total is equal to the sum of the functional areas. 2-18

24 Stage 1 resulted in the identification of 21 functional areas for costing. Stages 2 and 3 where completed following input from BUWG members and TeliaSonera. Stage 4 has been implemented in the model Operational areas to consider The functional areas considered in the model retained as full-time staff are: Corporate Overheads Core transmission Human resources maintenance Finance Core transmission planning Billing Access transmission management Support systems Access transmission Admin maintenance Switched Network Access transmission planning Management Site management Switched network maintenance Field Engineering access Switched network planning Field Engineering core Core transmission management Functional areas in the model related to one-off, non-recurring events considered in relation to a single piece of equipment are: Switch implementation Transmission implementation Access implementation Size of each area For each of the identified functional area above, the model includes input for the staffing requirements i.e. the number of staff required for each area. The total staffing requirements determine the size of each area. Note that staffing requirements input do not distinguish between different staff types. Distribution to different staff types is done at a later stage in the calculation, cf. below. The inputs are based on an evaluation of the requirements for an optimised network with the scope and size of the SMP operator. However, due to the lack of sufficiently detailed data some of staffing requirements may be set to zero and grouped into other areas Cost of each area The cost of each area is calculated using staffing profile assumptions (%-manager, %- support and %-technical) and the average annual cost of the different staff types. The staff costs include social costs, benefits (car, healthcare etc.). Further, a mark-up has been added to take account of non-pay costs. In order to derive the total annual cost of each area the model simply multiplies the average salary costs with the calculated number of staff and sum over all staff types. 2-19

25 2.6.4 Allocation of the cost of each area In order to use the costs calculated using the functional area approach, the model utilises an allocation table and the operating costs already allocated to different network elements by using the mark-ups in the core and access model. The allocation table consists of zero (do not allocate costs) and one (allocate costs). Using this allocation table and the operating costs allocated to each network element the model calculates the functional area costs to each network element. The formula used to allocate costs is: where FA NE j α ij FA j =, opex NE α i i FA j = the FA cost of network element j FA i = the FA cost of area i j NE j = operating cost allocated to network element j using mark-ups in the core and access model j opex α ij = allocation key for network element j and area i Common business cost The functional area costs also provide an estimate of common business costs. In the model common business costs are defined as: Costs that are required by an efficient operator with SMP in Sweden, with the scope of services similar to TeliaSonera. These costs are common to the businesses of core, access, co-location and other retail services. They are indirect non-network costs that are required to make the business function and hence not directly related to the services or the network. Examples are the chairman s office, legal department, audit fees etc. Clearly these are required in any business, are common to the entire business and do not vary directly with service or network costs. Common business costs, in contrast to common or shared network costs, are not directly related to services or the network Expensed vs. annualised costs The model calculates the mark-up for common business based on the annualisation of all costs. Therefore expensed costs are allocated a share of the common business costs by calculating the common business costs mark-up as if all costs where annualised and applying this mark-up directly on the expensed unit costs. This may be regarded as a pragmatic solution to ensuring that expensed costs receive a proportion of common business costs. The underlying assumption is that the total pot of annualised costs, for those cost that are expensed, may be taken as a proxy for the proportion of annual one-off costs. ij 2-20

26 2.7 OTHER COMMON COSTS Common business costs were described above. This section concerns other common costs such as building related costs and shared costs such as ducts and cables. These are the network costs of shared network equipment that are necessarily incurred if access and interconnection services are provided and are not avoided if interconnection and access services are no longer provided. These costs are not specific to the consolidation model, but are described here because they relate to all models Building costs Building space and common building-related costs are an input in the core model. Common building-related costs (or site costs) include site security, power supply units and air conditioning. The model attributes each site type (RSS/RSM, LE and TS) a common site cost. This cost is then divided by the average size of these sites to obtain a per square metre value. The average site size is assumed to consist of area used for PSTN equipment, non-pstn equipment and co-location. The average site size for co-location is an input value from the co-location model (manually entered). The raw annual building space costs per square metre for each genotype is an input to the model. This value has been derived from publicly available sources. Common site costs are annualised and added to the annual building costs to achieve a cost per square metre for each geo-type. These values are then converted to a per square metre value for each site type. This value is also used in the co-location model (manually entered). Each cost category has a defined accommodation area of occupancy. Thus local exchanges will obtain some building costs, and transmission equipment will also occupy some space. The areas occupied by each piece of equipment are user inputs. The total common site costs (equipment, operational costs and any allocated building costs) are next allocated to the equipment within the sites. This is done in proportion to the area occupied. Thus the area occupied in a local exchange building by a local exchange switch determines the amount of common shared building costs that are allocated to the network element or service. Accommodation costs remain disaggregated through the individual models into the consolidation model. It is therefore possible for the user to modify the consolidation model to re-allocate these common costs in any manner desired Shared facility costs A number of shared facilities exist (excluding buildings). While it is relatively straightforward to identify the network elements used by services other than PSTN, the potential difficulty is determining the usage of the network elements by other services. The BU Modeling Team have therefore allowed in a fairly large degree of flexibility in the treatment of these costs in the models. The two major categories of shared facility costs discussed in this section are: Duct facilities (and of trench diggings) and core network systems. Duct and trench facilities 2-21

27 There are two key sharing aspects of duct facilities (and of trench diggings): The physical amount of duct/trench in km shared with other utilities The physical amount of duct/trench in km shared with the access network. In addition to the physical amount of sharing there is a separate issue, namely how these costs are shared. The model allows for user-definable inputs that specify the amount of shared digging length and other inputs to calculate how the costs are apportioned. This provides a significant flexibility in the treatment of these shared facilities. The physical amount of sharing is a technical design factor that is an output of the model calculations. The amount of cost sharing, however, is a more subjective decision as there is no clear cost driver which can be used to these allocate costs. Therefore the user has flexibility to alter the amount of shared network and to apportion the shared network in any ratio (the core network may take zero to 100% of the shared cost). Core network systems Core network systems (transmission equipment, switches etc) are shared by many services. These costs are allocated to the services based on the primary cost driver being: Capacity (Mbit/s) used by the service for transmission and Call volumes for switch equipment. These allocations are carried out by routing factor techniques or by splitting of the network element s costs, based on the capacity consumed by the other services. For example, as leased lines are dedicated links, there is no measurable minutes of use of network elements as there are for PSTN calls. As a result, the use of network elements by leased lines must be proxied by other measures such as leased line capacity. That means the costs of shared network elements must be allocated between leased lines and fixed PSTN services on the basis of the capacity of the equipment used to provide the services. The capacity of other services is generally based on TeliaSonera data, or BU modelling team estimates of the data Other shared facilities The switches are shared by core and access services. The model identifies the line card, MDF and frame unit are all access-related. Although central parts of a core switch these costs are clearly not call dependant and are therefore allocated to access accordingly. 2.8 TREATMENT OF OTHER SERVICES INCL. RETAIL Other retail services and the retail business are not calculated in any detail in the models. Where there are shared networks or facilities, the costs that are driven by these other services are calculated and due portions of network costs are excluded. Thus leased line transmission costs and common building space costs are calculated and the costs excluded as appropriate. 2-22

28 There are no estimates of the retail business costs except in the functional area costs. Here the model uses an estimate of the total common business costs of a SMP operator. These costs are common to both the wholesale and retail businesses. A percentage of the common business costs are therefore defined as relating to the retail businesses and hence excluded them from the any further processing to wholesale costs. 2.9 ALLOCATION OF COSTS TO SERVICES For access and core services, service costs are calculated using the routing / allocation tables, using information on the attribution of cost category to network element. For colocation services the allocation is done directly without any allocation table. However, before costs are allocated to services they are annualised (or expensed as appropriate). This is done in the C_Services sheet, where annualised equipment costs and installation costs together with annual operating costs are added to derive a single annual cost. To allocate costs to core services the model offers two possibilities: Busy hour or Minutes of traffic. This is a MRP requirement. Using a busy hour allocation, each service s share of minutes in busy hour is used as the cost allocation key. Using minutes of traffic the allocation key the service s average use of a network element is divided by the total volume in minutes through the element Allocation for core services The busy hour allocation uses cost weights derived in the core model used to dimension the network. These costs weights (CW) are calculated using the following formula: CW ij rfij BHTi =, BH capacity j where rf ij = routing factor for service i and network element j BHT i = busy hour traffic (BHE or BHCA) for service i BHT i = busy hour capacity through network element j or rf ij BHTi. i Note that CW = 1. ij The model uses a conversion factor to convert the annual call minutes into busy hour erlang. This conversion factor is: BHE = annual minutes/52/6/10/60. The factor of 52 reflects the number of weeks in the year while the factor of 6 is used to convert into daily values. The factor of 10 implies that 10% of traffic occurs in the busy hour. Finally, the factor of 60 is to convert from minutes to hours, cf. section for more information on this figure is used. i 2-23

29 In the case where the conversion factor is the same for all services the results of using a busy hour allocation will be the same as using a minute allocation the cost weights will be the same, i.e rf ij BHT BH capacity i j rfij Traffici = rfij Traffic i i Allocation for access services For the access network costs are allocated to services using the allocation table. For each network element, allocation factors are attributed to each service using the network element in question. They allocation factors reflect the relative usage of the network element (cost causation principle). These factors are weighted against the volumes of each service. 2-24

30 3. CORE MODEL In this section we describe the main features and rationale behind the core model. 3.1 DEFINITIONS AND ASSUMPTIONS Increments The core model is a bottom up model of the equipment and systems required to carry the services defined in the MRP with the required level of service quality. It therefore calculates the cost of both wholesale (interconnect) and retail PTSN increments. The core network model is defined to include all systems and equipment contained in scorched nodes, including links between the nodes. It does not include links from the node to the customer (these links are in the access model), except in the case of customers located on islands with no scorched node and no overland connection to the mainland (these are re-allocated to the access network in the Consolidation model). The core network (c.f. core model) does not include line cards and the MDF. See diagram: Core and access network versus model demarcation. The core model includes additional costs required to give the extra capacity needed to support other services than those defined in the MRPs. These other services, or non- PSTN increments, include leased lines and datacoms services. These services are not costed the costs of servicing and supply of dedicated equipment for these increments are not included. The transmission capacity required to support the non-pstn increments is included, and a portion of the total transmission cost is later taken out of the calculation. This portion represents the cost of the non-ptsn increments. Non-PTSN increments are therefore not calculated, but the capacity effect on the PSTN increments is taken into account. Increased capacity reduces the average cost per unit Network structure - switching The network is based on three layers: Remote subscriber switches (RSS) sometimes referred to as remote concentrators. These switches concentrate traffic that is then sent back to a parent Local Exchange (LE). The LE completes a call by sending it to another RSS or to another core switch. The RSS has access line cards that link to the customer. One LE may parent many RSS. We assume that RSSs are located at scorched node sites. We assume that an LE does not have access line cards. An LE scorched node site may have one or more RSS located at the same site to enable access line cards to link to the customers in the LE node zone. The third layer is a transit switch (TS) layer. The TS links to other TSs and to LEs. A site with a TS may have an LE and RSS to access the customers located in the TS site zone. Calls are routed from a customer connected to an RSS, to a parent LE. The call may then be sent to another RSS. Alternatively, the call may route to another RSS parented on another LE. To get to the other LE the call may be passed via the TS layer. It is also possible for the LE to send the call to another LE. 3-25

31 RSMs (Remote Subscriber Multiplexers) may substitute for a RSS (or vice versa). The RSM does not concentrate traffic and one channel is required for each customer. The RSM traffic passes through another demultiplexer at another site to connect into the RSS switch. RSMs do not have access line cards, but the onward transmission connects into line cards at the corresponding RSS site. 1. Existing RSS Access Boundary between Access and Core Core 2M LL (Fibre) NODE site Leased line system Customer 64k 2M 64k Small building RSS LE n x 2M 64k 64k 64k SDH SDH ISDN30 64k Other Mux 32M 32M Datacoms ATM 2. New RSM instead of RSS Access Core 2M LL (Fibre) Boundary between Access and Core NODE site Leased line system Customer 64k Small building 2M 64k 2M n x 2M LE 64k 64k 64k 64k Fibre MUX OLE 8M or STM1 Core Node-to-node fibre OLE 2M 32M 2M IS DN30 32M 32M Datacoms ATM RSMs may replace a RSS The diagram shows how an RSM may replace a RSS. The numbers of RSMs and RSS sites can be adjusted (noting that the total number of sites is fixed by the scorched node assumption). Adjusting the RSM/RSS site mix is a key feature of model optimisation. The relative numbers of RSS/RSM is defined by the model user. The numbers of each type of node is the main optimisation option for the model. The inputs for this are defined in Table 1 of sheet I_demand_data. This covers the numbers of other site types as well as RSS/RSMs. The options selected depend on: Engineering approach toward multiplexing Costs. The values selected should reduce the costs. Resilience a few very large nodes may put too much traffic through is single point of potential failure Switching may be based upon standard AXE switching technology for RSS, adjusted for modern equivalent assets (in this case the Ericsson engine type technology). The model has been optimised to incorporate MSGs (Multi-Server Gateways) and Telephony Servers. This technology has the potential to reduce the costs since the RSSs and LEs themselves may be replaced with simpler less intelligent gateways since the processing intelligence would be centred in a few Telephony Servers. Some discussion may be necessary during the Hybrid modelling phase to agree how processing costs should be attributed. 3-26

32 Cost data has been entered that covers the costs of the MSG equipment. Alternative costs for using AXE equipment for LE and TS switches can also be used (it is also in the model and can be copied and pasted in over the MSG data see I_switching_costs table 3.3). The MSG engine solution is based on the structure of basic RSS switches that have the line cards connecting to customers. These parent onto LEs (i.e. MSGs) that have the call switching engine. The RSS do not switch calls. An RSS can be located remotely or at the same site as the LE MSG. Customers cannot connect direct to the LE. The LEs can also connect to parent transit switch MSGs. The MSG call-control is carried out by telephony servers. A relatively few of these are required for a network (but some resilience if needed as these control many switches). The telephony servers supply signalling information to the MSGs. The number of RSS switched needed depends on used inputs of the RSS/RSM numbers (this input should be selected to give lowest overall costs, if the network is to be optimised). The numbers or RSS units at a site depend on the customer numbers (there is a limit to the number of customers per RSS unit). LE and TS numbers are user inputs these can be defined in a manner that reduces costs, but takes into account the engineering philosophy taken for the network (we note that MRPs provide a restriction to the limits of optimisation the network should have 3 layers). The balance of cost versus resilience (avoidance of single very large nodes) requires a user to be aware both of network engineering and cost issues. NB, we assume the trunk interface cards in all switches are assumed to be the same cost no matter the switch type. More radical changes to the cost assumptions may be made if the user has better data on the input costs of the different technologies. International gateways are additional switches that act like TS but link to other countries. These are assumed to be traditional AXE type equipment Networks structure Transmission The network is designed to link all the scorched node sites. Transmission technology is based on SDH. Link sizes for optical links vary form STM1 up to STM 64. Microwave systems may be used up to STM 1 size. Most of the network is designed using a ring structure to provide resilience. Some sites may also be linked on spurs. The typical connection of sites is shown in the diagram below. 3-27

33 RSS Logical connection Fibre pairs use same physical path RSS Logical connection Fibre pair RSS RSS RSS Fibre pair RSS RSS RSS RSS RSS RSS RSS LE LE RSS (big city) RSS (big city) Co-located RSS and LE Co-located RSS and LE Ring structure used to connect most sites Sites connected via a spur link Rings structures are also use to connect LEs to other LEs and to connect LEs to TS and TS to other TS. The ring provides resilience if the capacity factors are set correctly, there is at least double the total capacity of the ring on each link (or hop between nodes), and the total traffic may be routed round the ring in the opposite direction. Some sites may be connected via a spur (as shown in the diagram above right), where there is no physical diversity. This is typically appropriate for some islands and some sites that are in remote areas or along valleys. Spurs provide lower level of service, but this is still satisfactory for smaller sites as the probability of link failure is low and the total number of customers affected is low. Spur links may be provided on cable or microwave connections. Any spur links to islands for the Access network are calculated similarly. See Table 6 of sheet: C-Transmission Network structure North and South The differences in topographical features in Sweden mean that the country has been divided into two regions North and South. There is one transit switch structure for the North and a second for the South. This reflects: The larger area in the North has low total traffic and low total numbers of subscribers. The North has many zones, each with few customers. This is because each zone has a finite size limited by the maximum physical distance from the node to the customer. The distance limit is set by copper technology. The South has more traffic and a higher density of population and subscriber lines. The dual treatment enables the structures of transit switches in the North and South to be adjusted independently, but based upon the same design principles. 3-28

34 3.1.5 Design timeframe (horizon) The core model has a design timeframe for different cost elements. Any cost category can be allocated with a time horizon. Thus some elements can be dimensioned for the year one demand, others for years 3 or 5 demand. This means that cost need not reflect only today s volumes, but those of the future, weighted by the need to provide for future equipment (some equipment can be provided just in time, others must be planned for further in advance. The model has a macro that in effect runs the model 3 times to gain the different data. This macro is located as a button on the Output sheet and should be run once the model has completed all other calculations. The user must enter the time horizon to use for all different equipment categories (1,3, or 5) see the growth year factor in the sheet: output. The macro should be run after the core model has been altered only if the macro is run will the new results be linked to the consolidation model. 3.2 STRUCTURE OF CORE MODEL The core model structure is shown in the diagram below. Core model structure The diagram shows the model structure taken from the model map. The model map is a diagram in the Excel model that allows the user to navigate through the model. There are six main stages in the calculation: Input volumes, technical data and routing table data 3-29

35 Transmission dimensioning Switch dimensioning Cost determination Sharing with other services and Access network Export to Consolidation. In addition to these stages there are some offline calculations that have been used to process benchmark data for use in the model. These calculations are not part of the Excel model. The starting point is the total traffic for all the services. This is used to calculate the size of the network needed both the size of transmission links and the switching systems. The network is dimensioned to meet the demands of the average annual input traffic and the peak traffic demand. These traffic volumes are based upon the latest available data and adjusted to account for future growth so that the network represented in the model reflects the actual considerations of network planning for an SMP operator. The peak traffic is spread across a number of different node sizes and links. Therefore the model assumes the traffic is profiled or spread across a variety of small, medium and large sites. The average traffic per site (or link) is determined by the number of such sites. The profiling data and the number of sites and traffic calculations are taken from the tables of input volumes and technical data. The model then uses the sizes of each element to determine the cost. The cost-volume relationships are defined by cost tables and an assumed linearity. Input costs for all items are specified. The input cost values for different sizes of equipment are based upon expected corresponding volumes. The actual volume adjusts the variable part of the cost. The result is the actual cost of the small, medium or large etc. element. The total cost is the cost of the element times the total numbers of each element. This generic process is used for both switching and transmission. The operational costs are determined and combined with the equipment costs. The operational costs are defined by an assessment of the expected cost for the different functional areas of the SMP operator and the cost of employment. The allocation of operational costs is based on an initial estimate of the annual operational cost (a percentage of the purchase price). The resultant initial values are used as a "weighting" to allocate the costs determined by the functional area analysis. NB the calculation of operational costs and the allocation of the costs is carried out in the consolidation model. Installation costs are dealt with similarly. The advantage of this approach is that the operational and installation costs are based upon recognised benchmarks and will not vary significantly depending upon the cost of equipment. This is important since the reconciliation of the bottom-up and top-down models may lead to significant changes in some of the input cost values. 3.3 TECHNICAL AND VOLUME INPUTS In this section we describe the technical and volume inputs in more detail and how they are used. 3-30

36 3.3.1 PSTN volumes This input table defines the total annual calls made in the base year for each product. The volumes are specified for: Call minutes Calls made Growth percentages for future years Holding times and unsuccessful call attempts. Each of these values can be specified for each of the products. The model converts the minutes data into busy hour erlang (BHE) values. This conversion is defined as a simple formula (the busy hour erlang value is related to the total annual minutes and how the product is weighted towards peak demand). The conversion should be defined as the fraction of the annual call minute traffic that occurs in the network busy hour. The network busy hour is the peak time of day averaged across all of the network. A rule of thumb conversion states that BHE = annual minutes/52/10/6/60. This assumes that every week is similar, the peak busy hour in a weekday has one tenth the daily traffic, weekend traffic is in total the same as one weekday, and (of course) 60 minutes per hour. Other formulae may be user-defined to reflect actual measures on traffic profiles. This is an offline calculation. It requires data from the operators (such as TeliaSonera). Additional off-line calculations may adjust the BHE traffic demand upwards to cope with seasonal peaks. Other adjustments in this formula may be used to take account of seasonal traffic variations where there may be peaks in traffic in parts of the year that means an average week is not representative. It is known that holiday movements in Sweden might be considered. This refinement will require detailed time of day data over the year from an established operator. The holding times and unsuccessful call attempts cause an effective inflation on the call volumes compared to the measured call volumes that are input as the base volume driver. NB the call volumes should be the measured call lengths (measured on a per second basis) and should not be rounded up as is common in some billing systems and with some switch systems that use pulse period type measurements. NB the volumes include ISDN calls they are not treated any differently in the model from PSTN calls. Partial ISDN 30 lines have not been modelled Additional network volumes Additional volume data is needed to help with parameters as: Number of sites accessed via submarine cables Number of sites access via microwave Number of sites on spurs Total number of sites. 3-31

37 The total number of sites is profiled to be spread over RSM, RSS, LE or TS. NB a LE site may contain an RSS, but we term it an LE site the naming convention is that the site is called after the highest level switching system on the site Non-PSTN volumes The network transmission is dimensioned to cope with extra capacity needed for non- PSTN services. The total volumes are inputs this is in Mbits/s. The volumes are also profiled so that the amount of inter-site transmission is defined. This is important since leased lines (for example) that pass into one site and then to a destination location that can be accessed from the same node do not require any transmission capacity. This contrasts to a similar line that starts in Gothenburg and ends in Stockholm. There are a number of non-pstn services that are defined and their demands on the transmission must be specified. Input values have been based upon TeliaSonera data that has been adjusted based upon data from the 2001 Swedish Telecoms Yearbook How the volumes are used The predicted volumes are uplifted by the future years' demand. There is a weighting of future demand so that the network can be selected to be dimensioned for one of the future years depending on the weighting factor. This means the base year data is used with the growth factors to dimension a network larger than needed for today s traffic (assuming growth is positive). However, since negative margins for growth cannot be ruled out for certain services, there is a possibility that the demand per network element including growth is lower than the demand excluding growth. In order to take account of this potential problem the model does not allow the demand per network element including growth to be lower than the demand excluding growth. The volumes are used with the routing table to define the total demand through each network element. The routing table is described in more detail below. In summary it defines how each product uses the various network elements (RSS, LE, TS, LE-TS transmission etc.). The volumes (BHE and busy hour call attempts - BHCA) inflated for growth and the routing table derive the total BHE and BHCA through each network element. The traffic is then split: north Sweden south Sweden. This is a user-defined split it can be based upon an off-line calculation (typically using numbers of lines as the first indicator). The split of network elements (LE, RSS etc) is a user defined input for each region (north and south). The total number of elements is defined by the scorched node assumption. The average traffic per element is the total traffic divided by number of elements. The model, however, takes a more realistic approach and profiles the traffic per network element it is spread to different sized elements, with the average traffic per element being the same. The result is that we obtain the traffic for a number of different sized elements. 3-32

38 The driver for some elements is BHE for others BHCA. The values of BHE or BHCA are used to drive transmission capacity and switch component sizes. The volumes are also used to calculate the final product costs. The volumes are exported to the consolidation model. In the Consolidation model, the volumes (minutes and call attempts) are used to drive the cost of the network elements into the products. Also, in consolidation the cost per minute or per call of each network element can also be calculated (if desired). 3.4 COST INPUTS The costs of equipment must be defined for each item. Cost data includes: Capital cost the purchase price in the base year. Installation cost. Additional one-off costs that are needed to set-up and install the equipment. This might be additional payments to the equipment vendor to install the system. Lifetime. The average lifetime of the equipment before it is replaced. Price trend. This is the price trend in nominal terms (if the price is 5% less than last year and this is expected to continue over the equipment lifetime then the trend is -5%). Operational costs. This is the estimated annual operation cost for the item as a percentage of the capital value. NB the actual operational costs are defined in separate calculations. Scrap value. The value of the equipment when it is scrapped as a percentage of today s purchase value. Assume the equipment is scrapped today (in the base year, not in x years time). Additionally some other factors are needed for equipment such as wastage factors. This defines the percentage of the equipment that is consumed when it is installed and not available for use (typically some lengths of cables are wasted at each end). Modularity is also defined. This is the numbers of connections or services on the equipment item. The cost of one item must be defined, but the item might have 10 customers connected, and an alternative vendor might have a different cost but 12 customers connected to it. The modularity is very important to enable the cost per unit to be calculated. Cost inputs are critical to the results. The values must be checked with data sources to ensure they are valid. The model does not check that the input values are within limits. Cost inputs are in SEK. 3.5 NETWORK DESIGN RULES The network is dimensioned using design rules. These dimension the network using engineering/economic factors. The basis for the engineering design rules are mostly self explanatory in the formulae of the model or are explained in the text comments to the model. General points about the technical design are: 3-33

39 Three layer switch network assumed. Connections between sites are mostly based on rings. SDH optical systems are the main transmission method. Systems (rings and switches etc) are profiled so that there are variations in size (with the correct average size). Systems sizes are rounded up to the next available equipment size. Thus equipment is only available with standard sizes, we assume that the next size up is always used and equipment is available only in the standard sizes. Practical engineering rules are incorporated. Thus for test and prudent engineering safety factors, some headroom in capacity is assumed. Systems are not designed to be used at 99.9% of the physical limit. They are used up to the limit defined by the technical design rules. Erlang calculations are a key calculation since the traffic demand in erlangs is used to dimension many network elements. The erlang formula is approximated by a formula based on Gaussian statistics. This is quite accurate and any small errors are much less than those introduced by the other approximations inherent in a BU model. This formula could be changed by the user to an alternative erlang calculation (though it might slow down the model calculations). The accuracy of the Gaussian approximation is sufficient for the model. Only at very low traffic levels are errors significant and these can be reduced by adjustment of the erlangs_conversion_factor. In a carrier network, traffic levels tend to be large. When round-ups to the nearest 2Mbit/s interface levels are considered, the Gaussian approximation is shown to be even more valid (the errors for low [<20 erlang] traffic levels do not matter). The accuracy is shown in the graph below Number of voice circuits required #circuits needed (model) #circuits needed (Erlang) #2Mbit links (model) #2Mbit links (Erlang) Number 2Mbit links required Busy hour erlangs Figure 1. Comparison of model calculation of capacity needed and exact erlang formula. 3-34

40 3.6 SWITCHING Conventional circuit-switched equipment is assumed, but incorporates the latest technology available. The Multi-Service Gateway solution differs from the most traditional systems in that some of the intelligence is removed from the switches themselves. The core processing power of the switches is moved into a new network element, the Telephony Server. Signalling is sent up to the Telephony Server where call routing is determined and instructions sent back down to the relevant switches. Switches are assumed to have a core switch block that is traffic (BHE) dependent. Some parts of the switch are fixed (invariant with demand). Others are assumed to be BHCA driven (such as the variable processor element). We assume that the costs of processing power at the switch level are significantly reduced compared to the more traditional switching solutions, since much of this processing power is now located in the Telephony Server. The model makes the assumption that the fixed processor element is recovered through BHE, not BHCA. Additional accuracy is ensured by assuming a variety of switch sizes, each with different cost assumptions. The model, therefore, does not assume one size fits all. A switch has trunk cards (2Mbit/s) that link it to other switches the number of which is driven by the BHE traffic to other sites. Only RSS units are able to have line cards to customers. An LE site may have co-located RSSs. Thus LEs do not have direct customer line card interfaces (we note that this assumption depends on the switch vendor, however LEs that do have customer line cards as well as hosting RSS have very similar overall function to a LE host plus RSSs located in the same site). An LE has access interfaces (2Mbit/s) to link to the RSS units that the LE parents. The LE also has an additional cost per TS by which it is parented. TS sites will typically have LE and RSS co-located at the same site. A TS will have a trunk line card for every 2M of traffic from an LE that it parents. International gateways are assumed to be functionally similar to transit switches. 3.7 TRANSMISSION AND INFRASTRUCTURE Transmission is based on SDH fibre technology. STM 1 - STM 64 systems may be used and multiple systems may be deployed to give the required capacity. Some microwave systems can also be used. The capacity of the SDH systems depends on the total traffic in a ring or on a spur (total of traffic from all nodes). This total traffic includes PSTN and non-pstn traffic. This capacity allowance enables all the traffic to be routed in any direction round a ring giving a fault tolerance. SDH system costs are not based on just the required capacity, but on the total capacity to account for prudent engineering systems are not expected to be close to maximum capacity. The total traffic before another system is required is a user-defined input. Fibre infrastructure is assumed the cables can be dimensioned in different ways. With high speed systems, it is unlikely that there would be a need for cables with very large 3-35

41 numbers of fibres (such as 96 pair), since even a 20 pair cable with STM 64 on each pair has a very significant capacity. Additional meshing between nodes is allowed this enables additional inter-site capacity to supplement the rings, giving further resilience to cable breaks. This might typically be introduced in the core inter-transit links. Cross connects are placed at the intersection of rings typically at LE sites and larger RSS sites. The physical SDH network is based on the logical demands. These logical links and their capacity are set by the PSTN and non-pstn demands. RSSs are logically linked to a parent LE. LEs link to two TSs. LEs are also inter-linked to reduce the need to send calls to TS sites. TS sites are logically fully meshed (there should be no need for a call that uses 3 TS sites). The use of the LE-LE transmission, TS-TS transmission and LE-TS transmission etc. are defined by the routing factors. 3.8 ROUTING FACTORS Routing factors (in the routing table) define how each product uses the network. The model has sub-routes for each product. Thus any one product may have several subroutes it may take through the network. Each route defines which elements are used and how many of the elements are used. The user can define how likely each route is for the product. This probability depends on the numbers of switches of each type and engineering rules. Once set-up, if the numbers of switches varies significantly, the route probabilities must also be adjusted. The routing probabilities is a key input for optimisation. The values used for each route depends on the network topology (numbers of LEs and TSs). They also depend on the approach to routing traffic whether traffic may route from LE directly to another LE. The route probabilities should be set by someone with some knowledge of traffic management and network design. The design of a network is too complicated to make algorithms within the model to define the route probability. There are many inputs to be determined this has the advantage that errors introduced from any one route tend to be small. The model includes a feature that provides a basic automatic adjustment of route probabilities. This is useful for small to medium variations in the numbers of nodes of each type. In the case of significant changes to the numbers of nodes of each type, the Routing Table will require refinement. The routes and probabilities are combined to define an average route probability. This average route probability is used in the model. The route table is used with product volume data to define the network element sizes (capacity) and hence costs. Routing factor design requires a good knowledge of the actual network design and the numbers of nodes of each type. Network engineering skills are required. Note that a call that uses two RSS and one LE may use LE-RSS transmission, but in some cases such a call might not use the RSS-LE transmission in the case where one customer is connected to an RSS that is co-located at the LE site. This is an important issue to consider when defining the routing table. It also ensures the capacities of the transmission links are correctly dimensioned. The issue is also relevant when it is recalled that LEs may be located at TS sites, hence not all call use the inter-switch transmission elements (they only use tie cables within the building these are not dimensioned in the model). 3-36

42 The amount of traffic that uses LE-TS transmission is a percentage of the total traffic that connects LE switches to TS switches. These percentage factors are defined in the model (the formulae can be over-written with values). Similar percentages adjustments are determined for RSS to LE transmission. The average route table is exported to consolidation to enable the products to be costed from the network element costs SHARED COSTS IN THE CORE MODEL The core model has several sharing of costs. The main items are: Core access sharing Other utility sharing The first item arises because most streets require some access network (they have some customers to service). Therefore an efficient network might share this duct and trench with the core network. Only in out of town areas would the duct be used purely for the core network transmission. The user may specify the amount of sharing in percentage terms. The cost split is subjective as there is no direct cost driver (the duct and trench is common since it would be required for either core or access cables). A split has some logic, but the decision is user-defined and is essentially a pricing decision. Sharing of digging (trench) costs with other utilities (electricity, cable TV other operators etc.) is usually possible (and in some areas it may be encouraged or enforced by the local municipality). The amount of sharing can also be defined by the user. The cost sharing is a user input and the same comments as core-access splitting also apply. The initial assumption used in the model assumes that the likelihood of sharing with utilities is greater on RSS links, which may be nearer to the end-user, than on trunk links between, say, TS sites. Other costs in the Core model that are not finally allocated to Core, include the line card and MDF costs. Where possible, input data has been sourced from Sweden, however, in some cases, the line card costs have been supplied per line, rather than per line card. Thus, in some instances, the modularity of a line card may appear as 1, when in fact it is known that a line card has a modularity of, say, 16. The input cost values need, therefore, to be managed very carefully CORE MODEL CALCULATIONS In the following, we define in more detail some of the primary calculations used in the model, to supplement the above more generic description. Please note that the calculations are all open in the model there are no hidden calculations. Some descriptions/guides are included within the model itself. The model is therefore the ultimate source for all calculations Volume calculations Call minute and numbers of calls made are converted to values for use in network dimensioning. Busy hour erlangs are derived by simple numerical relationship to the annual minutes. The relationship depends on the time of day/day of week profile. Uplifts are applied. This adds in additional volume demands for unsuccessful calls. 3-37

43 The result is the BHE and BHCA values for each product Routing table calculations The routing table is mostly based on user-entered values. As discussed these depend on network engineering inputs. Some values are calculated inputs. The percentage of calls using some elements can be defined - the value depends on the numbers of LE or TS nodes. This makes it possible to calculate the usage of some network elements. The numbers of LE/TS are defined elsewhere in the model. The percentage probability for each route is a user input. Optimisation rules identify which routes use LE to TS links or TS to TS links. The number of calls using LE to TS links is assumed to be linearly proportional to the numbers of LEs, using an initial value for the numbers of LEs as the starting point. The model therefore adjusts the route probabilities depending on the LE numbers. A similar linear adjustment is carried out on TS-TS based routes the probability of a dual TS call is assumed to increase with the numbers of TS. After new probabilities are calculated, they are normalised so that the total adds up to 100%. See right hand columns in sheet: Route_table-Input. The user may select the user-entered route probabilities or the optimised values. The average network usage is defined numbers of network elements times the probability. These values are summed up to give a weighted average usage of the network by each product. In sheet Route_table, the average usage is combined with the BHE and BHCA values to obtain two tables one that defines the total usage of each element in BHCA and BHE and this is used to dimension the network (table 1). The other (table 2) defines the cost driver this shows the relative amount of sold products using each network element Adjustment of traffic to RSMs The total traffic form RSS is mapped to RSM sites, based on the numbers of sites converted to RSMs (see sheet: I_demand_data). Proportional rules are applied (see table 2) based on numbers of nodes. This defines the total traffic through the elements Traffic profiling Demand for non-ptsn services is profiled to sites of different sizes (table 3 I_demand_data). The total non PSTN traffic (an input) is spread to a range of sites, based in numbers of lines at the sites. Non-PTSN traffic is assumed to be more centred at larger sites. The numbers of lines are also profiled to sites of different sizes, as is the PSTN traffic (also table 3). The profiling does not alter the total traffic, but spreads it across sides so that model does not calculate costs based on one size fits all. The profiling method need not be absolutely accurate since the effect of slight inaccuracies is a second order effect the prime cost driver is the total traffic, and this is derived form the inputs of PSTN volumes and non-ptsn volumes Building calculations Building values, site values and lifetimes and cost of capital are sued to define the average cost per spare meter (using an annualisation method) see table 2 of 3-38

44 I_building_costs. The user may over-write the formula and enter a typical market rate (SEK/m2 per annum) for buildings. The main site items costs (power, air conditioning etc) are also annualised. Average building costs are defined based on the cost of buildings but with a weighting based on a distribution of sites across geotypes (see table 2.5). Site space requirements is a critical input as the average cost of the main site items is divided by the average site areas. This cost (per unit area) is added to the basic floor space costs to give a total cost per m2. This cost of space is multiplied by the space demands (area) of each type of equipment (as derived in the equipment calculations sheets). The area is defined by the area needed per equipment the times the total number of the equipment Switching calculations The traffic demands in BHE or BHCA for each switch network is profiled initially to the different sized switches (table 1 of C_switching) The total traffic is then divided by the number of nodes to get the traffic per node or per port interface (i.e. the link to another node). The traffic per node defines the numbers of 2M interface cards needed (table 1.8). This is calculated using a gaussian formula which is a simple approximation of the classic erlang formula (it is quite accurate for the purposes of this model it is only less accurate for small traffic levels not generally seen in the core model). The total port cards is derived my multiplying the cards per node times the number of nodes. Table 2 simply links in the source equipment costs. Table 3 multiplies the cost (table 2) times the volumes (derived in table 1) to get total costs of switch elements. The elements of the switches are split to core and access. This allows the model to allocate some common costs of switches to access the percentage is a user-defined input (table 8 of I_switching_costs). For many parts of a switch, the cost will be considered to be part of core (call dependent). Normally only line cards are part of access, but it is quite reasonable to consider come switching costs as common and hence allocate a percentage to access. It is worth noting that the allocation of a switch cost to access (other than line cards) is worthy of discussion. There is often some common costs of a switch items needed both for the core switch and for the hypothetical case where there are only access line cards. If we accept common costs exist, then there is a mark-up or allocation issue. The costs could be allocated to core or access. The choice is essentially a pricing decision. The model has a % allocation. This is user defined, but it could be derived using analysis of the costs allocated directly, so that an equal mark-up value can be defined. The method to do this for RSSs would be: Set the allocation 100% to core and set the RSS switch costs to zero. 3-39

45 Measure the costs of the core RSS element. This defines the RSS incremental core costs, excluding switch. Set the RSS access lines cards to zero and measure the change in access costs. This is the incremental cost of access. Compare the incremental core and access costs and define the allocation % to be the same ratio. Return all the cost value to normal. This has not been carried out the % allocation entered is a nominal value. The costs of the switches elements are entered into I_switching costs. Note that there is a choice of the tables to fill in. Total costs for switches can be defined and these broken down by percentage factors to the sub-elements of the switch (table 2) or the costs of the sub elements can be directly entered (table 3.3). Table 3.3 is the most normal location for cost data. The allocation of RSS frame units to core or access has a significant impact due to the large number of RSSs in the network. The total costs of each part of the switch are collated at the end. The total costs are divided by the unit cost of the same element the get the total numbers of each element used. This is used to get the building space required for the element. This is defined as the number of units times the area used per unit. The area used per unit is defined as an input. The values for these calculations are derived using an index look-up technique (a method commonly used throughout the model). The area used is multiplied by the cost per area (derived earlier in the building calculations). See tables 6 and 7 of C_switching. The costs of core and access from switch calculations are collated in table 8 for export to the output stage Transmission The inter-site transmission in BHE is derived from the I-demand data that profiles the total traffic across different site sizes. The LE-to RSS site traffic is split to the LE to RSM site traffic and the LE to RSS site traffic. See table 1 of C_transmission. Note that the BHE values used for LE-RSMs is not used the size of the transmission from RSM sites to LEs is based on the number of lines, not the BHE values (this is done in table 1.3). The number of lines to RSM sited defined the number of Mbit required (each PTSN line requires 64kbit/s or 2M if the line is a primary rate ISDN line). The BHE traffic or the on the inter-switch site links, or the number of Mbit if to and RSM, is divided by the number of switch node sites. The traffic per link (BHE) is converted to 2Mbit using a Gaussian based formula. The numbers of 2Mbit is multiplied by total sites to get the total numbers of 2M links required. The non-pstn traffic is added to the PSTN traffic. The total is increased to allow for logical diversity (additional links to other nodes) see tables 1.6 to 1.9. The logical diversity (as used say for parenting two LEs for every RSS) is also applied to non-ptsn services. Although this could be deemed over-engineering, it has been included to ensure all services have a high quality of service. It is possible to modify the formulae so that only PSTN has additional logical diversity. 3-40

46 Note the diversity factors have a significant influence on costs. The total traffic is next split between north and south Sweden (based on a user defined split %). This is required because the traffic levels and network design in the north is significantly different to the south the north has large area, many sites but low traffic levels. See table 2. The nodes numbers in each region are divided by the numbers of rings in a node to get the numbers of rings required in the network. The model has profiles of rings not all rings are the same size. The ring sizes (nodes per ring) and % or rings that are small medium etc are user inputs. The model assumes the primary transmission technique is to use SDH rings to give resilience. The next part of the model builds up the links needed from RSM and RSSs that are needed to be formed into rings. This is done is a sequence of stages (tables 3.xx and tables 4.xx). Table 5 calculates the TS-TS calculations. The minimum link number is inflated by additional meshing (up to N*(N-1)/2 links are required to fully mesh N nodes). With no additional resilience, TS are linked simply in one ring each for north and south Sweden. Each of the connections between the TS sites is assumed to be formed into an SDH ring via RSS sites (or hops). The number of such hops is twice the minimum needed to provide the alternative path needed for a ring structure. Tale 6 calculates the requirements for special links such as spurs and island links. The numbers of these are derived from user inputs (I-design-rules). The size of the links is based on the average link size (note this is worst cased we assume the largest of the north or south Sweden average is taken). The total traffic in the link is the traffic per node times the average number of nodes on the link (a user-input) this ensures the total spur capacity is able to cope with all nodes on the spur. Table 7 calculates the equipment numbers required using the previous table calculations. The next stage defines the infrastructure required. Cable costs depend on distances. The inter-site (or hop) distance. The crow flight (direct) distance is an input (determined in offline calculations using TeliaSonera site location data. A factor allows for additional physical length. The offline calculation would typically determine the average distance to the second nearest node this is an approximation of the average distance needed in a real network (theorem from PA). System distances (and hence cable costs) depend on the number of hops and the physical hop distance. The digging costs are based on the distances itself derived from the physical links distances, but profiled across different digging surfaces (the profile is a user- input that should reflect the make-up of surfaces encountered in Sweden) This general technique is repeated for the different types of links, and for ducts as well as diggings. Other equipment demands (SDH cards etc) are multiplied by the cost. 3-41

47 Costs are finally split between core PTSN and non PSTN services. Table 22.1 defines the ratios for cost allocation. The split % for RSS links (to LEs) is a significant factor due to eh large amount of costs in the network relating to these links. 3-42

48 4. ACCESS MODEL In this section we describe the main features and rationale behind the access model. The access model calculates the resources required to build that part of the network that is below the existing RSS/LE Switch site, as far as the Network Termination Point (NTP) at the customer premises. It does not calculate Access network costs at the switch site - as the following diagram shows: LE LE Demux Lowest level Scorched Node(s) Line cards RSS RSM Line cards RSM Access Network Model FAM SDP SDP SDP Customer Site SDP SDP SDP NTP Fibre Copper The scope boundaries of the Access model The main components of the Access model are: Trench, Duct, and Poles used by the Access Network. Copper cables and distribution points. Final drop miniduct (duct to subscriber building from street), associated digging works, and Network Termination Points (NTPs). Fibre in the Access Network. Fixed Wireless Access network (FWA). After calculating the resources needed to build this part of the network, it uses the results to calculate the capital cost of those resources, and the annual operating cost of such a network. 4.1 DEFINITIONS AND ASSUMPTIONS Geotypes The main definition used in the access model segmentation of Sweden into a subset of similar areas or zones called geotypes. All switch zones in Sweden are allocated to one of five geotypes, illustrated below: 4-43

49 City: more than 1,000 lines per km2: Urban: from 100 to 1,000 lines per km2: Rural A: from 10 to 100 lines per km2: Rural B: from 1 to 10 lines per km2 Sparse: up to 1 line per km2. Illustrative maps of the different geotypes served by the Access network Uninhabited areas of the country are not in any switch zone and do not have any Access network costs associated with them. This definition of geotypes enables the model to represent the diversity of areas in Sweden, whilst avoiding the need for detailed analysis and estimation for every one of the switch zones. The optimal design of the network, and the mix of costs incurred, will be significantly different in each of these types of area Sampling Sweden has about 7000 switch zones. In order to design and cost the network, The Access model requires detailed estimates of the geography for each zone analysed. Clearly it is not practical to analyse every zone in the country. The model therefore does most of its analysis on a sample of up to 25 zones: 4-44

50 Sampling from the full set of zones The model allows some flexibility in the construction of this sample. It is possible to sample more heavily from those zones where a higher proportion of the access network costs are incurred. This needs to balance a number of considerations, such as: - those with the most customers, typically in geotype 1 (and 2) - those with the most km of trench and duct (typically in geotype 3 and 4) - those with the most pair-km (typically in geotypes 1-3) - those with the greatest diversity in teledensity (typically geotypes 1 and 5). A different weight can be attached to each zone selected. For example: If the geotype 1 has 100 zones, and the sample contains four zones from geotype 1, each sampled zone is given a weight of If there are 3000 zones in geotype 4, and six zones in the sample from geotype 4, then each is given a weight of 500. This approach of using differential weightings allows an efficient sampling frame to be used, giving much more representative results than using a simple random sample of 25 zones Main assumptions The main assumptions in the Access model are as follows: The access model does not deal with RSMs or RSSs, these are part of the scorched nodes of the network and are calculated in the core model. Multiplexing below the scorched node (Fibre Access Multiplexers, or FAMs) are part of the 8 Individual weights can be assigned to each zone. e.g. if ten of the 100 zones are very different fro the other 90, then one of them can be selected and given a weight of 10, and three form the other 90 can be selected and given weights of 30 each. The model gives the best results if time is taken to make the data represent Sweden, e.g. by selecting zones of high/median / low teledensity within each geotype. 4-45

51 access network: FAMs are not sites to be considered under the scorched node criteria. However, they are subject to technical constraints and MRP constraints to supply a 100% copper path to the scorched node to those who have it already. The models therefore only allow for the use of FAMs to connect islands to the network. The physical boundary between the two models is at the existing scorched node. For those components in the access network that are located at the scorched node e.g. MDF and line cards, the costs are calculated in the core model and passed to the consolidation model to be added to access services when calculating the final access service costs. The model allows for flexing of the number, size, and location of s and SDPs. In general customers are connected to the nearest RSS/RSM site, other than is a small proportion of cases where there are local geographical reasons to do otherwise to avoid unnecessary costs, i.e. much as at present. Some sharing of trench and/or duct is possible with the core network and other increments and utilities. There is no sharing of copper cable with the core network. Microwave solutions (point to point) and FWA solutions (one hub to many customers) can be used for some islands and for sparsely populated areas where this is cost efficient. 4.2 STRUCTURE OF ACCESS MODEL The model includes a navigation map, which shows all of the worksheets and all of the links between them. This is reproduced in the diagram below. Access model navigation map 4-46

52 The arrows show the flow of information between the groups of calculations. Solid lines are used for main flows, dotted lines for minor flows. Grey areas show worksheets that are grouped having related functions. Flows of information within each group are not shown in detail; they all go down the list MODELLING THE ACCESS NETWORK The Access model has eight groups of calculation sheets: Calibration. LRIC costs of each resource. Tätort. Copper cables and nodes. Fibre. Trench and duct, including route sharing with Core and with other utilities, also miniduct and associated digging for the final drop. Fixed Wireless Access. Final Network Design in particular, the decision of where to deploy FWA. Output to Consolidation Model. The approach taken to each of these is outlined below Calibration As a further check to ensure that the model is using data that is representative of Sweden, all of the input data for the sample zones is calibrated to agree with data for the whole of Sweden. Calibration is done for the following: Number of zones. Total area in km 2. Number of lines (also by type of connection POTS, ISDN, xdsl, 4 wire copper, and fibre). Number of customer sites. The model allows the user to choose between two ways of doing each of these calibrations: For each geotype on its own. For the country as a whole, i.e. pooling the data across all geotypes. This part of the model also takes account of which year the network is to be dimensioned for. Normally the network would be dimensioned to fit to the data for the base year (

53 or 2002). However the model allows for the network to be planned for the volumes for a different year up to 2007 using the growth estimates for number and mix of lines. Two points should be noted: The model already allows for assumptions about prudent deliberate overprovision to cater for future growth, moves and changes, and bypassing of faulty lines. The idea is that these figures are sufficient to provide for normal growth. There is no need to choose to use e.g. volumes for the year 2007 to ensure that the network has sufficient resources to meet normal needs between 2002 and If growth is large, then it could be argued that there would be an increase in street trench and also in miniduct, although each is affected less than the differently: Type of growth New town or suburb, new site ( green field ) Infill building Existing sites, additional lines More cables SDP- -RSS Yes Larger cables, same cable km Larger cables, same cable km More cables, final drop More Street trench and duct Yes Yes Yes (or larger cables) Yes No No More miniduct Yes Yes No The approach taken in the calibration in the model is to scale up the miniduct / final drop digging to reflect the growth, but to leave the street trench and duct unchanged, i.e. to treat miniduct correctly in the first two cases, to treat street trench correctly in the latter two cases, and avoid having any large bias LRIC costs of each resource In order to optimise the design of the network, the model needs to know the true LRIC cost of each of the resources that it is able to choose to deploy e.g. different sizes of copper cable, and the various types of FWA equipment. This is calculated for use inside the access model for the purposes of designing and optimising the network. Final LRIC costs are calculated in the consolidation model. The cost of capital used here should be set to the same value as that used in the Consolidation model 9. 9 It is possible to get the Access model to optimise using a different cost of capital, and measure the effect of errors in this key parameter to see its impact on the network design and on the final cost of Access. It is likely that small to medium errors in the cost of capital, say less than three percentage points, will have minimal impact on the design of the network. 4-48

54 4.3.3 Tätort In many zones there is typically a main town or village (Tätort), usually near the centre of the zone, and usually close to (or including) the location of the switch. Typically this Tätort is very different from the surrounding area: The Tätort may typically contain 50%-90% of the demand for lines but may cover just 10%-20% of the area of the zone: the teledensity inside the Tätort is often 10x to 100x that of the rest of the zone. The mix of digging surfaces in the Tätort may be different from the surrounding area. The model therefore does much of the analysis taking account of this difference, by calculating results for the area inside the Tätort, then for the area outside, then aggregating of the results. If the official Swedish definition of Tätort areas is followed (broadly, areas with at least 200 inhabitants and no more than 200m between buildings) then published data on each Tätort can be used as a starting point for preparing the data for the model. This is the approach taken throughout when populating this release of the model. In this case, the distinction between areas inside the town and areas outside is of greatest importance in geotypes 3 and 2. It has less importance in geotype 1 (where the entire zone is inside a Tätort) and in geotype 5 (which has no villages of 200+ inhabitants). It is possible to use a different definition of Tätort (e.g. simply the largest population centre in the zone ignoring the official definitions of a Tätort ) and repopulate the model for the affected zone(s) with data estimated on that basis. This might be worthwhile where there are zones that have no Tätort but nonetheless ado have a concentration of population in one fairly central cluster Copper cables and nodes The calculations for the copper network aim to make extensive use of the economies of scale from deploying large cable sizes. It aims to economise by using large sizes for the bulk of the pair-km, only using the smaller sizes for shorter lengths closer to the customer. The model allows the network in each switch zone to have the following: Primary Distribution Points (s) to allow breakdown of from large cable sizes of (typically) pairs. Secondary Distribution Points (SDPs) to allow breakdown of cables to dropwire sizes, e.g. 2 pair. The model allows this second layer of distribution points to be omitted for some zones e.g. where there is a cost advantage. Exit from street duct (EFSD) the join between the miniduct serving one customer site and the street trench and duct shared by all sites. No change of cable size at the EFSD the drop wire runs from SDP to NTP. Distinctions between the number of customer sites in the zone and the number of NTPs typically there will be 1-3 NTPs per customer site, occasionally more (e.g. in blocks of apartments). These are shown in the following diagram: 4-49

55 Typical distances and volumes for an average switch zone: RSS / LE MDF NTP NTP ~ 2km ~0.5km ~0.1km Final Drop SDP EFSD EFSD EFSD EFSD 1 ~10 ~50 ~250 NTP NTP ~1,000 The model also allows for a percentage of the zone can be served by poles and drop wires. Each of these areas is described in turn in the following subsections Copper cabling: (i) Primary distribution points (s) The model allows the user freedom to vary the number of s in the zone. Increasing the number of s usually has the following effects: Increases the total km of cable. Increases the costs of distribution points. Decreases the total pair km. There is usually an ideal, where the overall cost is minimised. The user should experiment to find a good or even optimal design in each zone. For zones that have no Tätort, the main decision is the number / size of s to choose. For those zones that do have a Tätort, there are separate inputs to control the number of s inside the Tätort and the number outside, as shown in the example below. Zone with Tätort Zone with no Tätort A: Switch is located inside Tatort D: Zone with no Tatort Switch zone Switch zone Tatort Switch site Switch site Example zone with four s outside the Example zone with no Tätort and seven 4-50

56 Tätort and seven s inside s If the switch is located outside the Tätort, the model allows a choice of two approaches: A super- to serve the entire Tätort. No Super, cables run from each in the Tätort to the Scorched node. These are shown in the diagrams below. With a Super- B: Switch is outside Tatort, and network is designed with a Super- Switch zone No Super- C: Switch is outside Tatort, and zone network is designed without a Super- Switch zone Switch site Super- Tatort Switch site Tatort Options for distribution The model also allows the user to vary the approach taken to locating s and SDPs within each zone: Close to the centre of the s catchment area, to minimize the length of the shorter cables (-SDP-NTP) Close to the scorched node, to minimizes the length of the larger cables (- RSS) The parameters for these inputs can be adjusted / varied over a wide range Copper cabling: (ii) Secondary distribution points (SDPs) and street level network, from SDP to NTP The choice of the number of SDPs in each zone and the strategy for their location follows the approach described above for s. The only difference is that the plays the role of the parent node. The model allows the user to omit a layer of the network e.g. by setting the number of SDPs equal to the number of s. The diagram below shows the street level layout of the network at and below the SDP. 4-51

57 Diagram of SDP zone: SDP SDP SDP SDP Key: Street trench Copper cable ~ 10 pairs or more Copper cable ~ 2 pairs or fewer Customer building (house, NTP Miniduct trench SDP zone boundary SDP SDP Access network street level network at/ below SDP Street-level analysis takes account of differences in resource requirements for miniduct, associated digging, and cabling. The model takes account of the ratios of: Customer sites / customer lines. EFSDs / customer sites, and how these vary between zones, in determining the resources required Copper cabling: (iii) use of poles and dropwire The model allows for the use of poles and dropwire for the connection from SDP to NTP. Typically this solution has the following effect: Reduction in street digging cost. Elimination of cost of miniduct and associated trench. Increase in cable cost per meter (cable is more expensive). Shorter cable lengths where dropwire poles are used. The diagram below shows this. The use of dropwire poles should be estimated in such a way that it reflects the mix of digging and terrain types there is some scope for optimising it, but it is often not economic or realistic to use it throughout a zone (e.g. if the dropwire from pole to customer building is too long then additional poles are required). 4-52

58 Diagram showing layout of the street and customer site Customer site Building Key: Street trench Miniduct trench route of wire inside building (vertical component is not shown) NTPs Route of miniduct Route of dropwire Road and verge Route of Road cable and if buried verge SDP Options for final delivery to customer Copper cabling: (iv) summary of design parameters to be optimised The following is a list of the network design parameters that the user is at liberty to vary. After any major 10 change to the input data that relates to the copper network (i.e.: cost of copper cables, cost of copper distribution points, or sample zones data on number of lines, area, centralisation, size of Tätort), these parameters should be adjusted for each zone to find the lowest cost solution possible. This re-optimisation ensures that the design of the network makes best use of the resources available, given the circumstances i.e. the physical layout of the zone and the number and distribution of the customers. Failure to redo this optimisation leads to escalation of access costs, and if the underlying data has changed significantly then the overstatement of costs can be significant. Parameters to be optimised for each zone are as follows (1-6 only apply to zones that have a Tätort): 1. Decision to use/ not to use a Super, and location of Super- if used 2. Capacity of each inside Tätort 3. Location strategy for s inside Tätort 4. Capacity of each SDP inside Tätort (and whether or not a layer of SDPs is to be deployed) 5. Location strategy for SDPs inside Tätort 6. Capacity of each outside Tätort 7. Location strategy for s outside Tätort 8. Capacity of each SDP outside Tätort (and whether or not a layer of SDPs is to be deployed) 9. Location strategy for SDPs outside Tätort. 10 Suggested rule of thumb is that a major change is one where any data on unit costs, areas, or numbers of lines has changed by more than 20%. A reoptimisation is always required before a major new real-data release of the model, or before a major analysis of results. 4-53

59 4.3.9 Fibre The network to serve fibre customers has very different set of drivers from that for copper: The network design may be a mixture of rings and spurs. Capacity is not pro rata to the number of pairs. The savings from deploying smaller cable sizes are less dramatic. The diagram below shows the resources required for fibre, and how it is altered if the mix of rings and spurs is changed. Diagram to show fibre cabling routes Showing what is required for: - tree and branch structure - ring structure Scorched node Customer site A Customer building C D B Road Customer site Customer site Customer building Key Fibres for tree and branch structure Additional fibre routes for ring structure NTP Customer building Fibre cables to customers The distribution of fibre customers has a large impact on the cost of connecting them. The diagram below shows two cases: A naïve view, with all customers (first divided into those inside Tätort / those outside Tätort ) spaced evenly. A more typical case, with customers in clusters and generally nearer the centre. The lines show a plausible cabling network for each. In the latter case, cabling is greatly affected by to the distribution of customers. 4-54

60 Naïve view: customers are spread evenly More typical case: customers are in clusters and tend to be nearer to the centre Naïve view: fibre customers are distributed evenly Switch zone Typical distribution of fibre customers Switch zone Customer site Switch Customer site Switch Tatort Tatort The model focuses on getting an assessment of the degree of clustering and centralisation of fibre customers in the zone, and using this to estimate the cable and digging resources required for the network of fibre required to serve fibre customers Trench, Duct, Miniduct, and route sharing For Access, the network of trench / digging will generally follow the road network. There is then a final drop digging (or dropwire from a pole) between the customer s building and the trench that runs alongside the road. The model uses a set of conversion factors to estimate the km of street trench based on the mix of roads: Some road segments require trench on both sides. Much of the road network requires trench on one side. Some road segments need no trench for Access (although some may require trench for Core). After the total km of trench has been estimated, it is broken down by digging surface. Adjustments are also made for any routes shared with: Core. Other service increments. Other utilities. For the final drop, a separate set of inputs are taken. The total amount of final drop route is the number of customer sites (not lines; a site may have several lines, e.g. a block of 4-55

61 flats) multiplied by the average length of the final drop. Although each final drop is quite short, there are several million of them, so the costs incurred can be significant. As with the street trench, the final drop will be a mix of digging and poles and may be shared with other utilities and other increments in the SMP network (although not Core). The model allows these inputs to be specified Fixed Wireless Access A large proportion of Sweden is very sparsely populated. In these areas, Fixed Wireless is likely to be less expensive than cable and digging The model therefore evaluates the cost of deploying Fixed Wireless technology, on a zone by zone basis. Switch zone Tatort Customer site Switch Sparsely populated zone illustrative distribution of customers For some zones it may be attractive to deploy FWA outside the Tätort the (main) town or village - and use cable and digging inside the Tätort. The model evaluates this approach too Final Network Design in particular, the decision of where to deploy FWA The model compares three options for the design of the network in each zone: Option 1: Option 2: Option 3: All fixed, no FWA FWA for all Copper NTPs, fixed connections for any fibre NTPs. FWA for Copper NTPs outside Tätort : Fixed connections for Copper NTPs inside Tätort, and for all fibre NTPs The model determines which of these is the most economically attractive, using the full LRIC cost of each solution rather than just the capital cost. The model adopts the most economically advantageous design for each zone (lowest LRIC cost solution that meets the design constraints) except where the user deliberately prevents it from doing so. The user is free to limit the choices to any combination of the 4-56

62 three options, and can control this for each individual zone in the sample of 25, so for example it is possible to limit the deployment of FWA to zones of particular geotypes. In area where FWA is deployed it reduces the amount of trench that can be shared between Core and Access. The model allows the choice of approach on this: Minimise cost to Access. Minimise combined cost to Core and Access. The latter approach is recommended. The final amount of shared trench, after allowing for cost minimisation due to the deployment of FWA, may be considerable less than the amount offered for sharing by the Core network. E.g. even if FWA only serves 3% of customers it may cover 30% of the country, and hence may eliminate sharing of route for some 20% of the core network routes. This reduction needs to be reflected in the input data used in the Core model. The recommended approach is as follows: 1. Run core model to determine the total km2 or route offered for sharing. 2. Run access to determine the impact of FWA. 3. Rerun core, with the revised figure for shared route km after the effect of FWA. Step 1 is only needed when the number of core sites or the average distance between them, or the proportion offered for sharing, is changed. These changes should be comparatively rare, so the amount of repetition is small Output to Consolidation Model The most important set of outputs is the breakdown of the resources used, and the associated costs, by up to 160 cost categories. The model provides the following data for each cost category: Volume of resources used, with units. Suggested allocation to Network Element (e.g. copper cable 2 pairs is likely to be allocated to copper cable, SDP to NTP). Capex cost of equipment / materials. Capex cost of installation. Price trend, asset life, scrap value of equipment (and, separately, for installation capex). First estimate of the annual operating cost associated with the cost category (these figures are calibrated in consolidation, to ensure that they sum to the total opex figure). The model also provides a summary breakdown of these costs by some 20 major cost categories. 4-57

63 If required, the model can output the results for just one geotype. This allows comparison of the cost and resources used (and the resources per line) for different types of zone. Other outputs are as follows: List of Network elements. List of Access network services. Suggested values for the Access Routing Table, based on the cost drivers for each network element and how they map onto network services as shown below: Network Services PSTN ISDN2 Raw Cu Fibre etc Network Elements Trench Copper FWA MDF etc Access Routing Table: Weightings to use to allocate costs from Network Elements to Network Services Access Network Routing Table Validation outputs, to enable the consolidation model to check that the Access model and the Core model have used consistent data in areas where they share it, e.g. the cost of fibre. 4.4 MODELLING THE ACCESS NETWORK: EQUIPMENT AT THE SCORCHED NODE AND LINKS TO ISLAND SITES Some costs in access network are calculated in the core model. Their costs are transferred to access network services in the consolidation model. These costs comprise: Line cards at RSS, RSM, and FAM sites. Those line cards at Demux sites that serve links from FAM (not RSM) to Demux. MDF, DSLAM, and splitter equipment. Some accommodation costs, including common site costs, shared pro rata to use with the core network equipment. Fibre, FAM, and microwave point-to-point links, used to connect island sites to their scorched nodes. 4.5 SHARED COSTS IN THE ACCESS NETWORK Most of the cost categories modelled in the access network are shared between different access services. The costs of all these elements are derived and apportioned to the services that share the infrastructure through the access routing table in the consolidation model (see relevant section). 4-58

64 Ducts and trenching costs are shared between the core network and other utilities. These figures are expressed in terms of percentages in the core model, where the shared route km s are calculated for access and access and other utilities combined. In addition to this physical sharing the access model includes a cost sharing parameter. This input allows the user to adjust the cost amount shared. These are allowed to be different for trench and for duct. Finally, in Consolidation, access services are allocated a share of common business costs, using an equal mark-up approach. 4.6 NETWORK ELEMENTS FOR THE ACCESS NETWORK Having derived a breakdown of the costs of building and operating the access network, the final stage is to convert them into costs for each access network service. This is done in the consolidation model using demand for each network service and an access routing / allocation table that define the weightings to apply to each network service to reflect its usage of each of the main elements in the access network. Access network services will reflect the mix of line connections - PSTN, ISDN2, xdsl and fibre, plus raw copper, dark fibre and shared copper lines (i.e. those where both voice and data services are provided over one copper pair). The calculations may be summarised as follows: Allocate costs from network elements to network services using the demand for each network service, based on the dimensions of the network and the weightings in the allocation table. This yields the total cost per service. Calculate the cost per unit of each network service by dividing the total cost of the service by demand (the number of connections). The model is able to distinguish between costs that are recovered annually and those that are one-off. Please refer to the section on Consolidation for more details on this. 4-59

65 5. CO-LOCATION MODEL The co-location model is the simplest of the three models. In this section, we describe the model methodology used to enable the co-location service costs to be derived. 5.1 DEFINITIONS AND ASSUMPTIONS The purpose of the co-location model is to cost existing co-location services used for access to the unbundled loop. Therefore the model considers costs that would be borne by the SMP operator in the event of offering co-location services at appropriate sites in the network. Co-location is relevant in relation to switched interconnection, access to unbundled local loop, and for other potential purposes. However, only the co-location services related to access to the unbundled local loop need to be priced on the basis of LRIC. This means that the model only explicitly considers the co-location costs of the unbundled loop. However, the model takes account of sharing of costs between other co-location services and other increments. Examples of shared costs are accommodation, power supply and cooling/ventilation. Thus other co-location demands increase the economies of scale and hence reduce average co-location costs per square meter. Unlike services in the core and access network, co-location services consist of relatively few cost categories. These can be divided into costs that are specific for a particular service and into costs that are shared with other services. Services in the core and access network are costed by combining costs from a pool of cost categories using a routing style allocation table technique. This is not the case of colocation products. These are mostly standalone sub-products that may be combined by the operator who demands co-location. Therefore, although the co-location model is simpler in structure compared to both the core and access models, special care must be taken with the co-location model in order to model and capture costs at a sufficiently granular level. The main co-location cost is the cost of space. We assume that space in buildings is, in the long run, an incremental cost hence the building size is variable in the long run. Without this assumption the building costs would be fixed. Other services such as power and cabling can be considered to be ancillary services. For power the SMP operator supplies different alternatives. Similarly for cabling, different options can be chosen depending on the operator s needs. 5.2 STRUCTURE OF CO-LOCATION MODEL The co-location model includes a map of all major information flows, as shown in the figure below. 5-60

66 Co-location model structure and navigation map The arrows show the flow of information between the groups of calculations. Solid lines are used for main flows, dotted lines for minor flows. Note that the co-location model does not show any results at the service level. Results can only be viewed in the consolidation model. 5.3 MODELLING CO-LOCATION SERVICES Co-location services offer an operator access to a location at the SMP operators site. This may either be an empty space where the operator may place racks or it may be space on a rack provided by the SMP operator. Other operators may share this SMP-provided rack. In addition, co-location services also include interconnecting the SMP operator s equipment and the co-locating operator s equipment. The service also requires access to the site s infrastructure (in terms of power supply, cooling, ventilation and security). The list of co-location services modelled include: Location of equipment: Costs related to installing equipment dedicated to the colocating operator. The equipment is at the SMP operator s node. Service excludes any cable-related costs. Installation and mounting of equipment: Costs related to installation of copper or fibre cables (ducting work) connecting the operators equipment situated outside the co-located area to the operators racks inside the co-located area 11. Also includes installation of power supply cabling and sockets. 11 Note that the model calculates the costs of connecting a cable to equipment outside the colocated area. This could be man-hole (or jointing chamber) located outside the building. The model therefore assumes that the co-locating operator s point of presence is in a separate building. 5-61

67 Station wiring: Installation of copper cable connecting the HDF (hand-over distribution frame to the MDF (main distribution frame). This type of cable is also sometimes referred to as an internal tie cable. Placing: Annualised costs recovered on a quarterly basis relating to equipment placed at the SMP operators node. Power, cooling and ventilation: Power consumption costs (not cabling). Each of these services is costed separately in the model. The only co-location costs that are not modelled are the costs of fee for tenders and demonstration of co-location node. Such charges are needed are recovered since a feasibility This is in accordance with the MRP 12. When modelling co-location services it is useful to separate out and categorise the different cost elements making up the services. The different cost types for co-location may be characterised as follows: Direct costs: the costs that may be allocated directly to the operator wishing to co-locate at the SMP operators site. Shared costs: the costs that are shared between co-locating operators. These costs are affected by the demand for co-location services at the SMP operator s site. Common costs: the costs that are shared between different increments. A share of these common costs should be allocated co-location services. This categorisation is shown in the figure below, where normal (orange) text marks direct costs, italic (green) text marks shared costs and bold (blue) text common costs. The figure also provides an overview of the modelled cost items. 12 Although not covered in the model it should noted that this is common practise for SMP operators in Europe because the SMP operator needs to access the feasibility of the required colocation. In France and Germany, this fee is deducted from the charges on the invoice of space if the space is taken. Otherwise it is forfeited. In USA and Australia this fee is charge in it own right and is not deducted from the preparation charges if space is taken. 5-62

68 General site overheads: security systems, storage, toilets etc. Installation of power supply, equipment fitting etc. Power consumption costs Power supply unit Cooling unit Cooling consumption costs Power supply Cooling / ventilation rack space Switch DSLAM MDF HDF HDF Rack Rack Operator A Operator B Exchange cable (copper) Colocation space Opto cable Co-location site fit-out costs (floors, lighting, fire surveillance (smoke detectors), cable chutes, cable lead-in etc Copper cable Overview of co-location items to cost 5.4 DIRECT COSTS IN THE CO-LOCATION MODEL The direct cost categories are exclusively related to a specific service. Typically, they consist of a few different cost types. Being direct costs they are not shared by operators and are therefore independent of operator demand. Direct costs include: Installation costs related to location of equipment Cable installation and annual costs (exchange cables and operator owned cables) Power installation and consumption costs. Each of these categories are discussed in turn below Installation costs related to location of equipment Installation costs related to location of equipment consist of material and manpower costs of setting up a rack. Furthermore the model includes the cost of a standard ETSI rack. The cost of a rack is used in the case where the co-locating operator uses the SMP operators rack and should be compensated for this Cable installation and annual costs Cable costs may be divided into cable costs related to exchange cables and those related to operator owned cables. Exchange cables are all 100 pair copper cables. The cost of these is split into different length categories (25, 50, 75 and 100m). No length category is specified for an operator s 5-63

69 own cables. These are, however, divided into copper cables at a node, opto (fibre) cables at a node and copper cables at a cabinet. Operator owned cables are by definition owned by the operator seeking co-location. The equipment cost of these cables is therefore not included in the model. Apart from the unit cost of different exchange cables the following inputs are used to calculate the cable service costs: Materials costs used for installation (it is assumed that some fitting will occur when installing the cables) Number of hours used for installation by different staff, e.g. administrative staff used for order handling and a technician for the actual installation Material costs used on an annual basis to maintain the installed equipment Number of hours used by different staff on a yearly basis for fault repair, maintenance of equipment etc. Given the hourly wage cost of different staff and the material costs incurred at installation the model calculates the total installation costs of the different cable types. For simplicity, installation costs are assumed independent of the length of cable to be installed. This assumption may be changed for exchange cables. The costs of exchange cable are, however, assumed length dependent. Likewise the annual costs of different cable types are a combination of material costs and staff costs. When calculating the average staff costs an efficiency adjustment is used. The rational for such an adjustment is that some of a technicians time is spent on non-billable activities which include failed appointments, waiting for customers and general administrative tasks. The rest of technician time is spent on activities that are directly billable to a customerspecific operation. Customer-specific operations include installations, travel time, scheduling, registering and statistical recording. The same adjustment does not apply to administrative staff Power installation and consumption costs Direct power costs consist of both an installation costs and an annual cost. For the two power services in the model the following inputs are used to calculate service costs: Materials costs used for installation (sockets, plugs etc) Number of hours used for installation by different staff Annual consumption in kwh. Given the cost of materials, the resource requirements in terms of hours for different staff and their respective hourly wage costs, the model calculates the installation cost of each power service. The costing of the annual consumption is based on a cost per kwh. For simplicity it is assumed that the cost per kwh (this value should be the same as used in the core model) is the same for AC and DC-power. Given the cost per kwh power consumption, and assuming an average utilisation rate of 75% of the maximum power consumption allowed, the model calculates the annual cost of power consumption. 5-64

70 5.5 SHARED COSTS IN THE CO-LOCATION MODEL The costs shared between the co-locating operators are co-location specific site costs. These costs are the additional costs needed to prepare a space at the SMP operator site for co-location. The model does not distinguish between costs that are dependant on site size and those that are independent of site size 13. In order to share these costs between the co-locating operators the model uses demand data including the total demand in m 2 for co-location and number of co-locating operators per site. The co-location demand data specifies three inputs: Total demand for co-location space and services by site type The average number of operators in each site by site type Number of sites where co-location is required by site type area required. The demand sheet specifies the demand for different years. Any year (and demand level) can be selected. However, the default year is 2003 assuming a one year planning horizon as required by the MRP. To calculate the room fit-out costs of rack space the model first determines the average size of a co-location space by using demand data. This will depend on the costing year. The piece-wise linear cost-volume relationship for room build costs is then used to calculate the square metre cost for co-location at different site types (RSS, LE and TS). Multiplying this square metre cost by the average rack size results in the cost of rack space per rack. This cost per site is then weighted by a demand profile for co-location space per site. This demand profile is based on the average co-location demand per operator per site. As stated in the previous section cable costs are also allocated some shared costs. These are the room fit-out costs that are independent of size. These are cable wiring looms, cable chutes, cable lead in etc. To estimate the costs per operator owned cable the fixed cost per site is divided by the weighted number of operators per site. 5.6 COMMON COSTS IN THE CO-LOCATION MODEL The area of space in sites that is used by co-location services defines how much of the buildings common costs should be apportioned to the co-location services. This calculation is carried out in the core model. To do this the core model must have the total co-location space required at different sites types. The outputs of these values from the co-location model are manually entered into the core model, where a m2 cost is calculated specifically for co-location including co-locations proportion of these common costs. Costs that are common to co-location services and services in the core and access networks are: Power supply units (including back-up systems) 13 The available data did not allow for a distinction: that the cost of some elements will depend on the size of the co-location space. 5-65

71 Air conditioning units (including power consumption) Security systems Site preparation and maintenance. It should be noted that the co-location model also deals specifically with power costs, in particular the costs of installing power cables. It is assumed that the co-locating operator may use the main power supply unit already installed a site. Power costs in the colocation model do therefore not include the costs related to the power supply units. 5.7 OTHER SERVICE COSTS INCLUDED IN THE CO-LOCATION MODEL The cost inputs for a number of services covered by the LRIC regulation that are specific to core and access services have been modelled in the co-location model. Because these services do not use core and access directly and many cases consist of costs that are specific to work process, the BUMT has decided to model these in the co-location model. The services for which the co-location model contains cost input are: Installation of raw copper Installation of shared raw copper Installation of bit stream access Installation and operation of 2 regional Point of Interconnect (POI) Installation and operation of a local POI Installation and operation of (2 Mbit/s) interconnection capacity. The starting point for the calculations is the activities or working tasks involved in providing these services Raw copper When installing raw copper the two cost driving activities considered are: Order processing - all ordering costs before and after physical coupling in exchange, i.e. reception, confirmation and key in of orders Coupling in exchange - dismounting of old wire, coupling to trunk, transportation etc. Note that costs regarding examination and reservation of possible cable routes are including in the annual charges for raw copper Shared raw copper and bit stream access When installing shared raw copper and bit stream access the two cost driving activities considered are: Order processing - all ordering costs before and after physical coupling in exchange, i.e. reception, confirmation and key in of orders 5-66

72 Coupling in exchange installation of splitters, transportation etc. Note that the cost of installation only includes work at the exchange site. Work at the customer premises is not included Regional and local POI In the core model the assumption is used that any switch that is to become a point of interconnect (POI) will require upgrades to the signalling and call routing tables. As the cost of this upgrade depends on the switch type, the upgrade costs will depend on whether it is an LE or a TS. The POI upgrade costs are treated as if it were a switch asset. Hence the costs are annualised. The costs have been allocated to the POI_Traffic element for uses only by interconnect calls. In addition to these costs are the specific costs related to the services regional and local POI. These are the costs incurred when setting-up a POI for other operators and the costs of operating and maintaining these. For both regional and local POI of the model calculates an installation cost based estimates of tasks involved and time spent on these tasks. The relevant tasks are: Order processing - administrative staff tasks such as, reception, confirmation and key in of orders but also academic staff tasks such as contract negotiations and communication of information. Network changes - elaboration of signalling parameters, supervision functionality, traffic data etc. The annual operating costs of a POI is assumed to include the following: Administration tasks - billing, secretarial duties, case handling, etc. Network management - day-to day operation and maintenance activities, e.g. individual repairs. In order to take account of the software costs related to he operating of POI an additional mark-up has been added to the technicians salary Interconnection capacity Interconnection capacity refers to a 2 Mbit/s port on the interconnection exchange. The installation costs of interconnection capacity are driven by: Order processing - administrative staff tasks such as, reception, confirmation, key in of orders and ordering of hardware. Mounting of hardware including coupling The annual costs for interconnection capacity consist of: An annualised cost of a port unit. Maintenance costs calculated as a mark-up capital costs. 5-67

73 6. SENSITIVITY ANALYSES 6.1 INTRODUCTION In this version (Model documentation ) we describe some general sensitivity issues. Absolute sensitivities will change depending on the input values used and the level of optimisation used, hence we indicate the sensitivity as: low, medium or high. Where: Low is where the effect is typically <0.1% change in the cost of the services Medium, where the effect is larger but <2% of the service costs. High is where the effect from the input is > typically >2% of the service costs. The categorisation is course approximate, as changes to a parameter may affect some services more than other. Sensitivity and optimisation are not the same, but they can be related. The model results are sensitive to a number of assumptions and values. In general changing these vary the cost of the services. Sensitivity determines how much the result is affected by the input change. Optimisation is a process that alters inputs in order to reduce the resulting cost. Clearly optimisation can adjust the most sensitive input values to obtain a lowest cost result. In general optimisation should not consider adjustment of costs or engineering rules these should stand on their individual merit. Optimisation should consider network design options. In general, the results vary directly with the input costs. Doubling the cost of an element, will double the cost category. The impact on service results depends on how much the cost category is used. 6.2 CONSOLIDATION MODEL The main sensitivity factor is the cost of capital. Sensitivity to this is high (1% change causes some 5% change to service costs). Allocations of each cost category to the different elements can be adjusted in consolidation, and the results can be highly sensitive to this. We describe the allocation sensitivity under each of the separate models, since each model has a suggested allocation for each cost category. Annualising or expensing costs. This is a high sensitivity area. The overall costs to recover are the same, but the cost of services are affected significantly. The choice of annualisation or expensing is essentially a pricing decision. Working capital. Sensitivity is medium to high. Working capital costs should be small, but in total can contribute around 1-2% of the total costs. BHE or Call minute allocations of costs to products. Sensitivity is low. The overall cost is the same, but it alters the bias of the cost recovery to calls or call minutes. 6-68

74 6.3 CORE MODEL Input costs The major cost categories are: RSS LE TS Sensitivity to switch cost are high. Sensitivity to RSS costs becomes medium to low as the numbers of RSMs rises. Also a high percentage of RSS costs are access line card related (cost relate to access). We note that changing the switch solution from AXE to MSG does not change the costs as much as might be expected. The MSG solution may have about 10% of the costs per LE or TS as an traditional switch solution, but the costs of trunk interface cards, and the cost of the RSS units is the same, no mater the solution used. Since the network is likely to be optimised to have fee LES and few TS units the sensitivity from this technology move, is high (but not very high) - it has typically 4-15% impact on call costs. Allocation of any switch costs to access (i.e. treating it as a common cost) has a medium to high effect e.g. moving 10% of RSS core costs to access alter call costs by about 1-2%. A high sensitivity is to the allocation of the switch fixed costs. These can be allocated to traffic (per minute costs) or to calls (per call made). This has a significant effect on the results. The allocation is in part a pricing decision as the costs are fixed there is no clear cost driver for fixed cost elements. The most logical allocation is to call minutes, rather than calls, but there is no clear direction on this it depends on how the costs should be recovered. NB the overall costs are not altered, only how the costs are recovered (priced) Technical factors Increasing overall product volumes. Sensitivity is medium. Increasing volumes reduces costs, but the variation is not very large. Call duration. Sensitivity of products costs is high. This sensitivity reduces, if more elements of the switches are allocated to traffic (minute related rather than call made). Grade of service. Sensitivity is low - less than 0.1% cost change for a GoS change from 1% to 0.5% - due to large capacity links and because system sizes are rounded up to the next size available this means there is no extra cost for many equipment items. The low sensitivity also implies that the actual GoS obtained is much better than that entered as the main design input. 6.4 ACCESS MODEL The major cost areas in the access network are (depending on the exact data used) as follows: Line cards and other costs at Switch; 25-30% Trench and duct; 25-30% Final drop (miniduct) digging etc; 15% 6-69

75 Copper cables: 15-20% Copper distribution points: 5%-15% NTPs: 5%-10% Sensitivities are accordingly as follows: Costs at switch: Line card costs: high Share of (and amount of) other shared costs: medium Trench and duct: digging costs for each terrain type: high mix of terrain types, and use of poles: medium / high cost of duct: medium / low total amount of road km, and its allocation to geotypes; medium conversion factors to estimate trench km from road km: medium Final drop: miniduct trench, poles for dropwires, and miniduct: digging costs for each final drop terrain type: high mix of terrain types: medium unit cost of miniduct: low / medium average length of final drop, by geotype: medium number of sites, by geotype: medium Copper cables: cost of each type of cable: high degree of centralisation in each sample zone: medium proportion of lines that are inside Tätort in each zone: medium (high for some geotypes, low for others) network design parameters in each sample zone: medium (high if the design is really inappropriate) Distribution points: Unit costs of manholes, cabinets, distribution poles; medium/high Number of s and SDPs in each sample zone, and whether the design is 3 or 2 layer (or even 1 layer for some zones): medium (high if the design is really inappropriate) Others: Permitted deployment of Fixed Wireless Access: high. Savings from deploying FWA could be very significant, depending of course on the costs data used for FWA. With the current input data, FWA is barred from being used in 24 of the 25 sampled zones. Allowing FWA to be deployed to serve say 10% of customers could reduce the LRIC cost of Access by about 25% (depending of course on the cost of FWA). 6-70

76 Unit cost of FWA equipment; low at present, could be medium in scenarios where FWA is deployed fully. Not as important as changes to the restrictions on FWA deployment. Total numbers of lines: high impact on total cost, low impact on LRIC cost per line Total km2 in each geotype (in particular, how much of the country is empty): medium Allocation of lines to geotypes: medium/high impact on total cost and on LRIC cost per line; low impact on LRIC cost per line within geotype. Price trends; medium for items where there is a lot of capital cost (e.g. digging, cabling); low for minor cost areas. Asset lives (for major cost areas); medium impact where asset lives are short (say 15 years or less) and where price trends are increasing; low impact in areas where asset lives are long (say 25 years plus) and price trend is decreasing. 6.5 CO-LOCATION MODEL Sensitivity of collocation costs is determined directly by the cost of the inputs. As this model is relatively simple the sensitivities are straight forward. The primary input is building costs this is the single largest cost contributor after power consumption. Other equipment has a proportional input to the results. We note that the service is costed in a dis-aggregated manner, hence the cost of most components is not added to others the cost sensitivity of the individual component to their input is therefore high (in many cases 1:1). 6-71

77 APPENDIX A: ROAD MAP ANALYSIS A.1 BACKGROUND A considerable part of the input data for the Access model is concerned with defining the geographical characteristics of Sweden, in particular those aspects that have an effect on the cost of provisioning and maintaining the access network. These items include: Number of lines. The amount if trench required. The mix of digging surfaces. The distances from NTP 14 to SDP/ 15 and from there to the switch. This section provides an overview of how these values were derived. A.2 OVERVIEW All of the data starts from published or other well known statistics about the country, e.g. the total area, total number of lines, number of scorched nodes. However, customers are not evenly distributed across the country. For example; some 80% of the population live in towns and villages (Tatort) of 200 or more people; these 2000 or so Tatort account for just 1-2% of the land area of Sweden. Digging surfaces are likely to be different inside Tatort (more asphalt and concrete) vs., outside Tatort (mostly open terrain). a proportion of the country is empty of population and of demand for fixed line telephony; forests (over 50%), mountains (about 15%), lakes (10%), marshland (5%?), etc. Dividing the country into grid squares of 1km2 each, some 75% of these 1km squares are unpopulated. Thinly populated areas will be relatively expensive to service. The network of routes for digging trenches can be expected to follow the road network with an additional component for the final drop from street to house. In urban areas, a significant proportion of the road network will require a trench on each side of the road; in rural areas, few roads will require trench on both sides and some road segments with no customers will not require any trench. This diversity of terrain and population distribution needs to be reflected in the input data used in the model. Most of these calculations were done by selecting a representative sample of 25 of the switch zones in Sweden, in which a wide range of characteristics were to be found in particular, covering the wide range of teledensities (lines per km2) that occur in Sweden, ranging from city centres with over 10,000 lines per km2 down to remote rural areas with about 0.1 lines per km2. 14 Network Termination Point 15 Secondary Distribution Point/Primary Distribution Point A-1

78 A.3 SOURCE DATA: LIST OF SITES WITH GRID REFERENCES AND VOLUMES The data requested from Telia in September was a list of scorched node sites giving (as a minimum) the following data for each scorched node site: Grid reference (nearest 100m grid point would be acceptable). Unique identifier for the scorched node site. Number of lines. plus the area served in km2 and the zone boundary data. The data was not made available in exactly this form. Instead, the source data for the analysis of switch zones in Sweden was a pair of data files containing the following items: File 1 (grid references): a list of scorched node sites containing the following data for each site: Grid reference, nearest metre Node signature only about 80% of them unique Place name (not all unique). File 2 (volumes): a list of scorched node sites containing: Node signature, again, not unique Place name again, not unique Number of lines. Match-merging of these two files, to get the definitive list of sites with grid references and volumes, was left to the BUMT. This was conducted as follows: Some 6500 sites could be matched uniquely on node signature to give usable data grid reference and numbers of lines. A number of sites were at the same grid reference, or very close to each other within 100m. These sites were merged (adding volumes together) A number of other sites had grid references but no matching volume data. BUMT decided that these should be counted as sites but that a special handling method was required. A number of sites had volumes data but no grid references. These present more of a headache; they could be (among other possibilities); - the unmatched other halves of the sites with gridrefs but no volumes; or - other genuine sites with missing (but distinct) grid references; or - additional volumes, that should be added to the existing list of 6500 sites, for example because these sites are FAMs. The BUMT chose the approach of omitting these unlocatable sites. A-2

79 This gave a list of some 7300 sites, 6500 of which had volumes, as the starting point for the analysis of the zones. A.4 ESTIMATING THE CATCHMENT AREA OF EACH ZONE For each scorched node we need to estimate the size of the catchment area that it serves, so that it can be assigned to a geotype (geotypes are based on number of lines per km2). These zone areas were estimated for each zone, based on the following principles: Customers can generally be allocated to the switch site nearest to them (with the odd exception where physical barriers make an alternative more economical); The catchment area for a switch site will share its borders with (typically) 4-7 neighbouring switch sites; The shape of the catchment area for a switch site will typically be an irregular shape of (typically) 4-7 sides, bounded by the borders beyond which a different scorched node is the closest to the customer; Limitations of copper technology put a practical limit of about 5km as the crow flies, or 6-7km as the cable route runs, as an upper limit on the boundary of the zone. The calculations were done as follows: Calculate the crow flight distance from each zone to its six nearest neighbours For zones that do not have six other sites nearby, set an upper limit on the distance to their nearest neighbours. The figure chosen for this was10km, i.e. a default boundary is drawn at 5km from the node. This also helps to avoid overestimating the area of the zones at the edge of the country as well as those bordering on large empty areas. Estimate the size of the catchment area from these distances. The distance to the nearest neighbour has the biggest impact on the size of the catchment area, then the second nearest, etcetera. The overall estimate of the area of the zone is a weighted average of these figures. A.5 ASSIGNING ZONES TO GEOTYPES BASED ON DISTANCES TO NEAREST NEIGHBOURS The above estimates of area based on distances to neighbouring scorched nodes were used as the basis for allocating the zones to geotypes, using the following steps: Calculate teledensity as: number of lines / zone area (where zone area is based on distances to neighbours) Assign the site to a geotype according to teledensity, on the following basis: 7. City: over 1,000 lines per km2 8. Urban: 100 to 1,000 lines per km2 9. Rural A: 10 to 100 lines per km2 10. Rural B: 1 to 10 lines per km2 A-3

80 11. Sparse: up to 1 lines per km2; at least one access network subscriber line. This allocation of zones to geotypes was retained throughout the remainder of the analysis. A.6 DERIVING THE SAMPLE OF 25 ZONES Whilst it is possible to take a simple random sample of 25 zones from the whole country or to take five zones from each of the five geotypes - more accurate results can be expected if the sampling frame is designed to avoid giving too much emphasis to any one zone. The idea of too much emphasis has several measures. These include the following ideals: no zone to represent more than 10% of customer lines. no zone to represent more than 10% of pair-km (making some simple assumptions about average cabling distances in each geotype). no zone to represent more than 10% of the area of the country (after discounting the empty areas which make up about 40% of the country). no zone to represent more than 10% of the zones in the sample. At least one zone to be drawn from the high, middle, and low teledensity zones within each geotype. Based on these ideals, the allocation of the sampling of 25 zones to geotypes was done as follows: Six from geotype 1. This geotype accounts for about 50% of lines so it needs at least 5 zones in the sample. Four from geotype 2. quite high proportion of both lines (20%) and of pair km (20%+) needs at least three and preferably four zones in the sample, the geotype covers a variety of suburbs, medium sized towns etc. i.e. some homogenous areas and some unhomogenous. Four from geotype 3. 30% or so of pair km; needs at least three zones, a fourth is desirable as this geotype covers a range from small Tatort to quite sizeable towns of several thousand people. Seven from geotype 4: 50% of zones and 60%+ of area; needs at least six and preferably seven zones in the sample. Four from geotype 5: 30% of area; needs at least three and preferably four zones in the sample. Within each geotype the zones were ranked in order of teledensity and split into blocks (generally of the same size within each geotype, e.g. for geotype 2, with about 600 zones, and four zones to be selected, the zones were split into equal blocks of about 150. For some geotypes the sampling frame was designed to segment the upper end of the geotype more finely, e.g. for geotype 1, blocks of 30 zones for the top three, then blocks of 60 for the rest), one block for each zone to be sampled. From each block, the zone with the median ranked teledensity (i.e. midway down the list within the block) was selected. (There is an argument in favour of a more sophisticated A-4

81 approach, e.g. finding the zone with the teledensity closest to the average for the block, this would be slightly better in cases where the distribution within the block is skewed.) A.7 ASSIGNING WEIGHTINGS TO EACH ZONE IN THE SAMPLE First, the weighting for each zone in the sample was set equal to the number of zones in the block that it was taken from. In this way, the weighted sum of the sampled zones gives a fair picture of the overall results for the whole country. This unfortunately left the sample not representing those 800 or so zones for which we have a grid reference but no figure for the number of lines. This problem was addressed as follows: The area of each of these 800 zones was estimated in the same way that the areas for the main body of 6500 zones were estimated. From this data, it was possible to make a fair guess at the geotype of each of these 800 zones; the smallest zones tend to be in geotype 1, etcetera. This allocation was done. Revised (increased) weightings for the sample zones in each geotype were then calculated, to make them representative of the full set of 7300 zones. The same factor for scaling up the weightings was applied to all zones in each geotype (eg all zones in geootype 2 had the same scaling up factor of 1.21 applied to them). A.8 SENSE CHECKS ON THE SET OF ZONES IN THE SAMPLE Checks were made to ensure that the zones did look to be broadly representative of the country. For example: Representation of all parts of the country far north, near north, middle, and south Representation of large, medium and small towns and cities; at least one zone from each of Stockholm and Gothenburg; about the right proportion of zones (when weighted) being in a Tatort. Reasonably fair representation of zones with large and small low numbers of lines within each geotype. Preferably, a realistic mix of terrain types, e.g.: o o Forest: several zones in forested areas. Water: at least one zone directly on the coast; at least one zone adjacent to a large inland lake; preferably at least one on an island (whether attached by bridge or not) The sample appears to meet these criteria. A.9 ESTIMATING GEOGRAPHICAL DATA FOR THE SAMPLE OF 25 ZONES For each of the zones in the sample, detailed maps were obtained and the location of the scorched node was mapped, together with those of other scorched nodes nearby. Exact boundaries were created and a more accurate estimate of the area of each zone was derived from these. These estimates of area are the figures that were input to the model. A-5

82 For those zones containing a mix of areas inside and outside Tatort, i.e. with a mix of high and low density areas, the proportion of the population inside the Tatort was estimated by referring to the population statistics for the Tatort, adjusting for any part of the Tatort not in the zone, comparing that against the data on the number of lines in the zone, observing the pattern of development from the map for the zone, and making a final estimate of the split inside vs. outside Tatort. All of the other parameters for the sample zones were derived by observing their characteristics from these same 1:50,000 maps. For zones that are partly inside a Tatort, each of these are estimated separately for the area inside the Tatort and the area outside. The more important among these were: Location of centre (strictly speaking, the demand weighted centroid) of the zone. Amount of centralisation; is demand mostly near the centre (or mostly near the edges). The general assumption was that just about all buildings marked on the map were likely to require a line. This assumption is likely to have inflated the estimate of the amount of digging required (see below), as some of the buildings on the map may be uninhabited, or may have no line (e.g. a barn, a holiday home, a disused building, etc) and may lead to some underestimating of the degree of centralisation within the zone. Street level layout, in particular the separation between sites along the street, and the average distance from street to customer building (these could not be estimated directly from the map for areas inside Tatort, so other methods were used). Number of sites in the zone (a site being one building or address requiring connection i.e. one miniduct or dropwire route. A site may have several lines, especially in a city where e.g. blocks of flats, mixed-use developments, and blocks of offices are common.) Amount of road km in the zone, broken down into three different sizes of road. Approximate conversion ratio from road km to trench km, by the same three-way split of road sizes. The last two of these were then weighted and summarised to give the data on road km and conversion to trench km, used in the sheet I_GIS_routes. The weighted sums were checked against official sources to ensure that the total figures for the km of road were consistent with the official statistics. A consistent boundary was used for demarcation between final drop and street trench, namely: street trench was anything alongside the driveable roads shown on the maps (even if the trench served only one customer); final drop was the part from the road to the building. A-6

83 APPENDIX B: HOW CRITERIA ARE FULFILLED B.1 COMMON GUIDELINES See Excel file B.2 BOTTOM-UP GUIDELINES See Excel file B-7