Model Reference Paper Discussion of Key Issues

Transcription

1 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 1 Model Reference Paper Discussion of Key Issues Industry Seminar 20 June 2002

2 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 2 Structure of MRP Common guidelines Top-down guidelines Bottom-up guidelines Glossary of terms (common vocabulary) List of services covered by LRIC Language: English

3 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 3 Common guidelines Michael Thrane and Niels Adler-Nissen, AMI

4 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 4 Definition/size of increment (1) How should the (size of) increment be defined? All services using the network? Only PSTN-services? Only interconnection services? Small versus large increments The smaller the increment, the smaller the LRIC and the larger the common costs Costs Incremental costs 1 Average incremental costs Fixed common costs Increment Volume

5 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 5 Definition/size of increment (2) Access Network Costs Core Network Costs Attributable costs in the access network (e.g. MDF) Shared costs in the access network (e.g. trench in the access network) Attributable costs in the core network (e.g. tandem exchange) Shared costs in the core network (e.g. trench in the core network, ADMs etc.) Common costs (e.g. trench shared by access and core) Common costs: Costs shared between increments, not included in LRIC

6 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 6 Definition/size of increment (3) Commission Recommendation on Interconnection Pricing - part 1 of 15 October 1997:..the entire investment cost entailed in any point of interconnection, and any investment in network and switching capacity required to handle interconnected traffic, would be avoidable, and thus captured by a long-run incremental cost measure. The total of all such measures, including the incumbent operator's own increment in traffic, would then form the total of all incremental interconnection costs. This figure would then be divided up in a fair and transparent manner between the notified operator and those interconnecting, with the result that the cost of interconnection to any party is the long run average incremental cost (LRAIC). An argument for large increments

7 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 7 Definition/size of increment (4) It is proposed to define the following increments: Access increment: All services using the access network Core increment: All services using the core network Other increments (mobile, international, cable-tv etc.) Motivation: Fair allocation of cost between Telia and interconnecting operators (non-discriminatory) In line with EU recommendation Reduces the common cost component (larger share of costs included in LRIC) Ease of modelling

8 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 8 Demarcation of access and core Costs in the core network driven by the volume of traffic and the number of calls (and QoS) Costs in the access network driven by the number of subscribers Line card costs, driven by the number of subscribers For PSTN services, it is proposed to define the access network from the first connection point at the customer s premises up to and including the line card Line card costs not to be included in the costs of ULL What to do when there is no line card?

9 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 9 Services modelled Services modelled Services covered by LRIC Ensure fair distribution of the economies of scope Services modelled = Services using the core and access network + co-location PSTN services ISDN services Leased lines Other services using the network (datacom, mobile, cable-tv) Co-location services

10 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 10 Services covered by LRIC (1) Interconnection services Connection services (regional and local PoI, connection capacity) Termination (local/metro, single, double) Access (local/metro, single, double) Transit (single, double) Implementation of number series It is proposed to take the existing services comprised in Telia s RIO as the starting point (Excluding number portability and carrier pre-selection)

11 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 11 Services covered by LRIC (2) (Wholesale) copper access Copper access Shared copper access Bit-stream access (expected) Non-recurrent fees for inquiries, network investigation and change of products Network data Cabinet data It is proposed to take the existing services comprised in Telia s RUO as the starting point

12 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 12 Services covered by LRIC (3) Co-location services Fee for offers Connection fee Rack space Installation and mounting of equipment Space rental Power, cooling and ventilation Station wiring Cable Installation Rental Guided access to co-location area

13 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 13 Geo-types Exchange areas need to be grouped into geo-types to reflect cost differences Should use similar geo-types in the two models Criteria? Line density? Could Telia s definition be used?

14 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 14 Co-location service characteristics Only cost modelling, no network modelling Previous experience: Hard to reconcile due to inconsistencies in units of measurements and differences in services and cost categories. Two cost classes 1. Costs shared between co-location and other increments (core or access) 2. Costs unique to co-location service or operator

15 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 15 Modelling co-location - issues How to model co-location in bottom-up model to ease reconcilliation? It is proposed to model the same cost categories in both models. Two sets of cost data. Cost averaging - per site, per geo-type or nationally? Vacant space - how should vacant space be defined and treated? Margins for growth.

16 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 16 Co-location - two cost classes Cost shared between co-location and other increments Rack space Access to infrastructure, e.g. power, cooling and ventilation, and security To be estimated and allocated among other increments and co-location using appropriate allocation key, e.g. m2 or Watt Co-location and/or operator specific costs Fee for offers Demonstration of co-location area Station wiring cable To be estimated separately per service

17 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 17 Top-down guidelines Jonas Holm, AMI

18 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 18 Valuation of assets Current Cost Accounting Replacements costs? Economic Value? Net Realisable Value? Value to the owner convention: Current cost = min[replacement costs, max(nrv,ev)] It is proposed to use replacement costs Gross Replacement Costs and Net Replacement Costs Valuation of buildings?

19 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 19 Why MEA? Modern Equivalent Asset When to use MEA? - Not bottom-up model, asset should only be replaced where costs may be reduced or existing asset is no longer available In many case the existing asset will be the MEA How should the MEA be defined? Proposal: The MEA is the asset that can produce the same stream of services produced by the existing asset at lowest costs MEA adjustment for differences in in operating costs, quality, assets lives and space requirements.

20 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 20 Level of optimisation What should be the criteria for optimisation in the topdown model? - eliminate inefficient excess capacity - eliminate inefficient operating costs - replace outdated technology Migration costs? When can technology be labelled as outdated? - No clear answer - Typically the operator will have started replacing this technology - Examples: PDH equipment, copper in core network

21 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 21 Fully depreciated assets Should the value of fully depreciated assets still in use be included in the top-down model? FDA are likely to arise as the result of conservative book asset lives Including the value of FDA would allow the SMP operator to recover asset costs twice Inclusion of FDA + too short asset lives will allow the operator to recover forward-looking costs more than once FDA currently not included in Austria, Denmark, France, Holland, Ireland, UK FDA only relevant for top-down, not bottom-up model

22 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 22 Bottom-up guidelines TBA, AMI

23 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 23 Scorched node versus scorched earth Scorched earth represent ideal new entrant s network Scorched node, takes the location of nodes as given, radical optimisation of existing network, networks evolve over time Definition of scorched node What is a node? Is the number and location of nodes fixed? Or only the location (site)? Is it possible to introduce additional nodes? Empty nodes/sites? How radical can the equipment in a node be changed?

24 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 24 Modified scorched node It is proposed to use modified scorched node Existing locations of nodes (sites) are fixed Number of nodes not fixed (possible to merge exchanges) Nodes include concentrators and exchanges Empty sites not allowed (no addition or deletion) Possible to change the mix of exchanges (local exchange may be replaced by remote concentrator)

25 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 25 Optimisation and forward-looking technology (1) Specific constraints on the optimisation How should modern technology be defined? Most recently employed vs most recently available Should IP be allowed? Should the switching hierarchy be similar to Telia's? Service equivalence

26 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 26 Optimisation and forward-looking technology (2) Forward-looking technology : Technology that would be used today looking forward. It is proposed to define modern technology as most cost effective technology actually employed in a large scale fixed networks It is proposed to constrain the bottom-up model to circuit-switched technology and copper technology (and optimum mix of fibre) in access network.

27 A N D E R S E N M A N A G E M E N T I N T E R N A T I O N A L / P A C O N S U L T I N G 27 Assumptions regarding network build-out Assumptions underlying equipment prices (quantity discounts) level of trench sharing, digging prices etc. needs to be consistent Is network built over night or over time? Proposal: Technically the network is built over night. However, input parameters (trench sharing, equipment prices etc.) should be verifiable and will reflect costs of actual networks (built over time) Equipment prices (bargaining power) should reflect those of a fixed SMP-operator in Sweden.