Revision of DBA s competition margin model Changes performed in the LRAIC models to output the relevant data for the competition margin model

Transcription

1 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin Danish Business Authority Ref: DB-DBA-Margin Squeeze TERA Consultants 39, rue d Aboukir PARIS Tél (0) Fax. +33 (0) S.A.S. au capital de RCS Paris B December 2014

2 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin Summary 0 Introduction Changes made in the SQL Access General approach and changes Use of the SQL Changes made in the Microsoft Excel Access Changes made in the Microsoft Excel Core Spreadsheets added Changes in the existing spreadsheets Data selected Lines driven assets BH traffic Traffic driven assets Leased lines Network topology Network dimensioning rules Network costing Non network mark-up Capacity based Results and analysis...18 Ref: DB-DBA-Fixed LRAIC 2

3 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin 0 Introduction When analysing the market for respectively wholesale (physical) infrastructure network access (market 4) and wholesale broadband access (market 5), the Danish Business Authority (DBA) found that there were a risk of margin squeezes. On this basis, DBA decided to develop a (the competition margin ) that for a variety of scenarios can calculate profit margins for an alternative operator (a reasonably efficient operator, REO) on the Danish broadband market. The results from the were part of the new analyses of market 4 and 5 in Based on these analyses, TDC (Danish incumbent) was imposed an obligation not to cause margin squeezes (the margin squeeze obligation) for copper based retail products. The margin squeeze obligation includes single play products (a broadband connection) and double play products (a broadband connection bundled with VoIP). In order to be able to supervise the obligation, a margin squeeze tool was developed. The margin squeeze test focuses on a REO (a reasonably efficient operator), i.e. an operator that is smaller than TDC but is cost efficient given coverage, subscriber base, product supply etc. As a part of the upcoming analyses on market 4 and market 5, DBA intends to carry out an updated analysis of the REO s profit margins. Therefore, the competition margin needs to be updated in order to reflect current market conditions (competition with TDC s CATV platform and with TDC s FTTH platform, development of bundles with IPTV services, availability of new wholesale offers provided by TDC such as VULA, alternative operator network deployments, etc.). In July, TERA Consultants has sent to DBA a specification document defining the REO strategy in terms of network deployment and the REO market share. It has resulted in the proposal of ling 3 different competition scenarios which are summarized in the table below. It has to be noted that they have been renamed compared to the specification document to be ordered from the widest coverage to thesmallest coverage: Table 1 Scenarios considered for the competition margin Coverage Specific coverage Broadband lines Demand o/w VoIP o/w IPTV Leased lines A B C All edge sites All sites >4000 lines*, no site below 500 lines* All sites >2000 All sites > sites < sites <3000 No other sites 15% DSL 15% DSL 10% DSL market market share market share share 30% penetration over broadband 15% penetration over broadband 5% market share *active lines Source: Model Specification Document Ref: DB-DBA-Fixed LRAIC 3

4 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin In this context, the objective of this document is to detail the different modifications applied to the existing LRAIC s in order to output the relevant data to perform the competition margin test. The LRAIC s consist of 3 interactive parts as described in the figure below: Figure 1 Structure and interaction of the Geomarketing inputs SQL access Copper and fibre network inventory Excel access Copper and fibre network cost Excel coreand pricing Source: DBA The required changes apply to the three s. This document details what changes have to be performed in order to adapt these s to output relevant data for the competition margin. This document is made of 4 main sections detailing the changes by following the flow of the calculation and then showing some analysis of the output: First the modifications applied to the SQL Access are detailed; then The modifications applied to the Microsoft Excel Access LRAIC are detailed; then The modifications applied to the Microsoft Excel Core LRAIC are detailed; and finally Main results are presented. Ref: DB-DBA-Fixed LRAIC 4

5 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin 1 Changes made in the SQL Access This section first describes the approach taken and the changes applied to the SQL, and then describes how to use the. 1.1 General approach and changes The SQL part of the LRAIC uses as the main input the description and list routes used by TDC s access network, BTO network and core network. In the present case, only the core netork needs to be led. Neither routes used by access network nor routes used by BTO are needed. The core network of the REO has been defined as a subset of the existing TDC s core network by selecting manually only the relevant core routes used by the REO. These subsets are illustrated in the figures below: Ref: DB-DBA-Fixed LRAIC 5

6 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin Figure 2 Passive transmission network for an operator following the scenario C Figure 3 Passive transmission network for an operator following the scenario B Source: DBA Legend: Dark green: Edge sites (POI2 interconnection), Light green: LLU sites covered (sites above 4,000 active lines) Source: DBA Legend: Dark green: Edge sites (POI2 interconnection), Light green: LLU sites above 4,000 active lines, Yellow: sites between 3,000 and 4,000 lines, Blue: additional sites Figure 4 Passive transmission network for an operator following the scenario A Source: DBA Legend: Dark green: Edge sites (POI2 interconnection), Light green: LLU sites above 4,000 active lines, Yellow: sites between 3,000 and 4,000 lines, Orange: sites between 2,000 and 3,000 lines, Blue: additional sites Ref: DB-DBA-Fixed LRAIC 6

7 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin The relevant routes for the specific scenarios have been extracted manually from TDC s core routes by selecting on a map the relevant routes that should be used to link all selected COs. For each scenario a set of ID of routes has been therefore determined. In order to take into account the right input for the SQL ling, a specific input database has been created, containing 3 additional datatables and three procedures (procedures in SQL are equivalent to macros in VBA). The three tables are: CompetitionModel_Scenarios which details the core routes to take into account (a set of id for each scenario); Output_Routes_Core_Full which contains all core routes of TDC s network; and Output_Routes_Sections_Core_Full which contains the details of each of these routes. The three procedures added are Select_Scenario_A, Select_Scenario_B and Select_Scenario_C to prepare the database with the right inputs. All standard routes tables has been emptied (neither copper nor BTO network deployed), and the procedures Select_Scenario_X fill the two tables Output_Routes_Core and Output_Routes_Sections_Core with the right input. The only modification of the database consists in the parameter Source_Database to [Denmark_Input_CopperFTTH_CompetitionModel] in order to take into account the right input. The execution of the is performed as for a classical copper scenario ling (however the processing time is reduced to approximately 1 minute). The Fibres location spreadsheet of the Excel is fed with the SQL part of the access by using the stored procedure [dbo].[stats_core_bto_fibres_ends_per_co]. For each scenario, a subset of TDC fibre routes has been selected in order to link all COs considered for the selected scenario. These links start and terminate at every CO covered by the operator. The inventory outputted by the procedure is based on the routes used by fibres links in the selected scenario, on the basis of 24 fibres per route. The procedure [Stats_Core_BTO_Fibres_Ends_Per_Co] provides an inventory of all fibres terminating at each CO by summing the number of core-fibres for which the route starts or ends on the road section of the CO location. 1.2 Use of the SQL The SQL should be launched using the three following statements: EXECUTE [Denmark_Input_CopperFTTH_CompetitionModel].[dbo].[Select_Scenario_A] EXECUTE [Denmark_Model_V4_CompetitionModel].[dbo].A00_LaunchCopperScenario Ref: DB-DBA-Fixed LRAIC 7

8 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin EXECUTE [Denmark_Model_V4_CompetitionModel].[dbo].[Stats_Core_BTO_Fibres_Ends_Per_Co] The first one will select the right scenario to take into account (few seconds). The second statement will dimension the network (1 minute), the output should be copied to the input spreadsheet of the Microsoft Excel access. The third statement will output the number of fibres used at each CO in order to dimension the ODFs. The output should be pasted in the Fibres location spreadsheet of the Microsoft Excel access. Ref: DB-DBA-Fixed LRAIC 8

9 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin 2 Changes made in the Microsoft Excel Access The changes made to the Microsoft Excel Access LRAIC are mainly limited to the inputs: The Dashboard defines the competition scenario (to be chosen among A, B or C); The Scenario A SQL output data has been pasted in the ScA_ prefixed spreadsheets;; The Scenario B SQL output data has been pasted in the ScB_ prefixed spreadsheets; The Scenario C SQL output data has been pasted in the ScB_ prefixed spreadsheets; The Copper input spreadsheet has been modified in order to take the input for the selected scenario (from one of the three input sets detailed above).; A spreadsheet Fibres location has been added to determine the number of fibre links at each CO for each scenario; and The proportion of trenches shared has been set to 15% in accordance with the Model Specification Document. Few additional analysis spreadsheets not used to compute the output spreadsheet have been removed in order to make the lighter and run faster. Figure 5 Parameter added in the Dashboard spreadsheet Main parameters Value Year of calculation 2013 Competition Scenario C Risk premium 0.0% WACC used 5.8% Competition Scenarios A B C Source: DBA The output of the Excel Access LRAIC (interface spreadsheet) is composed of several parts, however the only relevant parts are the first one regarding Civil Ref: DB-DBA-Fixed LRAIC 9

10 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin engineering without markup for non-network costs, and the 4 th one Geographic distribution of PON splitters, Core and BTO fibres which is used to dimension the ODFs. Running this leads to the following results: Table 2 Scenarios considered for the competition margin (annual costs, i.e. after depreciation are presented) Scenario A B C TDC original (for core only) Number of sites (for LLU) Trenches DKK 4263km DKK 3270km DKK 2682km DKK 5733km Ducts DKK DKK DKK DKK Cables DKK 4548km DKK 3489km DKK 2861km DKK 14390km Chambers DKK DKK DKK DKK Joints DKK DKK DKK DKK Source: Access Excel LRAIC It is interesting to note that: The ratio number km of trenches/number of sites is equal to 5 for TDC, 13 for scenario A, 18 for scenario B and 26 for scenario C. This is due to the fact that the extra sites of TDC are smaller and smaller sites but closer and closer from the already deployed routes; For trenches, the ratio cost/km if higher for scenario C and lower for TDC. This is due to the fact that TDC s network, while being more capillary, is having much more sharing with the copper access network (i.e. a given core network trench will host more often copper access network). The ratio is very close for A, B and C since they do not share any trenches with the copper network; Other costs vary much more. For example, for cables and joints, this is due to the fact that TDC has many redundant routes while we assume only one cable between sites in the REO. Ref: DB-DBA-Fixed LRAIC 10

11 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin 3 Changes made in the Microsoft Excel Core The Microsoft Excel Core has been adjusted, some spreadsheets have been added to provide inputs and outputs, some spreadsheets have been modified and some spreadsheets not used to compute the outputs of the have been deleted. 3.1 Spreadsheets added Three input spreadsheet have been added to the Core LRAIC : Import from Access - CompetitiA, Import from Access - CompetitiB and Import from Access - CompetitiC. They correspond to the output from the access LRAIC in the relevant scenario (A, B and C). On top of this, two specific spreadsheets have been added to calculate the margin data: Competition Inputs: o This spreadsheet embeds all specific inputs required for the competition, in particular: The BSA and LLU sites coverage of the operator for each scenario; The number of copper pairs considered for each scenario; The market details for each scenario (Market shares, volume based on the market share and the total number of copper broadband in the country and service penetration); and The unit costs of rented equipment. o This spreadsheet enables to choose the relevant scenarios: A, B or C Whether the transmission network cost (physical layer) should assume the building of own fibres and trenches or the renting of dark fibres Whether sites (for LLU and BSA) are rented or owned The access technologies used with 5 scenarios depending if LLU service and BSA service are used: Table 3 Access technologies scenario Scenario LLU customers BSA customers LLU + BSA (base case scenario) X Y All customers on LLU X + Y 0 LLU customers only X 0 BSA customers only 0 Y All customers on BSA 0 X + Y Ref: DB-DBA-Fixed LRAIC 11

12 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin NB: the base scenario for A, B and C is sites rented (for all sites), the case LLU + BSA is considered and transmission network based on dark fibres. o This spreadsheet also embed unit costs used for rented equipment or infrastructures. These costs are based on TDC s reference offer, answers from operators and international benchmarks. o Distribution frames and cabling between the Main Distribution Frame (MDF) and the Handover Distribution Frame (HDF) are dimensioned based on the number of customers plus an additional 10%. This 10% spare capacity has been assessed by considering the fact that some customers are requiring a second copper pair to the MDF when they have also subscribed to TDC s PSTN service. Ref: DB-DBA-Fixed LRAIC 12

13 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin Figure 6 Competition inputs spreadsheet Welcome Competition Inputs This sheet contains 1 Scenario Scenario A 1 Transmission network Rented 2 Sites Rented 2 Access service used LLU + BSA 1 LLU VRAI BSA VRAI Total LLU BSA Broadband customers distribution on full coverag 100% 55% 45% Broadband customers on full coverage 175,685 97,064 78,621 Broadband customers used 175,685 97,064 78,621 2 Coverage CO LLU A B C Original BSA interco site A Number of sites Aa VRAI VRAI VRAI FAUX VRAI FAUX FAUX Ynø VRAI VRAI VRAI VRAI VRAI FAUX FAUX Parameters Value Uplift copper pairs per client % 110% Service Current A B C Original MDF copper pairs # 193, , , ,836 1,491,466 4 Unit costs CAPEX OPEX Driver Upper bound pr. Unit No. of Units Asset life Price trend Annual CAPEX Unit Annual cost per unit Backbone Fiber trunk 24 pair, installation 4,068 1 pr. CO % 532 Per CO 532 Fiber trunk 24 pair, pr. 10m (avg. 40m) 1, meter % 177 Per CO 708 In-span cabling, installation 4,509 1 pr. CO % 590 Per CO 590 In-span cabling, pr. 10m (avg. 100m) 1, meter % 182 Per CO 1,816 Dark fibre Aggregation link 250,000 13,000 1 per fibre link % 24,699 Per CO 37,699 Edge link 250,000 13,000 1 per fibre link % 24,699 Per CO 37,699 Distribution link 250,000 13,000 1 per fibre link % 24,699 Per CO 37,699 Core link 250,000 13,000 1 per fibre link % 24,699 Per CO 37,699 Co-location Rack space (1,5 m2) 14,858 1,646 # racks % 1,944 Per rack 3,590 Power supply (48V 30A 1000W) 5,580 7,581 # racks % 730 Per rack 8,311 Copper pair cabling, 300 pair, installation 12,218 # subscribers % 1,599 Per 300 copper p 1,599 Copper pair cabling, 300 pair, pr. 10m (avg. 60m) 1, meter % 205 Per 300 copper p 1,232 Copper pair cabling, 100 pair, installation 7,747 # subscribers % 1,014 Per 100 copper p 1,014 Copper pair cabling, 100 pair, pr. 10m meter % 95 Per 100 copper p 568 Ref: DB-DBA-Fixed LRAIC 13

14 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin Source: DBA NB: The number of lines for TDC is higher than the number of DSL customers due to fact that the ling includes the migration of CATV broadband customers to DSL. Output Competition : o This spreadsheet includes some calculation and the figures outputed for the competition margin : The ports-related costs (Handover Distribution Frame, DSLAMs and space for DSLAMs); The traffic-related costs: The voice, broadband, TV and leased lines traffic costs; and The number of customers. o T operator has to bear the cost of the cabling between the MDF of the operator and its own distribution frame. Therefore in that case, the cost of the DF is equal to the DF equipment plus the additional cabling associated. o DSLAMs of alternative operators are considered to always be located in the colocation room, and therefore the space, power and cooling are considered as always rented for the DSLAM. o No consistent data has been provided for non-accompanied access costs. As the costs appears to be non significant compared to other investments, these costs have been disregarded (they represent generally less than 1% of costs of co-location and backhaul costs, i.e. much less in percentage of total costs). Ref: DB-DBA-Fixed LRAIC 14

15 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin Figure 7 Core output 1 Outputs 1 Ports costs Ports costs Unit Value Distribution Frame DKK/year 2,173,252 DSLAMs DKK/year 5,998,259 Space for DSLAMs DKK/year 5,173,534 2 Traffic costs Traffic costs Unit LLU BSA Without markup 61,846,576 36,846,238 Voice DKK/year 29,077,661 23,543,505 Broadband DKK/year 20,180,962 9,894,196 Unicast DKK/year 923, ,625 Multicast DKK/year 2,900, ,869 Leased lines DKK/year 8,763,812 2,306,043 With markup 80,724,715 47,957,959 Voice DKK/year 36,872,733 29,854,993 Broadband DKK/year 28,435,708 13,941,282 Unicast DKK/year 1,009, ,261 Multicast DKK/year 3,169, ,473 Leased lines DKK/year 11,237,499 2,956,950 3 Customers Customers Unit Voice # 52,706 Broadband # 175,685 LLU # 97,064 BSA # 78,621 TV # 26,353 Leased lines # 2,493 Source: DBA Figure 8 New spreadsheets added Source: DBA Ref: DB-DBA-Fixed LRAIC 15

16 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin 3.2 Changes in the existing spreadsheets The background of cells modified or added in the existing spreadsheets has been colored in pink. The following spreadsheets have been modified (the order of the following spreadsheets reflects the flow of data calculation): Data selected Lines driven assets BH traffic Traffic driven assets Leased lines Network topology Network dimensioning rules Network costing Non network mark-up Capacity based Data selected The spreadsheet has been modified in order to adjust the figures to the relevant market shares. An intermediary column has been added in order to perform these adjustments. The main adjustments concern: the number of broadband customers (line I144, taken from the competition inputs); the voice traffic and calls (lines 28:84, adjusted proportionnaly by the number of voice lines as compared to the initial inputs) and the number of VoIP subscribers (I99, taken from the competition inputs); the number of TV customers (lines 212:228); and the colocation services inputs that has been set to 0 as they are not relevant for the calculation Lines driven assets Some calculations have been adjusted to reflect the different geographical coverage, especially lines 22 and 28 for the number of lines per technology (the cell M22 corresponds to the total required size for the alternative operator distribution frame, and the cell M28 corresponds to the total number of customers served by the operator). Regarding the geographic coverage, some calculations have been adjusted, in particular the data related to active street cabinets and MDFs location and dimensioning (lines 49:96). The calculation has been adjusted using the geographical information lines 128:142. The main modification relies on the DSLAMs dimensioning: a DSLAM is installed only on sites served by LLU. The dimensioning of additional MDF cabling has been added lines 140:142. Ref: DB-DBA-Fixed LRAIC 16

17 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin BH traffic The cell L64 regarding the multicast traffic from the switch to the DSLAM has been adjusted in order to take into account the TV penetration over broadband subscription Traffic driven assets Few adjustments have been performed to the geographic dimensioning of aggregation switches and edge routers based on geographical information added in lines 315:318. In particulat, the number of ports for switches and edge routers has been adjusted to be set to 0 if the site is not covered by LLU Leased lines This spreadsheet has been adjusted in order to take into account two factors: the adjusted total number of leased lines handled by the led operator and the physical location of this operator. This has been adjusted using the data line 11 and column S Network topology Several input of this spreadsheet have been modified in order to reflect an operator having a different coverage. The geographical distribution of the number of lines has been recalculated (columns X:AA) and three information have been added (If the CO is an unbundled site or a BSA site and whether the CO is an Interco point) columns AO:AQ. The totals in line 12 have been recalculated in order to take into account these informations Network dimensioning rules In this spreadsheet only one input has been adjusted: The share of outgoing traffic to mobile network among outgoing national traffic. As it relied on TDC PSTN volume which have been set to 0 for the competition, a copied value from the existing is used (33%) as an input parameter Network costing Few formulas (lines 89 and 120) have been adjusted to take into account the geographical coverage of the operator Non network mark-up The percentage of Non network mark-ups have been copied and pasted in value line 111 in case the is configured to calculate data for the margin competition. The percentages are therefore the same as for TDC Capacity based Service-specific network markups have been isolated (lines 432:436). Ref: DB-DBA-Fixed LRAIC 17

18 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin 4 Results and analysis This section summarizes the key results for scenario A, B and C. As explained earlier, the base case scenario for these 3 scenarios is that all sites are rented (i.e. sites for LLU, for aggregation, edge, distribution and core nodes), and transmission network is supposed to be based on dark fibres 1. The main outputs of the modified are the voice total costs, the broadband total costs related to ports (and calculated on a per port basis) and the broadband total costs related to traffic (and calculated on a per Mbps basis). These outputs are summarized in the two following table, first on a total annual cost basis (excluding BSA rental costs), and second on a relative unit cost: Table 4 Output for the competition margin Total costs Scenario A B C Voice 66,727,726DKK 66,718,202DKK 66,298,047DKK Broadband per port Broadband per Mbps 13,345,045DKK 8,190,495DKK 4,480,965DKK 42,376,989DKK 31,422,846DKK 21,737,637DKK Source: Modified core Excel LRAIC Table 5 Output for the competition margin Unit costs Scenario A B C TDC Voice (per min) ,02 Broadband per port ,98 Broadband per Mbps 1, ,12 Source: Modified core Excel LRAIC It is then possible to compare the results of the different scenarios unit costs with the costs outputted by the original corresponding to a national coverage. 1 One dark fibre link per alternative operator site is assumed. However, it is possible to assume two links by modifying the cells L1264, L1265, L1266 and L1267 in the spreadsheet Competition Inputs Ref: DB-DBA-Fixed LRAIC 18

19 Revision of DBA s competition margin Changes performed in the LRAIC s to output the relevant data for the competition margin Table 6 Output for the competition margin Ratio of costs as compared to TDC unit costs (TDC=1) Scenario A B C TDC Voice Broadband per port Broadband per Mbps Source: Modified core Excel LRAIC It has to be noted that voice costs are mainly fixed costs (IMS, Gateways, etc). TDC having a market share much more important than an alternative operator (TDC observes 92x more minutes than the alternative operator in scenario A), the average unit cost is therefore much higher for this alternative operator. Regarding the cost per port, the smaller is the site, the less filled is the DSLAM, and therefore the most expensive is the port cost. In scenario C, only big sites are covered, therefore DSLAMs are almost all full, whereas in scenario A, a lot of small sites are covered, leading to not optimized DSLAMs. More generally speaking, two opposite effects are playing between scenarios: Economies of scale: TDC has more economies of scale than A and B. A and B have more economies of scale than C (15% market share against 10%); Capillarity of the network: TDC covers much more sites which is much more expensive than the network of A, which itself is more expensive than the network of B, which itself is more expensive than the network of C. It is interesting to note that unit costs are always higher for A than for B which is explained by the fact that economies of scale are similar but REO B s capillarity is lower. Ref: DB-DBA-Fixed LRAIC 19