ITU/BDT Regional Seminar on Costs and Tariffs for Member Countries of the Tariff Group for Africa (TAF) Midrand,, South Africa, June 2005 NGN services and business planning Oscar González Soto ITU Consultant Expert Strategic Planning and Assessment June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 1
Content NGN driving services Services motivation and market issues Key economical factors and Convergence Cost factors and economies of scale Convergence Tariff structures and revenue trends Business modeling and evaluations Support to Business and Design June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 2
Driving Services for Residential VoIP Content delivery Video on demand NGN Enabler for multiservice Convergence June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 3
Context NGN services and business planning VoIP Access to plain telephone services with different levels of quality of service from a data line (e.g. DSL or Wireless) and reduced pricing Computer to computer/ user to computer / user to user Interested customer segments Corporate: based on VPN VoIP SME / SOHO / homeworkers: based on IP Centrex Residentials: Secondary line Residential: Primary line June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 4
Motivation End-user NGN services and business planning VoIP Access to different tariff schemes and cost saving Enabler for IP services (CTI) => e.g. IP Centrex, Browse and Talk Operator Add value to BB delivery for emerging operators Defensive position for incumbent operators Operator concerns Cannibalization (incumbent) Free services Interconnection QoS and regulatory obligations (e.g. for primary line: power feeding, emergency service, localization,... ) End to end quality supervision June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 5
Content Delivery Context Access to paid content with different quality levels - Music: (> 25% of total market) Exploit Win-Win legal solutions - Games: (> 50 million users) Need for BB and quick reaction time - Gambling: Need for BB and short delay Motivation End-users Trusted relation with operators Integrated contract Operators Capitalize on their access to users with increase of revenues through marginal investments Get share of e-commerce and increase business chain Content providers Ease of use for distribution channel; Operators as trusted party June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 6
Video on demand Context Access to movies on a per-demand basis (from DSL line or Wireless) (VoD, NVOD, itv) Motivation End-users Accessibility/Control / personalization of video content Operators Capture a part of entertainment value chain Uplifts DSL demand June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 7
Video on Demand drivers and issues Revenue Drivers Share of revenue depending on value chain Possible payment intermediation Market Fundamental service for the triple play operation High interest and fastest growing market Candidate for convergence in broadband Willingness to pay per movie, per subscription and per time unit June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 8
Driving Services for Business VPN IP Centrex Multimedia Conferencing Unified messaging ASP NGN Enabler for Multiservice Convergence June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 9
Virtual Private Network - VPN Context Set of communication capabilities provided over a private network using a common telecom infrastructure shared by several companies Motivation More efficient and customized operation Homogeneous solutions for all company Private numbering plan Services integration Security management June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 10
Virtual Private Network - VPN Market issues Cost benefits: Balance between tariff levels for competing services (PSTN & leased line services) CAPEX versus OPEX expenses over a period of time Need for skilled telecom staff Provision of VPN features Billing and Management Service Delivery Process Planning June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 11
Context NGN services and business planning IP Centrex - Provides PBX-like voice / CTI services to enterprises - Main targets: SOHO/SME and teleworkers Motivation to users - No CAPEX investment from non-core business (telecom) - No operation staff to be trained and employed - Deployment follows company's pace (growth or reduction) - Easier cost management (against move, obsolescence, traffic patterns) - Multi-site converged service (e.g. for homeworkers) - Willingness to pay: 8-15 Euros per month June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 12
IP Centrex Motivation to Operators Offer voice services on top of (deployed) data-vpn, Move up the value chain providing core-business (voice) services Reduce churn to in-house solutions and competitors Possible bulding block for an SME bundle Associate to Voice and Data VPN for full Virtual Company solution (Phones, PBX, Mobiles) June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 13
Multimedia Conferencing Context Multi-party room-based or PC-based multiservice conference (with document sharing, Instant Messaging facilities,...) Non-IP users allowed in voice Room-based quality with "NetMeeting - like" ease of use and services Market Issues Threat of "free" web conference? Cannibalization of ISDN visioconf (leased lines; BRA)? Willingness to pay: 0.5 to 0.7 $ /min per user June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 14
Multimedia Conferencing Motivation For End User Teleconf. shares time and costs and improves efficiency. Intermediate step between phone call and face to face visit Lower cost / better user friendliness than ISDN room-based visioconf. For Operator Incremental value on data/voice Brick for package to business segment or vertical service (distance learning; home working ) Lower cost to operate Visioconf. helpdesk June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 15
Context NGN services and business planning Unified Messaging Retrieve from anywhere any message from any device: e-mail, voice mail, SMS, MMS, Fax Motivation To End-User Main target: Businesses,Teleworkers Productivity gain, ease of use, time-critical information management To Operator Move up value chain in Business segment (competes with enterprise-related EVS/Messaging) Leverage Mobile services June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 16
Market Issues NGN services and business planning Unified Messaging Service partly offered by advanced IP-PBX systems Benchmark with Mobile penetration Check competitive positioning vs. Mobile operator Interest to be a component for a bundle in the business segment Willingness to pay around 1 to 3 $/employee/month June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 17
ASP Context - ASPs provide a contractual service offering to deploy, host, and manage access to an application residing in a facility other than the customer s site. Motivation To en user Solution to lack of internal IT resources Potential cost savings and better cost control Easier and faster software implementation Gives access to otherwise unaffordable applications (SMEs) Access to latest technology and superior connectivity To operator Enlarge value chain business to the applications and Empower attractive bundling for business customers Increases participation in e-business June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 18
Market Issues NGN services and business planning ASP Customer acceptance culture due to external control Availability of network performance, reliability and robustness Enhancement of applications towards web-enabling capabilities Some services partly offered by advanced IP-PBX systems June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 19
ASP Main applications and projected value/revenue added High VALUE ADD SERVICES Low Application Hosting Web Hosting Back-end Enterprise Applications (ERP, payroll / HR) Basic Enterprise Applications (email, groupware, collaboration, etc.) Co-location Web Hosting Dedicated Web Hosting Shared Web Hosting $30 - $100 / month Extended Enterprise Applications (e-commerce, CRM, CTI, etc.) $400 to $900 per month $15,000 per month $5,000 to $15,000 per month $40,000+ per month $15,000to $40,000 per month Source: Cherry Tree & Co Low MONTHLY RECURRING REVENUE High June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 20
Content NGN driving services Services motivation and market issues Key economical factors and Convergence Cost factors and economies of scale Convergence Tariff structures and revenue trends Business modeling and evaluations Support to Business and Design June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 21
Key Factors: Cost structure and savings High cost impact of network infrastructure layer: > 60% in Greenfield areas of which > 70% in access segment. Dimensioning and cost evolving in 3 phases through time: A) Accessibility due to Geo coverage either physical or radio B) Equipment in Ports/users as customers grow C) Capacity in Traffic due to increase of multiservice applications Significant savings by resources and equipment sharing within an operator due to convergence at network layers : i.e.: 30% Additional savings inter-operators due to cost sharing of noncore equipment (buildings, towers, etc.) > 20% June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 22
Key Factors: Economies of scale Economies of scale are an inherent characteristic to the telecom technologies that impacts on solutions, evolution and also now survivability in competition The five dimensions of the economy of scale: By Size of the systems By Technology capabilities Larger systems cheaper per unit New technologies with higher capacity By Traffic efficiency with the occupancy Higher utilization for a given GoS when more servers By customers Density By Volume of purchasing Quadratic increase with coverage radio Discount per volume in log scale June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 23
Key Factors: Economies of scale by technology Cost index for Transmission unit (b/s/km) ( log. scale) 1000 100 45 Mb/s Transmission capacities 90-135 Mb/s 10 400 Mb/s 1 1.2-1.7 Gb/s 2.5 Gb/s 0.1 10 Gb/s 40 Gb/s 0.01 2000 1995 1990 1985 1980 1975 Source: AT&T data reproduced by Word Bank and TeleGeography Inc. June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 24
Key Factors: Economies of scale by traffic efficiency Impact on efficiency increase for a given quality with traffic and group size (non-linear effect) Resource Efficiency 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 P = 0.02 5 10 15 20 25 30 35 40 Offered Traffic (Erlangs) June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 25
Cost per line ( Monetary units) 300 250 200 150 100 50 0 NGN services and business planning Key Factors: Economies of scale by density Metropolitan and suburban scenarios Metropolitan total Metrop. infrastructure Suburban total Sub. infrastructure 529 651 774 894 1 016 1 139 1 259 1 381 1 504 1 625 1 747 1 870 1 990 2 112 2 235 2 355 2 477 Density (subscribers per KM²) High impact of customer density in cost per line and higher impact on Rural (up to 20 to 1) June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 26
L1) Monopoly for all geographical areas, customer classes and service types NGN services and business planning Key Factors: Competition level Different Levels of Competition L2) Limited monopoly per area and/or service types while free operation for niche operators L3) Moderate competition for all network segments and services L4) High competition for high revenue customers and services L5) Aggressive competition for all areas, customers and services Efficient telecom implies different competition levels as a function of country size and development status June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 27
Key Factors: Competition level Business feasibility space as a function of volume and ARPU Revenues per customer/year (ARPU) Non feasible by lack of payment capability, churn or regulation constraints r2 $ n2 Volume of Customers/type ARPU is limited by the economical development level and fixed costs June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 28
Key Factors: Competition level Business feasibility space as a function of volume and ARPU Revenues per customer/year (ARPU) r2 $ r1 $ Non feasible by low NPV and IRR n1 Volume of Customers/type Business feasibility limitted by positive NPV June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 29
Key Factors: Competition level Business feasibility space as a function of volume and ARPU Revenues per customer/yea (ARPU) Non feasible by lack of payment capability, churn or regulation constraints Feasibility area: users range r2 $ r1 $ Non feasible by low NPV and IRR Feasibility area: tariff range n1 n2 Volume of Customers/type Feasibility space highly dependent on country size and economical level June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 30
NGN Network Architecture Cost drivers in NGN Volume of customers per category Bandwidth demand per origin/destination Packet processing rates for control related functions Variety of applications/services and related platforms Content storage and location within the network Leasing of physical or communication resources Backward evaluation of contribution to services cost is essential to calculate cost dependent tariffs, cash-flows and IRR June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 31
Combined fixed and traffic dependent rates 90 80 1 70 60 50 40 30 2 3 4 20 10 0 0 30 60 90 120 150 180 210 Sub. 1 Sub. 2 Sub. 3 Sub. 4 Combined fixed and variable tariffs has best flexibility for customers, operators and business June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 32
Illustration for tariffs strategy in DSL End user tariff End user tariff Bandwidth On demand Voice calls Voice service subscription ISP service fee DSL subscription fee Usage ISP service fee Cap monthly download Voice calls DSL & voice subscription fee Usage June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 33
Revenue chain with multiple business players applications Service Provider (open) Service Provider (retail) wholesales of services End User global subscription Retailer access Access Provider Network usage Connectivity Provider Increase of players for multiservice business specialization June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 34
Universal Telcosconverge in order to increase value chain + Customers for end applications + Customers for new services Extension for new customer types ISPs New Universal Telcos Extended Telcos ASPs Customers for connectivity Classic Telcos Upgraded Telcos Extension for new services domains Conventional voice and data services + Services of IN, VPN and Mobile + Internet and video distribution (triple play) + e-applications and Hosting Specific migration and timeframe to be optimized for the country context and regulatory conditions June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 35
Migration steps Evolution of revenues with major service domains Revenue level (ARPU) ASP Video and multiservice voice revenues IN and data Time and Extension for new services domains Conventional voice and data services + Services of IN, VPN and Mobile + Internet and video distribution (triple play) + e-applications and Hosting Convergence strategy is fundamental to ensure business feasibility June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 36
Key factors for survivability in competition Push for new services Imaginative pricing strategies and bundles Actions for market share capture and better take-up rate Actions do minimize churn Actions to decrease Cost of Ownership and share common resources Business profitability positive and within or better than indicators benchmark June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 37
Content NGN driving services Services motivation and market issues Key economical factors and Convergence Cost factors and economies of scale Convergence Tariff structures and revenue trends Business modeling and evaluations Support to Business and Design June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 38
Support tools: Business Required functionality for Business tools - Service Demand Projection - Dynamic modeling for technology substitution and migration rates - Dimensioning multiple flows (circuit and packet modes) - Evaluation of network resources and associated investment (CAPEX) - Evaluation of revenues for given tariffs and installation rate - Modeling multiple resource lifetimes - Modeling of demand elasticity to tariffs - Interrelation between network growth and operational cost (OPEX) - Cost assignment as a function of utilization rates - Generation of standard financial results like Cash Flow, Profit & Loss, Balance Sheet, NPV, IRR, etc. June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 39
Support tools: Business Activity Flow in STEM to evaluate migration alternatives: Replacement Of Resources Demand Parameters Resource Depreciation & Decommissioning Resources Costs (And trends) Incremental Demand for service Total Incremental Demand for Resources Incremental Resource Supply Production & Costing of Resources Tariff and Revenue Service costs & charges Input data Tariff Policy Other costs (Admin/mkt) Phase of calculation June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 40
Support tools: Business Type of STEM tool results June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 41
Support tools: Business Type of STEM tool results June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 42
NGN services and business planning Support tools: Business Example of multi-service bandwidth evolution in 3G Bandwidth per service class of business customers 3.200.000 2.800.000 Mbit/s 2.400.000 2.000.000 Data bandwidth 1.600.000 1.200.000 800.000 400.000 0 2004 Voice bandwidth 2006 2008 2010 2012 Year June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 43
NGN services and business planning Support tools: Business Example of multi-service revenue evolution in 3G Revenue per service type for consumer customers 28e+07 24e+07 20e+07 US$ Data services 16e+07 12e+07 8e+07 UMTS voice 4e+07 GSM voice 0e+07 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Year June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 44
Summary of Key Factors Plan business and services first, later the network with proven solutions. Analyze new business chain from content to delivery Take advantage from all economies of scale Design financial performance with best business practices: compare and optimise NPV. June 2005 ITU/BDT NGN services and business planning - O.G.S. - slide 45