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The Comparative Study of Internet Infrastructure Investment between WiMAX

and 3G to support incoming growth of eLearning in Thailand.

The Comparative Study of Internet Infrastructure Investment between WiMAX

and 3G to support incoming growth of eLearning in Thailand.

By Mr. Tanawat Ruangteprat andMr.Nakachin Wiboonprasong

By Mr. Tanawat Ruangteprat andMr.Nakachin Wiboonprasong

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Agendas

Introduction1

Literature Review2

Research Objective and Methodology3

Feasibility Study4

Conclusion and Recommendation5

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Introductions

Currently the most popular issue in Thailand Telecommunication industry is new technologies which are 3G mobile

phone and WiMAX. What technology will be come a killer technology for high speed

communication network in next decade.

Every Mobile Network Operators and Internet Service Provider (ISP) in Thailand are keeping their eyes on 3G and WiMAX technology in order to evaluate which technology is most valuable for investment.

This study investigates the financial (Economic Feasibility) consequences of the implementation of 3G mobile phone and WiMAX technology in providing data service.

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Industry background

Mobile Phone Industry Background The total amount of mobile subscribers reached 61 million

by the year end 2008, representing a 15% increase from 53 million in 2007, pushing mobile market penetration to 94%.

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As a high competition in mobile market every operator try differentiate themselves form other and avoid price war by

launching new value added service (VAS).

The number of VAS and revenue especially in Data service are increase continuously. This information may imply that voice

service is saturated and non-voice service is in growth stage. The non-voice service will become the new cash cow for mobile

operator in making revenue.

Industry background

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Internet Industry Background The current International bandwidth for the whole country is

11Gbps. The domestic exchange total bandwidth is close to 100Gbps.

This results in the green curve in the graph below, with the number of Internet users in Thailand in 2007 to be around13.15 million people (Nectec).

Industry background

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Industry background

The main service providers in Thailand are United Broadband Technology (UBT), Q-Net by Samart, CS Loxinfo, TOT, TT&T, Advance Datanetwork Communication (ADC) and True Corporation

In Thailand has population around 63 millions user but the number of internet user is around 13.5 million so, it may

imply that market still has potential in growing.

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3G Technology The 3rd generation (3G) technologies are designed to

provide high-speed wireless data and enhanced voice capacity. CDMA2000 and WCDMA 3G technologies based commercial networks are now providing service to tens of millions of paying subscribers (Yaliapragada and Naidu,

2005). The new enhancements in WCDMA standards include

significantly improved data capabilities for the downlink communications using the HSDPA mode. HSDPA offers

downlink peak data rates of up to 10 Mbps is mainly aimed at providing data applications with enhanced end-user

experience with shorter connection and response times (Yaliapragada and Naidu, 2005).

Literature Review

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3G Evolution

Literature Review

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WiMAX technology WiMAX is one such technology and it is said to be a

broadband wireless access technology, offering an alternative to infrastructure dependent telecommunications technologies such as DSL (Digital Subscriber Line) or fiber

(Tan, 2006). Comply with IEEE 802.16 standard, data transfer rate from

10 to 100Mbps. works in the licensed 2 to 6GHz spectrum

Literature Review

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Literature Review

The feasibility study is concerned with the first four phases of capital budgeting, viz., planning, analysis, selection (evaluation), and financing, and involves market, technical, financial, economic, and ecological analysis (Prasanna, 2007).

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Research Objectives and Research Methodology

Research Objectives:Research Objectives:

Research Objectives and Research Methodology

Research MethodologyResearch Methodology:Marketing Feasibility:

Marketing analysis Demand forecast

Financial Feasibility: Revenue Module

(ARPU model) CAPEX Module OPEX Module Accounting Module

which is profit and loss , and cash flow model

Risk analysis Scenario analysis

To study 3G and WiMAX technology. To investigate economic feasibility study of investing 3G or WiMAX technology. To compare between 3G and WiMAX technology in term of economic

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Evaluating-Net Present Value (NPV )-Return On Investment (ROI)-Payback Period (PB)

3G Technology WiMAX Technology

Marketing analysis:• Five force model• Marketing 4ps• Conceptual Mapping • Customer Analysis

Demand forecast• Moving Average &Trend

Analysis Method

Cash Flow Model (project 25 years)

Risk analysis model:• Scenario analysis

• Best Scenario• Normal Scenario• Worst Scenario

Marketing analysis:• Five force model• Marketing 4ps• Conceptual Mapping • Customer Analysis

Demand forecast• Moving Average &Trend

Analysis Method

Cash Flow Model (project 25 years)

Risk analysis model:• Scenario analysis

• Best Scenario• Normal Scenario• Worst Scenario

Economic feasibilityEconomic feasibility

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Feasibility Study

Remote Environment Analysis Economic factor

• The Fiscal Policy Office (FPO), Ministry of Finance, announced that the growth of the Thai

economy for year’s 2009 is forecasted to grow at 1.0 percent per year (with the range of 0.0-2.0

percent per year) attributed to the slow recovery in private expenditures.

• World economic crisis

• Impact to investor: – Pros: get some benefit from government; tax

exemption, and low cost source of fund to stimulate economic.

– Cons: Low purchasing power

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Feasibility Study

Social factor• The life styles of people are changing a lot they

have less time to do personal business everything seems to rush.

• From the high competition in every business units every minute has important so, the speed of information and accuracy are crucial for business user in running business.

• Impact to investor:– Pros: Customer have good perception toward new

technology– Cons: Customer expect more about feature of new

technology, Negative perception; Porn film in internet

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Feasibility Study

Political factor• The political situation is quite stable now even some

group of people still against government (Red shirt group).

• In some industry face about unclear direction of government policy for example the communication industry is still face about unclear policy of National Telecommunication Commissioner (NTC) in issuing 3G and WiMAX license to service provider

• Impact to investor:– Pros: Political stability than two years ago– Cons: Corruption problem

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Feasibility Study

Ecological factor• Nowadays most of people concerned much

environment because they face a lot of effect from global warming.

• Most people will focus on how to reduce the global warming effect.

• Impact to investor:– Pros: 3G and WiMACX both support remote working – Cons: Technology it self can harm environment also

such as battery.

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SWOT Analysis for 3G

Weaknesses

▪ The mobile internet is not yet mass market require a lot of marketing budget.

▪ Cost of device is still expensive; handset and

modem ▪ Network is sharing not dedicate ▪ Require huge investment in enhancing exiting

technology

Opportunities

▪ Strategic alliance opportunities with traditional

non-telecommunication ▪ Expand to other business such as business data service

▪ The experience of using the internet to go online is getting more agreeable all the time due to better

technology

Threats

▪ Upcoming 3.5G and 4G threatens to entry before

3G is fully deployed ▪ WiMax

▪ 2G and 2.5G are still in the market place

Strengths

▪ 3G Technology is the combining of service to get variety information that is fit to this circumstance (Voice, Data, and VDO)

▪ 3G Technology standardization has been accept in world wide level

▪ 3G Technology is easy to begin from existing network infrastructure and plenty number of

existing handset Short learning curve in providing after sale service

Feasibility Study

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SWOT Analysis for WiMAX

Weaknesses

▪ Some frequency range only supports line-of-sight ▪ Number of equipments is very low and cost is

quite high ▪ The lack of available uniform and harmonized

spectrum. This may become a barrier for

international roaming ▪ Cost of network equipment still very high and

vendor lack of experience in implementing

Opportunities

▪ Limited WLAN wireless coverage ▪ Strong promotion from industry chip equipment

and network solution support ▪ The experience of using the internet to go online is getting more agreeable all the time due to better

technology

Threats

▪ Upcoming 3.5G and 4G

▪ DSL/ADSL technologies widely deployed in urban

and suburban areas ▪The standard of WiMAX is uncertain

Strengths

▪ WiMAX Technology has a large coverage and capacity

▪ Short learning curve for customer (Wifi User)

▪ WiMAX can support in the area that normal

telecommunication wire can not reach Work on licensed and unlicensed bands

respectively

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3G Technology

High Intensity of Rivalry

Many operators; AIS, DTAC, TruemoveHigh competition because market is on maturity stage. (Protecting market share)

Low Threat of New Entrants

▪ Required license and huge investment

The potential competitor can be existing mobile

operator or internet service provider

Low Bargaining Power of Supplier

Plenty of suppliersProducts are not much differentiated

Moderate Bargaining Power of Customers

▪ Customers price concern

All operator use price as fist a priority in competing each other

High Threat of Substitution

▪ 2.75G mobile phone, Broadband internet, WIFI, and WiMAX are plenty in the market

Industry Analysis by Porter’s 5 Forces model

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WiMAX Technology

High Intensity of Rivalry

Many ISP; True, UIH, CAT,TOT, and TT&THigh competition because market is on maturity stage. (Acquiring more market share)

Market is in growth stage

Low Threat of New Entrants

▪ Required license and huge investment

The potential competitor can be existing internet

service provider

Low Bargaining Power of Supplier

Plenty of suppliersProducts are not much differentiated

Moderate Bargaining Power of Customers

▪ Customers price concern

Switching cost of customer

High Threat of Substitution

▪ 3G, 2.75G mobile phone, Broadband internet, and WIFI, are plenty in the market

Industry Analysis by Porter’s 5 Forces model

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Summarized Marketing Feasibility

Technology value grid

Technology value grid

-1

1

3

5Number of customer base

Number of existing device

Speed Technology road map

Price

3G WiMAX

Remark: 5 stand for most advantage 1 stand for less advantage

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Internet user forecast

With trend analysis technique the total internet penetration rate will reach to 70% in year 2030

and approximate to 54.768 million people Demand Forcasting data user

0

10

20

30

40

50

60

70

80

90

Year

Num

ber

of u

ser

(Mill

ions

)

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

Year

Gro

wth

rat

e (%

)

Total Inter users (Million) Thai Population (Million) Internet Users Growth Rate (%) Thai Population (Growrth rate%) Internet Penetration Rate(%)

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WiMAX Demand Forecast

In year’s 2015 the growth rate increase a lot due to number of equipment is launch a lot and standard of technology on stable level. The forecast user will reach 43 million (80% of total internet user) in year’s 2030.

Demand forcast for WiMAX

0

10

20

30

40

50

60

Year

Nu

mb

er o

f u

ser

(Mil

lio

n)

Total Inter users (Million) Estimate number of WiMAX user (Million)

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3G Demand Forecast

The growth rate of 3G user is very huge at the beginning (Average growth rate is 53% in first 3 years) due to number of equipment which support 3G technology is plenty in the market. The growth rate will be reach to maximum penetration rate at 80% of internet forecast user since year’s 2014. Demand forcast for 3G

0

10

20

30

40

50

60

Year

Num

ber

of u

ser

(Mill

ion)

Total Inter users (Million) Estimate number of 3G user (Million)

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WiMAX Revenue Forecast

Average monthly fee per month is 590 Baht (Threshold market price for Internet service) for both 3G and WiMAX

Revenue forcast for WiMAX

0

10

20

30

40

50

60

Year

Num

ber

of u

ser

(Mill

ion)

฿0

฿5,000

฿10,000

฿15,000

฿20,000

฿25,000

฿30,000

Rev

enue

(Mill

ion)

Total Inter users (Million) Estimate number of WiMAX user (Million) Estimate revenue (Arpu 590 Baht) (Million)

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Revenue forecasting 3G technology

Revenue forcast for 3G

0

10

20

30

40

50

60

Year

Num

ber o

f use

r (M

illio

n)

฿0

฿5,000

฿10,000

฿15,000

฿20,000

฿25,000

฿30,000

Rev

enue

(Mill

ion)

Total Inter users (Million) Estimate number of 3G user (Million) Estimate Revenue( Arpu 590 Avg) Million baht

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CAPEX and OPEX Module

Description/Year Year's 1 st Year's 2nd Year's 3rd Year's 4 th Year's 5th Year's 6th Year's 7th Year's 8th Year's 9th Year's 10th Year's 11thIncluded Included Included Included Included IncludedIncluded Included Included Included Included IncludedIncluded Included Included Included Included IncludedIncluded Included Included Included Included Included

License 3,000 Amount of base station 2,000 - 1,000 - 1,000 - 667 - 667 - 667 Total (million) 3,000 - 1,500 - 1,500 - 1,000 - 1,000 - 1,000 Grand total CAPEX 6,000 1,500 - 1,500 - 1,000 - 1,000 - 1,000 AVG cost/Base 1.50

BSC with core network upgrading

BTS

Feeder and Antenna

Civil Works

Description/Year Year's 1 st Year's 2nd Year's 3rd Year's 4 th Year's 5th Year's 6th Year's 7th Year's 8th Year's 9th Year's 10th Year's 11thIncluded Included Included IncludedIncluded Included Included IncludedIncluded Included Included IncludedIncluded Included Included Included

License 3,000 Amount of base station 1,000 - 1,000 - 1,000 - 1,000 - - - Total (million) 2,000 - 2,000 - 2,000 - 2,000 - - - - Grand total CAPEX 5,000 - 2,000 - 2,000 - 2,000 - - - - AVG cost/Base 2.00

Feeder and AntennaCivil Works

BSCBTS

WiMAX TechnologyWiMAX Technology

3G Technology3G Technology

OPEX ModuleOPEX ModuleCost of good sold : Universal Service Obligation charge (10% of revenue) Operating expense: Maintenance and repairs equipment (10% of Equip Value) Selling and administrative expenses (20% of Total sale) Depreciation and amortization (10% of Equip Value)

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WiMAX Technology Profit and Loss

WiMAX Profit and Lost

-3000.0

-2000.0

-1000.0

0.0

1000.0

2000.0

3000.0

4000.0

5000.0

6000.0

7000.0

8000.0

9000.0

10000.0

11000.0

12000.0

13000.0

Y2009

Y2010

Y2011

Y2012

Y2013

Y2014

Y2015

Y2016

Y2017

Y2018

Y2019

Y2020

Y2021

Y2022

Y2023

Y2024

Y2025

Y2026

Y2027

Y2028

Y2029

Y2030

Y2031

Y2032

Y2033

Year

Val

ue

(Mill

ion

Bah

t)

Wimax Best Case ( Revenue = 1:1 ) (million) Wimax Moderate Case ( Revenue = 0.8:1 ) (million)

Wimax Worse Case ( Revenue = 0.5:1 ) (million)

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WiMAX Technology Cash Flow

WiMAX Cash Flow

-25,000.050,000.075,000.0

100,000.0125,000.0150,000.0175,000.0200,000.0225,000.0250,000.0275,000.0300,000.0325,000.0350,000.0375,000.0400,000.0

Year

Val

ue

(Mil

lio

n B

aht)

Best case (million) Moderate case (million) Worse case (million)

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3G Technology Profit and Loss

3G Profit and Lost

-1000.00.0

1000.02000.03000.04000.05000.06000.07000.08000.09000.0

10000.011000.012000.013000.0

Year

Val

ue

(Mill

ion

Bah

t)

3G Best Case ( Revenue = 1:1 ) (million) 3G Moderate Case ( Revenue =0.8:1 ) (million)

3G Worse Case ( Revenue =0.5:1 ) (million)

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3G Technology Cash Flow

3G Cash Flow

-25,000.050,000.075,000.0

100,000.0125,000.0150,000.0175,000.0200,000.0225,000.0250,000.0275,000.0300,000.0325,000.0350,000.0375,000.0400,000.0425,000.0450,000.0475,000.0500,000.0

Year

Val

ue (M

illio

n B

aht)

Best case (million) Moderate case (million) Worse case (million)

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Demand of WiMAX and 3 G is the same (Use 3G moderate case demand as a based)

Profit and Lost 3G VS WiMAX (Same Demand)

0.0500.0

1000.01500.02000.02500.03000.03500.04000.04500.05000.05500.06000.06500.07000.07500.08000.08500.09000.09500.0

10000.0

Y2009

Y2010

Y2011

Y2012

Y2013

Y2014

Y2015

Y2016

Y2017

Y2018

Y2019

Y2020

Y2021

Y2022

Y2023

Y2024

Y2025

Y2026

Y2027

Y2028

Y2029

Y2030

Y2031

Y2032

Y2033

Year

Va

lue

(M

illi

on

Ba

ht)

3G Moderate Case Wimax Moderate Case

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Investment Criteria Criteria NPV (Million Baht) ROI Pay Back Period Amount of loan (Million Baht)3G Base Case 70,977.92 3283% 5 years 1.6 months 5,000 3G Moderate Case 53,690.43 2606% 6 years 1.65 months 5,000 3G Worse Case 27,678.85 1591% 9 years 7.4 months 5,000 WiMAX Base Case 45,560.44 2798% 11 years 7.7 months 6,000 WiMAX Moderate Case 31,838.55 2219% 13 years 0.02 months 11,500 WiMAX Worse Case 10,767.44 1349% 17 years 7.95 months 20,100 WiMAX with 3G demand (Moderate case) 54,472.65 2715% 5 years 10.79 months 5,000

Cash flow is positive every years and NPV also positive. ROI is also high in every scenario in both 3G and WiMAX technology.

In reverse 3G make it better in Pay Back Period

The WiMAX has a disadvantage in amount of loan because it is quite new when compare to 3G so, it need some time in gaining new user and cost of equipment still high

The main factor which effect to all financial calculation is number of demand forecasting in both 3G and WiMAX.

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Recommendations

1

The most suitable to invest is 3G

technology because it require amount of

loan lowest than WiMAX and pay

back period is not take so long even in worse case scenario

2

In reverse if demand is the same between 3G and WiMAX as

shown in scenario 2 WiMAX is attractive

to invest also

3

The main criteria which should

consider before choose between 3G

and WiMAX is number of

forecasting of potential user

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Assumption in Demand forecasting

1. The fluctuation of exchange rate will not included in this model

2. Universal Service Obligation charge 10% of total revenue (same between 3G and WiMAX)

3. Initial cost for licensing is 3,000 Million baht (up front)4. Source of investment will come from financial intuition5. The duration of license is 25 years both 3G and WiMAX6. The revenue from voice service will not included in this

model7. The useful life of equipment is 10 years8. Market structure will base on historical data (5 years later

from now) of internet data service

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Assumption in Demand forecasting

9. Thai population prediction is performed until Year 2020 which refer from National Economic and Social Development Board. After Year 2020, trend projection method will be used.

10. Moving average and trend analysis technique will apply for demand forecasting

11. The maximum penetration rate of internet user is 75% of total population base on Korea and Japan penetration rate (Maturity stage) (http://www.internetworldstats.com/asia/)

12. The maximum penetration rate of each technology is 80% of total Internet user

13. Network will cover all area in 11 years (since begin project) for 3G but WiMAX need 7 years

14. Average revenue per user will base on 590 Baht (as a minimum charge) base on current rate of internet speed at 1 Mbps

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Assumption in Demand forecasting

15. For number of WiMAX user in first year will assume from number of true internet user because customer profile quite similar

16. For number of WiMAX user use Moving Average technique in forecasting by base on true internet growth rate structure

17. For number of 3G user in first year will assume from number of AIS data (EDGE and GPRS) user because customer profile is quite similar

18. For number of 3G user use Moving Average technique in forecasting by base on Singapore 3G market growth rate structure

19. CAPEX forecast will base on Base station section only not included core network

20. Interest will base at 6.50% BBL rate (Jan, 2009)21. CAPEX investment will invest in bi-yearly basis

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Assumption CAPEX

Assumptions1. The cost will calculate base on coverage which cover 876 districts (Amphur)2. The amount of base station base on true move coverage 6,000 base stations (the smallest network in Thailand)3. The cost of equipment is base on Nokia Siemen cost (HSPDA) ;turn key project cost4. The network investment will invest in every two years to balance between revenue and investment in cash flow5. The useful life of equipment is 10 years6. After year 2018 will consider new technology or upgrading existing equipment 7. After userlife period will forecast cost of upgrading equipment to 10% of investment

3G Technology

WiMAX Technology

Assumptions1. The cost will calculate base on same scenario as 3G technology2. The amount of base station base on Cisco solution ( 3 base station for 5 square kilometer) 3. The cost of equipment is base on Cisco cost ;turn key project cost (50,000 USD per base)4. The network investment will invest in every two years to balance between revenue and investment in cash flow5. The useful life of equipment is 10 years6. After year 2018 will consider new technology or upgrading existing equipment 7. After userlife period will forecast cost of upgrading equipment to 10% of investment