Author: Thomas Monath, T-Systems Enterprise Services GmbH

Co-Author’s: Sandro Krauss, Mario Kind, T-Systems Enterprise Services; Chris Hawinkel, Jan Van den Abeele, Alcatel; Antonio Elizondo, TID; Antoine Chuquet, Yann Denis, FT; Damiano Raspollini, TI; Daniel Ågren, Acreo; José Miguel Santos, Ricardo Afonso, PTI; Panagiotis Saltsidis, Thomas Kallstenius, Ericsson;

«Techno-economics for next generation fixed access networks »

� Methodology and framework – some key assumptions;� Major results of the fixed broadband access evolution scenarios

2

� MUSE “Gaming field”

� Objectives & Research Questions of MUSE techno-economics

� Methodology & Framework Assumptions

� Use Case Definitions and major Results � Migration use cases� Native Ethernet cases

� Main Conclusion of the fixed broadband access evolution scenarios

Outline

3

DSL

Kerb/Cabinet

Access multiplexer

Edge node

FTTH

Access AggregationNetwork

Wireless feeder

Applicationserver

Subscriber, QoS, and OAM management

Internet

PSTN

Home gateways

ApplicationserversDSL

Kerb/Cabinet

Access multiplexer

Edge node

FTTH

Access AggregationNetwork

Wireless feeder

Applicationserver

Subscriber, QoS, and OAM management

Internet

PSTN

Home gateways

Applicationservers

Lower cost

Increased intelligencein access

Functionality movingcloser to subscribers

Fixed-mobileconvergence

New multimedia applications

Applications initiatedfrom various CP devices

High bandwidthIncreased fibre penetration

Automated OAM

New revenues by “Multi-service”

access

MUSE “Gaming field” -Network evolution towards NG multi service capability

Multi-service capable NGN leads to requirements:> Platform functions converge> Service & Network platform elements require new functions to be implemented

(NT … aggregation nodes … BRAS )> Bottleneck in the last mile must be overcome

4

Objective & Research Questions

Provide techno-economic validations of MUSE architectural and functional choices:

> Two major technology trends in NG Access and Aggregationusing Ethernet transport technology between home gateway and service edge in order to provide IP based services:

> Pure Ethernet based switching technology (IEEE 802.1 xx) based on MAC in combination with service (S)VLAN “pipes” and

> “IP” based network architecture using IP forwarding functionality based on the IP packet source and destination information

> Functional evolutions:> PPP � DHCP, QoS, Multicast

Approach: > Investigate several network migration and “Greenfield” scenarios

(actually focused on Network Access Provider)

5

Value-Chain Players & Business Roles

���� Techno-economic validation based on Network Access Provider (NAP)

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6

Methodology – Cash Flow Analysis

NPVNPV IRRIRR PaybackDiscountedcumulatedcash flows

Cash flows,Profit & loss accounts

Year 0 Year 1 Year n Year m. . .

Demand for the TelecommunicationsServices

RevenuesOA&MCosts

First InstalledCost

First InstalledCost - CAPEX

Investments

IST-2000-25172 “TONIC”

EconomicInputs

Services ArchitecturesTool -environment

GeometricModelDB

…

7

General Assumptions

> Case study approach with focus on Access & Aggregation Network> Study period 2005 – 2010> Business Model seeds back a certain percentage of the revenues to all

players (NAP share is considered only, 100% market share applied)> Discount Ratio equals to 10% for all scenarios> Network elements in general will be modelled based on publicly

available price information combined with learning curves & maintenance costs assumptions

> OA cost model considers:• Network Operations incl. Management, Control,..• Employees depending expenditures• Provisioning costs• Sales and Marketing

8

General Assumptions –Market Forecast and related Service Classes

Service Class

Downstr. Capacity Tmax/ down

[Mbps]

Upstr. Capacity Tmax/ up

[Mbps]

Basic-Residential

1 0,5

Silver- Residential

3 1

Gold- Residential

10 2

Premium- Residential

50 10

Platinum-Residential 100 100

Basic-Business

2 2

Silver-Business

10 10

Gold-Business

50 50

Premium-Business

100 100

Platinum-Business 1000 1000

Service class definition:

� Penetration evolution based on various consultancy reportsSources: Ovum, Yankee BB market Europe, OECD, IST, survey between the MUSE partners

MUSE penetration potential forecastbased on service bottom up model

0,00%10,00%20,00%30,00%40,00%50,00%60,00%

2005 2006 2007 2008 2009 2010

Platinum-BusinessPremium-BusinessGold-BusinessSilver-BusinessBasic-Business Platinum-ResidentialPremium- ResidentialGold- ResidentialSilver- ResidentialBasic-Residential

Example - Germany T-Com - Dec 2005: about 8 Mio DSL, about 21% of the total fixed lines;

Market Forecast Service bottom up model

9

General AssumptionsArea Description and Potential Market

LocalExchange

Central Exchange

Dense Urban: 2 x 32,768 Urban: 4 x 16,384Suburban: 8 x 8,192Rural 32 x 2,048Low Dens. Rural 32 x 2,048

Total Connectivity:

65,536

LL1

LL2

LL3

LL4

LL5

LL7

LL6

FP5

FP4

FP3

FP2

FP1

FP0

FP7

FP6

Customer

Customer-LEx

Customer-Cabinet

Cabinet-LEx

per Building per km²

Residential %

Business %

Dense Urban 1.267 207 1.060 2 128 512 64 7.187 70 30Urban 1.417 290 1.127 4 64 512 32 3.116 76 24Suburban 1.750 467 1.283 8 64 2.048 4 1.043 82 18Rural 2.033 683 1.350 32 32 1.024 2 177 88 12Low Density Rural 2.767 1.217 1.550 32 32 2.048 1 8 94 6

Potential CustomersBuildings per LEx

Cabinets per LEx

Geo-Model (Total Europe) 65.536 Total Potential Customers

Covered LEx

Average link lengths [m]

� Input of involved network operators

10

General Assumptions –Service based Revenue Model – Network Access Provider

� Service Revenue Model based on consultancy reports and benchmarks

Usage charge

Service charge

Access charge

Connection fee

BusinessResidential

AoD, VoD, VoD SDTV, VoD HDTV

AoD, ContentStorage,

Sensors/ Monitoring

Broadcast Video, Broadcast SDTV, Broadcast HDTV,

Gaming, Monitoring

VoIP,HSI , Broadcastaudio, Conferencing

VoIP , Broadcastaudio, BSI, HSI, Conferencing

Usage charge

Service charge

Access charge

Connection fee

BusinessResidentialPricing scheme

AoD, VoD, VoD SDTV, VoD HDTV

AoD, ContentStorage,

Sensors/ Monitoring

Broadcast Video, Broadcast SDTV, Broadcast HDTV,

Gaming, Monitoring

VoIP,HSI , Broadcastaudio, Conferencing

VoIP , Broadcastaudio, BSI, HSI, Conferencing

0,00 �

50,00 �

100,00 �

150,00 �

200,00 �

250,00 �

2005 2006 2007 2008 2009 2010

Basic-ResidentialSilver-ResidentialGold-ResidentialPremium-ResidentialBasic-Business Silver-BusinessGold-BusinessPremium-Business

Monthly Tariff - 5% / Year

Related to connectivity classesRelated to connectivity classes

Basic service Basic Silver Gold Premium Platinum

Residential market 180 360 600 900 1 200

Business market 480 840 1 440 2 400 4 800

NAP: Default Input for residential and business market:

11

General Assumptions –Network Element Model

Learning curve

0

5

10

15

20

25

30

35

40

45

50

2003 2004 2005 2006 2007 2008 2009 2010

Ether_CE_Swith Basic

[k� ]

Network element: Switch Router GbEApplication: Central Exchange

LEx LEx

CoreCentral

Exchange (CEx)

Downlink interfaces

Uplink interfaces

Downlink interfaces

Uplink interfaces

16 slots Basic Equipment(Chassis +Basic

modules +Software)

1OC3c-POS-Interface (longdistance; SM)4 1OC3c-POS-Interface (longdistance; SM)4

11000Base-LX (medium distance; SM)8 11000Base-LX (medium distance; SM)8

11000Base-LX(long distance; SM)8 11000Base-LX(long distance; SM)8

11000Base-SX(short distance; MM)8 11000Base-SX(short distance; MM)8

Switch RouterGbE

�Network element model based publicly available price information combined with learning curves & maintenance costs assumptions

12

Use Case Definition –Migration Scenarios

today������������

� � �� � �

����

BE � QoSATM � Ethernet PPP � DHCP

� � � � � � � � � � � � � � � �

� � � �� � �

BE � QoS

������������

� �� �� � � % &% &% &% &

''''

����

ATM � Ethernet PPP � DHCP L2AM � L3AM

�� ��� � � � � ��� ��� � � � � ��� ��� � � � � ��� ��� � � � � �

� �� � � � � � % (% (% (% (

L2AM �L3AM

))))

Functionality moving

closer to subscribers

Layer 3 AM (IP)L2 Access Mux

Lower

Investment

Ethernet

transport

ATM

transport

Multi ServiceQoS classesBest Effort

DriverTrendToday

13

� Ethernet AN

� IP (v04/06) AN

Use Case Definition –Migration Use Cases - Overview

FP1

In-housecabling

FP5

Local Exchange

FP7

Central Exchange

FP3

Cabinet Location

FP2

Bilding

FP0

CPE

FP4

Branch (1)

FP6

Branch (2)

First Mile AggregationIP-

Backbone

% * % * % * % *

� �� �� � �

� � � �

� � !�

" � # �

$ % � � �

(A-B)

SwitchAN

STM4 STM4

DSL NT BRAS

(A-C)

SwitchAN

GbE GbE

DSL NT BRAS

(A-D)

SwitchAN

GbE GbE

DSL NT BRAS

AAA Fct.

ATM Interf.

QoS; CoSMulticast

New xDSL

���� All cases combined with First Mile remoteDSLAM solution!

FTTC

Remote unit

�& � �

� � � ' �( & % �� �

� � � �

GbE

GbE

GbE

� still ATM but new

services and functions

���� network element invests input from the MUSE consortium vendors

14

-10,0 Mio �

� Migration to a QoS enabled multi-service architecture based on Ethernet (A-C) or IP forwarding (A-D) are more economic than the ATM-based evolution scenario (A-B)

� Similar CAPEX for Ethernet and IP base architecture

-5,0 Mio �

0 Mio �

5 Mio �

10 Mio �

15 Mio �

2005 2006 2007 2008 2009 2010

Comparison: Cash Balance - Migration

Fibre to the Cabinet (FTTCab) –up to 50 Mbit/s Dense Urban area(about 30.000 customers connected in 2010)

A Reference

A-B

A-C

A-D

(1) Migration from a best effort access network (A) to a QoS enabled multi-service architecture based on Ethernet (A-C) or IP forwarding (A-D) are more economic than the ATM-based evolution scenario (A-B)+, -+, -+, -+, -

Major Results –Migration Use Cases

+& -+& -+& -+& -

(2) Almost the same investments for Pure Ethernet based switching technology (IEEE 802.1 xx) or “IP” based network architecture using IP forwarding functionality

+( -+( -+( -+( -

(3) In comparison to the other migration options - it is not a choice to stay with the current service offer (1-3/6 Mbit/s) as an incumbent network operator

15

Major Results –Migration Use Cases

� Update the network with new products based on ADSL 2+ is more economical in combination with Ethernet based access and aggregation network.

� DSL upgrade more economical with Ethernet Access and Aggregation

-10,0 Mio �

-5,0 Mio �

0 Mio �

5 Mio �

10 Mio �

15 Mio �

2005 2006 2007 2008 2009 2010

Comparison: Cash Balance - Migration

Fibre to the Local ExchangeOnly (FTTLEx) –up to 16 Mbit/s Dense Urban area(about 20.000 customers connected in 2010)

Reference

A-B ADSL 2+

A-C ADSL 2+

(1) Migration scenario A-B FTT(LEx) -update with new products based on ADSL 2+ still based on ATM aggregation network but including new functionalities (QoS, Multicast) increases the Reference case

(1)

(2)

(2) The case is more profitable in combination with an Ethernet aggregation network

16

Major Results –Migration Use Cases)

(1) Multicast saves network resources

(2) QoS enables services and possibly new revenue streams

(3) Dynamic Host Control Protocol (DHCP) as IP auto-configuration protocol is less complex and needs less costly interfaces at Access Edge Node compared to Point-to-Point protocol approach

(4) Operational savings are expected but not quantified � issue within MUSE Phase II

Comparison: Cost break down – Ethernet (A-C) MigrationFTTCab (up to 50 Mbit/s Urban – about 30.000 customers connected)

-10,0 Mio �

-5,0 Mio �

0,0 Mio �

5,0 Mio �

10,0 Mio �

15,0 Mio �

2005 2006 2007 2008 2009 2010

Year

RevenuesInvestmentsOAM Costs New Network

functions implemented

Cash Balance

Default Case

� New intelligent network functions enable significant CAPEX reduction

Investment in the Second Mile

0 Mio �

1 Mio �

2 Mio �

3 Mio �

4 Mio �

5 Mio �

Basic Mixed PPP-DHCP

BE=50% Multicast All Functions

Edge nodeCentral ExchangeLocal Exchange

Implementation of multicast, QoS (e.g. 50% Best effort guaranteed), and mixed PPP/DHCP

� Network Access Provider (NAP) saves nearly 1/4 CAPEX within the aggregation network (second mile) by implementing new service enabling network functions

17

Major Results –Migration Use Cases

Migration Case A-D – FTTC EPtP –NPV evolution comparison for various Areas:

� Complete FTTCab: most profitable in dense urban, less profitable in urban

(1) Dense Urban, Urban, and (almost) Suburban are positive scenarios

(2) Rural and Low Density Rural are negative scenarios

NPV evolution

-20 Mio

-15 Mio

-10 Mio

-5 Mio

0 Mio

5 Mio

10 Mio

15 Mio

2005 2006 2007 2008 2009 2010

Reference A: Fibre to the Local Exchange (FTTLEx)up to 3/6 Mbit/s

Dense UrbanUrbanSuburbanRuralLow Density Rural

������������

� � �� � �����

� � � � � � � � � � � � � � � �

� � � � � �

������������

� �� � � � % &% &% &% &

''''

����

�� ��� � � � � ��� ��� � � � � ��� ��� � � � � ��� ��� � � � � �

� �� � � � � �% (% (% (% (

))))

Reference today������������

� � �� � �

� � � � � � � � � � � � � � � �

� � � � � �

������������

� �� � � � % &% &% &% &

�� ��� � � � � ��� ��� � � � � ��� ��� � � � � ��� ��� � � � � �

� �� � � � � � % (% (% (% (

18

Major Results –Migration - Infrastructure Investment(CAPEX)

FTTLEx FTTLEx FTTC FTTH

Scenario

0,0 Mio �

0,20 Mio �

0,40 Mio �

0,60 Mio �

0,80 Mio �

1,0 Mio �

1,20 Mio �

1,40 Mio �

Ethernet Aggregation

0,0 Mio �

2,0 Mio �

4,0 Mio �

6,0 Mio �

8,0 Mio �

10,0 Mio �

12,0 Mio �

14,0 Mio �

ReferenceATM Agg.

Comparison of Link Level Investments in Dense Urban areas

FTTLEx FTTLEx FTTC FTTH

Scenario

0,0 Mio �

0,20 Mio �

0,40 Mio �

0,60 Mio �

0,80 Mio �

1,0 Mio �

1,20 Mio �

1,40 Mio �

Ethernet Aggregation

0,0 Mio �

2,0 Mio �

4,0 Mio �

6,0 Mio �

8,0 Mio �

10,0 Mio �

12,0 Mio �

14,0 Mio �

ReferenceATM Agg.

% � � .� �* / 0 * �

% � � .� % * / 0�* /

% � � .� ��1 0 % * /

% � � .� '����� 0��1

% � � .� � �� � � 0'�� �� � �

% � � .� �� * 0 � �� � �

� Link level investments of the access and aggregation network when comparing Fibre to the Local Exchange (FTTLEx) to the Cabinet location (FTTC) is about 5 times higher.

� For Fibre to the Home (FTTH) deployment is even in dense urban areas only an optimized roll out recommended

(1) The related link level investments of the access and aggregation comparing Fibre to the Local Exchange (FTTLEx) to the Cabinet location (FTTC) is about 5 times higher

(1)

(3) The FTTB solutions for Dense Urban needs about 30% less investments compared to the FTTH solutions (not shown).

(2) In case of a complete FTTHome(GPON) deployment the link level related investments are nearly 10 times higher compared to the FTTCab case

(2)

19

FP1

In-housecabling

FP5

Local Exchange

FP7

Central Exchange

FP3

Cabinet Location

FP2

Building

FP0

CPE

FP4

Branch (1)

FP6

Branch (2)

First Mile Aggregation

IP-

Backbone

% * % * % * % *

RADIUS-ProxyDNS, Web-Cache

(FTTC)

DSL CPE

BRAS

GbE

Auto-configuration

server

GbE

Switch

Fibre Cable

Twisted Copper Cable

UTP5 Cable

Average link-lengths [m]LL1 (User ↔ Floor) 15 mLL2 (Floor ↔ Basement) 15 mLL3 (Basement ↔ Cabinet) 207 mLL4+LL5 (Cabinet ↔ Access Node) 1 060 mLL6 (Access-Node ↔ Aggr.-Node) 20 000 mLL7 (Aggr.-Node ↔ EN) 20 000 m

(FTTHEPON)

GbE

EPON ONU

Switch

Optical Splitter

(FTTH) GbE

1G CPE

100-LX

Switch

Switch

Use Case Definition –Native Ethernet Use Cases – (1)

20

Major Results –Native Ethernet Use Cases

Cash Balance Comparison first mile Native Ethernet “green field” scenarios

� Complete FTTC: profitable in dense urban and urban area� FTTH: only optimised roll out even in dense urban recommended

Cash Balance (Urban)

-60.0 Mio �

-50.0 Mio �

-40.0 Mio �

-30.0 Mio �

-20.0 Mio �

-10.0 Mio �

0.0 Mio �

10.0 Mio �

20.0 Mio �

30.0 Mio �

2005 2006 2007 2008 2009 2010

-60.0 Mio �

-50.0 Mio �

-40.0 Mio �

-30.0 Mio �

-20.0 Mio �

-10.0 Mio �

0.0 Mio �

10.0 Mio �

20.0 Mio �

30.0 Mio �

2005 2006 2007 2008 2009 2010

Dense Urban

FTTC

FTTBc (xDSL Basement Switch)FTTB (UTP inhouse )

FTTB ( fiber inhouse )

FTTHFTTH - EPON

21

Major Results –Native Ethernet Use Cases –

� High impact in the case of the Native Ethernet FTTH taking CPE costs into account or not

Cost break down – FTTH incl. CPE

-30.0 Mio �

-20.0 Mio �

-10.0 Mio �

0.0 Mio �

10.0 Mio �

20.0 Mio �

2005 2006 2007 2008 2009 2010

Year

Cost break down - FTTH (No CPE Costs)

-30.0 Mio �

-20.0 Mio �

-10.0 Mio �

0.0 Mio �

10.0 Mio �

20.0 Mio �

2005 2006 2007 2008 2009 2010

Year

Revenues

Investments

OAM Costs

NPV

DiscountedCash Balance

Native Ethernet (dense urban) - FTTH with and without CPE costs

22

Main Conclusions

� Ethernet will substitute ATM in the Aggregation Area stepwise� Functionalities moving closer to subscribers � increased intelligence in

access (service enablers like QoS, multicast, DHCP) � Example A – C Migration (NAP): potential CAPEX savings of about 25% in

Aggregation

� The techno-economic analysis supports the consolidated view on NG broadband access � Migration from a best effort access network (A) to a QoS enabled multi-

service architecture based on Ethernet (A-C) or IP forwarding (A-D) are more economic than the ATM-based evolution scenario (A-B)

� Complete FTTCab: most profitable in dense urban, less profitable in urban

� FTTH: only optimized roll out even in dense urban recommended

� Native Ethernet “greenfield” scenarios show some advantages compared to the migration related scenarios

� In general the sensitivity analysis results support the key results that has been observed within the scenario comparison.

23

Thank you for your attention!

Further information:

Contact: Thomas Monath, T-Systems Enterprise Services GmbH� : +49 30 3497 4446

e-� : Thomas.Monath@t-systems.com

“Techno-economics for next generation fixed access networks ”