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TERA Consultants
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Post-och telestyrelsen (PTS)
Presentation of the draft BU-LRIC+ Cost
models for fixed network services
Operators meeting 21st September 2017
21st September 2017
Presentation to the industryThis slideshow illustrates the models and documents issued by PTS. In case of
discrepancies with the models, the model reference paper, the model
specifications or the model documentation, statements within this slideshow
should be disregarded.
PTS – Operators meeting 21 September 2017
Agenda
2
1. Context
2. Main modelling assumptions
3. Modelling approach
4. Model implementation and usage
PTS – Operators meeting 21 September 2017
Team
• Marc LAMELOISE, Project leader
9-year experience in cost modelling;
Involved in several similar fixed network cost modelling projects
(Ireland, Croatia, Denmark, New Zealand, France, Luxembourg,
Kingdom of Bahrain, Gibraltar… ).
• Mohammed EL HIMDY, Consultant (Cost model)
Involved in a similar fixed network cost modelling project in Ireland.
• Alexandre JOURNO, Consultant (Cost model)
Involved in similar fixed network cost modelling projects in France,
New Zealand and Ireland.
• Martin ROUNDILL, GIS expert
Involved in a similar project in New Zealand.
3
PTS – Operators meeting 21 September 2017
Context
• As part of its role, PTS has imposed that Telia should provide a set of products
and services on the wholesale market for local access at a fixed location (Market
3a) and the wholesale market for fixed call termination (Market 1) on a cost-
oriented basis.
• To calculate these cost-oriented prices, PTS have until now used a cost model, the
Hybrid model v10.1 (HY model).
• TERA Consultants has been instructed by PTS to develop a new BU-LRIC+ model
based on the Swedish Road network and the exact building location to better
assess the price of these services.
• This presentation is a technical presentation of the draft BU-LRIC+ model and is
structured as follows:
Description of the main modelling assumptions;
Description of the modelling approach;
Description of the models implementation and how to use them.
4
PTS – Operators meeting 21 September 2017
Agenda
5
1. Context
2. Main modelling assumptions
3. Modelling approach
4. Model implementation and usage
PTS – Operators meeting 21 September 2017
The model follows a set of general rules arising from the
MRDMain model assumptions
• The modern efficient network for the fixed access network is based on FttH (point-
to-point), and all-iP (NGN) for the core network
• All network is 100% underground with no utilisation of FWA
In the hybrid model, part of the network was overhead and FWA was used at the edge of the
network
• Costs are valued using optimised replacements costs
• Costs are depreciated using a tilted annuity
• OPEX are derived from industry inputs:
They are adjusted depending on the size of the network (depending on the network dimension for
network OPEX or FTE count per service for non-network OPEX)
• The existing civil engineering infrastructure that can be reused is considered:
A 15% re-use factor has been used;
The reusable civil engineering assets are valued according to their book value, depreciated
through their remaining lifetime.
• For copper services costs, an economic adjustment to the fibre cost results is
performed:
Equivalent copper equipment’s unit costs, price trends are considered.
6
New
New
New
PTS – Operators meeting 21 September 2017
The network structure was optimized for the calculation Main model assumptions
7
• The modified scorched node approach has been followed:
the network roll-out follows the road network (when average data by access nodes type was used in the HY model);
existing nodes of the copper access network (access nodes) are the starting points of the modelling (smaller nodes
as FOS are dimensioned depending on the calculated demand and are outputs of the model)
The node structure has been cleaned in order to remove redundant nodes and the nodes to be dismantled by 2018
(~1700 nodes).
Following the Voronoï approach, end-users are connected to the closest access node following the road network.
• The network is optimized in order to minimize the distance of each line using road network and
buildings locations as a starting point.
Figure 4
Access
node 1
Access
node 2
Voronoi’ polygon’s boundaries
Real boundaries of the network
1
2
Comparison of real access node coverage area and
optimized access node coverage area
Buildings
Access node
1F 3F
4F
4F
3F
4F2F
2F
4F
14F
Premises
2F
Shortest path from the access node to buildings
New
PTS – Operators meeting 21 September 2017
A set of assumptions have been followed for demandMain model assumptions
8
Access model
• Passive demand (lines passed) depends on the dwellings/businesses to be
connected and is considered flat from year 2016
• The active demand is set for a national HEO which would deploy a nationwide
network excluding the most costly lines:
60% market share in urban areas;
100% market share un rural areas.
• No take-up is considered
• The demand then evolves in line with the number of active ports in the Core model.
Core model
• Derived to a large extent from PTS statistics (traffic, customer based)
• Representative of a 100% footprint
• Market share is consistent with the access
New
New
PTS – Operators meeting 21 September 2017
The footprint is restricted to the lines that a commercial
operator would deployMain model assumptions
• The footprint to cost the network of the modelled operator shall be national and be established
in three steps:
Establishing all buildings that are relevant to connect to the network comprising residential apartments, relevant
business locations, industrial and public buildings (agricultural and other buildings are not taken into account) as
well as secondary homes. This will determine a national network with 100 percent coverage.
Then, the footprint is restricted after excluding the most expensive lines by removing 15% of lines passed that
have the highest cost to connect to the modern network (Number of lines passed is used as the control variable).
Besides a further reduction of the footprint is performed to take into account the sites that would not be deployed
because the economies of scale at the access node level are limited due to the low number of active lines.
9
Full NetworkRestricted footprint for
all lines to be passed
Restricted footprint for
which only sites with
active demand are
deployed
Restricted footprint
for which only sites
with active demand >
50 lines are deployed
Total number of lines passed 5 647 131 4 799 995 4 726 084 4 554 409
Total number of buildings
passed2 650 393 1 844 323 1 780 260 1 634 363
Number of active access nodes 6 402 5 077 3 046
Network footprint depending on the active threshold scenario
-15%
New
PTS – Operators meeting 21 September 2017
Costs are allocated either using a capacity based
allocation or an EPMUMain model assumptions
• The capacity based allocation approach is used to allocate network costs:
• The EPMU approach is used to allocate non-network costs.
10
Asset class Capacity driver
Trenches Ducts
DuctsSurface of the cables inside of the
ducts
Fibre cables Fibres
Fibre access Switches Active customers
Edge and IP Core switches Traffic per node
New
PTS – Operators meeting 21 September 2017
Other model assumptionsMain model assumptions
• Access model assumptions:
NTPs and BDFs are excluded from the network cost to be recovered.
Final drop infrastructure that are part of the private domain (Vertical Trenches and sub-ducts) are
recovered through the one-off charge, when the remaining network assets (including final drop
cables and horizontal infrastructure are recovered through the monthly rental charge.
11
ODF
Network
termination
point
FOS
Distribution
Final drop
Architecture of the local access fibre network
PTS – Operators meeting 21 September 2017
Agenda
12
1. Context
2. Main modelling assumptions
3. Modelling approach
4. Model implementation and usage
PTS – Operators meeting 21 September 2017
Access network modelling approachModelling approach
13
Engineering rules,
Efficiency
algorithm,
Demographic data,
Shortest path
algorithm
Step 4 – Current asset
prices
Step 6 – Depreciation Step 7 – OPEX
calculation
Step 8 – Cost results
Step 5 – CAPEX
Step 1 – Node location
and coverage
Step 2 – Network
deployment at the
street level
Step 3 – Full network
deployment
Network
dimensioning
Network costing
Network cost
allocation
WACC, asset lives,
price trends
PTS – Operators meeting 21 September 2017
Each section is specified either urban or rural, from
which depend the trench type usedModelling approach
14
Network
dimensioning
Location Type of trench
Cross-trenches Asphalt
Urban trenches Bicycle
Rural trenches Grass
Final drop Ploughing
Legend
Section by trench classification
Urban
Rural
For illustrative purposes only
PTS – Operators meeting 21 September 2017
Road network and exact location of all Swedish buildings was
used for calculation Modelling approach
15
For illustrative purposes only
Network
dimensioning
PTS – Operators meeting 21 September 2017
Network roll-out follows a shortest path algorithmModelling approach
16
1 Starting point: the location and the coverage
areas of the existing copper exchanges are
used as the location and the coverage of the
modelled fibre network
2 Each building is linked to its parent exchange
using the shortest path algorithm
ODF
For illustrative purposes only
Cables deployed following the shortest path algorithm
Network
dimensioning
Legend: Warmest color corresponds to bigger cables
PTS – Operators meeting 21 September 2017
The access network is dimensioned section per sectionModelling approach
• The access network is dimensioned section per section (a section is a part of a road/street
between two consecutive intersections), knowing:
The demand of the section: the number of lines on the section plus on its rear area;
The features of the section: length, buildings location, number of dwellings per building, etc.
17
• First, the number and location of the
distribution points are derived.
• Then, the assets dedicated to each building are
dimensioned:
The final drop cables (length and size);
The dedicated civil engineering.
• Finally, the assets shared between the different
buildings of the section are dimensioned:
The cables and joints (size, length), according
to the local and rear demand and section
configuration;
The civil engineering, shared among access
network and core network.
Final drop cableFOS
FOS Distribution point
Dedicated trench
Dedicated subduct
Distribution cable
Final drop cable
Core cable
Joints
Reararea
Trench
Duct
Network
dimensioning
PTS – Operators meeting 21 September 2017
A set of engineering rules is followed for the access
model dimensioningModelling approach
18
• The access network dimensioning follows a set of engineering rules that either stem from
operators, the hybrid model or are cost-effective:
The section is trenched on one side or on
both sides according to the cost-efficient
solution.
Joints are deployed at the intersection with other
sections and along the section according to the
cables’ standard drum length.
Distribution points (FOS) are dimensioned given
their capacity and are deployed uniformly along
the section.
The final drop cable is then deployed from the
building to the closest distribution point
The distribution
cable is
dimensioned to
meet the local
demand and the
rear area demand
Access node
Jnt
FOS
FOSJntFOS Jnt
Rear areaDrum length
Jnt
Joint at the intersection with the minor side
Network
dimensioning
PTS – Operators meeting 21 September 2017
Civil engineering is shared between different type of
linksModelling approach
19
For illustrative purposes only
• The access network shares its trenches
with other networks:
The core network:
– Inter Exchange links,
– Core-IP links
– Submarine links;
Other utility networks (Cable TV, Electricity,
Water, other operators)
• The routes used by the HEO’s networks
have been modelled in order to capture
the relevant economies of scale/scope.
• Besides, sharing rates with other utilities
is differentiated between Urban/Rural
areas.
Core- links modelling
Legend
Core Links
IP- Red
IP
IP-Blue
Edge
Common
Metro
Horizontal
trenchDuct
Vertical
trench
Urban 16% 1% 24%
Rural 15% 1% 11%
Sharing rates with other utility networks depending on
the infrastructure
Network
dimensioning
PTS – Operators meeting 21 September 2017
The active demand is set for a national HEO based on
PTS’ market dataModelling approach
20
PTS market
statistics
(fibre, cable)
Active copper
line
Active access
demand
All platforms –
100% footprint
National level
Active access
demand
All platforms –
100% footprint
Distributed by
site
Active access
demand
All platforms –
Restricted
footprint
Distributed by
site
Sections / Number
and types of
building removed
Penetration by
type of
buildings
Coverage % of
each access
technology by
municipality
Active access
demand
HEO –
Restricted
footprint
Distributed by
site
Platform market
share HEO:
Urban: 60 %
Rural: 100%
ACCESS
CORE
Active CORE demand
HEO – 100% footprint
National level
PTS total market
statistics
(#subscribers, traffic)
HEO market share for core
services
Calibration (for 100% footprint)
Platform
CORE actives ports + LLU =
Access active lines
PTS – Operators meeting 21 September 2017
The HEO core network maps Telia’s network structureModelling approach
21
COMMON
Edge
CR
Two seperate Network
METRO "Common with redundacy"
• Telia has provided a file describing the
architecture of the core network, in 3+1
hierarchical levels:
The IP level, the higher level, made of two
parallel network of a dozen of nodes, the red
and the blue networks;
The Edge level, the second level of the core
network, made of 139 edge routers.
The Common level, the third level of the core
network, which connects all access nodes to
the Edge nodes.
The Metro level, a redundant level of the
core network, which provides additional links
among the Common and/or Edge nodes, in
order to ensure the reliability of the network.
Structure of the core network
Network
dimensioning
PTS – Operators meeting 21 September 2017
Core nodes are dimensioned based on downlink and
uplink demandModelling approach
22
• Core nodes are either switches (performing conversion between the electrical
signals used by the service provider's equipment and the fiber optic signals used
by the passive optical network) or routers (forwarding data packets between
computer networks).
• These nodes are dimensioned for each site according to downlink demand
(number of active end-users or number of ports of daughter sites) and uplink
demand ( number of ports needed to link parent core sites or inter-IP sites) - In
contrast with HY model where it was one-size-fits-all for each node type -
Network
dimensioning
Rack
Ca
rd 1
0G
Ca
rd 1
0G
Ca
rd 1
0G
Ca
rd 1
0G
Card
10G SFP
SFP
SFP
SFP
SFP
SFP
SFP
Edge A
Edge B
Core IP router
Core IP router
(twin)
Downlink traffic
Core IP router
Core IP router
Core IP router
SFP
SFP
SFP
SFP
Uplink traffic
Blue node
Example - Core routers’ configuration
PTS – Operators meeting 21 September 2017
Investment are depreciated using tilted annuity Modelling approach
• The costs are depreciated using a tilted annuity after calculating a depreciation
factor per asset using the following formula:
𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 𝑓𝑎𝑐𝑡𝑜𝑟 =(𝜔 − 𝑝) × (1 + 𝑝)𝑡
1 −1 + 𝑝1 + 𝜔
𝑛
Where:
– 𝜔 is the nominal pre-tax WACC of 6.6% and 𝑝 the price trend for the asset
– 𝑛 the lifetime of the asset
– (1 + 𝑝)𝑡 the index for deriving the current price of the asset
23
Network Costing
PTS – Operators meeting 21 September 2017
Costing and pricing of the networkModelling approach
24
Network Costing
Network cost
allocation
PTS – Operators meeting 21 September 2017
Interconnection services cost is calculated following the
Pure LRIC cost standardModelling approach
25
• Similarly to the HY model, the Fixed Termination services, as well as the other voice services
(retail, origination, transit) use two specific assets:
The TDM (Time-division multiplexing) Gateways :
The IMS (IP Multimedia Subsystem)
• The costs allocated to the termination services are the incremental costs (or “Pure LRIC”) of
TDM and IMS associated with offering termination when already providing retail voice, voice
origination and transit, following 3 steps:
Dimensioning according to the total voice traffic (retail voice and origination, wholesale termination and transit);
Dimensioning according to the total voice traffic excluding the voice termination traffic;
The incremental inventory for the termination is assessed as the difference between the two latter.
• The voice service demand is assessed as follows:
The future number of voice subscribers is based on the 2013-2016 trends (geometric growth rate) for 2017-2019
and considered stable from 2020.
The traffic for the HEO is assessed based on the total market voice traffic (as published on PTS website)
multiplied by the HEO market share for voice services.
The market numbers of minutes are published on PTS website until year 2016. Forecasts for 2016 and further are
extrapolated according to the geometric growth rate for each individual service between 2013 and 2016. The
traffic is considered stable from 2020.
NB: No PSTN network, all the voice traffic is handled by the IP network.
Network cost
allocation
PTS – Operators meeting 21 September 2017
Agenda
26
1. Context
2. Main modelling assumptions
3. Modelling approach
4. Model implementation and usage
PTS – Operators meeting 21 September 2017
Interaction between the different cost modelsModel implementation and usage
27
Geomarketing
database
Access model
(MS Access)
Access model
(Excel)
Core model
Colocation
model
Consolidation
model
Unit costsUnit costs
Unit c
osts
Inventory
Road network
Core
links
Costs of
core infra
Demand modelLines
passed
Active
demand
Active
demand
Common costs and wholesale uplifts
PTS – Operators meeting 21 September 2017
Overview of the access model (MS Access)Model implementation and usage
28
PTS – Operators meeting 21 September 2017
Overview of the access model (MS Excel)Model implementation and usage
29
Unit cost
of assets
Import
from
ACCESS
Import
from
Demand
Inventory
Investment
Dashboard
Services
Export to
Core
model
Routing
matrix per
services
Annual
Capex
Opex
calculation
Demand
Export to
consolidat
ion Fibre
Export to
consolidat
ion
Copper
PTS – Operators meeting 21 September 2017
Overview of the Core modelModel implementation and usage
30
Demand per node Design rules Unit costs
Core demand
Total traffic
OPEX and
accommodationInvestment
Import from the
ACCESS model
Dashboard Services
Total costs
Traffic
Routing tables
Line-driven
assets
Traffic-driven
assets
TDM-IMS
Export to
consolidation
Import from
demand
PTS – Operators meeting 21 September 2017
Overview of the Colocation modelModel implementation and usage
31
Unit costsEquipment,
wages,
accommodation
DimensionSize of cables and
racks
ResourceHours of staff for
installing
services
Costs of servicesCAPEX and OPEX
Cost summaryCAPEX, OPEX and demand
DashboardWACC, price trends
Annual costCAPEX, annual cost, demand
ServicesUnit costs per service
Product listAnd demand for
the services
PTS – Operators meeting 21 September 2017
Overview of the Consolidation modelModel implementation and usage
32
Import from
Access - Copper
Import from
Access - Fibre
Import from
Core
Dashboard
ResultsImport from
Colocatio
Upift Calculation
Output
Services