techno-economics of integrated communication systems and ... · abstract fixed mobile convergence...

techno-ECOnomics of integrated communication SYStems and services

Deliverable 18

“First results on economics of converged network and service environment”

July 2006

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First results on economics of converged network and service environment of 100

Document Information Contractual Date of Delivery: 31.7.2006

Actual Date of Delivery: 31.7.2006

Editor(s): Christelle Scala

Author(s): Beatriz Craignou , Christelle Scala, Renjish Kumar Kaleelazhicathu Ratna, Timo Smura, Santiago Andrés Azcoitia, Pablo Torres Montero, José Olivares Paret, Theodoros Rokkas, Dimitris Katsianis, Dimitris Varoutas, Maria Fleischer Fauske, Thor-Gunnar Eskedal, Borgar Torre Olsen, Jarmo Harno, Ilari Welling, Mario Kind, Dirk Von Hugo

Participant(s): France Telecom R&D, TKK, Telefónica I+D, UoA, Telenor, Nokia, T-Systems

Workpackage: 6

Workpackage title: Fixed and mobile convergence economics

Workpackage leader: Renjish Kumar Kaleelazhicathu Ratna

Deliverable number: 18

Deliverable title: First results on economics of converged network and service environment

Est. Person-months: 10

Security: Public

Nature: Report

Version/Revision: 1.0

Total number of pages: 100

File name: ECOSYS_Del18_v1.0.doc

Abstract Fixed mobile convergence is today the Holy Grail of network operators. This deliverable presents a framework and the IMS target architecture in order to provide convergent services. An analysis of the impact of convergence on network architecture has been realized through the study of two migration scenarios. The integrated operator case in Large and Nordic countries and the 2G mobile network operator case in Emerging market have been realized highlighting the CAPEX and network OPEX items.

Keywords Convergence, IMS, Integrated operator, Emerging market, migration

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Table of Contents Document Information ....................................................................................................2 Table of Contents............................................................................................................3 List of Figures .................................................................................................................6 List of tables ...................................................................................................................8 Executive Summary.......................................................................................................10 1 Introduction ...........................................................................................................12

1.1 Motivation .......................................................................................................12 1.2 Scope..............................................................................................................12

2 Regulation .............................................................................................................13 2.1 ICT and the authorities' role as regulator...........................................................13 2.2 Regulation of converged markets in different OECD countries.............................13

3 Convergence Framework.........................................................................................16 3.1 Network ..........................................................................................................16 3.2 FMC Business ..................................................................................................18

3.2.1 FMC market players...................................................................................19 3.2.2 Services and products ...............................................................................22 3.2.3 Charging principles in a converged context .................................................24 3.2.4 Market forecasts by technology..................................................................25

4 Common Assumptions for case studies ....................................................................31 4.1 Study period....................................................................................................31 4.2 Financial..........................................................................................................31 4.3 Geographic......................................................................................................32 4.4 Potential FMC Services .....................................................................................36 4.5 FMC products ..................................................................................................37 4.6 Pricing to be used in the business cases of FMC services ....................................39 4.7 Network architecture........................................................................................39

4.7.1 Introduction..............................................................................................39 4.7.2 Current situation .......................................................................................39 4.7.3 Pre-IMS situation ......................................................................................41 4.7.4 Key Elements and functions for a future-proof architecture..........................43 4.7.5 Dimensioning............................................................................................46

4.8 Operational expenditure ...................................................................................51 4.8.1 Maintenance of Equipment and Components...............................................52 4.8.2 Sales and Marketing, Customer Acquisition .................................................52

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4.8.3 Customer Care ..........................................................................................53 4.8.4 Charging and billing ..................................................................................53 4.8.5 Service and network Management..............................................................53 4.8.6 Product / Platform development.................................................................53 4.8.7 Rental of physical network resources..........................................................54 4.8.8 Interconnection.........................................................................................54 4.8.9 Roaming...................................................................................................55 4.8.10 Spectrum Radio Licenses ...........................................................................55 4.8.11 Regulation ................................................................................................55 4.8.12 Content ....................................................................................................55 4.8.13 OPEX for the integrated operator case study...............................................55 4.8.14 OPEX for the MVNO case study ..................................................................56

5 Scenario 1: Integrated operator ..............................................................................58 5.1 Introduction ....................................................................................................58 5.2 Modelling ........................................................................................................58

5.2.1 Scenario description ..................................................................................58 5.2.2 Focus on the 2010-situation.......................................................................60 5.2.3 Target Market ...........................................................................................62

5.3 Services ..........................................................................................................64 5.4 Investments ....................................................................................................64 5.5 Network related OPEX......................................................................................70 5.6 Results............................................................................................................72

5.6.1 Economic analyses ....................................................................................72 5.7 Summary and conclusions ................................................................................77

6 Scenario 2: Mobile 2G network operator/service provider offers FMC service..............78 6.1 Introduction ....................................................................................................78 6.2 Modelling ........................................................................................................78

6.2.1 Definition of mobile network operator and mobile service operator...............78 6.2.2 Target environments .................................................................................79

6.3 The operator strategy ......................................................................................80 6.4 Potential business case network architectures....................................................81 6.5 Business model................................................................................................83

6.5.1 Assumptions .............................................................................................83 6.5.2 Market and services ..................................................................................84 6.5.3 CAPEX ......................................................................................................88 6.5.4 OPEX........................................................................................................89

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6.5.5 Results .....................................................................................................90 6.5.6 Summary and conclusions .........................................................................91

7 Summary and conclusions.......................................................................................93 References ...................................................................................................................94 Acronyms .....................................................................................................................95

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List of Figures Figure 3-1: NGN general functional model according to ITU-T Y.2011 ..............................16 Figure 3-2: Mobility levels ..............................................................................................17 Figure 3-3: Logical high level architecture for the evolved 3G system (following 3GPP

LTE/SAE proposal)..................................................................................................18 Figure 3-4: Players impacted by a FMC market evolution .................................................20 Figure 3-5: Relation between services and products ........................................................22 Figure 3-6: Broadband penetration forecasts for Western Europe.....................................25 Figure 3-7: Market share distribution between different broadband technologies...............26 Figure 3-8: Penetration forecast for different broadband technologies ..............................27 Figure 3-9: Monthly access tariff evolutions of different DSL operators .............................27 Figure 3-10: Total mobile subscriber penetration forecasts in Western Europe ..................28 Figure 3-11: Forecast of WiFi (WLAN) embedded terminal markets. (source: Strategy

Analytics)...............................................................................................................29 Figure 4-1: Foreseen traffic development........................................................................34 Figure 4-2: Traffic generated per user at busy hour (fixed network).................................35 Figure 4-3: Traffic distribution during a day ....................................................................35 Figure 4-4: UMTS services share ....................................................................................36 Figure 4-5: Physical infrastructure of a typical today’s incumbent operator .......................40 Figure 4-6: IP infrastructure of a typical today’s incumbent operator ................................41 Figure 4-7: Convergent network architecture with IMS as central entity............................42 Figure 5-1: Current situation..........................................................................................58 Figure 5-2: Intermediate situation ..................................................................................59 Figure 5-3: Target situation ...........................................................................................59 Figure 5-4: 2010-situation .............................................................................................60 Figure 5-5: Annual cost evolution ...................................................................................72 Figure 5-6: Cost distribution per network types ...............................................................73 Figure 5-7: OPEX and CAPEX share of total cost..............................................................73 Figure 5-8: OPEX element cost breakdown .....................................................................74 Figure 5-9: Cost savings in a centralized case .................................................................74 Figure 5-10: Annual cost evolution .................................................................................75 Figure 5-11: Cost distribution per network types .............................................................75 Figure 5-12: OPEX and CAPEX share of total cost............................................................76 Figure 5-13: OPEX element cost breakdown....................................................................76 Figure 5-14: Cost savings in a centralized case ...............................................................77 Figure 6-1: MO buys wholesale fixed access from a fixed access operator ........................81

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Figure 6-2: MO buys LLUB from a fixed access operator ..................................................82 Figure 6-3: MO uses WiMAX as broadband access ...........................................................82 Figure 6-4: Development in number of GSM and FMC subscribers in Emerging market city 85 Figure 6-5: MO´s GSM and FMC subscriber growths........................................................85 Figure 6-6: MO´s revenues coming from the different market segments...........................88 Figure 6-7: MO´s distribution of CAPEX ..........................................................................89 Figure 6-8: MO´s distribution of OPEX............................................................................90 Figure 6-9: Annual cash flow..........................................................................................90

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List of tables Table 2-1: Regulation of convergent market in OECD countries........................................14 Table 3-1: Examples of existing FMC products ................................................................23 Table 4-1: Study period .................................................................................................31 Table 4-2: Financial assumptions ...................................................................................32 Table 4-3: Sort of European countries per segment.........................................................32 Table 4-4: Market group characteristics ..........................................................................34 Table 4-5: Potential FMC service offering........................................................................37 Table 4-6: List of potential FMC products........................................................................38 Table 4-7: Considered OPEX for the integrated operator case study .................................56 Table 4-8: Considered OPEX for the MVNO case study.....................................................56 Table 5-1: Core IMS physical to functional element mapping ...........................................62 Table 5-2: Amount of fixed convergent traffic from 2007 to 2010 for Large country ..........63 Table 5-3: Amount of mobile convergent traffic from 2007 to 2010 for Large country .......63 Table 5-4: Amount of fixed convergent traffic from 2007 to 2010 for Nordic country .........63 Table 5-5: Amount of mobile convergent traffic from 2007 to 2010 for Nordic country ......63 Table 5-6: Market assumptions for Core IMS (Large country)...........................................64 Table 5-7: Market assumptions for Core IMS (Nordic country) .........................................64 Table 5-8: Fixed traffic distribution per node in percentage..............................................65 Table 5-9: Fixed traffic distribution per node in number of clients in Large country ...........65 Table 5-10: Fixed traffic distribution per node in number of clients in Nordic country ........65 Table 5-11: Number of F-ACS to be installed for decentralized scenario............................65 Table 5-12: Cost of F-ACS to be installed for decentralized scenario .................................66 Table 5-13: Number of F-ACS to be installed for a centralized scenario.............................66 Table 5-14: Cost of F-ACS to be installed for centralized scenario.....................................66 Table 5-15: Number of RACS to be installed and total installation cost for centralized

scenario.................................................................................................................67 Table 5-16: Number of ACS equipment to be installed for the mobile network ..................68 Table 5-17: Cumulative cost of ACS equipment to be installed for the mobile network.......68 Table 5-18: Capacity and reference price of Core IMS elements .......................................69 Table 5-19: BHSA assumptions ......................................................................................69 Table 5-20: Number of Core IMS elements deployed (Large country) ...............................69 Table 5-21: Annual and cumulative CAPEX (in Million EUR)..............................................70 Table 5-22: OPEX for Large country in centralized and decentralized cases.......................70 Table 5-23: OPEX for Nordic country in centralized and decentralized cases......................70 Table 5-24: OPEX for Large and Nordic countries for mobile part .....................................71

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Table 5-25: Annual OPEX (in Million EUR).......................................................................72 Table 6-1: Definition of mobile network operator and mobile service provider...................78 Table 6-2: General market data for Emerging market city ................................................83 Table 6-3: Mobile market data in 2006 for Emerging market city......................................83 Table 6-4: Fixed market data in 2006 for Emerging market city .......................................84 Table 6-5: Business segment in Emerging market city .....................................................84 Table 6-6: MO´s FMC product definitions........................................................................86 Table 6-7: MO´s residential FMC products with tariffs, usage and subscriber distribution...87 Table 6-8: MO´s business FMC products with tariffs, usage and subscriber distribution .....87 Table 6-9: MO´s DSL tariffs ...........................................................................................88

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Executive Summary Even if network architectures remain unchanged for a long time, today, new technologies are to be introduced in two different ways. They can be implemented within existing networks affecting their cost structures or they can also be used to build entirely new networks. In this direction, network engineering tries constantly to minimize investment and operational costs. However, these costs may be different depending on the technology and on each concerned network element.

Innovation on network technologies paves the way for service innovation enhancements. In addition to make substantial network cost savings possible, it creates new alternatives for service provisioning. A wide range of new telecom services have been created and some of them incorporate service elements from other sectors, such as information technologies and broadcasting. These services can be offered on the same networks, leading to convergence.

The trends are interrelated. Network innovations enable creation of new services and new services define new requirements on networks. Furthermore, there is a mutual impact of these evolutions, related to functionality, capabilities, capacities and costs, while the economic feasibility and viability of different networks depends on the types of services that will be the most used in the future.

Recently, thanks to regulation on competitiveness, new actors came into the telecommunication market, proposing attractive value added services mainly based on IP technology. In addition, fixed operators have to face a churn of customers towards mobile operators or new entrants. This context leads all operators to become more competitive and to propose fixed mobile convergent services. The major way to provide this kind of services is to develop an IMS architecture. Numerous operators are now studying fixed mobile convergent networks and how to reach this solution.

The objective of this deliverable is to analyze the impact of convergence on network architectures, highlighting major CAPEX and OPEX items, through the investigation of two main network migration scenarios. The first scenario is related to an integrated operator owning both 3G mobile and fixed networks, whereas the second one is focusing on a 2G mobile network operator or service provider.

Some elements on broadcasting regulation for OECD countries are given in this deliverable, as well as examples of convergent services and products.

The convergent framework and the market forecasts by technology are presented before the description of the pre-IMS architecture. IMS functionalities and dimensioning elements are mentioned to be used in the case studies.

The integrated operator scenario is studied in Large and Nordic countries from 2007 to 2010, whereas the 2G network operator or service provider scenario is considered in Emerging market from 2007 to 2013.

A dedicated chapter addresses the OPEX concerned by the migration towards a convergent architecture. The results presented here are CAPEX and OPEX deltas between the current situation and the pre-IMS one.

In the first scenario, considering the integrated operator, for both kinds of countries, CAPEX is slightly more important than network related OPEX. Equipment installation costs represent the highest network OPEX part. The key OPEX and CAPEX drivers will be in the access and backhaul networks. Revenue and other than network related OPEX items need to be added to complete this study and have the full business case.

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The second scenario focuses on a mobile 2G network operator/service provider enhancing its mobile network with fixed access to provide FMC service to its customers. Both costs and revenue are considered here and different stages of the migration scenario are presented. First results give a negative NPV (Net Present Value) leading to conclude that the FMC operation as an isolated case does not seem to be profitable for the mobile operator in the Emerging market. As an alternative to fixed broadband, other wireless broadband technologies such as WiMAX 802.16 will be considered in the next deliverable.

For both case studies, parameters have to be reinforced and a sensitivity analysis needs to be done to highlight the most critical parameters for the NPV.

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1 INTRODUCTION

1.1 Motivation

Numerous operators are working on convergent architectures in order to provide convergent services. As the fixed traffic is decreasing faster and faster, a main motivation for fixed operators is to create substitution revenue, trying to reduce their loss. The situation looks more hopefully for the mobile market which continues growing. Mobile services, used at home, at the office and outdoors should bring a big part of revenue. Convergent services can bring complementary revenue for mobile operators. It will allow retrieving fixed customers and competing with attractive Internet access via the fixed line. From an integrated operator point of view, the advantage of developing and selling convergent services is to balance the loss of basic income generated by the wireline traffic. All operators will do their best to capture new customers and increase the loyalty of the old ones.

Customers will take advantage of this situation, particularly from better offerings at good prices and a better network coverage.

The key of this evolution for the integrated operator is to modify the organisational structure. It is also crucial for fixed operators and mobile ones to choose carefully their partners (respectively mobile and fixed ones).

The major way to reach convergent services, investigated in this document, is to develop IMS (IP-multimedia subsystem) architecture.

1.2 Scope

This deliverable is an intermediate deliverable dedicated to techno-economics study on fixed mobile convergent architecture based on IMS. As no IMS target equipment is already available, the architecture considered here is an intermediate situation, also called pre-IMS situation. Even if some sections deal with revenue, results will mainly be focused on costs. A delta between the present situation and the studied one will be presented. The revenue will be studied in the next deliverable.

A brief summary on regulatory issues is presented in section 2. Section 3 will define the fixed mobile convergent business and the functional IMS architecture referred to TISPAN and 3GPP. Common assumptions on convergent products and services, market and pricing will be proposed in section 4. The physical architecture and the OPEX impacted by the migration towards IMS architecture will also be described in that section. Parts 5 and 6 are dedicated to techno-economics studies. Two scenarios will be viewed in this deliverable. The integrated operator case will be firstly depicted. Then, a business case for a mobile 2G network/service provider which offers fixed mobile convergent services will be developed. Other scenarios could be studied in the next deliverable in addition to a complementary work on the two previous ones.

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2 REGULATION

2.1 ICT and the authorities' role as regulator

The authorities play an important role as regulator of ICT (Information and Communication Technology) market as well as legislator for competition in it, both through the exercise of general competition policy measures and through the telecommunication and media sector specific regulations.

The driving forces behind convergence (digitalization, compression technologies, and the development of IP-platforms) imply that different infrastructures can offer same type of services. The implication is increased competition between channels of communication and platforms, which in next phase means lower impact of sector specific regulations.

The ICT-sector, characterized by great dynamics, implies that monopolies seldom survive for a long time. Examples illustrating this are the development of broadband and IP-telephony that to a large extent now are “bypassing” fixed telephony. Furthermore, the development of software-based radio communication systems and cognitive radio makes it possible to utilize the frequency spectrum independent of exclusive allocation of licenses. We also observe that new players like Google are challenging the old established software producers by introducing new business models via Internet.

2.2 Regulation of converged markets in different OECD countries

Every country has its own mix of strategies to reach common objectives in communication policy. Historical developments, cultural differences and divergent market developments account for these different mixes. This section gives an overview of communication policy objectives for some OECD countries as summarized in the table below.

In OECD (Organization for Economic Co-operation and Development) countries some more or less merged or integrated regulators can be found for network regulation, spectrum allocation and content regulation (including advertising and audio-visual policy). Also a limited number of self-regulating bodies are active. The German PSBs can be seen as primarily self-regulated, whereas in Canada the Canadian Association of Broadcasters and the Canadian Broadcast Standards Council are active. In the Netherlands, the Netherlands Institute for the Classification of Audiovisual Media (NICAM) has been established for self-regulation of content.

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Table 2-1: Regulation of convergent market in OECD countries

Source: OECD

There seems to be a trend towards mergers between two or more regulatory bodies (the opposite development has not taken place, as far as is known). For example, in recent years the general (converged) communications regulators OFCOM in the UK and ACMA in

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Australia have been established. Belgium/Flanders has announced that the Flemish media authority, the Council of Disputes for Radio and Television and the Listening and Viewing Council, will soon be merged into the Flemish Regulator for the Media in order to accommodate emerging media and the phenomenon of media convergence.

However, this trend towards merging of the regulatory oversight of communication with broadcasting does not automatically imply that policy or regulatory activities as such are converged. That depends inter alia on laws and regulatory acts and the definition and distribution of regulating activities within the organizations. Most OECD countries have separate regulators for broadcasting and for telecommunications. The nine exceptions are Australia, Canada, Finland, Iceland, Italy, Japan, Luxembourg, United Kingdom, and the United States. In twenty three OECD member countries, the regulatory bodies for telecommunications are also involved with broadcast spectrum allocation (sometimes together with other parties).

In fifteen OECD countries, regulatory bodies for spectrum allocation are also charged with content regulation, while in only eight countries broadcasting carriage regulation has been merged with spectrum regulation. Regulating tasks for broadcasting carriage regulation are divided over more than one body in thirteen countries, for spectrum allocation in six countries and in seven countries for content regulation.

In addition to this, most OECD countries have some form of public service broadcasting, either combined in one organization - a Public Service Broadcaster (PSB) - or in the form of assignments or another form of public service broadcasting. There are large variations in the way public service TV broadcasting is organized, regulated and funded. For example, in Germany, there is one national PSB channel (ZDF) and several regional channels working together to form the ARD. The UK has a PSB (BBC), which has a broad and national assignment to provide sound and television programs of information, education and entertainment for general reception in the UK. Besides the BBC, the terrestrial channels of ITV-1, Channel 4 and Channel 5 operate with licenses that require degrees of public service programming. The government of the United States founded a Corporation for Public Broadcasting in 1967. This body allocates federal funding to more than 1000 local public radio and TV stations, dependent on their number of (paid) subscriptions.

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3 CONVERGENCE FRAMEWORK

3.1 Network

Following the ITU reference model for Next Generation Networks (ITU Y.2011), the Figure 3-1 could be drawn. There is a complete detach between the transport and the services itself. The resources could be physical and non-physical (e.g. IP-addresses). Resources for transport and service could not interact directly with each other, only the control and management functions are able to exchange requests between service and transport entities. The complexity of the model could be reduced to a simple four layer approach with transport, transport control, service control and services.

Figure 3-1: NGN general functional model according to ITU-T Y.2011

According to the deliverable 12, Chapter 2.1, network convergence is the usage of the same infrastructure by a mobile and fixed operator (or even integrated), the overall network is IP-based and can support heterogeneous environments.

In principle, this definition refers to the transport layer and its transport control and management functions. These functions are e.g. resource reservation, fault, connectivity, configuration management and so on. Today, typically, all these functions are implemented in a network as they are providing a very well designed IP access. The target for the future will be the interconnection with the service layer and its control and management functions.

The service control and management layer will be IMS and it will be the layer solving service convergence. For the support of other networks, gateways will be required. Depending on the connected network, different entities or functions are required. The connection to the PSTN networks is solved by the Breakout Gateway Control Function (BGCF) in combination with the Interconnection Border Control Function (IBCF) for IP access, Media Gateway Control Function (MGCF) and Media Gateway (MGW) for PSTN control and user data conversion. The same functionality is provided for other external applications by the Media Resource Function Controller (MRFC).

Resources

Services

ServiceControl Functions

TransportControl Functions

ServiceManagement Functions

TransportManagement Functions

Application, Middleware & Baseware services

Service

Transport

Transfer Functional Area

Resources

Services

ServiceControl Functions

TransportControl Functions

ServiceManagement Functions

TransportManagement Functions

Application, Middleware & Baseware services

Service

Transport

Transfer Functional Area

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Providing access to resources requires some additional functions like Authentication, Authorization, Accounting (AAA), security or mobility. AAA requires a huge database containing all user information for the network configuration and business relationships like authentication, authorization, accounting, auto configuration, billing and charging. Security is a very relative problem, measurement is very difficult and a starting point for this deliverable will be that all devices, functions and processes are already implemented and working well. Mobility is associated with another term: roaming. IMS is providing an excellent architecture for roaming with its Call State Control Functions (CSCFs). The Proxy-CSCF (P-CSCF) is the contact point for user equipment. All configuration and accounting data is exchanged to an interrogating/serving CSCF (I/S-CSCF). These three CSCF entities are organizing the user and control data exchange, between the service and the user equipment. Mobility is very problematic as it contacts different layers. Within 3GPP the problem was solved by the building of IP tunnels and management functions. Mobility is normally solved as a hierarchical architecture, similar to Figure 3-2. The three levels of mobility shown above are provided by most mobile technologies, but the level below (Inter Radio technology mobility) is under development at the moment.

Radio core network

IP / MPLS core network

Radio core network

Intra Base-station Mobility

Intra Radio Access Network Mobility

Intra Radio technology

Mobility

Inter Radio technology

Mobility

Figure 3-2: Mobility levels

Taking all the information and assumptions above into account, a very good starting point could be the logical diagram in Figure 3-3. The high-level description follows a proposal currently discussed at 3GPP for UMTS Long Term Evolution (LTE) of the radio access network and the System Architecture Evolution (SAE) for the completeness of access and core networks. In the Technical Report “3GPP System Architecture Evolution: Report on Technical Options and Conclusions (Release 7)” as 3GPP TR 23.882 V1.0.0, main functionalities are identified as key issues and new functional network elements described on a high level. The major common existing and proposed new elements for the FMC scenario located within IMS and evolved core are shown schematically in Figure 3-3 and are discussed in detail in chapter 4.7.

The components of the convergent network (PCRF, IMS, AAA, Evolved packet core) are marked in blue within the Figure 3-3.

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Figure 3-3: Logical high level architecture for the evolved 3G system (following 3GPP LTE/SAE proposal)

An open issue is whether the central entity of a future FMC architecture will be IMS or a new evolved core. Whereas IMS (IP Multimedia Subsystem) - currently being deployed within the different fixed and mobile operators own systems - can be seen as part of the common service delivery platform (SDP) and is operating at a higher level (based on application layer protocols as SIP), a new core network operating at a lower level (basic IP protocols and beyond) might allow for more efficient interworking of different access systems.

Elements of convergence originally proposed from the mobile point of view are the components of the new evolved core network which cover entities for mobility management (MME: Mobility Management Entity), user traffic and state control (UPE: User plane Entity), and interworking between different access systems (IASA: Inter-Access System Anchor). However, in a truly convergent scenario, at each change of state of a user session, including nomadic usage of a terminal at different points of attachment and service mobility across fixed (home and office) and mobile access (on the move), those components will also have to control the fixed part.

Furthermore central servers for policing and charging (PCRF: Policy and Charging Rule Function), subscriber database (HSS: Home Subscriber Server) and AAA (Authentication, Authorization, Accounting) functionality have to be provided, and the components of the IMS (CSCF: Call State Control Function, AS: Application Server, MGCF: Media Gateway Control Function, MRFC: Multimedia Resource Function Controller, BGCF: Breakout Gateway Control Function) are identified as convergent network elements. Elements of the interworking segment are also shown (for simplicity here located within the evolved packet core) as Media Gateway (MGW) interfacing the MGCF, Interconnect Border Control Function (IBCF) interfacing BGCF and CSCF, and Media Resource Function Processor (MRFP) interfacing MRFC.

Gateways of the other subsystems towards the convergent entities may also be considered as convergence relevant entities.

3.2 FMC Business

The business of FMC is emerging. The reason for this is manifold. Some important issues are:

Evolved Packet Core

2G access

3G access

2/3G core

Beyond 3G fixedportable

WLAN 3G

IMS HSR/HLR

AAAPolicing/Charging(PCRF)

CSCF

MGCFMRFC

BGCF

MGWMRFPIBCF

AS

MME UPE IASA

Evolved Packet Core

2G access

3G access

2/3G core

Beyond 3G fixedportable

WLAN 3G

IMS HSR/HLR

AAAPolicing/Charging(PCRF)

CSCF

MGCFMRFC

BGCF

MGWMRFPIBCF

AS

MME UPE IASA

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WLAN access is widespread, with fixed and mobile operators going into the WiFi Hot spots business;

strong broadband and home networking growth is projected with a substantial growth of ADSL/WiFi in residential (and business environments);

VoIP communications is gaining momentum both in the enterprise and residential market;

end-users are demanding service ubiquity; service providers are competing for the share of consumer wallet; traditional wireline usage is dropping; there is a strong need to provide new multi-

media high capacity QoS demanding applications on wireless networks; new services are required to work across network boundaries-convergence.

The main reason for an incumbent network operator to provide convergent services is to retain (or gain) market shares in a market steadily exposed to more and more competition. Many new actors are entering the role of telecommunication such as MVNOs, mobile and fixed services providers, new broadband providers, VoIP providers, and lately also many new actors entering the WiFi business. The competition for the customer is very hard. However, ownership of the customer is a vital asset for all operators. As the usage price of telecommunication is decreasing, the subscription fee becomes more important as the main source of revenue. Avoiding churn by bundling fixed and mobile services and enhancing the user experience by value added services, such as presence information, better location information, one handset for all services, same service on different devices etc, are aspects the customer might find attractive and will pay for.

Another effect will probably be possible savings in both CAPEX and OPEX. CAPEX savings may occur due to offloading of mobile traffic to fixed access and in common use of network equipment and call/service control platforms. OPEX savings may occur e.g. due to more rational operation, sales and customer.

3.2.1 FMC market players

This section looks closer into the market players that may be impacted by the offerings of FMC services to the public. Since FMC services may be defined quite broadly, the FMC concept needs to be defined to more accurately derive the involved market players in each separate business case. A FMC service may be defined, for instance, as only a common bill (different devices) for using fixed and mobile service. This FMC service already exists and involves few market players. Only the incumbent integrated actor may merge the customer data and billing systems to achieve this convergence concept.

Moreover, a more elaborated FMC service e.g. seamless voice and data session transfer between mobile and fixed with one single device may involve more components (the mobile phone, the fixed and mobile core network, the service platform, the charging system and subscriber database, etc). Many market players may be involved in this FMC concept. However, if the incumbent operator is an integrated operator it may still be achieved, involving a limited number of players. In this latter case, the handset manufacturer, manufacturing a multi radio enabled handset with e.g. GSM/UMTS and WiFi, must also be involved.

The extension of FMC service offerings would, indeed, demand a few or several market players to take active part in the service offerings. It would also demand different complexity and cost/revenue analysis for the involved players.

For all players, however, there will be a drive towards new business opportunities to stay competitive. FMC may be seen as a new opportunity for new market players to enter into

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the telecom business. The integrated incumbent operator, that sees competition on both the fixed and the mobile arm of its business, will evaluate FMC as a way to keep the customers. In this way it will be better prepared to uphold its market share and by merging the network service platforms and customer handling, the CAPEX and OPEX may be decreased.

In the mobile business case the motivation for FMC is different. Since the mobile operator only owns and manages a mobile network, it needs to go into cooperation with fixed operators or set up agreements for renting fixed access capacity and functionality to support FMC either as wholesale or invest in LLUB solutions. The barriers are somewhat higher since an external player needs to be involved in the value chain.

The bottom line is that there potentially may be many market players involved to support a specified FMC concept, or a FMC service offering. The players will cover the whole value chain for offering services to the customers. This ranges from:

handset manufacturers,

o producing multi radio handsets or smart cards with several radio technologies;

software manufacturers,

o providing client software for efficient switching between multiple radio technologies;

access and core network vendors;

backbone network transport providers;

service delivery platform developers;

service providers;

content providers that may produce content applicable for FMC devices.

Figure 3-4: Players impacted by a FMC market evolution

Access providersFixed, mobile, WiFi

Core network providersNO, MNVO

Call control providers(IMS, IN, TAS...)

Service platform providers(HP, IBM, Cisco,.)

Content providers(TV, newspapers, radio...9)

Terminal providers(Ericsson, Nokia, Motorola…)

Regulators

Aggregators/ Brokers

Telecom SW providers

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Based in the above listed functionalities, the following market players may be involved in providing FMC services to the customers:

Fixed-only operator

• Becoming MVNO with or without its own mobile core network • Deploying WiFi/WiMAX network on its own infrastructure

Mobile operator

• New entrant as FVNO e.g. by investing in WiFi hot spots

Integrated fixed and mobile operator

• Migrating towards common IP service platforms, convergence of Business Support Systems, Operations Support Systems, service creation environments, etc

Operators without existing core and/or access networks

• Fixed + mobile virtual network operators • 3rd party service providers (Google, Skype, Microsoft, Yahoo, MSN…)

Service platform providers IBM, Microsoft, Cisco, HP…

In addition to the typical 2G and 3G operators and service providers, many new market players are emerging especially due to the WiFi penetration in private and public/office environments. These players may become important players in the FMC market combining several types of access networks and a tighter integration between them.

WiFi/WiMAX Operators

FON, Google, The Cloud, iPass...

Aggregators/brokers/clearinghouse Boingo ERX/IPX operators for interconnect and roaming

The relationship between these different players may change, based on the respective roles they take on in the FMC value network. The mentioned network operators may e.g. choose to also take on the role as service operator having direct relations with end-users. However, in many cases the service operators will be 3rd party service providers not owning any network at all.

In the case of an MVNO, which owns a core network and has a wholesale relationship with a mobile network operator for access networks, a possible way to offer convergence services is by providing, in addition, WLAN access (also known as Generic Access Network - GAN - in 3GPP). This convergence of WLAN and mobile access networks for an MVNO can be influenced by the ownership of GAN functionality (or WLAN access). The mobile or fixed network operator or the MVNO itself can own the GAN functionality. These different ownership scenarios can bring up different issues with regards to service continuity, seamlessness as well as wholesale traffic migration and substitution.

Besides these network and service providers there will be other actors involved in supporting FMC services, such as:

Terminal manufactures

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Nokia, Ericsson, Motorola, Siemens, ... Terminal software manufacturers

Operating systems and desktop SW vendors

National regulatory and competition authorities E.g. Norwegian post and telecommunication authority (NPT) Competition authorities

The FMC market may thus involve many market players in a direct or indirect manner. The user is not mentioned as a separate market player. However, the user will become more involved in the communication flow in the future e.g. becoming a part in the network with ad hoc, mesh and community network, as a content and service provider and so on.

3.2.2 Services and products

It is sometimes difficult to differentiate between services and products. In this deliverable we define a product as something the operator or service provider can charge for. A telecom service can be defined as a connection, transmission and/or provisioning of information/content or transactions using physical resources and functionalities by means of telecommunication networks. Products are composed of, or defined by, service elements and price. An example of a product may be an ADSL subscription with a given price, consisting of ADSL capacity, IP connectivity, security, etc. The Figure 3-5 illustrates this principle.

Product A

Services

Products

Price

Product B

Product C

…

…

…

Figure 3-5: Relation between services and products

Convergence manifests itself mainly as products with new functionalities (or services). This may be based on new combinations of services or completely new services.

Main services in fixed mobile convergence have, up to now, been multiple accesses to broadband at home and WiFi zones elsewhere or combinations of mobile and WiFi access. The product is the subscription allowing access over more than one access technology with one device (or more).

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The difference between real converged products and commercial bundles that are simply marketed as converged offerings lies in whether new functionalities are added or not and whether services are integrated.

For the customer, a product like voice will not necessarily appear radically different in terms of functionality. However, the price will be different. For the operator, the converged service enabling voice (VoIP) is produced through new technology.

The migration scenarios for convergence imply a transformation from bundling to real integration.

The table below lists some existing example FMC products:

Table 3-1: Examples of existing FMC products

BT fusion Dual Phone based on UMA, using GSM and Bluetooth, which automatically switches from mobile to fixed line access via Bluetooth, when the customer gets home. Only one calling number.

T-Com, (Deutsche Telekom's fixed-network division)

Deutsche Telekom's own handset, the Dual Phone, was unveiled at IFA 2005 in Berlin at the start of September. This brand-new device allows customers to call from home via W-LAN and the fixed network. Calls are particularly inexpensive and the sound quality is good. And when customers are on the move, the handset functions using proven GSM technology. In each case, the Dual Phone uses the same number and the customer receives only one bill. The Dual Phone - an innovative product of in-house development - should be available from T-Com from as early as the second quarter of 2006.

NTT DoCoMo - Passage Duple (Japan)

The system can seamlessly switch between a 3G FOMA handset or a VoIP phone while connected to a WiFi network. Users will be able to prioritize the phone for either WiFi or FOMA access, if both are available. Users can set the phones to receive incoming calls via the 3G network only, the WLAN network only, or both networks in dual mode. The phone's browser can access schedules, Web mail and documents saved on intranet servers from both inside and outside the office.

Vodafone – e.g. “Zuhause”(Germany), “Házimobil” (Hungary)

Cheap voice service at home, call initiation and reception is limited to a “home” GSM cell. The service can be used with a fixed GSM phone in Hungary (CPE: CSI 400 Desktop GSM), or it can be used with a normal GSM phone also.

TDC – Duet (Denmark)

The service was launched in September 1999 by the Danish incumbent; one of the first true fixed-mobile tariffs on the market anywhere. Duet gives users one number for fixed and mobile phones. Calls to the Duet number are initially routed to the GSM phone; if it cannot be reached, they are routed to the fixed phone. Also features a single voicemail box, a single bill, and a single customer service and system.

T-Com – Switch&Profit (Germany)

Newly introduced bonus program, the customers have the option of automatically diverting incoming calls from Germany from their mobile phone to their T-Com fixed line for free. In this way, they can make calls with fixed-network quality and reduce their telephone costs at the same time.

T-Mobile@Home

The customer receives a fixed-network telephone number for a monthly charge. He can be reached at that number in the defined home area; outside of the home zone, calls can be forwarded to their mobile phone number or mailbox.

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Subscribers are alerted by an audio tone at the start of the call to indicate they are in their home area. The product is activated in a few minutes and the fixed-network number is sent to the customer via text message.

“Business Everywhere” (France)

Targets business customers. Using a software interface, subscribers can connect remotely to their corporate VPN via GPRS, UMTS, WiFi, DSL or circuit switched lines.

La visiophonie (France)

Video telephony service between a fixed line videophone, a UMTS mobile phone and a PC softphone client.

Telenor – InTouch

Incoming calls to the PSTN/ISDN is being forwarded to the mobile upon no answer, i.e. time-out (selected by the user), and on busy. Alternatively the incoming PSTN/ISDN call can unconditionally be forwarded to the voice mail linked to the mobile subscription (only one VMS).

Verizon - iobi (USA)

Unified Messaging and call management between fixed phones, mobile phones and PC. Email, voice mail, and SMS are all directed to the user’s preferred device.

3.2.3 Charging principles in a converged context

Charging and billing in a FMC network are and will continue to be part of the most important aspects for differentiation between operators. In a FMC network it is presumed an ever greater differentiation in terms of service offerings and pricing. Seen from the customer, this differentiation may become a very challenging task and it will be nearly impossible to evaluate every offer up against each other to find out what suits the customer best. The customer will like one bill for fixed and mobile calls, to be billed for services not for the access network in use, have an easy, cheep and predictable spending budget and get the content to the desired terminal device.

Today there are different charging models for fixed and mobile communications. The often-raised question is whether all communications will be based on flat rate charging principles in the future, taking the broadband connection on the fixed accesses as the guiding star. Is the high bandwidth in itself a driver towards a flat rate charging scheme? This seems to be oversimplification. At least one market player (TeliaSonera) has gone for a flat rate charging scheme across heterogeneous access networks. On the one hand several service providers offer mobile (e.g. E-plus in Germany) or fixed (narrowband) telephony on a flat rate basis, on the other hand, however, e.g. PSTN/ISDN telephony is traditionally mainly charged on a time unit basis. Broadband telephony is often charged flat rate by bundling it with the fixed broadband offer from one operator. The mobile network, on the other hand, is inherently based on time for calls and volume for data applications. This relates strongly with the future mobile data ARPU prospects. By offering bundled products e.g. with seamless handover between mobile and fixed access connectivity, the customer will switch between different charging schemes if the charging is different between the network usages.

It is obvious that there will not be a unique charging principle in the future. Volume, flat rate, duration, content charging and event based charging are all relevant also for the future. In mobile communications, it is expected that a usage based charging scheme will still be applied for many years, first and foremost due to the scarce capacity.

Nevertheless, the plethora of different tariffs, based on a selected set of charging schemes in mobile communications today, just indicates that, with FMC, there will be even more variation in how the operators sets their pricing policy. The variation may be linked to:

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type of service (voice, video, SMS/MMS, web browsing, banking, etc);

QoS and security;

grade of mobility (nomadic, seamless mobility, roaming facilities...);

value added extensions (presence indication, location information, context).

In the FMC context, all these aspects may be part of the service offerings and be billed separately or included in various service offering bundles. Differentiating between residential and business offers may also be applicable by offering different types of subscriptions with different service profiles and charging principles.

In the wholesale business, the charging will also become more diverse and the number of players involved increase as more players take on a limited number of roles in the value chain.

The ARPU development in the future FMC network for convergent products/services will depend on the customers valuation of the new functionality provided. The pricing of the existing service elements like voice and broadband connections will probably be offered cheaper than the sum of the elements´ prices today. The additional functionality, like use of broadband lines/fixed lines with the mobile handset can hardly be sold to a higher price than the PSDN/ISDN calls are today.

3.2.4 Market forecasts by technology

This section will present some forecasts for the fixed and mobile market, including penetration, market share and revenue forecasts. Some issues related to a future FMC market will also be described.

Broadband market

Figure 3-6 shows long-term Western European residential broadband subscription forecasts. The saturation level in the model has been estimated based on historical data, demographics and also expert evaluations. The other parameters in the model are estimated.

Broadband penetration forecasts for Western Europe

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Figure 3-6: Broadband penetration forecasts for Western Europe

The figure shows fast increase in the broadband penetration in Western Europe during the next years with a turning point in the growth in 2005-2006. The situation is not the same

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among countries in Western Europe. Greece has a very limited penetration, while the Nordic countries and Belgium, Netherlands and Switzerland have a very high penetration.

An overview of the market share forecasts for the different technologies is given in Figure 3-7. The figure shows that DSL technology in the future will be the dominating broadband technology in Western Europe, and that the ADSL2+/VDSL2 services gradually substitute ADSL. However, the evolution is restricted by long subscriber line length and the need for heavy investments in the access network for parts of the subscribers. The figure shows that the cable modem market share decreases significantly during the period 2000 - 2010, while the market share for new technologies increases.

Market share distribution between technologies

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Figure 3-7: Market share distribution between different broadband technologies

Penetration forecasts for the broadband technologies are found by multiplying the total penetration forecasts with the market share forecasts for the technologies. The forecasts are found in Figure 3-8. The figure shows that ADSL is the dominating broadband technology in the period 2000–2010, but the penetration is decreasing at the end of the period. The main reason is substitution effects with ADSL2+ and VDSL2, which have a very high growth from 2007 to 2010. In parallel, the cable modem penetration is increasing even though the market share is reduced. Also the penetration of other broadband technologies is increasing in the period.

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Penetration, each broadband technology

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Figure 3-8: Penetration forecast for different broadband technologies

Figure 3-9 shows the monthly access tariff evolution for some of the most important DSL operators in the World. The average has decreased by 7,6% during the last year.

Monthly access tariff evolution

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Bell Canada

Covad

SBC

Verizon

NTT

Yahoo Japan

Korea Telecom

Chungw a

Telekom Austria

Belgacom

TDC

France Telecom

Deutsche Telekom

Telecom Italia

KPN

Telefonica deEspanaTelia

BT

Average

Figure 3-9: Monthly access tariff evolutions of different DSL operators

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Mobile market

Since GSM was introduced in Europe and common standards and roaming were in place, there has been a remarkable increase in the number of mobile subscribers. The Nordic countries had a significant demand even before 1997 because of early deployment of the Nordic Mobile System (NMS) in the start of the 80’s. However, the Western European market got a significant push after GSM was introduced in 1995. After prepaid cards were introduced, the penetration increased even more. Figure 3-10 shows the mobile subscriber penetration forecasts.

Total mobile subscriber penetration forecasts

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1997 1999 2001 2003 2005 2007 2009 2011

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Figure 3-10: Total mobile subscriber penetration forecasts in Western Europe

Future handsets

An important factor in convergence market is the terminal used for accessing services. In order to take full benefit of the convergence service offerings, terminals should be able to utilise via various alternative accesses. Among many alternatives WLAN (WiFi) is seen as an especially interesting alternative in near future. As opposed to WiMax and some other very new alternatives, WLAN has been on the market for years and device offerings are numerous.

Currently WLAN capable terminals are quickly penetrating in new areas. Virtually, all laptop computer sold have build in WLAN. On the mobile phone side, WLAN is making its mass entrance in 2006 and various PDAs with built in WLAN are also available. Figure 3-11 shows a forecast of new WLAN capable terminal sold on yearly basis.

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Figure 3-11: Forecast of WiFi (WLAN) embedded terminal markets. (source: Strategy Analytics)

The type of user terminals used for accessing convergent services vary a lot including mobile phones (smart phones), laptop computer, PCs, advanced desk phones, etc. In general special interest is on terminals that customers can use anywhere when they need the service. In this light, the already existing and upcoming advanced mobile phones, or rather small computers including phone functionality as they are, are likely to be a popular way of accessing convergent services.

From an operators’ point of view, a strategic consideration is what kind of terminals should be supported in future networks for

• lowering operational costs (also in terms of short repair duration) and • enabling prospective new services.

In a short term (2007) more compact and power efficient (battery) multi-mode terminals (2G / 3G / WiFi) will be in use. WiFi capability is likely to be available only in higher class phones. These phones include multimedia capabilities with relatively large high quality display as well as digital camera and Personal Digital Assistant (PDA).

The mobile network shall support traditional legacy terminals as well as high-speed data-enabled devices in selected areas.

In the mid-term (2010), terminals will be highly intelligent multipurpose devices for converged networks. The so-called M5, i.e. Mobile Multi-Mode MultiMedia, terminals will be capable to support multiple radio technologies and provide self-explanatory, easy-to-use interfaces for customized broadband multimedia applications. Technological developments include re-configurable features. An important issue will be governance of the terminal device either by operator, service provider and/or the user himself.

Network support will be available mainly for 2G to 3G (including HSPA) as well as wide availability of even higher speed connection like WLAN. In the mid-term most terminals will have support to some other radio access technology like WLAN/WiMax in addition to normal cellular radio like 3G. Some terminals will come with routing decision options to reduce network load and meet latency requirements. Terminal technology being integrated in the baseband chip set will further reduce costs.

In the long-term (2012), FMC terminals will be characterised by capability for SW upgrade, usage of faster-integrated silicon and relaying on a modular, adaptable & renewable Operating System. Software defined terminals are user devices equipped with SDR-

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technology: Software Defined Radio describes the capability of radio equipment to download, update, configure, and control radio features in order to modify radio network and terminal behaviour according to the needs of users, operators, and manufacturers. Enhanced equipment flexibility will lower the cost/revenue ratio for operators and equipment manufacturers. Full utilization of SDR in terms of flexibility, usability, and cost reduction requires a worldwide regulatory agreement considering the operators’ network security and reliability issues properly.

While new high speed radios are likely to be the dominant way of accessing the network, support for legacy terminals should still be provided.

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4 COMMON ASSUMPTIONS FOR CASE STUDIES

4.1 Study period

In most of the cases, a study period of at least seven years is used for the estimations regarding the profitability of the mobile cases. In the case of fixed mobile convergence a study period of 8 years is used starting from 2007.

Table 4-1: Study period

Duration 8 years Start year 2007 End year 2014

4.2 Financial

The objective of each business case is to estimate investments, revenue streams, operating cost, general administration cost and taxes. The network is expected to generate revenue through the lifetime of the product. Investments, operating costs, general administration cost and taxes are deducted from the revenue streams, resulting into a cash flow judged at least in three ways.

The Net Present Value (NPV) is the present value of the future cash flows (revenues less costs), discounted using a factor that resembles the time-value of money. If the NPV is positive, the project is judged profitable. The Net Present Value gives a single figure of merit for a project.

The Internal Rate of Return (IRR) is calculated as the discount factor that gives a zero-NPV. A higher IRR means higher profitability and better return on investment. IRR is a useful meter in a case where the scenarios to be compared are of different size and scope, for example if the size of these networks is different. In these cases, the scenarios cannot be easily compared using Net Present Values, but the Internal Rate of Return is a good indicator for how “good value for money” these networks give.

A typical Cash Balance (or accumulated cash flow) curve for a network scenario goes first deeply down to the negative side because of the high initial investments. If the scenario is profitable, the cash flow turns positive fairly soon and the Cash Balance curve starts to rise. The lowest point in the Cash Balance curve gives the amount of funding required for the project. The point in time when the Cash Balance turns positive gives the Payback Period for the project.

In order to calculate discounted cash flows, which take into account the time value of money, a discount rate of 10-12% is used in most of the cases. This value is a mean value among the major European Telecommunication Operators for similar projects. The impact of discount factor will be analyzed separately, to adapt the case to other companies risk profiles. The tax rate will be 30% for all the cases.

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Table 4-2: Financial assumptions

Parameter Value

Discount factor 10%

Income taxes (if applicable) 30%

4.3 Geographic

Definitions

o Country types

Three generic country types are modelled:

“Large” = Western European country like France, Germany, Italy, or the UK

“Nordic European country” = Northern European country like Denmark, Finland, Norway or Sweden

“Emerging market” = East Asian country. Emerging markets has been the focus here.

An emerging market is often used to refer to markets in newly industrialized or developing countries with capital markets at early stages of institutional development. The economy is in a strong growth period and the penetration of e.g. telecommunication usage and penetration is modest.

The country surface area has been supposed to be 370 000 km2 for “Large” country (calculated average from France, Germany, Italy and UK), and 330 000 km2 for “Nordic” country (median from Denmark, Finland, Norway and Sweden, leading to about the size of Finland and Norway).

For the East Asia area type there may be very large variation in size. For the case studies in this report, an East Asian country of about the same country surface as the Large country category is used.

The total populations for those types were chosen accordingly: 65 M for “Large” country, 5.5 M for “Nordic” and 22 M for the “Emerging market”. The country demographics are presented in Table 4-4.

It should be noted that the overall size of the surface area is not the sum of all the sub-areas because certain areas (e.g. lakes, mountain tops etc.) are not taken into account.

Table 4-3: Sort of European countries per segment

Large Western European country like

France, Germany, Italy, UK, Spain

Nordic Northern European country like Denmark, Finland, Norway, or

Sweden

Emerging market e.g. Ukraine, Malaysia

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o Area types (for dimensioning)

The country types have different demographics and the distribution of the population differs between area types. For example, the dense area in the Nordic countries would more reassemble the population density in urban areas in Large countries. Therefore, we have distinguished different area types in the different country types.

Dense urban areas

In the western European area types the dense areas consist of high buildings with shops in the first and second floors. These areas also include e.g. shopping malls, funfairs, and sports arenas that must be dimensioned for high traffic densities. In the Nordic country, the major cities are estimated to have dense area coverage of about 2*2km, and there are assumed to be four such cities. In the Large country, there are more big cities, and their dense areas are bigger. In the Emerging countries the dense urban areas do not consist of so many high buildings. There are very many small shops on ground level.

Urban areas

The urban area type surrounds all city centres and has a much larger coverage area. These areas typically have apartment houses of 3-10 floors on average in the western European countries. In Nordic countries, the number of floors is typically smaller than in the Large countries. The people that live in the suburban/urban and rural areas are commuting into dense areas in the morning and return home in the afternoon. The population density of an urban area in Large countries could reach the density of people in dense areas in the Nordic countries, due to the larger concentration of buildings and generally more floors in the apartment houses. In the emerging markets, the urban areas often consist of small houses, with one or two floors only. The urban area is very crowded with little space between the houses. The urban area is typically an area type where few people work and thereby do not generate as large amounts of traffic as dense areas. The difference between urban and dense areas in Emerging markets is not as distinguished as in Western Europe.

Suburban areas

Suburban areas in Western Europe typically have houses in rows and single residential buildings, separated by an average of 30-50 meters. These are typically areas outside urban areas housing people that work in urban and dense urban areas. As for urban areas in Emerging markets the suburban areas consist of small most often one floor houses with a dense population. The houses are very often tight together with narrow streets. The penetration of fixed access is limited.

Rural areas

Rural areas typically have single houses with an average distance of more than 100 m apart. The areas typically have small clusters of houses with about 5-30 houses around a little centre with e.g. a gas station. There are roads, forests, hills, and mountain areas between the houses that need to be provided with continuous outdoor coverage. In Emerging markets, the rural areas consist of small clusters of one floor houses or huts. There is not any fixed telecommunication infrastructure.

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Table 4-4: Market group characteristics

Country Type Large Nordic Emerging market

Total population in 2005 65 200 000 6 060 000 22 000 000

Population growth 0,3% per year 0,3% per year 1,8 % per year

Area of the country (km2) 370 000 330 000 350 000 Size of dense urban area (km2) 185 17 100 Size of urban area (km2) 3 700 264 3 000 Size of suburban area (km2) 37 000 3 300 35 000 Size of rural area (km2) 303 400 264 000 315 000 Percentage of total traffic generated in the dense urban area 23% 15% 38%

Percentage of total traffic generated in the urban area 45% 50% 40%

Percentage of total traffic generated in the suburban area 24% 25% 20%

Percentage of total traffic generated in the rural area 8% 10% 2%

o Traffic assumptions

The total data traffic is expected to growth in the next few years. According to the UMTS forum (Figure 4-1) the main portion of the traffic will consist from the fixed line IP data. Also, an increase for wireless data and other non IP data is expected to occur.

Figure 4-1: Foreseen traffic development

In the European market, since the introduction of broadband services, the average data bit rate is doubled more or less every 12 months. This, along with the increasing demand for broadband services, has increased the average bit rate per user. In Figure 4-2 we can

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notice the increase of the average bit rate per customer in the busy hour time period. There is a tendency to almost double this average bit rate every 18 months or under. Due to new services, that require high bit rates and are now delivered via broadband connections (Video on Demand, TV channels), the average bit rate per user is expected to growth at even higher rates.

15202530

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Figure 4-2: Traffic generated per user at busy hour (fixed network)

The distribution of the traffic during a typical day follows the curve in Figure 4-3

Figure 4-3. There is a peak in the evening hours between 16:00 and 21:00 but there is a high utilization of the network capacity even at late night with the lowest values to appear at the early morning hours (from 3:00 to 7:00).

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Figure 4-3: Traffic distribution during a day

In the mobile network part, the introduction of UMTS along with the new 3G devices capable of delivering services such as Internet browsing, e-mail, file transfer, etc, has

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increased the traffic generated from the mobile terminals. We can notice that over half of the traffic is for browsing along with the other services share in Figure 4-4.

UMTS services share

WEB61%

Email7%

WAP2%

TCP14%

UDP11%

FTP2%

Other3%

Figure 4-4: UMTS services share

4.4 Potential FMC Services

The following table shows a set of services that may be offered as FMC services. The first column in Table 4-5 lists services that are in use in the Western European market today. The nearest matching services in the mobile and fixed offerings are given in the second and third column respectively.

In the fourth column the proposed convergent services are listed. These convergent services are services that have the same basic look and feel for the user, regardless if the user is connected to a fixed or mobile network. If connected to the fixed access, a service may be richer e.g. better video quality due to the higher bandwidth.

In some of the columns of mobile or fixed there is no matching service to the general service listed. This may e.g. be a specific mobile service as Push to Talk over cellular. There is no counterpart in the fixed service offering to this service. Finding an FMC service i.e. a common service that can be offered through mobile and fixed networks, preferable also to the same device, may thus be difficult.

However, looking just a couple of years into the future, very many services may be run across the internet as IP services. All these services may then be suited as FMC services since the same basic transport and call control may be used. Only access aware and terminal aware functionality may be needed to streamline the service to the device in hand and to the access network.

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Table 4-5: Potential FMC service offering

Services Mobile Fixed Convergent services Voice (CS) GSM/UMTS CS voice PSTN/ISDN voice CS voice on mobile devices

VoIP EDGE/UMTS PS voice Broadband telephony (BBT) VoIP on mobile device

Video call

UMTS 64Kb/s CS, ( OR in Rel7; combined service on CS and PS domain)

Video call over internet (BBT and VoIP)

IP based video call through the internet to the mobile device

Push-to-talk over Cellular (PoC) PoC service No specific counterpart No FMC offering

Voice and video conferencing

Can use CS based Video-telephony call with multiparty functionality

Video call over internet (MSN, MeetAt, net-meeting

Voce and video conferencing may be an applicable service

CS data HSCSD

PSTN/ISDN point to point protocol (ppp) CS data (dying service!!)

Short message SMS (CS based) OR, SMS-IPNo specific,

Alt SMS over internet SMS from mobile device through internet

Multimedia message MMS No specific MMS over internet Instant messaging IM None (alt e-mail) None ( alt e-mail) E-mail e-mail e-mail e-mail over internet Transactions (banking)

Based on SMS, or internet access Transactions on internet

Internet transaction/banking

Downloads Internet access Internet access Internet access Peer to peer Internet access Internet access Internet access Browsing Internet access Internet access Internet access Streaming Streaming from internet Streaming from internet Streaming from internet

Interactive gaming gaming through Internet access

gaming through Internet access

gaming through Internet access

TV broadcast Mobile TV PC TV over internet HDTV over broadband

TV to mobile device over internet

Location information Based on cell ID

None (given by being fixed)

Location information

Business service Mobile office Home office Home/mobile office

4.5 FMC products

Table 4-5 shows a table of services that may be offered to users across both fixed and mobile access. The main issue was to highlight services that have the same basic look and feel across heterogeneous access networks when receiving the service on the same device e.g. the mobile handheld. For an operator these convergent services may be offered to the public as different products, which the customer can buy. As mentioned earlier a product comprises a set of services with added functionality as to how and where the product is available to the user.

The functionality that can distinguish the products may be:

• handover capabilities (seamless handover or only nomadic mobility);

• the range of locations the services can be enjoyed;

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• the grade of value added services (location, presence, device configuration…);

• the number of accesses the services can be acquired through;

• and so on.

The price of the product is dependent on these functionalities. A customer may therefore buy those products that best suit her/his needs. The following are examples of such products including different technical functionality. The product name denotes a set of services that the customer is offered in the subscription of the product. It is here implied that the customer has a device that can access several access networks (i.e. a multi radio device).

If the customer e.g. buys the product Mobile voice basic he will be able to make calls through several access networks with the same device. The added services may be one common bill for all usage regardless of access network, always cheapest connected, device management...

Table 4-6: List of potential FMC products

Product Product description

Mobile data basic UMTS, public WiFi/WiMAX, private WiFi on DSL/CATV with nomadic mobility and location and presence + value added services

Mobile data Premium

UMTS, public WiFi/WiMAX, private WiFi on DSL/CATV with seamless handover across the access network and location and presence + value added services (not access specific)

Mobile voice

Basic Public

GSM/UMTS, public WiFi/WiMAX, nomadic mobility and location and presence + value added services (not access specific)

Mobile Voice

Premium Public

Same as above, with seamless handover

Mobile voice and data Basic Public

GSM/UMTS, public WiFi/WiMAX, nomadic mobility and location and presence + value added services

Mobile voice and data Premium Public


Mobile voice and data + DSL

Basic Home

GSM/UMTS, private WiFi on DSL/CATV with nomadic mobility and with location information and presence + value added services


Premium Home



Basic Home and Public

GSM/UMTS, private WiFi on DSL/CATV, public WiFi/WiMAX with nomadic mobility and with location information and presence + value added services

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Premium Home and Public


4.6 Pricing to be used in the business cases of FMC services

The business case revenues will be based on subscription tariffs and some assumptions about the products basic content and value added services. A FMC product that includes voice with seamless handover is priced a little higher than the similar product with only nomadic mobility. The pricing of this service would be a subscription fee per month and a price per min or bit for usage.

The product may be priced the same regardless of access network usage i.e. it is the same tariff for voice calls in the WiFi network as in the GSM network, or there may be different tariffs depending on access network used.

4.7 Network architecture

4.7.1 Introduction

The chapter 4.7 provides an overview of the architecture for a converged network based on IMS. The first chapter (4.7.2) provides an overview of the current situation of the physical and IP infrastructure of an integrated operator based on the definition of FMC in deliverable 12 and gives a short introduction into further developments. Afterwards, in chapter 4.7.3, the situation without IMS is described. In the next two chapters (4.7.4 and 4.7.5) are all elements and functions of the architecture mapped into real required elements. This means that a lot of functions could be implemented in one element, e.g. to reduce the capital expenditures in the start-up phase or provide a better granularity.

4.7.2 Current situation

According to chapter 3.1, the definition of FMC in deliverable 12 refers to the transport layer. Today, an incumbent network operator with mobile and fixed networks uses already the same physical infrastructure. Figure 4-5 shows four different user devices on the left side. They are divided into radio and fixed accesses using all available technologies. All devices are connected to an access node (in case of radio a base station, but similar functions).

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Figure 4-5: Physical infrastructure of a typical today’s incumbent operator

The access nodes/base stations are connected via a different number of aggregation nodes with a core transport network. The technology in this aggregation area could be SDH, WDM or GE (1 or 10) and build as active or passive optical network (AON/PON). The transport in the core network is and will be based on optical fibre like WDM or SDH/OTN with speeds from 1Gbit/s up to Nx40Gbit/s.

Above the pure transport of bits and bytes, the network is logically organized by IP as shown in Figure 4-6. Today, an IP access is defined by an IP tunnel in the access/aggregation area. xDSL access is based on IP over PPP (Point-to-Point-Protocol) with the termination at the BRAS or BB-RAR (Broadband Remote Access Server or Router). For the radio access, IP may be used in three different ways:

1. for the circuit switch domain, IP is not used. IP traffic is separated at the radio network controller and transmitted to another part in the radio core network with connections to the PSTN/ISDN network and also with a media gateway to the IP/MPLS core network;

2. for the packet switched domain, the user data is based on IP and transmitted by IP-tunnelling through the radio network controller and radio core network;

3. the base stations are connected via an extra IP layer with the Radio Network Controller. This transport IP layer separates the IP data of the mobile/wireless users from the other IP datagrams in the aggregation area.

The IP access to UMTS network via non-3GPP technologies WLAN and WIMAX may either be realized as a tight binding at SGSN level like in UMA approach or as loose binding with attachment at the GGSN as foreseen for WLAN in 3GPP Release 6.

Between all these networks are gateways or border controllers, but for IP transport there are some special names for it: ETSI TISPAN call it Interconnection Border Control Function (IBCF) (ETSI ES 282 001 v1.1.1), 3GPP named it Gateway GPRS Support Node (GGSN, including more functionality than IP transport) and in internet technology the appropriate

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node is called router (the often mentioned Border Controller or even Session Border Controller has additional functions than a router).

Figure 4-6: IP infrastructure of a typical today’s incumbent operator

The future of the IP access in the heterogeneous networks will change. POTS and ISDN will be replaced by VoIP (e.g. 2010 in Great Britain with BT 21st Century Network [1]). With the introduction of IPTV and a required multicast function, the need for PPP will turn into rejection: DHCP, Ethernet OAM (802.1ah), Radius clients and additional protocols will replace the functionality. Routing or even switching will be possible within the access node. First all-in-wonder base stations (e.g. Lucent Base Station Router [2]) are available for replacing the complex 2/3G world and breaking up the IP tunnel. Moreover, interworking and roaming within the same and between different technologies is under development (IEEE 802.21, IEEE 802.11u/r, ETSI TISPAN, 3GPP LTE/SAE).

4.7.3 Pre-IMS situation

Given the timeframe of the roadmap towards real convergence, mobile and fixed network operators will have deployed their own (pre or ‘light’) IMS components before an integrated network operator as a result of convergence between fixed and mobile operators will start operation. Thus, at that time, at least two separate IMS infrastructures will be available which have either to be complemented by a new convergent one (with the existing acting as proxy-entities) or one has to be transformed into a main sub-network accompanied by the others as corresponding back-up networks.

The advantage of the first approach is that the original IMS entities may be re-used unchanged (keeping a relation to the new convergent IMS similar as to roaming networks of

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other operators) and the new IMS can be built up from scratch with latest technology and highest flexibility.

Advantage of the latter procedure may be less need for CAPEX but higher OPEX effort for re-configuration.

UMA (Unlicensed Mobile Access, now GAN: Generic Access Network) may be considered as a part of the mobile system tightly coupled via UNC (UMA Network Controller) to SGSN as this 3GPP standardized approach allows for access to mobile core network and services via non-mobile radio technology. In parallel, the so-called WLAN 3G IP access will be provided with UMTS Rel. 6 as loosely coupled component of the mobile architecture as shown in the detailed Figure 4-6. Here the WLAN Access Network is connected via a WAG (WLAN Access Gateway) and the PDG (Packet Data Gateway) to the end users 3GPP home network at the GGSN.

Correspondingly wireless (nomadic) access to the fixed network via private or public hotspots may be seen as part of the fixed system infrastructure.

The situation described in Figure 4-7 may be seen as an intermediate situation with still physically and logically separated core networks of fixed and mobile systems interconnected via IMS as central entity describing the elements and their relation to each other. For an integrated operator the (fixed) IP Backbone and the (mobile) IP connectivity network will merge to an evolved core, whereas the (fixed) IP network between DSLAM and B-RAS as well as RACS and the (mobile) 2/3G core network may only logically still be separated however operated via same L1/L2 transport platform.

For a mobile network operator’s (MNO) case, only the part shown in Figure 4-7 above is within the operator's control and fixed part below will be bought or leased (physically and logically separate) or completely replaced by fixed wireless access via WiMAX in analogy to WLAN 3G IP shown here.

A more generic description with a unique common core network is given in Figure 3-3 in chapter 3.1. However, the final location of the different logical elements and their physical co-location is a still unsolved issue.

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Figure 4-7: Convergent network architecture with IMS as central entity

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4.7.4 Key Elements and functions for a future-proof architecture

As already mentioned in chapter 3.1 the list of elements of the converged network comprises the main functionalities of the so-called IMS core, currently providing CSCF and SIP Softswitch functionalities. They are being provided by several vendors.

The core elements of the Nokia IP Multimedia Subsystem are the Nokia Connection Processing Server (CPS) and the Nokia IP Multimedia Register (IMR). The Nokia CPS provides the Call State Control Function (CSCF) and IMR the Home Subscriber Server (HSS) functionality, that is, subscriber register. Nokia IMS has been in commercial use in live mobile networks since June/2005, with 19 commercial references (May 2006).

Alcatel has the 5020 Softswitch platform; IBM has carried out development on the basis of P630 eServer and also Siemens and Lucent offer solutions.

4.7.4.1 MME (Mobility Management Entity)

This future converged core entity shall allow for ubiquitous connectivity of a terminal and session including provision of required resources for transport of user and control traffic.

4.7.4.2 UPE (User Plane Entity)

This future converged core entity shall manage and control user traffic and state.

4.7.4.3 IASA (Inter-Access System Anchor)

This future converged core entity shall provide interworking between different access systems (e.g. execution or support of handover between access technologies).

4.7.4.4 PCRF (Policy and Charging Rule Function)

Such central servers for policing and charging provide rules how to charge for which agreed on QoS. One thing in common for all the different approaches to IMS is the need to take into account the full end-to-end solution. Core IMS elements are crucial for the deployment, but supporting capabilities such as provisioning and charging are equally crucial for the user experience. Here e.g. Nokia is offering convergent charging in terms of the Nokia Unified Charging Suite or UCS, Nokia mCreate - the Nokia IN Solution, Nokia Charging Gateway (CG), and Nokia Online Service Controller (OSC).

Lucent SurePay® is a product for Charging Entities (CGF), Event Collection Function (ECF), Session Control Function (SCF), and Charging Collection Function (CCF).

PDF is provided also by Alcatel 7720 ABC or Lucent Session Manager.

Correspondingly, for fixed access, ETSI defines and specifies for the Resource and Admission Control Subsystem (RACS), where service-based local policy control is done, the DIAMETER protocol for session based policy set-up information exchange between the Application Function (AF) and the Service Policy Decision Function (SPDF) in TS 183017. ETSI also defines a protocol for QoS resource reservation information exchange between the Service Policy Decision Function (SPDF) and the Access-Resource and Admission Control Function (A-RACF) within ES 283026.

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4.7.4.5 HSS/HLR (Home Subscriber Server)

This 3GPP and ETSI/TISPAN specified entity stores and manages the central subscriber profiles database. The entity corresponds to what was formerly called UPSF (User Profile Server Function) at ETSI.

For example, the Nokia IP iMultimedia Register (IMR) complements the existing HLR to fulfil HSS functionality as specified by the 3GPP/3GPP2. The Nokia IMR is the main subscriber and service data storage in the Nokia IP Multimedia Subsystem (IMS) including the following functions:

• User Mobility Server (UMS) stores IP Multimedia Subsystem (IMS) subscription data like user identifiers, registration status and service profiles. It performs the IMS specific standard Home Subscriber Server (HSS) procedures like registrations, location query and authentication as specified by 3GPP. The UMS in HSS complements the existing Home Location Register (HLR) functionality. Nokia solution can access any HLR/AuC (whether Nokia one or not);

• Subscriber Locator Function (SLF) is a subscription locator for multiple data repositories to support multiple UMS in IMS network.

Company Blueslice offers with ngHLR 3000T a Home Location Register (HLR) with an integrated Authentication Center (AuC) on an open, non-proprietary platform designed with Kontron AdvancedTCA® (Telecom Computing Architecture) processor, switch, and chassis building blocks. The capacity is scalable to several million subscribers within a single AdvancedTCA® shelf.

Alcatel 1430 IM-HSS provides Subscriber Locator Function (SLF) and IM-HSS can be used independently of HLR though they can be hosted on the same platform. The Alcatel 1430 IM-HSS can access any HLR/AuC (whether an Alcatel one or not) using a standard MAP interface. The predecessor 1422 is able to support up to 1.5 million subscribers in one rack.

The solution provided by Lucent is the Super Distributed Home Location Register (SDHLR) supporting up to 50 million subscribers which will further increase in the future.

4.7.4.6 AAA (Authentication, Authorization, Accounting) server

This server, generally hosted together with HLR functionality within HSS, will provide subscription and authentication data for user accessing the converged system typically accessible either via IETF protocols RADIUS or DIAMETER.

4.7.4.7 CSCF (Call State Control Function)

The central IMS entity differentiated for Serving, Proxy or Interrogating function is a routing engine, policy manager, and policy enforcement point to facilitate the delivery of multiple real-time applications through IP transport. Application-aware, it uses dynamic session data to manage network resources (feature servers, media gateways, and edge devices) and to provide advance allocation of these resources depending on the application and user context. The P-CSCF is the first contact point within IMS for the user. It accepts requests and serves them internally or forwards them. The I-CSCF is the contact point within an operator's network for all connections destined for a user of that network, or for a roaming user currently located within the service area of that network. The S-CSCF identifies the user's service privileges, selecting access to the home-network application server, and providing access to that server.

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Commercial implementations include, for example, Nokia IP Multimedia Core System, where Nokia Call Processing Server is the element which implements the CSCF functions; i.e. the centralized registration, single sign-on authentication, and session control functions as specified by 3GPP and 3GPP2. The Nokia CPS also generates extensive charging data and supports the ISC interface to external application servers and application creation environments.

Cisco provides a Call Session Control Platform-Edge Proxy (CSCP-EP) which supports P-CSCF, a Call Session Control Platform-Name Resource Server (CSCP-NRS) which supports I-CSCF, and a Call Session Control Platform Service Engine (CSCP-SE) which supports S-CSCF.

Alcatel offers 7720 ABC as I-/P-CSCF and 5020 Softswitch as S-CSCF.

Lucent Session Manager can function as CSCF.

4.7.4.8 AS (Application Server) like

SIP AS

This entity cares for different SIP functionalities as service capability interaction.

BridgePort Networks’ NomadicONE IMS Convergence Server (ICS) is based on SIP-Based NomadicONE NCG code allowing for smooth transition. The ICS will act as an application server and integrates Call Continuity Control Function (CCCF) and Network Domain Selection (NeDS) functionality (e.g. Alcatel 5350 IAS).

OSA (Open Service Architecture) Service Capability Server

This component allows for service enablers as presence and dedicated list or document management server.

CAMEL IM-SSF (Customized Applications for Mobile Network enhanced Logic IP Multimedia Service Switching Function)

This function enables access to legacy IN (Intelligent Network) services.

4.7.4.9 MGCF (Media Gateway Control Function)

Here (de)allocating of resources of the Media Gateway within the backbone including modifying usage of the resources takes place. The entity performs protocol conversion between ISDN User Part (ISUP) and the IMS call-control protocols (e.g. Cisco PGW 2200 Gateway, Alcatel 5020 Softswitch, or Lucent Network Controller)

4.7.4.10 MRFC (Multimedia Resource Function Controller) and MRFP (Multimedia Resource Function Processor)

These components provide resources for supporting services e.g. multi-way conference bridges, media transcoding etc. as Alcatel's 8688 MRF or Lucent's MiLife® enhanced Media Resource Server – MultiMedia Function Resource Processor (MFRP).

The Lucent Session Manager can function as MRFC.

They are logical divided into a controller for analysing the control plane part and triggers the executing part, the processor.

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4.7.4.11 Gateways and Border Controllers

Corresponding Gateways towards (and within) each access sub-network and Border Controllers between the convergent sub-systems have to be provided.

The interconnection to other IP networks is realised via the Interconnect Border Control Function (IBCF) and this is in practice a Session Border Controller (SBC). This element is e.g. provided by Huawei Technologies with Eudemon 2000 Series, by IntereXchange Carrier with IXC SBC, by Juniper Networks with VF 1000 E, VF 3000, or VF 4000 Session Border Controller, by Cisco Systems with Service Control Engines of Cisco SCE 1000 Series or Cisco SCE 2000 Series.

Breakout Gateway Control Function (BGCF) controlling call transfer to and from the public switched telephone network (PSTN) as provided by Cisco Call Session Control Platform— Name Resource Server (CSCP-NRS).

IP Multimedia Subsystem - Media Gateway Function (IMS-MGW) can terminate bearer channels from a switched circuit network and media streams from a packet network. It can support media conversion, bearer control, and payload processing (e.g., using codecs, echo cancellers, or conference bridges), e.g. Cisco MGX® 8880 Media Gateway.

Signalling Gateway Function (SGF) provides signalling conversion (in both directions) between Signalling System 7 (SS7) and IP networks, e.g. Cisco IP Transfer Point (ITP).

4.7.5 Dimensioning

4.7.5.1 IP Multimedia Core Network Element Dimensioning

The main elements in the IMS core are the Connection Processing Server (CPS) and the IP Multimedia Register (IMR). The CPS takes care of the various Call Session Control Functions (CSCF), whereas the IMR is the master and the main database in the network for a given subscriber. It contains all necessary subscriber information.

The key parameters for dimensioning IMS network elements are the BHSA (Busy Hour Session Attempts) and the number of supported subscribers.

The variety of services provided by IMS will be large and each service will impose a unique capacity requirement on the network. To be able to plan the network dimensioning, a mechanism is needed to differentiate between the loading effects of services. The BHSA concept is the tool for this. BHSA is used to define the busy hour capacity handling capabilities of the CPS in the IMS.

The BHSA for telephony type of sessions (3GPP defined stateful SIP sessions) is used here as a reference point. A telephony type of session is defined as the setup and release of a session. The loading factor for any IMS services can then be described as a factor of this relative reference point. For example, the estimated loading factor of the instant messaging service is 0.2 * BHSA.

For each service, the loading of the CPS and IMR is different. For example, the initiation of a session heavily loads the CPS whereas the loading of the IMR is low. Alternatively, registration of an IMS terminal heavily loads the IMR but the load on the CPS is low.

The All-IP core system initial capacity is assumed to be 500 000 subscribers in a single IMS network. The UMS and SSR functionalities of the IMR will support 500 000 subscribers listed in the database. The CPE and SEE functionalities of the CPS will support 250 000 subscribers and 250 000 BHSA.

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Connection Processing Server (CPS)

The main dimensioning guideline is the BHSA supported by the CPS.

The BHSA capacity of the CPS is stated to be the same as the number of supported subscribers. This will not necessarily be the case in future when the BHSA per subscriber will grow and consequently the stated BHSA will be higher than the number of supported subscribers.

The initial CPS element is assumed to be available in two sizes - a minimum and maximum configuration. The maximum capacity of a single CPS element is 250 000 subscribers, which means that UMS and SSR shall support one or more CPS elements. The minimum capacity of a single CPS element is 125 000 subscribers.

As an example for CPS dimensioning, a subscriber could have the following profile for a Busy Hour: 1 telephony call (SIP session), 1 application registration, 2 instant messages and 2 presence service actions. The BHSA value for this profile is:

• telephony call (SIP session) - 1 BHSA;

• application registration – 0.2 BHSA;

• instant Messages 2 * 02 = 0.4 BHSA;

• presence service actions 2 * 0.2 = 0.4 BHSA.

The BHSA for this example profile is two, meaning that each subscriber with this service profile requires 2.0 BHSA from the CPS.

CPE (Connection Processing Engine)

The initial CPE is assumed to support a maximum of 250 000 registered subscribers served per CPS element. Requirement for CPE to support each subscriber is 1 session, 1 re-registration & several NRT services per subscriber per busy hour. Accurate amounts and types of NRT services are currently open but instant messaging, presence and chat are used as example services here.

The estimated numbers of external messages handled by the CPE during the Busy Hour are:

• 3 300 External SIP messages/s;

• 1 000 External Diameter messages/s;

• 1 700 DNS messages/s.

And, for each service, the number of external SIP messages per service means:

• registration: 8 external SIP messages;

• session: 22 external SIP messages;

• presence: 4 external SIP messages.

SEE (Service Execution Environment)

Capacity of the service logic in CPS is assumed to be equal to CPE capacity (250 000 subscribers)

CPS Physical Interfaces

To estimate the orders of magnitude of the CPS Ethernet traffic, the maximum configuration CPS capable of handling 250 000 subscribers is assumed to require 14 Mbit/s of bandwidth on external interfaces for traffic.

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IP Multimedia Register (IMR)

3G HLR is assumed to be reused in All-IP network. The HSS solution consists of two separate network elements: a 3G Home Location Register (3G HLR) and the IP Multimedia Register (IMR).

The 3G HLR stores and manages packet switched (PS) and circuit switched (CS) access related data and performs all the standard HLR functionality as defined by 3GPP specifications. 3G HLR can include also Authentication Centre (AuC) and Equipment Identity Register (EIR). AuC stores access authentication data for 2G and 3G subscribers and EIR stores mobile equipment qualification data.

The IP Multimedia Register (IMR) is the master database for a given subscriber and the main subscriber database in the network. It contains all necessary subscriber information. It is responsible for keeping a master list of features and services (either directly or via servers) associated with a subscriber and for tracking of location and means of access for its subscribers. It provides subscriber profile information, either directly or via servers. It is analogous to the Home Location Register (HLR), as defined in GSM, but differs in having the capability to communicate also via new IP based interfaces. Like the HLR, the IMR contains or has access to the authentication centres/servers.

The main dimensioning guideline is the amount of subscribers the IMR supports. The IMR is mainly loaded by terminal registrations. The use of services does load the IMR in the form of Diameter messages but initially the loading factor of the services is low compared to registration. The effect of service loading on the IMR is taken into account, when the number of services grows during the study period.

Subscribers have different service profiles, which mean that there is need for different sized profiles in IMR also. Internally the database sizes are the critical factors in IMR.

We assumed that the IMR element is available in the beginning in four sizes. The minimum configuration is for a capacity of 125 000 subscribers. The IMR capacity can be increased in steps of 125 000 subscribers up to the maximum capacity of 500 000 subscribers.

UMS (User Mobility Server)

Capacity of the initial UMS configuration is assumed to be:

• 500 000 subscribers

• with subscriber profiles of average 2.0 Kbyte.

SSR (Service and Subscription Repository)

Capacity of the initial SSR configuration is assumed to be:

• 500 000 subscribers

• with subscriber profiles of average 40 Kbyte.

IMR Physical Interfaces and configuration

To estimate the orders of magnitude of the IMR generated Ethernet traffic, the maximum configuration the IMR is capable to handle 500 000 subscribers, is assumed to require 8,5 Mbit/s bandwidth on external interfaces for the traffic.

4.7.5.2 Planning the Network Environment

Dimensioning for All-IP core networks is not only related to the dimensioning of the IMS network elements. The entire network environment must be considered as each network

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element has interfaces to the network that require the support of various signalling protocols. This in turn places requirements upon the network functionality and services. The parts of the network that are affected are described below.

Control and User Layer Traffic

The basic architecture of All-IP networks supports the split of control and user layer traffic. As the characteristics of these two traffic types are different in terms of requirements for security, QoS, and capacity, it is necessary to isolate these two types of traffic from each other.

O&M Traffic

In addition to control and user layer traffic associated with the subscriber sessions and services, other traffic also needs to be transported in the same network, for example, charging data, statistical data, service provisioning, maintenance activities, etc.

This O&M traffic also has specific security and QoS needs. The traffic capacity and distribution will depend upon various factors such as charging schemes, billing & provisioning systems, statistic reports, etc.

Backbone network guidelines

The backbone network performs the function of efficiently making connections between the All-IP network core sites and the connections from the core sites to each remote site. The backbone has to be dimensioned to handle the traffic generated in the different layers of the All-IP network, i.e. control, user and service layers. Backbone capacity required for the All-IP core network will vary according to the number of IMS subscribers and types of services offered.

The core sites handle even in the initial configuration several Gbit/s of user data. Most of this traffic is not carried to another core site but is either carried back to the radio network, the PSTN or 3G network or to an external data network.

LAN switches provide the most cost efficient switching capacity for the intra site communications. It is of benefit to configure the network so that as much as possible of the traffic entering a core site from the radio network will not traverse through the backbone to other core site(s). The traffic flows can be affected e.g. by making the most frequently used access points available on all core sites and by selecting the area served by the core site carefully (e.g. covering a whole metropolis and the surrounding area). The location of interconnection units also affects the backbone traffic volume.

Redundancy principles

In the All-IP Core network, the IMS network elements are deployed using an (n+1) redundancy principle. For example, in small networks the number of CPS must be at least two and in larger networks the network elements must be dimensioned so that the busy hour traffic can be handled even if one of the CPS elements drops out of use. The flexibility of IP routing mechanisms ensures that traffic can be fluently re-routed to another element providing the same services if one of the elements is temporarily out of operation due to a failure.

Security aspects

All-IP network security must be implemented successfully to be able to realise the vision of the mobile information society. Hence, security is also taken into consideration when planning the support for IMS networks.

The All-IP core network is enhanced by the introduction of IP as the major transport protocol for all traffic. This implies that the security requirements of All-IP network are close

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to the IT world. The security solution needs to provide authentication, confidentiality, non-repudiation, integrity and access control.

The effects of security upon dimensioning are mainly related to the authentication of All-IP subscribers and dimensioning the use of VLAN and VPNs within the network.

QoS in backbone and IMS

In All-IP Core network the QoS solution is based on the use of DiffServ code points of the IP packets.

In the case of All-IP network traffic, the IP packets contain, for example, RTP encapsulated speech samples that are routed to the Multimedia Gateway (MGW) or some other GGSN, and SIP-signalling messages which are transported between the mobile terminals and the Connection Processing Server (CPS). Correspondingly, the network elements within the IP Multimedia Core subsystem (MGW, CPS and IMR) may be able to mark the application level IP packets with DiffServ code points.

CPS has the ability to make decisions about authorising the media stream on the transport layer according to the negotiated IM session on the service level. This function is required because the operator needs to be given the option of authorizing the usage of real-time bearers based on application requirements.

Numbering & IP Addresses requirements

All-IP core networks are specified to work with IP version 6. Support for IPv4 is also needed because not all elements will support IPv6 when All-IP networks are initially deployed.

Sufficient IP address space (IPv4 and IPv6) must be reserved for the All-IP core network and the IP core network elements.

4.7.5.3 Other networks and network elements

The deployment of IP Multimedia Core networks has direct effects on other parts of the network. As estimating the effects of deploying IMS subscribers and services in a network, following areas need to be taken into account.

Packet Core Network

The packet core network provides the access to IP Multimedia Core networks and passes all IMS traffic (signalling and user data). This additional IMS traffic requires new capacity from the packet core. The capacity required for IMS traffic has to be evaluated in terms of:

• number of subscribers;

• number of PDP contexts;

• total throughput in the packet core network;

• effects of packet sizes upon network capacity.

The introduction of the IP Multimedia Core network affects the number of subscribers to be served by the packet core network.

The need for PDP contexts will enlarge due to both the increase in the number of served subscribers and the increase in usage of packet core network resources. Initially the Core IMS sessions and services can be implemented using a single primary PDP context. A subscriber can use several services simultaneously and each service uses the same, single primary PDP context. When IMS subscribers start to use real-time services, that require a defined level of QoS, a secondary PDP context is required. Each media component may

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have separate QoS requirements and for this reason a secondary PDP context may be needed to meet the real-time QoS demands.

The introduction of IP Multimedia Core network will increase the variety of services that can be provided to subscribers and, as a result, subscribers will use more services and the total amount of transmitted data per subscriber will increase. This will require more throughputs from the packet core network.

In addition to the extra throughput, the size of the packets in the packet core also affects the dimensioning of the packet core network elements. For example, the packet sizes for different traffic types are estimated as:

• voice calls, 87 bytes;

• real-time services, 200 bytes;

• non real-time services, 400 bytes.

As the packet size decreases the throughput of the packet core elements decreases.

Radio Access Network

The main effect upon the radio access network is the increase in traffic over the radio network as a result of the use of IMS services. The requirements for extra capacity can be based on the number of IMS subscribers and their estimated traffic profile (bit/s). The loading of the RAN will be lower than the packet core network because the signalling traffic over the air interface, between the terminal and P-CSCF, is compressed.

The introduction of IMS subscribers and services will not reduce other traffic in the RAN because IMS services are mainly new ones. In later phases, the IMS traffic will start to replace CS traffic and services as more subscribers migrate to the IMS.

DNS

Routing within the All-IP core network is based on IP addresses but logical names and IMS E.164 addresses can be used by terminals. DNS queries are used to translate the IMS E.164 addresses and logical names into IP addresses of logical functions in the network so that messages can be routed. Several DNS queries may be needed per session setup so in the whole network the requirement for DNS enquiries can be high.

Charging Gateway

Charging gateways must be dimensioned to support the collection of CDRs from the CPS.

Other Servers

Servers needed to implement IMS services, e.g. presence servers, must be dimensioned according to the requirements of the services and the number of IMS subscribers.

4.8 Operational expenditure

One of Fixed–Mobile convergence main attractions to operators is its effect of reducing OPEX in the medium–long term. In order to discuss how this reduction takes place, the OPEX model defined in deliverable 6 is employed.

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4.8.1 Maintenance of Equipment and Components

Nowadays, incumbent operators own a number of different networks in order to provide their full service portfolio. There is a PSTN to provide telephony services, at least one IP based network in order to provide Internet and IP VPN services, even coexisting with older networks that provide obsolete residual services. Network convergence supposes the unification of these networks towards an IMS based backbone, aiming to provide a handful of services with a common backbone infrastructure. In the short term, and as long as this backbone coexists with old PSTN, this would imply an increment in this OPEX cost. However, in the medium or long term, PSTN should be turned off and all services should be provided using the common IMS backbone.

In this medium–long term view, maintenance of equipment and components cost will decrease due to the sum of the following effects:

o decrement in the number of equipment in the network;

o better MTTR/MTBR ratio for the IP equipment if compared to the PSTN centre offices.

In case maintenance contracts are held with the equipment providers, cost saving issues should translate into contract price decrement.

If convergence implies that an operator owns less equipment and components due to this unification of networks, the cost of maintaining equipment and components decreases with regard to the current situation. But, in case an operator does not own the network infrastructure and only owns some essential equipment and components, the cost of maintaining them is not really significant and it is not affected by convergence. In general, network maintenance cost can be considered as 5% of cumulative investments.

4.8.2 Sales and Marketing, Customer Acquisition

Sales and marketing cost should not vary significantly unless convergence leads to an integration of fixed and mobile divisions of a group, thus integrating commercial and marketing departments of both divisions. In this case, there would be a significant cost saving in the long range, since potential customers are the same.

Packages of services and integral communication offers may decrease the number of products to be promoted by marketing campaigns. Moreover, the more complex the products involved become (quadruple play products), the more difficult and costly the adjustment of the marketing mix of the product is.

Mobile operators are concerned with the churning phenomenon: customers that change their service provider frequently. This generates the loss of revenue from the user as well as an important customer acquisition cost in order to attract new users from other operators by means of special prices and terminal subsidization. Churning of customers is expected to decrease with converged services, by bundling several products and being the only telecommunication service provider of our customers. However, opportunity cost of churning is substantially higher in this case, because losing a customer will suppose losing several bundled products, and it is expected that customers will be less willing to change their service provider as the services in the contract increases.

If operators can focus their marketing activities on offering new convergent solutions that are unique in the market for combined products, they will reduce their sales and marketing costs. In case those operators have to focus their strategy for market expansion on their

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sales and marketing, they need to develop and promote new features and services aimed at specific needs of well-defined market segments. Therefore, for these operators active marketing is indispensable but taking care of implied costs because they need to be competitive. In general, sales and marketing cost is considered 100 € per new and churned customer.

Terminal subsidization cost per customer will not benefit from the convergence. This is mostly affected by terminal cost and terminal policy of the market. If fixed and mobile products are integrated, the cost of customer provisioning will decrease. But, if an operator has to subsidize terminals for new subscribers, provisioning cost is going to increase. In general, it can be considered 100 € per new and churned customer.

4.8.3 Customer Care

Customer care cost should not vary significantly unless convergence leads to an integration of fixed and mobile divisions of a group, thus integrating customer care departments of both divisions. In this case, the number of customers to assist will be lower, since there are customers of both fixed and mobile division, the customer care department may be cut. The unit cost per customer may be somewhat increased as a consequence of providing more complex products. In order to improve customer care value added and reduce churn, it may be given additional budget to customer care departments. Customer care cost can be considered 20 € per customer per year.

4.8.4 Charging and billing

Charging and billing cost should not vary significantly unless convergence leads to an integration of fixed and mobile divisions of a group, thus integrating charging and billing of both divisions. In this case, the number of customers to charge will be lower since there are customers of both the fixed and the mobile division, and thus charging and billing department may be cut in the long run. It strongly depends on the type of charging applied (i.e. flat rates, per traffic volume, etc.), but it seems clear that total cost tend to decrease with integration. Charging and billing cost is considered 50€ per customer per year.

4.8.5 Service and network Management

Service management costs for IP are substantially lower than old PSTN systems. However, the number of services to manage is going to increase and service management is necessary to obtain better control on these services that are going to be offered.

Network convergence in the backbone will cause a decrement in network management costs, at least in the long run when PSTN is off and networks are simplified and all IP. Therefore, if convergence implies that an operator owns less equipment and components due to the network unification of its networks, network management costs are reduced. If an operator does not own its network, convergence would have no significant impact on network management costs.

4.8.6 Product / Platform development

This issue is one of the aims of convergence. Cost reduction will be achieved in case a standard service development platform is developed. Old PSTN service development was

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more expensive than Internet servers due to the fact that provisioning of services depended only on the operator. There was no possibility for a third party service provider to design and implement a new service to be provided by the network. With IP and the separation of the network and service layer, competence in service provisioning is encouraged which finally may lead to better and cheaper services and more efficient developments. IMS and convergence inherit and empower this separation and, thus, development of new services will save cost in the global chain of value.

4.8.7 Rental of physical network resources

As the backbone network is unified, the necessity for physical network leased lines and infrastructure is reduced. Access networks will remain separated even in a converged scenario, so no cost savings are expected in the access. In integrated operators, this expenditure is eliminated since incumbents own their infrastructures. For operators which only own some key infrastructure elements and rent the rest of the network from another operators, expenditures of renting physical network resources are really significant. For them, site rental per base station site is considered to be 4000 €.

4.8.8 Interconnection

It strongly depends in the interconnection scheme applied, which is not clear at the moment. There are substantial differences between IP and regulated PSTN interconnection schemes:

• IP interconnections between operators of similar size are usually a bill & keep agreement. When interconnecting a superior tier operator (for example, a national IP operator connecting to an international backbone operator), unit transit cost per traffic volume or capacity is agreed for the national operator to interconnect;

• PSTN interconnection is regulated based on the network elements used by the interconnection call. Thus, access or termination and call transit charges are almost worldwide distinguished. Even several categories may be separated depending on the distance and consequently the centre offices and transmission routes used by the interconnection call.

In case traffic volume has to be tracked and interconnection charges cost oriented as in the PSTN, IP interconnection is technologically cheaper, which should be reflected in cheaper interconnection tariffs.

As a conclusion, on the one hand, unit interconnection costs per traffic volume for the operator should be lower, owing to cost reduction in the network. On the other hand, evolution of traffic requires more interconnection, increasing total interconnection expenditures. Balance in this trade-off will be responsible for global result in interconnection OPEX.

The following assumptions regarding interconnection costs are made:

Paid Mobile-to-fixed termination fee: 20% of retail call price

Paid Mobile-to-mobile termination fee: 90% of retail call price

Paid Fixed-to-fixed termination fee: 20% of retail call price

Paid Fixed-to-mobile termination fee: 90% of retail call price

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4.8.9 Roaming

Roaming is the cost of one operator’s subscriber using another network, and tries to compensate this operator for locate and manage the calls of this subscriber while transiting by its network. Roaming cost has been especially important in mobile networks although it is not clear how it would be managed in a convergence scenario. In a worldwide interconnected scenario, one possible solution is the following:

• the terminal connects to its provider when transiting an allied access operator;

• access and intermediate operators are compensated for the traffic in order to connect with the provider via interconnection charges;

• sessions are managed by the provider in the same way as if the subscriber were in the network.

4.8.10 Spectrum Radio Licenses

Cost of spectrum radio licenses are not affected by convergence since there is no convergence in the access network.

4.8.11 Regulation

Regulation department size and cost depend on the regulation affairs to be discussed with the national authority. Unless there is an integration of departments when unifying mobile and fixed divisions of a group, which may lead to duplicated jobs, it is not affected by convergence.

4.8.12 Content

Content cost depends mainly on the number of licenses and the number of users on the content. With Mobile TV and new VoDSL services there is an increment in the potential users of contents and the content provider, and thus in the content expenditure. However, as the number of users grows, it is easier to benefit from economy of scale cost savings which may increase margins in content delivery services.

Different types of operators have different OPEX profiles, so different scenarios must be analyzed independently. Two scenarios are analyzed and the following assumptions are made.

4.8.13 OPEX for the integrated operator case study

An integrated operator owns both fixed and mobile networks. Since convergence implies an integration of their fixed and mobile business in only one, the main elements of OPEX such as network, marketing, billing and customer service are shared by both fixed and mobile networks and, therefore, costs are reduced. As an integrated operator owns both mobile and fixed networks, interconnection costs are related not only to the mobile interconnection with other operators’ networks but also to the fixed interconnection.

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The following assumptions regarding operational expenditures are made for an integrated operator.

Table 4-7: Considered OPEX for the integrated operator case study

Network related elements

Network operation and administration 10% of cumulative investments

Network maintenance 5% of cumulative investments

Equipment installations 25% of equipment cost

4.8.14 OPEX for the MVNO case study

In the case study of an MVNO, the operator only owns some key infrastructure elements and rents the rest of its network from another operator, so network operational costs are dominant and mainly related to outsourcing network infrastructure. Sales and marketing costs are practically the same during the study period, whereas customer care and billing costs are going to increase due to an increment in the number of customers and products throughout this time. As the MVNO enhances its network with fixed access, its interconnection costs are related not only to its mobile interconnection with other operators’ networks but also to its fixed interconnection. Moreover, roaming does not bring additional costs.

The following assumptions regarding operational expenditures are made for an MVNO.

Table 4-8: Considered OPEX for the MVNO case study.

Network related elements

Network operation and administration 10% of cumulative investments

Network maintenance 5% of cumulative investments

Equipment installations 25% of equipment cost

Site rental, per MSC/GMSC, per year 4000€

Sales and marketing related elements

Sales and marketing 100 € per new and churned customer

Handset subsidies 100 € per new and churned customer

Customer service related elements

Customer care 20 € per customer per year

Charging and billing 50 € per customer per year

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Interconnection and roaming

Interconnection

Paid Mobile-to-fixed termination fee 20% of retail call price

Paid Mobile-to-mobile termination fee 90% of retail call price

Paid Fixed-to-fixed termination fee 20% of retail call price

Paid Fixed-to-mobile termination fee 90% of retail call price

Roaming Roaming does not bring additional costs

Other

General & administration 5% of revenues

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5 SCENARIO 1: INTEGRATED OPERATOR

5.1 Introduction

The following scenario is dedicated to an operator owning both 3G mobile and fixed networks. The operator manages transport, access backhaul and core networks and is required to enable service delivery for 3rd party operators. Generally, this operator is an incumbent one.

The main advantage of FMC for an integrated operator is to reduce OPEX and CAPEX. The incumbent operator can reach isolated customer and globally has a better penetration. It can reach more customers than a 3rd party operator. The stake of the convergence strategy is to keep its market share and to win customers.

In order to achieve a total convergence via IMS, fixed and mobile networks need to be based on IP. It can be gradually done.

5.2 Modelling

5.2.1 Scenario description

The current situation described below will be compared to the target one. In this picture, the IMS layer has not yet appeared.

§

Figure 5-1: Current situation

BSC

PoP

TDM Backhaul

PoP

BSC

Node-B

PoP Node-B

PoP

ATM Backhaul

Node-B

RNC

PoP

UTRAN PS Core Network

ATM Backbone

SGSN 2G

GGSN

SGSN 3G

HLR HLR

MSC 2G MSC

3G

TDM Backbone

SS7

PSTN Core

LE TE

ATM Backhaul

GE Backhaul

TGW

IP Backbone

Switch

ATM Switch

DSLAM

GE Router CO

CSCore Network

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In order to become a full integrated operator, it will migrate first mobile and fixed service platforms to convergent ones. As a consequence, this migration gives the possibility to have the same interface for 3rd party service providers and places the integrated operator in a strategic position.

Secondly, in 2010, we can expect having some elements commonly used by both access networks reducing CAPEX. The main business sectors such as marketing, billing and customer care are shared by both fixed and mobile networks in order to reduce OPEX.

Figure 5-2: Intermediate situation

Later in 2014, some elements of backhaul networks will be mutualised and finally, equipment form access networks can be shared.

Figure 5-3: Target situation

IP BackboneGE Backhaul

IMS Layer

Other IP network

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Across all these steps, mobile and fixed transport networks tend to be a common one.

As no 2014-equipment is known, we will compare the present situation with the pseudo-converged architecture presented above.

5.2.2 Focus on the 2010-situation

The 2010-situation described below does not depend on the access. For example, we can consider that the user is connected to a home gateway and then to the DSLAM via WIMAX access, WiFi access, Bluetooth access, physical link or whatever.

All the access elements are not IMS elements and will be installed independently from the IMS network. They are not indispensable to provide convergence and will not be considered in the scope of this study.

Moreover, the voice mobile part is not represented on the picture below as we do not have enough information on its future. The study will focus here on the data mobile network and on the fixed data and voice networks. Depending on the integrated operator mobile circuit switch network evolution, the traffic from a fixed VoIP customer to a mobile customer can transit through different paths:

• if the mobile circuit switch (CS) network is a TDM network, the traffic will transit into the PSTN via a TGW and then reach the TDM mobile CS network;

• if the mobile CS network is an IP network, the traffic will reach the mobile customer through a BGW.

Figure 5-4: 2010-situation

IP Backbone

HLR

IP

Backbone

CORE IMS

AS SIP

TGW

PSTN

BGW

BCS

I

ZZ

ZZ

SCS

ACS

RACS

GGSNSGSN

UPS

ACS

Other IP networks

BRAS DSLAM

Media server

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5.2.2.1 The fixed part

On the fixed part, a broadband remote access server (BRAS) is at the border between the backhaul network and the IP backbone. It ends the ATM backhaul network. Assuming this network will be over IP, in 2010 this equipment will do not exist anymore. The BRAS suppression will probably lead to an OPEX gain.

The resource control platform (RACS) is doing AGCF, A-RACF and SPDF as explained in chapter 4.7.4.4.

The ACS will provide the functionality of a Core Border Gateway Function (C-BGF) or Gate NAPT on Figure 4-7. It manages the RACS and the BRAS. It gathers the P-CSCF, C-BGF and I-CSCF. It is at the border between the access and the IMS core network.

Moreover, for technical reasons, the ACS will be deployed on the upper nodes of the backhaul network.

5.2.2.2 The mobile part

On the mobile part, the SGSN and GGSN are part of the mobile backbone network and exist by now. They will not be included into the delta between the actual situation and the 2010-situation. In the same way, the HLR is already in use for instance for mobile authentication.

The ACS gathers P-CSCF, I-CSCF and PDF/PCRF.

Additional elements required to update HLR to future HSS functionality including AAA server for IP based access control and security, may be located in UPS (User Profile Server) within IMS.

The core and the border parts have previously been presented in section 4.7.

IMS components of the 2010-situation have to be able to cope with expected traffic distribution and aggregated data streams as provided from GSN equipment within mobile core.

5.2.2.3 The Core IMS part

The service call server (SCS) manages access to services for each subscriber and may host one or several service logics invoked systematically or frequently. Thus, it incorporates the service call session control function (S-CSCF) and possibly application server function (ASF) entities. It also incorporates the I-CSCF entity and implements the BGCF to determine the network egress point when a call directed to another network.

Media servers are special equipment units capable of broadcasting announcements and tones, executing transcoding, implementing voice synthesis and speech recognition mechanisms and putting several communication endpoints into conferencing mode. They incorporate at least one MRFP entity.

The MRFC entity is responsible for controlling MRFP entities. This functionality is incorporated in the Service Call Server (SCS).

The border call server (BCS) provided the interworking functions with the home network using another transfer technology or another type of signalling and with third party network regardless of the technology used and the type of signalling. It incorporates thus the I-CSCF, the BGCF, the IBCF and IWF entities.

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The physical elements considered for the core IMS part and their relations to the functional elements are shown in Table 5-1.

Table 5-1: Core IMS physical to functional element mapping

Presence, Location, Group managementAS

HSS excluding HLRUPS

MGW, MRFPMedia gateway

MGCF, MRFCMedia server

BGCF, BGW, SGWBCS

I-CSCF, S-CSCF,P-CSCFSCS

Functional elementsPhysical elements

Presence, Location, Group managementAS

HSS excluding HLRUPS

MGW, MRFPMedia gateway

MGCF, MRFCMedia server

BGCF, BGW, SGWBCS

I-CSCF, S-CSCF,P-CSCFSCS

Functional elementsPhysical elements

Different equipment vendors may develop physical IMS elements with functionalities which may vary from what we have considered here. However, our assumptions provide a general set of most probable functionalities and deviations from this set, if any, by vendors are not expected to have a major influence on the costs considered in our model.

5.2.3 Target Market

Residential customers and enterprises constitute the target markets of the integrated operator.

The business market is interested into both added services and savings/efficiency of money and time. Enterprises have generally subscribed to incumbent operator offers and they may naturally move towards the integrated network.

Customers, owning a mobile and a fixed phone, are price sensitive. So, if the convergent service is attractive financially, they may naturally trust their initial operator. Moreover, the integrated operator has a developed mobile coverage and it can be an advantage for offering convergent services.

Study input

We can derive from Figure 3-6 and Figure 3-10 the broadband service and the mobile service penetration for 2007 to 2010, respectively. Assuming that the population has a growth percentage equal to 0.3 and the following evolution of the convergent market, we can deduce the target market presented in Table 5-2, Table 5-3, Table 5-4, Table 5-5, Table 5-6 and Table 5-7.

The integrated mobile operator's market share is assumed to be 35%. The mobile part of convergent service penetration has been deduced from the extrapolated estimated accumulated dual-mode mobile phone figures (Figure 3-11) assuming an average 2-year replacement period.

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Table 5-2: Amount of fixed convergent traffic from 2007 to 2010 for Large country

2007 2008 2009 2010 Population 65 591 787 65 788 562 65 985 928 66 183 886

Penetration of convergent technology 42,00% 47,00% 51,00% 57,00% Convergent service penetration 10,00% 25,00% 45,00% 60,00% Operator market share 35,00% 35,00% 35,00% 35,00% Number of convergent clients 964 199 2 705 555 5 300 320 7 922 211

Table 5-3: Amount of mobile convergent traffic from 2007 to 2010 for Large country

2007 2008 2009 2010

Population 65 591 787 65 788 562 65 985

928 66 183

886

Penetration of convergent technology 94,00%

95,00%

96,00%

96,50% Convergent service penetration 5.8% 8.1% 9.2% 9.7% Operators market share 35% 35% 35% 35% Number of convergent clients 1 250 139 1 775 991 2 038 917 2 170 380

Table 5-4: Amount of fixed convergent traffic from 2007 to 2010 for Nordic country

2007 2008 2009 2010 Population 6 096 415 6 114 704 6 133 048 6 151 447

Penetration of convergent technology 42,00% 47,00% 51,00% 57,00% Convergent service penetration 10,00% 25,00% 45,00% 60,00% Operator market share 35,00% 35,00% 35,00% 35,00% Number of convergent clients 256 049 718 478 1 407 534 2 103 795

Table 5-5: Amount of mobile convergent traffic from 2007 to 2010 for Nordic country

2007 2008 2009 2010 Population 6 096 415 6 114 704 6 133 048 6 151 447 Penetration of convergent technology 94,00%

95,00%

96,00%

96,50% Convergent service penetration 5.8% 8.1% 9.2% 9.7%

Operators market share

35% 35% 35% 35%

Number of convergent clients

116 961 166 159 190 758 203 057

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Table 5-6: Market assumptions for Core IMS (Large country)

2007 2008 2009 2010Population 65 591 787 65 788 562 65 985 928 66 183 886

Penetration of convergent technology 25,00 % 30,00 % 40,00 % 50,00 %

Convergent service penetration 10,00 % 20,00 % 30,00 % 45,00 %Operator's share 35,00 % 35,00 % 35,00 % 35,00 %Number of convergent clients 573 928 1 381 560 2 771 409 5 211 981

Table 5-7: Market assumptions for Core IMS (Nordic country)

2007 2008 2009 2010Population 6 096 415 6 114 704 6 133 048 6 151 447

Penetration of convergent technology 25,00 % 30,00 % 40,00 % 50,00 %Convergent service penetration 10,00 % 20,00 % 30,00 % 45,00 %Operator's share 35,00 % 35,00 % 35,00 % 35,00 %Number of convergent clients 53 344 128 409 257 588 484 426

5.3 Services

All the broadband services were considered. However, the emphasis in this model was not on revenue modelling and therefore, services and their usage amounts were not considered in detail. Instead, an aggregate of the data and signalling traffic generated by these services were considered.

5.4 Investments


According to chapter 5.2.2.1, on an investment point of view, the equipment types to consider here are RACS and F-ACS. We can assume that an F-ACS can support 28 571 customers for a hardware cost of 50 000 € and a software cost of 10 000 € per 5 000 customers. For securisation reasons, this equipment must be redundant.

The RACS can support 120 000 customers for a hardware cost of 10 000 €.

We can assume that, in average, a fixed network is composed by 4 PoPs that can be both access or core PoPs. Fixed access IMS equipment can be located on that PoPs.

The fixed traffic distribution per node is given in Table 5-8.

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Table 5-8: Fixed traffic distribution per node in percentage

Node Traffic distributionN1 30% N2 15% N3 35% N4 20%

The clients are distributed as follows.

Table 5-9: Fixed traffic distribution per node in number of clients in Large country

Population 2007 2008 2009 2010

N1 289 260 811 666 1 590 096 2 376 663 N2 144 630 405 833 795 048 1 188 332 N3 337 470 946 944 1 855 112 2 772 774 N4 192 840 541 111 1 060 064 1 584 442

Total 964 199 2 705 555 5 300 320 7 922 211

Table 5-10: Fixed traffic distribution per node in number of clients in Nordic country

Population 2007 2008 2009 2010

N1 76 815 215 543 422 260 631 138 N2 38 407 107 772 211 130 315 569 N3 89 617 251 467 492 637 736 328 N4 51 210 143 696 281 507 420 759

Total 256 049 718 478 1 407 534 2 103 795

Two scenarios can be considered: F-ACS centralized on one PoP or located on four PoPs.

We can derive results presented in Table 5-11 to Table 5-15.

Table 5-11: Number of F-ACS to be installed for decentralized scenario

Number of F-ACS to be installed 2007 2008 2009 2010

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

N1 22 6 36 10 54 14 56 16 N2 12 4 18 4 26 8 28 8 N3 24 8 44 10 62 18 68 16 N4 14 4 24 8 38 8 36 10

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Table 5-12: Cost of F-ACS to be installed for decentralized scenario

F-ACS CAPEX cost 2007 2008

Large country

Nordic country

Large country

Nordic country

Hardware cost 3 600 000 1 100 000 6 100 000 1 600 000

Software cost 1 930 000 250 000 5 420 000 1 440 000

Total CAPEX cost 5 530 000 1 620 000 11 520 000 3 040 000


Large

country Nordic country

Large country

Nordic country

Hardware cost 9 000 000 2 400 000 9 300 000 2 500 000

Software cost 10 610 000 2 820 000 15 850 000 4 210 000

Total CAPEX cost 19 610 000 5 220 000 25 150 000 6 710 000

Table 5-13: Number of F-ACS to be installed for a centralized scenario

Number of F-ACS to be installed 2007 2008 2009 2010

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

68 18 122 34 182 48 184 48

Table 5-14: Cost of F-ACS to be installed for centralized scenario


Large country

Nordic country

Large country

Nordic country

Hardware cost 3 400 000 900 000 6 100 000 1 700 000

Software cost 1 930 000 520 000 3 490 000 920 000

Total CAPEX cost 5 330 000 1 420 000 9 590 000 2 620 000

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Large


Large country

Nordic country

Hardware cost 9 100 000 2 400 000 9 200 000 2 400 000

Software cost 5 190 000 1 380 000 5 240 000 1 390 000

Total CAPEX cost 14 290 000 3 780 000 14 440 000 3 790 000

For technical reason, we can assume that RACS will be centralized.

Results are summarized in Table 5-15.

Table 5-15: Number of RACS to be installed and total installation cost for centralized scenario

2007 2008 2009 2010 Large


Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

Number of RACS to be installed

18

6

28

6 44 12 44 12

Cost 80 000 60 000 280 000 60 000 440 000 120 000 440 000 120 000


Typically, a GSN site consists of SGSN with interface towards the radio access and GGSN interfacing the external packet based networks. GGSN equipment has a capacity of 1 Mio simultaneous PDP sessions (several sessions per active user possible) and a data throughput of 2 Gbit/s. Currently, for a large country, GGNs are located at about 6 sites. Each SGSN can typically operate about 20 RNCs within the RAN (with a maximum of 900 000 subscribers and 300 000 pps packet throughput). This figure would have only to be increased for traffic capacity reasons (each RNC is capable of 256 NodeB’s or 200 kBHCA thus 6*20*256=30720 NodeB’s or 24 000 MBHCA may be served by this configuration).

Correspondingly we have assumed a configuration of 3 GSN sites for a Nordic country for redundancy and traffic management reasons.

ACS or CPS scale with 125 000 subscribers, requiring a corresponding transmit capacity of 7 Mbit/s for them. This additional transmit capacity to external interfaces is low compared to typical capacity of 3 or 6 time 2 Gbps for data traffic in minimum configurations and should therefore have no influence.

Maximum capacity of CPS is 0.25 Mio customers per site.

Capacity of ACS should be capable of the assumed converged customer’s data traffic and – in case the current limit of 12 Gbit/s or 24 GBHCA or 108 Mio subscribers or 36 Mpps (Million packets per second) is exceeded – to serve more than 6 GGSN sites.

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For redundancy reasons and potential efficient routing, at least one additional (stand-by) site for ACS equipment should be chosen (1:n redundancy) providing same capability as largest operating site although this might imply higher operational expenses.

Derived from available figures for a SIP server as given below cost estimates for ACS will be scaled as follows: SIP server equipment to serve 0.1 Mio customers and 0.25 Mio BHCA is available for 0.435 Mio € incl. software. We assume this to be the price for an ACS with min. CPS in a cabinet, an ACS with max. CPS to cost 0.485 Mio € (0.24 Mio € for cabinet, 0.1/0.15 Mio € for min./max. CPS element, 0.01 Mio € per interface card to GSN, and 0.35 Mio € for software is assumed).

Considering these figures, the additional CAPEX for FMC deployment cost can be estimated as follows (note that we assume 1:n redundancy) (figures for higher numbers of subscribers can be derived accordingly).

Table 5-16: Number of ACS equipment to be installed for the mobile network

Characteristics of ACS to be installed 2007 2008 2009 2010

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

GSN interfaces

6

3

7

3 12 3 13 3

min. CPS elements

1

2

1

0 1 0 0 0

max. CPS elements

6

0

8

2 9 2 10 2

cabinets 7 2 9 2 10 2 10 2

Table 5-17: Cumulative cost of ACS equipment to be installed for the mobile network

ACS CAPEX for the mobile part in Mio € 2007 2008 2009 2010

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

Hardware cost 2.28 0.68 3.46 0.78 3.85 0.78 3.9 0.78

Software cost 0.245 0.07 0.315 0.07 0.35 0.07 0.35 0.07

Total CAPEX cost

2.925 0.75 3.775 0.85 4.2 0.85 4.25 0.85


Dimensioning rules for the core IMS part was based on the principles outlined in section 4.8.13. The IMS elements considered for the model are presented in Table 5-1. The capacity of each element and the reference price for the year 2006 used for the model are shown in Table 5-18.

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Table 5-18: Capacity and reference price of Core IMS elements

2 000 0002,5 Million subscribersAS

5000002,5 Million subscribersUPS

4 200 0001 GbpsMedia gateway

800 0002 Million subscribersMedia servers

10000002 Million subscribers, 2 Million BHSA BCS

2 500 0002 Million subscribers, 2 Million BHSA SCS

Reference Price (2006)Capacity per unitNetwork Elements

2 000 0002,5 Million subscribersAS

5000002,5 Million subscribersUPS

4 200 0001 GbpsMedia gateway

800 0002 Million subscribersMedia servers

10000002 Million subscribers, 2 Million BHSA BCS

2 500 0002 Million subscribers, 2 Million BHSA SCS

Reference Price (2006)Capacity per unitNetwork Elements

The busy hour session attempts assumptions considered for the model are shown in Table 5-19.

Table 5-19: BHSA assumptions

2160000

BH traffic generated per client/subscriber for the media gateway (in bits)

2Average no. of SA per subscriber per hour

30BHSA (% of total SA)

Busy hour assumptions

2160000

BH traffic generated per client/subscriber for the media gateway (in bits)

2Average no. of SA per subscriber per hour

30BHSA (% of total SA)

Busy hour assumptions

Based on these dimensioning assumptions, the number of each Core IMS element required was calculated for the large and Nordic country scenarios. The number of elements required for the large country scenario is shown in Table 5-20.

Table 5-20: Number of Core IMS elements deployed (Large country)

2006 2007 2008 2009 2010

SCS 0 1 0 0 1

BCS 0 1 0 0 1

Media servers 0 1 0 0 1

Media gateway 0 1 0 0 0

UPS 0 1 0 1 1

AS 0 1 0 1 1

For the Nordic country case, one unit of each element was deployed in 2007. No additional units were required until the end of 2010.

The annual and cumulative CAPEX incurred for the large and Nordic country scenarios are shown in Table 5-21.

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Table 5-21: Annual and cumulative CAPEX (in Million EUR)

8,815,078,810,518,88,88,88,8Cumulative_CAPEX

04,5601,71008,88,8Annual_CAPEX

Nordiccountry

Large country

Nordiccountry

Large country

Nordiccountry

Large country

Nordic country

Large country

2010200920082007

8,815,078,810,518,88,88,88,8Cumulative_CAPEX

04,5601,71008,88,8Annual_CAPEX

Nordiccountry

Large country

Nordiccountry

Large country

Nordiccountry

Large country

Nordic country

Large country

2010200920082007

5.5 Network related OPEX


Regarding the number of F-ACS and RACS, we can estimate the OPEX from 2007 to 2010 in both cases (centralized, decentralized) for large and Nordic countries.

Table 5-22: OPEX for Large country in centralized and decentralized cases

Total OPEX 2007 2008 centralized decentralized centralized decentralizedOperation and administration 551 000 553 000 1 538 000 1 705 000 Maintenance 275 500 276 500 769 000 852 500 Equipment installations 1 377 500 1 382 500 3 845 000 4 262 500 Sum Total OPEX 2 204 000 2 212 000 6 152 000 6 820 000

Total OPEX 2009 2010 centralized decentralized centralized decentralizedOperation and administration 3 011 000 3 666 000 4 499 000 6 181 000 Maintenance 1 505 500 1 833 000 2 249 500 3 090 500 Equipment installations 7 527 500 9 165 000 11 247 500 15 452 500 Sum Total OPEX 12 044 000 14 664 000 17 996 000 24 724 000

Table 5-23: OPEX for Nordic country in centralized and decentralized cases

Total OPEX 2007 2008 centralized decentralized centralized decentralizedOperation and administration 148 000 170 000 416 000 482 000 Maintenance 74 000 85 000 208 000 156 000 Equipment installations 370 000 425 000 1 040 000 1 205 000 Sum Total OPEX 592 000 680 000 1 664 000 1 843 000

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Total OPEX 2009 2010 centralized decentralized centralized decentralizedOperation and administration 806 000 1 016 000 1 197 000 1 699 000 Maintenance 403 000 267 000 598 500 341 500 Equipment installations 2 015 000 2 540 000 2 992 500 4 247 500 Sum Total OPEX 3 224 000 3 823 000 4 788 000 6 288 000

As explained in chapter 5.2.2.1, the gain generated by the BRAS suppression is essentially an OPEX advantage. It will be considered in the next deliverable. In a same way, the cost savings induced by a unique billing, marketing and customer care will be highlight in the next deliverable.


Corresponding to the CAPEX, modelling data for operational expenses have been estimated based on the figures given in chapter 4.8.13 (15% of investment per year and 25% in year of installation).

Considering these figures the additional OPEX for FMC deployment cost can be estimated as following (figures for higher numbers of subscribers can be derived accordingly):

Table 5-24: OPEX for Large and Nordic countries for mobile part

ACS OPEX for the mobile part in Mio € 2007 2008 2009 2010

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

Operation and administration

0.2925

0.075

0.3775

0.085

0.42

0.085

0.425

0.085

Maintenance 0.14625

0.0375

0.18875

0.0425

0.21

0.0425

0.2125 0.0425

Equipment installations

0.73125

0.1875

0.2125

0.025

0.10625

0

0.0125

0

Sum Total OPEX 1.17 0,3 0.7788 0,1525 0.7363 0,1275 0.65 0,1275


The OPEX elements considered for the IMS part was based on the assumptions in section 4.8.13. The annual OPEX for the large and Nordic country scenarios are presented in Table 5-25.

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Table 5-25: Annual OPEX (in Million EUR)

1,32003,39971,32002,00501,32001,32003,52003,5200Sum_Total_OPEX

0,00001,13950,00000,42800,00000,00002,20002,2000Equipment installations

0,44000,75340,44000,52600,44000,44000,44000,4400Maintenance

0,88001,50680,88001,05100,88000,88000,88000,8800Operation and administration

Nordic country

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

Large country

2010200920082007

1,32003,39971,32002,00501,32001,32003,52003,5200Sum_Total_OPEX

0,00001,13950,00000,42800,00000,00002,20002,2000Equipment installations

0,44000,75340,44000,52600,44000,44000,44000,4400Maintenance

0,88001,50680,88001,05100,88000,88000,88000,8800Operation and administration

Nordic country

Large country

Nordic country

Large country

Nordic country

Large country

Nordic country

Large country

2010200920082007

5.6 Results

The study was made for a period starting from 2007 until 2010 in order to understand the costs incurred by an integrated operator while migrating to the intermediate stage of convergence. Network costs incurred in the fixed, mobile and the core IMS network parts were calculated based on the delta approach, i.e., to identify the additional elements required for migration to an intermediate convergence scenario. The suppression of elements like BRAS deduced from the migration is not considered in this deliverable. In the case of fixed networks, two types of deployments were considered, 1) centralized and 2) decentralized. Centralized deployment of fixed elements appears to offer cost savings vis-à-vis the decentralized deployment. Therefore, we first present the cost evolution and distribution for the centralized case and then provide the total cost savings obtained from centralized case with respect to the decentralized case. Both large and Nordic country scenarios are considered.

5.6.1 Economic analyses

5.6.1.1 Large country scenario

The cost evolution for an integrated operator in a large country scenario is provided in Figure 5-5.

Cost evolution (centralized case)

0,00005,0000

10,000015,000020,000025,000030,000035,000040,000045,0000

2007 2008 2009 2010

Year

Ann

ual c

ost (

Mill

ion

EUR

)

Total annual CAPEX

Total annual OPEX

Total annual cost

Figure 5-5: Annual cost evolution

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The total annual cost experiences a major increase from year 2008. To understand the contributors to this evolution, we look at the distribution of costs per network types, i.e., fixed, mobile and core IMS.

Percentage share of total cost per netw ork (2007-2010)

Fixed 71 %

Mobile 7 %

IMS 22 %

Figure 5-6: Cost distribution per network types

According to our preliminary results (Figure 5-6), the operator incurs higher cost (71% of the total) due to the fixed network during the study period. As the operator approaches the completion of migration to the intermediate stage in 2010, CAPEX decreases while OPEX increases. The share of OPEX and CAPEX in the total cost as well as a breakdown of the cost share per OPEX element of the total OPEX are presented in Figure 5-7 and Figure 5-8.

percentage share of the total cost per cost element

Total CAPEX55%

Total OPEX45%

Figure 5-7: OPEX and CAPEX share of total cost

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OPEX elements' cost share


30%

Maintenance15%


55%

Figure 5-8: OPEX element cost breakdown

Finally, we compare the total costs incurred in the centralized and decentralized cases.

Cost savings (centralized vs. decentralized fixed case)

0

5

10

15

20

25

Cost elements

Cen

tral

ized

cas

e co

st s

avin

gs (%

)

CAPEX

OPEX

Total cost

Figure 5-9: Cost savings in a centralized case

Figure 5-9 shows that total cost savings from deploying the fixed network elements in a centralized manner is approximately 19%.

5.6.1.2 Nordic country scenario

In the Nordic country scenario, the initial cost is quite high compared to the costs incurred in the subsequent years as shown in Figure 5-10.

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Cost evolution (centralized case)

0,00002,00004,00006,00008,0000

10,000012,000014,000016,000018,0000

2007 2008 2009 2010

Year

Ann

ual c

ost (

Mill

ion

EUR

)

Total annual CAPEX

Total annual OPEX

Total annual cost

Figure 5-10: Annual cost evolution

One reason could be the number of subscribers in a Nordic country which is considerably less than that of a large country. Therefore, investments made in the initial years were able to support subscriber demands up until the end of the study period.

Figure 5-11: Cost distribution per network types

Figure 5-11 presents the distribution of cost per network type, incurred by the integrated operator. Notable is the share of IMS which is quite high compared to the large country case. This is primarily due to lower number of subscribers which leads to lower fixed network costs. Besides, the IMS elements used in the Nordic country case has the same capacity as in the large country case, which means that there is excess capacity available, especially in the early stages when FMC customers are quite low in number.

Percentage share of total cost per network

Fixed 55%

Mobile 4%

IMS 41%

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Percentage share of total cost per cost element

Total CAPEX54%

Total OPEX46%

Figure 5-12: OPEX and CAPEX share of total cost

OPEX elements' cost share


35%

Maintenance17%


48%

Figure 5-13: OPEX element cost breakdown

Figure 5-12 and Figure 5-13 present the OPEX and CAPEX share of the total cost and a breakdown of the OPEX elements’ share of the total OPEX.

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Cost savings (centralized vs. decentralized case)

02468

101214161820

Cost savings

Cen

tral

ized

cas

e co

st s

avin

gs (%

)

CAPEX

OPEX

Total cost

Figure 5-14: Cost savings in a centralized case

A cost comparison of the centralized and decentralized deployment cases show that centralized deployment of fixed network elements produces cost savings of up to 15% for the integrated operator.

5.7 Summary and conclusions

Our study concentrated only on calculating the costs involved in the migration of an existing network to an intermediate stage of convergence for an integrated operator. Revenue modelling and analysis are not considered here and only the network OPEX has been studied. These results are preliminary in nature, since key parameters such as FMC demand, traffic distribution across the fixed and mobile networks and network elements’ cost are undergoing major changes and are in its early phase of evolution. Moreover, the removal of unused equipment has not been yet considered. However, these results can be used as a good basis for future modelling and analysis. The study was done for a period of four years (2007-2010) and therefore CAPEX has a dominant share of the total cost. Nevertheless, in the next and final stage of convergence, where a larger set of convergence services and networks will be offered with an increase in FMC subscribers and service demand, we can expect a major increase in the OPEX. The key OPEX and CAPEX drivers will be in the access and backhaul networks. The results show the benefits of centralized deployment for fixed networks. It is worth mentioning here that, ultimately, the choice of adopting a centralized or decentralized approach may depend not only on cost but also on other factors such as market characteristics and strategies of individual operators.

A future study will improve the existing model parameters, sensitivity analysis, revenue modelling and evaluate the next stage of convergence migration.

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6 SCENARIO 2: MOBILE 2G NETWORK OPERATOR/SERVICE PROVIDER OFFERS FMC SERVICE

6.1 Introduction

The following business scenario describes a mobile 2G network operator/service provider enhancing its mobile network with fixed access to provide FMC service to its customers. The scenario may be applicable both in mature and emerging markets. However, this case study is mainly targeted towards emerging markets where the broadband penetration is limited and the market is densely populated with a large population of low ARPU customers (financially constrained market). The market is though in a rapid development phase with large potentials for telecom development. An example may be e.g. Kuala Lumpur in Malaysia.

As an alternative to fixed broadband, other wireless broadband technologies such as WiMAX 802.16 will be considered in the next deliverable. This may be as a fixed backhaul technology and/or as a broadband access extension to WiFi hot spots.

6.2 Modelling

6.2.1 Definition of mobile network operator and mobile service operator

Table 6-1: Definition of mobile network operator and mobile service provider

Term Definition Owned network/service components

Mobile network operator (MNO)

An operator that owns a spectrum license, radio access network, and mobile core network.

Sells capacity and services to MSPs and MVNOs, not to end users

Spectrum license; RAN: BS transceivers, antennas, BSC/RNC; Core: MSC+VLR, HLR/HSS, SGSN, GGSN; Service platforms: WAPgw, SMSC, MMSC, IN

Mobile service provider (MSP)

An operator that sells subscriptions to customers and bills the customers

Billing system

CRM / service management systems

In the following text the name mobile operator (MO) is used for the combined mobile network operator and service provider.

The basis for the case is that the mobile operator has a 2G network and no fixed access. The network is comprised of GSM and EDGE enhancements to GPRS. The network capacity of the EDGE network is max 144Kbit/s to each user. The network operator has a legacy call control platform based on circuit switched technology. The operator hopes to implement next generation EDGE increasing the capacity with 100%.

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The mobile operator will expand its business with broadband access, and deliver convergent services across the mobile and broadband infrastructure trying to capture new customers by offering a bundle of fixed and mobile services. The combination of fixed and mobile is also an incentive to reduce churn from the mobile operator to mobile only operators.

Another factor is that the GSM operator has limited capacity on the mobile network. EDGE does not give high capacity. By offering the GSM customer a high bandwidth WiFi connectivity to the mobile phone (and laptop), the GSM operator tries to hinder churn to UMTS operators in the same market.

6.2.2 Target environments

The target environment comprises both residential and enterprise markets. The reasons for entering these environments are:

• the residential market at home only:

the penetration of WiFi in private homes is increasing; the Mobile operator will achieve a better binding to the customer by offering also

broadband services; the private users are very price sensitive and would like to use the fixed line for

e.g. VoIP to lower the price of voice services. By using the same phone on fixed and mobile services the customer may prefer one operator offering FMC that one mobile and one fixed operator getting to separate bills and have two separate handsets.;

a bundle of fixed and mobile services accessible in one device with one bill for one operator give the customers' added value;

• the semi public places:

People are out travelling and sit waiting around. In there places, they may find it very useful to have high-speed Internet access to either have a VPN connection to the enterprises internal network or only surf the Internet.

train station; shopping malls; market places, etc; hotels (rooms, lobbies);

• The enterprise market:

the penetration of WiFi is high within the enterprise buildings; the users are accustomed to use WiFi technology on laptops; the penetration of high end handheld devices (Qtec, palm, pocket PC..) is

greatest; the service usage of data applications such as e-mail access is of higher value for

a business user than residential users.

All these environments are potential markets for the operator. The specific market situation in each country under investigation (average income per person, penetration of terminals, infrastructure in place, cost of network building out, etc) will determine which market would be the most profitable and where the operator first would enter with FMC services.

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6.3 The operator strategy

The roll out plan for the FMC operator is to target different markets or environments as described above. One of the motives for separating into environments is the:

differences in investment cost (home, public, enterprise); differences in estimated ARPU per customer (private, business); different potential target customer base; different technological solution maturity (handset and network components).

The different environments may be built out in phases or simultaneously. The paragraphs below may therefore be potential phases in a roll out plan for the FMC operator. Since the operator will go for an IMS platform it may be beneficial to enter several environments simulations and also build out its own broadband infrastructure to reduce cost pr customer.

This though, will introduce much higher risk.

The potential phases may be:

Phase 1: Home zone service offering

The operator’s strategy is to offer an FMC solution to all residents with a broadband connection, by means of wholesale. This includes its own mobile customers that have a broadband connection. By offering customers a bundle of mobile services and fixed broadband, the operator has a goal of gaining higher GSM market shares for mobile since the FMC operator markets the product as a bundle with a lower calling price for home calls through WiFi.

Phase 2: Home zone and public WiFi offering for the customers

The operator installs WiFi access points in public sites and opens these hot spots to its FMC customers. The users will experience a continuous service offering. An ongoing GSM voice call will automatically be switched over to WiFi while entering the public WiFi hot spot area and vice versa.

Phase 3: Home zone and public offering of WiFi + enterprise FMC offer

The operator enters the enterprise market (which has a fixed broadband connection already) and offers enterprises (SOHO, SME, Large businesses) a converged service set of GSM/EDGE and WiFi connectivity. Inside the building, the device uses WiFi and when the user moves outside the office building the device switches over to GSM.

Phase 4: Phases 1-3 + investments in own broadband infrastructure

The mobile operator extends the broadband target group by implementing its own fixed wireless network based on LLUB and/or WiMAX.

This may be:

use wholesale/LLUB with WiFi on existing fixed broadband infrastructure; possible combinations Use WiMAX as backhaul with WiFi; use WiMAX only both as backhaul and as direct wireless customer access.

The mobile only operator intends to invest in an IMS call control platform and support both mobile and fixed services from the same platform and use as many common assets (service enablers) as possible across the fixed/mobile boundary. This will include functions such as BSS, OSS, charging/billing architecture, and customer management. Various application

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servers such as SMS, MMS, e-mail, IM, video server, etc, will also be used as common converged fixed/mobile resources.

6.4 Potential business case network architectures

The mobile operator already owns the mobile infrastructure with a mobile service platform. The call control is based on IN and is targeted for circuit switched services. The GPRS network is enhanced with EDGE with WAP access to Internet. To support FMC services the operator will invest in an IMS platform and use this as common call control for packet based FMC services both on EDGE and on fixed WiFi access.

The following architecture sketches give an overall picture of the foreseen infrastructure for the MO after going into FMC with a fixed access provider. The yellow colour reflects the ownership (or rental of resources) to support FMC services.

The scenarios may be seen as evolution steps as described above. E.g. first the MO goes for a wholesale option, thereafter the FMC operator invests in LLUB and thereafter WiMAX is used to cover the residential market.

Note: these roll out stages may be overlapping if the operators figure out that this will be the most profitable way of doing it. For simplicity, distinct roll out stages is implemented in this concrete business case.

The building to the left in the figures may be a residential house or an enterprise office building.

1) MO buys wholesale fixed access from a fixed access operator

In this scenario the MO only has a wholesale agreement with a fixed access provider and rents the access network capacity from the fixed network operator. The MO invests in an IMS that it uses for the FMC services. The IMS is used for packet based services but may also be used to translate between PSTN and packet transport and signalling. The IMS is enhanced with VCC (voice call continuity). This function supports seamless handover between circuit switched GSM calls and VoIP calls on WiFi.

IMS+ VCC

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

ERX

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

ERXAP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IPAP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Data

Voice

IPIP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

PSTN

MGw

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

ERXAP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Data

Voice

IP

Internet

PSTN

IMSMGw

OBAN SP

IMS+ VCC

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

ERXAP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

ERX

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

ERXAP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

ERXAP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IPAP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Data

Voice

IP

LRU DRX

ERX

VoiceSP

Voice

IP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

LRU DRX

ERX

VoiceSP

Data

Voice

IPIP

RNC/Nb

MSC GMSC

SGSN GGSN

AP Splitt

DSLAM

AP Splitt

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Figure 6-1: MO buys wholesale fixed access from a fixed access operator

ECOSYS



2) MO buys LLUB from a fixed access operator

In this scenario the MO has a LLUB agreement with the fixed access operator and buys its own DSLAM (and potentially other fixed network components to support aggregation of traffic from several households). The MNO invests in these fixed network components and in a common IMS platform that it integrates with its existing service platform.

Here the IMS is also linked to the circuit switched domain and conducts translation functions on the control and bearer plane.

MSC GMSC

BSCSGSN GGSN

Internet

DSLAM

GW

AP

PSTNMSC GMSC

IMS

Figure 6-2: MO buys LLUB from a fixed access operator

3) MO uses WiMAX as broadband access

This scenario is twofold. WiMAX may be used as backhaul to WiFi customer access (as depicted in figure) and as direct customer access. Direct customer access demands that the customer has a WiMAX radio transceiver in its equipment.

Here the IMS is also linked to the circuit switched domain and conducts translation functions (on control and bearer plan)

WiFi (private in home and public hot spots) + VCC.

MSC GMSC

BSCSGSN GGSN

APGW

AP

MSC GMSC

BSCSGSN GGSN

APGW

AP

Internet

PSTN

IMS

Figure 6-3: MO uses WiMAX as broadband access

ECOSYS



6.5 Business model

The business model considers the case where it is possible for the mobile operator to rent access capacity based on a wholesale agreement with the fixed access operator. The case will not define phases like described in chapter 6.3. The MO will go for both the residential market and business market from the start. It will also offer FMC both in home zones and in public zones from the beginning.

The main assumption of the market and the economical parameters are described in chapter 6.5.1. Tariffs, revenue, service, product, customer and market segments are explained in chapter 6.5.2.

6.5.1 Assumptions

This case study is mainly targeted towards emerging markets where the broadband penetration is limited and the market is densely populated, like a large city in East Asia.

Table 6-2, Table 6-3 and Table 6-4 show main assumptions for the market in this scenario.

Table 6-2: General market data for Emerging market city

General market data in 2006

Population 4 000 000

Population growth 1,0 %

Average household size 3,7

Number of households 1 081 081

Table 6-3: Mobile market data in 2006 for Emerging market city

Mobile market in 2006

Mobile subscribers, total 80 % of population

Market share, MO 26 % of mobile subscribers

Mobile subscribers, MO 851 517

Business share, total subscribers 50 %

Mobile residential subscribers, MO 425 758

Mobile business subscribers, MO 425 758

ECOSYS



Table 6-4: Fixed market data in 2006 for Emerging market city

Fixed market in 2006

No. of broadband subscribers, total 200 000

% of households with broadband 5 %

Market share, MO 0,0 %

Broadband customers, MO 0

The business segment in this market is divided into SOHO, SME and large businesses. Some general numbers about these types of businesses are shown in Table 6-5.

Table 6-5: Business segment in Emerging market city

Type of business Number of employees

Number of businesses

Average number of

employees in business

SOHO (1-10) 400 000 80 000 5

SME (10-100) 1 200 000 24 000 50

Large (100-…) 400 000 1 333 300

6.5.2 Market and services

Customers

Adding a FMC operation to its pure mobile operation, the MO´s growth in FMC customers will mainly come from customers converting from the operators own mobile customer base. There will be internal dependencies in the two resulting customer bases regarding growth. In addition, growth will be influenced by the general market interest of telecom services.

In this scenario, GSM penetration in year -1 is assumed to be 80%. It is assumed that several operators in the market will offer FMC that includes GSM, starting from year 0. The term FMC will from here on imply FMC offers where GSM is included (as opposed to e.g. UMTS). In Year 0, penetration of pure GSM and FMC together will be near 80% in the total market, where most people subscribe to pure GSM and some subscribe to FMC. As time goes by, more and more people will convert to FMC. This trend is illustrated in Figure 6-4. The reason why total GSM + FMC penetration is decreasing is that it is assumed that UMTS operators will capture many customers as time goes by. Providing FMC may be a way for GSM operators without 3G license to keep their customers and deliver the same kind of services as those made possible with 3G. This may to some extent prevent a dramatic decrease in number of subscribers for 2G operators.

ECOSYS



Development in number of GSM and FMC subscribers in total market

0 %

20 %

40 %

60 %

80 %

100 %

120 %

0 1 2 3 4 5 6 7

Year

Pene

trat

ion

GSM + FMC penetration in total market

GSM share in group of GSM and FMCsubscribers in total market

FMC share in group of GSM and FMCsubscribers in total market

Figure 6-4: Development in number of GSM and FMC subscribers in Emerging market city

Taking into consideration an assumed market share for the MO in the GSM market and in the FMC market, the evolution of its number of subscribers may be as illustrated in Figure 6-5. It is assumed that 50% of the customers are residential, and 50% are business customers. This assumption is based on numbers from [4].

MO´s subscriber growths

0

200 000

400 000

600 000

800 000

1 000 000

1 200 000

0 1 2 3 4 5 6 7

Year

GSM

FMC

Figure 6-5: MO´s GSM and FMC subscriber growths

Products

Four basic FMC subscription types are defined for both the residential and business market. In the beginning, it is assumed that there is no seamless handover. This feature is implemented after a few years. The four products defined are shown in Table 6-6.

ECOSYS



Table 6-6: MO´s FMC product definitions

Subscription Voice

services Data

services DSL/private

WiFi Public

hot spots

a X X

b X X X

c X X X

d X X X X

Each product may contain the following elements:

voice services; data services; DSL access and private WiFi zone; access to public WiFi hot spots.

Subscriptions offered to the business market differ from the residential market subscriptions by means of DSL capacity, tariffs, etc. SOHO business users are assumed to buy residential products and have a usage pattern like residential subscribers.

Revenues

The MO´s FMC revenues come from subscription fees, one time connection fees per FMC subscription and some customer usage of the FMC product. In addition, there are revenues from DSL connections. Modelling the usage revenues per FMC product is not done in this business case. Instead, some ARPU for the usage is assumed based on type of subscription. The revenues may be base on charging per minute, charging per bit and revenue share of value-added services. The tables below show the assumed values for these parameters, before and after the implementation of seamless handover. All values are in EURO. Subscription types e-h are similar to a-d, only with seamless handover. A distribution of subscribers among the different products is also included in the tables. Tariff assumptions are based on numbers from Point Topic [5] about today's mobile tariffs in Malaysia.

ECOSYS



Table 6-7: MO´s residential FMC products with tariffs, usage and subscriber distribution

Table 6-8: MO´s business FMC products with tariffs, usage and subscriber distribution

Products, business

Yearly tariff

Connection fee

ARPU, usage/yea

r

Subscriber distribution, no seamless

handover

Subscriber distribution,

seamless handover

Subscription type A 158 10 100 35 %

Subscription type B 165 10 110 10 %

Subscription type C 150 10 120 25 %

Subscription type D 158 10 130 30 %

Subscription type E 165 10 110 20 %

Subscription type F 173 10 122 15 %

Subscription type G 158 10 132 30 %

Subscription type H 173 10 144 35 %

GSM subscription 150 10 100

The values in the tables are per person. For the residential market, a DSL connection is per household, and for the business market each connection is per business. Therefore,

Products, residential

Yearly tariff

Connection fee

ARPU, usage/year

Subscriber distribution, no seamless

handover

Subscriber distribution,

seamless handover

Subscription type a 105 10 50 45 %

Subscription type b 110 10 55 15 %

Subscription type c 100 10 60 20 %

Subscription type d 105 10 65 20 %

Subscription type e 110 10 55 30 %

Subscription type f 115 10 61 20 %

Subscription type g 105 10 66 30 %

Subscription type h 115 10 72 20 %

GSM subscription 100 10 50

ECOSYS



revenues due to DSL are calculated separately. The following tariffs (EURO) are used for this calculation:

Table 6-9: MO´s DSL tariffs

Residential 300/year

SOHO line 300/year

SME line 4320/year

Large line 12000/year

Since the business case looks at delta values compared to a situation where the MO would not go for FMC, but stay with its traditional GSM operation, these delta values have to be taken into account when revenues are calculated. This means that for FMC customers coming from the MO´s GSM customer base, the original GSM revenues per subscriber need to be subtracted from the FMC revenues per subscriber. There will also be “new” FMC customers – not coming from the MO´s GSM customer base – however, they are assumed to be significantly fewer than the “old” GSM customers.

Figure 6-6 shows the distribution of revenues coming from the different market segments. About half comes from the residential market, and half from the business market. However, considering that it is assumed that SOHO customers buy residential products and have a usage pattern like residential subscribers; one could look at these two groups together. This gives a share of the revenues of 68% coming from these two groups.

Revenues from the different market segments

Residential46 %

SOHO22 %

SME24 %

Large8 %

Figure 6-6: MO´s revenues coming from the different market segments

6.5.3 CAPEX

Since we consider a “delta case” compared to a pure GSM operation, there will not be many CAPEX elements relevant for the business case related to investments in GSM. However, it will be necessary with some updates to the GGSN due to the implementation of IMS.

ECOSYS



Main CAPEX elements come from:

updates of GGSN; WiFi roll out – investments in and installation of equipment for hot spot sites; deployment of IMS platform; establishing fixed operation through wholesale (media gateway to IMS) ; implementation of a mobility solution (IMS/VCC) – hardware and software; integration of new systems due to FMC operation with existing systems from the

“old” GSM operation.

Figure 6-7 shows the distribution of CAPEX between these elements. IMS investments hold a large portion of the CAPEX, followed by integration with existing systems and mobility solution.

CAPEX

IMS69 %

Fixed wholesale0 %

Mobility solution10 %

Integration19 %

GSM/GGSN0 %

WiFi2 %

Figure 6-7: MO´s distribution of CAPEX

6.5.4 OPEX

There will be no OPEX elements relevant for the business case related to the pure GSM operation. There are operational expenses in many of the same areas as there are CAPEX elements. OPEX elements will be present in:

WiFi roll out – maintenance, support and site rental; IMS platform – maintenance, upgrades, etc.; fixed operation through wholesale – lease costs; implementation of a mobility solution (IMS/VCC) – software license; other OPEX elements, like service delivery, marketing and sales, customer

acquisition, customer service management and customer support.

Figure 6-8 shows the distribution of OPEX between these elements. OPEX elements related to marketing and sales, customer acquisition, customer service management and support makes out the largest part of the OPEX along with the wholesale renting cost of the fixed broadband access.

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OPEX

WiFi 2 %

IMS 2 %

Fixed w holesale 46 %

Mobility solution 1 %

Other 49 %

Figure 6-8: MO´s distribution of OPEX

6.5.5 Results

Economic analyses

The economic analysis of the business case calculates revenues, costs, NPV and IRR. The case results in an NPV of -48 481 000 EURO. In other words, it looks like the MO cannot expect FMC to be a profitable business in itself based on the used assumptions and input values.

Figure 6-9 shows the annual cash flow (in 1000 EURO).

Sum of revenues and costs

-18 000

-16 000

-14 000

-12 000

-10 000

-8 000

-6 000

-4 000

-2 000

02007 2008 2009 2010 2011 2012 2013 2014

Figure 6-9: Annual cash flow

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2007 is the year of main investments. It is assumed that the MO will get some FMC customers this year gradually building up from 0, but this will not start at the beginning of the year, since investments and implementation are done this year. The revenues from the acquired customer base at the end of the year are thus divided by two to give a more correct result.

The drop in 2009 is due to the investment in VCC for seamless handover. 2009 is chosen because it is believed that VCC functionality and mobile handsets will be ready by that time. Due to this, product tariffs increase a bit from the year after to reflect the increased functionality. It is assumed that all customers migrate to the new product that includes seamless mobility.

Another reason for an increasingly negative cash flow is an increasing OPEX for fixed-line leasing and WiFi.

6.5.6 Summary and conclusions

The first results of the business case give a negative NPV, indicating that a FMC operation as an isolated case seems not to be profitable for the MO in this Emerging market. However, the overall business for this MO taking into account all old and FMC related services give a more positive picture. FMC can be a crucial factor for a 2G MO in reducing churn and losses when other operators start to offer UMTS. In this scenario, it is assumed that a significant amount of people will migrate to UMTS operators, so it is an important issue how the MO could reduce this effect. Offering FMC through GSM, fixed broadband and WiFi may be a way to prevent some of the customer losses.

There are many uncertainties related to the input parameters in the business case. The following elements are very uncertain and should be examined further in the next deliverable:

o market data for an emerging market; o product tariffs and usage; o protection of revenues from existing business; o costs for IMS and VCC; o customer growths; o number of business subscribers vs. residential subscribers; o what kind of products customers want; o effect of 3rd party value-added services on costs and revenues.

Further work with the business case also needs to include a sensitivity analysis to identify the most critical parameters for the NPV. One factor which influences the NPV is the time of VCC/seamless handover implementation. Delaying this means prices of equipment will fall, making the investments smaller. However, when seamless handover is introduced, product tariffs may be higher, resulting in an increase in revenues. Another issue with VCC implementation is whether the investments are made during one single year – as they are in the business case now - or over several years. The effect of making the investment and implementing it over several years should be studied further in later work.

Factors that seem to have the largest effect on the NPV are:

o FMC product tariffs. Adjusting these without adjusting number of customers has a large effect on the NPV;

o subscription fees and usage in the original pure GSM operation. This has a large effect on the delta values of revenues;

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o discounts in the business market. It is assumed that discounts may be given to businesses since they form a large amount of contracts with the operator;

o OPEX elements such as service delivery, marketing, customer acquisition, customer service management and customer support. These are calculated on a per customer basis, and changes in the assumed per customer cost of these elements have a large effect on the NPV;

o OPEX on fixed line leasing are quite high.

These conclusions are made through an investigation of the model where input values are adjusted to see the effect on the NPV. It is absolutely essential that thorough sensitivity analyses are performed to specify uncertainties and increase the quality of conclusions.

The business case for the MO makes a good basis for further work in the next deliverable. In addition to improving and verifying what has already been done, analyses of scenarios including LLUB and WiMAX deployment should be investigated.

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7 SUMMARY AND CONCLUSIONS

Once the convergent framework has been fixed, and assuming an evolution towards a fixed mobile convergent network based on IMS, the main FMC players and a list of convergent services and products has been identified. Market forecasts for various technologies have also been presented. Then, some elements on broadcasting regulation for OECD countries are given. This subject has to be developed further. At last, focusing on fixed mobile convergence, this deliverable presents results of two migration scenarios identified in deliverable 12 ("Migration paths towards fixed mobile convergence"). Both case studies are based on a delta analysis, in other words, on a comparison between the current situation and the target IMS one. The results presented here are preliminary as fixed mobile convergent (FMC) demands, traffic distribution across fixed and mobile networks, equipment costs and dimensioning elements have to be strengthened.

Scenario 1 calculates the costs involved in the migration from 2007 to 2010 towards a "pre-IMS" situation of an integrated operator in Large and Nordic countries. In this scenario, the integrated operator owns both fixed and 3G mobile networks. The operator manages transport, access backhaul and core networks and is required to enable service delivery for 3rd party operators. The target situation has been separated in three segments: fixed, mobile and core IMS segments. Focusing on costs, the delta network related operational expenses (OPEX) and the delta investment costs (CAPEX) between the initial and the target situations are evaluated globally and for each segment. On the fixed segment, two alternatives were compared: centralized IMS equipment on one PoP or decentralized equipment on 4 PoP per country. Even if the centralized situation is cheaper than the decentralized one for Large and Nordic countries, it is not significant enough. As a consequence, technical constraints will be decisive. For both kinds of countries, CAPEX is slightly more important than network related OPEX and the fixed segment is the most expensive. Equipment installation costs represent the highest network OPEX part. The key OPEX and CAPEX drivers will be in the access and backhaul networks. Nevertheless, revenue modelling, sensitivity analysis and other than network related OPEX items are not considered here and will be studied in the next deliverable of work package 6. The existing model parameters will be improved and the next stage of convergence migration evaluated. In addition, the removal of unused equipment will be considered and may balance the ratio between CAPEX and OPEX.

In scenario 2, the business case of a mobile 2G network operator/service provider enhancing its mobile network with fixed access to provide FMC services to its customers is studied. Both costs and revenue are considered here from 2007 to 2013. However, this case study is mainly targeted towards Emerging markets where the broadband penetration is limited and the market is densely populated with a large population of low ARPU customers (financially constrained market). This market is though in a rapid development phase with large potential for telecom development. Different stages of the migration scenario are presented. This situation is particularly interesting for a 2G mobile operator in order to reduce churn and losses when other operators will start to offer UMTS. First results give a negative NPV leading to conclude that the FMC operation as an isolated case does not seem to be profitable for the mobile operator in the Emerging market. A sensitive analysis need to be done to highlight the most critical parameters for the NPV since there are large uncertainties in many parameters. As an alternative to fixed broadband, other wireless broadband technologies such as WiMAX 802.16 will be considered in the next deliverable.

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References

[1] www.silicon.com/research/specialreports/voip/0,3800004463,39127654,00.htm

[2] www.lucent.com/press/0206/060214.coa.html

[3] www.thinkjuniper.net/isp/erx310/downloads/Juniper%20Networks%20ERX310%20Broadband%20Services%20Router%20V2.pdf

[4] www.wirelessintelligence.com

[5] www.point-topic.com

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Acronyms

Acronym Term Description

2.5G 2G Systems + Advanced Data Services (i.e. GPRS)

3G Third Generation Mobile Systems (as defined by IMT-2000)

3GPP Third Generation Partnership Project

AAA Authentication, Authorization, Accounting

ACMA Australian Communication and Media Authority

ACS ADSL AGCF AMR AON

Access Call Server Asymmetric Digital Subscriber Line Access Gateway Control Function Adaptive Multirate Codec Active Optical Network

API Application Programming Interface

ARPU Average Revenue per User

AS ASP AUC ATM

Application Server Application Service Provider Authentication Center Asynchronous Transfer Mode

B3G BB-RAR

Beyond 3G Broadband Remote Access Router

BGCF BGW BHCA BHSA BRAS BS BSC

Breakout Gateway Control Function Border Gateway Busy Hour Call Attempt Busy Hour Session Attempts Broadband Remote Access Server Base Station Border Session Controller

BSP Backbone Service Provider

BSS Business Support System

CAPEX CATV

Capital Expenditure Cable Television

CDR Call Detail Record

CPE Call Processing Engine

CPA CPS

Content Provider Access Connection Processing Server

CS Circuit Switched

CSCF Call Session Control Function

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C&B Charging and Billing

DHCP DMB DNS

Dynamic Host Configuration Protocol Satellite Digital Multimedia Broadcasting Domain Name System

DRM Digital Rights Management

DVB Digital Video Broadcast

DVB-H Digital Video Broadcast Handheld

DVB-T Digital Video Broadcast Terrestrial

DSL Digital Subscriber Line

EDGE EIR

Enhanced Data rates for GSM Evolution Equipment Identity Register

ERG ES ETSI

European Regulators Group Electronic Signature European Telecommunication Standardisation Institute

EU European Union

FMC Fixed Mobile Convergence

FVNO Fixed Virtual Network Operator

GAN GBHCA GE

Generic Access Network Giga Busy Hour Call Attempt GigaBit Ethernet

GGSN Gateway GPRS Support Node

GPRS General Packet Radio service

GPS Global Positioning System

GRX GPRS Roaming eXchange

GSM Global System for Mobile communications

HLR HSDPA HSPA

Home Location Register High Speed Downlink Packet Access High Speed Packet Access

HSS Home Subscriber Server

IASA IBCF ICS ICT ID IEEE IETF IFA

Inter Access System Anchor Interconnect(ion) Border Control Function IMS Convergence Server Information and Communication Technology Identity Institute of Electrical and Electronics Engineers Internet Engineering Task Force Internationale Funkausstellung

ECOSYS




IMR IP Multimedia Register

IMS IN

IP Multimedia Subsystem Intelligent Network

IP IRR ISC ISDN

Internet Protocol Internal Rate of Return IMS Service Control Integrated Service Digital Network

ISP ISUP IT ITU ITV

Internet Service Provider ISDN Signalling User Part Information Technology International Telecommunication Union Independent Television

IWF IX IXC

InterWorking Function Internet eXchange Inter eXchange Carrier

LAN Local Area Network

LBS LLUB

Location-based Service Local loop unbundling

LTE MAP MBHCA MGCF MMD MMS MMSC

Long Term Evolution Mobile Application Part Mega Busy Hour Call Attempt Media Gateway Control Function Multimedia Domain Multimedia Messaging Service Multimedia Message Service Centre

MME MNO MO MRFC MRFP MSC MSP MVO

Mobility Management Entity Mobile Network Operator Mobile Operator (Multi)Media Resource Function Controller Media Resource Function Processor Mobile service Switching Centre Mobile Service Provider Mobile Virtual Operator

MVNO Mobile Virtual Network Operator

NAP NAPT NASS NeDS NGN

Network Access Point Network Address Port Translation Network Attachment Sub/System Network Domain Selection Next Generation Network

ECOSYS




NPV NRA

Net Present Value National Regulatory Authority

NRT Non Real-Time

O&M OAM OECD OFCOM OPEX OR

Operations & Maintenance Operations And Maintenance Organization for Economic Co-operation and Development Office of Telecommunications Operational Expenditures Optimal Routing

OSA Open Systems Architecture

OSS OTN

Operation Support System Optical Transport Network

PCRF P-CSCF PDF/PCRF PDG PDP PON PoP POTS PPP

Policy and Charging Rule Function Proxy CSCF Policy Decision Function/ Policy and Charging Rule Function Packet Data Gateway Packet Data Protocol Passive Optical Network Point of Presence Plain Old Telephone System Point-to-Point-Protocol

PS PSB

Packet Switched Public Service Broadcaster

PSTN Public Switched Telephony Network

QoS Quality of Service

RACS RADIUS RAN RNC

Resource and Admission Control Subsystem Remote Authentication Dial-In User Service Radio Access Network Radio Network Controller

ROI Return on Investment

RT Real-Time

RTP Real-Time Protocol

SAE SBC SCE SDH SDP SDR

System Architecture Evolution Session Border Controller Service Control Engine Synchronous Digital Hierarchy Session Description Protocol Software Defined Radio

ECOSYS




SEE Service Execution Engine

SGSN SIP SMS SMSC SME

Serving GPRS Support Node Session Initiation Protocol Short Message Service Short Message Service Centre Small and Medium Enterprise

SO SOHO

Service Operator Small Office/Home Office

SP SPDF

Service Provider Service-based Policy Decision Function

SSR SW

Service and Subscription Repository Software

TDM TGW TISPAN

Time Division Multiplexing Trunking Gateway Telecoms & Internet converged Services & Protocols for Advanced Networks

UMA Unlicensed Mobile Access

UMS User Mobility Server

UMTS Universal Mobile Telecommunications System (as defined by 3GPP)

UNC UPE UPS URI UPSF

UMA Network Controller User Plane Entity User Profile Server Universal Resource Identifier Use Profil Server Function

UTRAN VAD

UMTS Terrestrial Radio Access Network Voice Activity Detection

VASP VCC VDSL VLAN VMS

Value Added Service Provider Voice Call Continuity Very high bit-rate DSL Virtual Local Area Network Virtual Memory System

VoIP VoDSL VPN

Voice over IP Voice over DSL Virtual Private Network

WAG WAN WAP WAPgw

WLAN Access Gateway Wide Area Network Wireless Application Protocol WAP Gateway

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WDM Wavelength-division multiplexing

Wi-Fi Wireless Fidelity

WiMAX Worldwide interoperability for Microwave Access

WLAN Wireless Local Area Network

WWW World Wide Web

techno-economics of integrated communication systems and ... · abstract fixed mobile convergence...

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