Incorporating risk analysis into telecom investment projects Dr. - - PowerPoint PPT Presentation

National and Kapodistrian UNI VERSI TY OF ATHENS

Incorporating risk analysis into telecom investment projects

• Dr. Dimitris VAROUTAS

Lecturer University of Athens

Dept of Informatics & Telecommunications D.Varoutas@di.uoa.gr

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Agenda

UoA in modeling telecom investments Risk analysis in telecom investments

The problem The methodologies The tools

Some examples

Broadband access networks 3G-WLAN business cases

Conclusions & Discussion

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UoA Technoeconomic activities

Conduct techno techno-

• economic evaluations

economic evaluations for telecommunication investment projects like:

Next generation mobile networks and services Fibre access evolution Broadcast convergence

Formulate pertinent recommendations recommendations to policymakers, network operators and service providers regarding communications investment strategies. Demand Demand modelling Study the risk risk and externalities externalities effects in communications Promotion and dissemination dissemination of the results

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Consolidation of results and guidelines for deployment scenarios

Information gathering / exchange Common framework Network Studies Guidelines Standards, Research projects and field trials Other Sources Common conclusions

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Steps in technoeconomic modelling

Marketing Strategy Services

Network Technology Components Cost

Marker Share

Prices Revenues

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Risk and uncertainty are the only certain factors

Marketing Strategy Services

Network Technology Components Cost

Marker Share

Prices Revenues

RISK RISK RISK RISK RISK

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Risk in marketing strategy

Lucrative segments of markets/areas/services Suitable models for the evaluation of the segments

Diffusion or choice based

models

Market studies or expert

reports

Cross technology models Cross country models

Diffusion Rates

0,00 0,05 0,10 0,15 0,20 0,25 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Years Rate

Actual Gompertz I Gompertz II Linear Logistic Box-Cox FLOG TONIC

E.g. Can we evaluate and forecast the number of innovators and imitators?

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Risk in evaluating services

Which are the profitable applications and services

Online or offline

services

Determinants of

telecom service

Rate Distance Mobility

Hedonic Price I ndex Evolution

y = 0,0396x + 0,7633

0,2 0,4 0,6 0,8 1 1,2 98/97 99/98 00/99 01/00 02/01 Years Hedonic index

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Risk in choosing the network technology

Can we take lessons for existing technologies Need for risk analysis in new technologies

xDSL WLAN

Fibre in the loop Digital Subscriber Line Wireless Cellular Systems Hybrid Fibre Coax Satellite Systems

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Risk in evaluating pricing concepts

Appropriate pricing models Evaluation of price models in real or simulated situations Unified price indices

across technologies across services across countries

Need for new approaches in econometric models

Price elasticity User behavior Externalities Cross technology

effects

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Risk analysis outputs

Selection of technologies based on actual costs Concentration Non profitable cases Calculation of “costs per user” and “costs per subscriber” Optimum solution Rest value calculations Critical components Renegotiation of components’ purchase costs Profitable services Detailed analysis of services costs Rules and guidelines for viable cases Market opportunities

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An example

Fixed BB telecommunication investments

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Main cable Cabinet(Cab) Distribution cable Subscriber location Local Exchange (LE) Central Exchange (CE)

Core network

• Fibre cable
• Active Optoelectronic
• WAN Interfaces
• Active

Copper cable

• VDSL interface
• Passive couplers
• Passive couplers

NT NT Ethernet (P-t-P) FTTC NT

Customers < 750m

ATM

OLT

ONU

NT NT ATM (P-t-MP) FTTC NT

Customers < 750m

ONU

ATM STM4

OLT

ONT ONT

PON

ATM

ATM (P-t-MP) FTTH/O

...

GbE 100BaseFx

Ethernet (P-t-P) FTTH/O

...

The Fixed BB scenarios

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ATM Ethernet ATM Ethernet Dense Urban 29,45 mill € 29,40 mill € 18,31 mill € 7,47 mill € Urban 18,13 mill € 18,06 mill €

• 9,11 mill €
• 22,30 mill €

Suburban

• 34,42 mill €
• 38,21 mill €
• 279,49 mill €
• 295,32 mill €

ATM Ethernet ATM Ethernet Dense Urban 66,8 % 56,2 % 46,1 % 21,5 % Urban 30,8 % 29,7 % no return no return Suburban no return no return no return no return ATM Ethernet ATM Ethernet Dense Urban 3,8 4,3 5,5 7,5 Urban 5,3 5,7 no return no return Suburban no return no return no return no return

Net Present Value (NPV)

Area Fibre to the Cabinet Fiber to the Home/Office Area

Internal Rate of Return (IRR)

FTTC FTTH/O Area

Pay back Period [years]

FTTC FTTH/O

Financial results

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0 Mill € 5 Mill € 10 Mill € 15 Mill € 20 Mill € 25 Mill € 30 Mill € 35 Mill € 40 Mill € 45 Mill € Dense Urban ATM Dense Urban EoVDSL Urban ATM Urban EoVDSL Suburban ATM Suburban EoVDSL Cable_Infrastructure Duct_Infrastructure BuildingInfra CPE_Equipment Cabinet_Equipment LEX_Equipment CEX_Equipment Cable Infrastructure Duct Infrastructure Building Infrastructure CPE Equipment CabinetEquipment LEX Equipment CEX Equipment

1 Mill € 2 Mill € 3 Mill € 4 Mill € 5 Mill € 6 Mill € 7 Mill € 8 Mill € 9 Mill € 10 Mill € Dense Urban ATM Dense Urban EoVDSL Urban ATM Urban EoVDSL Suburban ATM Suburban EoVDSL Cabinet Equipment LEX Equipment CEX Equipment

Zoom in:

0 Mill €

CAPEX figures

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10 20 30 40 50 60 70 80 90 100 FTTC– ATM, Dense Urban FTTC EoVDSL, Dense Urban

Probability of NPV < 0 [%]

FTTC– ATM, Urban FTTC EoVDSL, Urban FTTH/O EoVDSL, Dense Urban FTTH/O EoVDSL, Urban

[%] Scenarios

Financial risk in fixed BB investments

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An example

3G and WLAN investments

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The idea for 3+ /4G networks

Roaming

Airport Hotel & Conference Public space Office Home Train station

Wide area Cellular Datacom Local Area WLAN Datacom

Roaming

Airport Hotel & Conference Public space Office Office Home Train station

Wide area Cellular Datacom Local Area WLAN Datacom

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Transmission rate - Mobility

(2007-2010?)

IMT-2000

1 10 100 0.1

Mobility/Deployment Area

High Speed /Nationwide Static /Indoor Walking /Premises Moderate Speed /Citywide

Transmission Bit Rate (Mbit/s)

Millimeter-wave LAN (2001) (2002) Wireless LAN

2G 3G

Systems Beyond IMT-2000

Target Area of Service Beyond IMT-2000

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WLAN Roaming

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ARPU Estimations

TONIC yearly ARPU estimations

100 200 300 400 500 600 700 800 900 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Euros

BB Internet Internet SMS BB streaming video streaming audio streaming videoconf video calls & gaming CS & PS voice CS+PS

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Sensitivity analysis

200 400 600 800 1.000 1.200 1.400 1.600 1.800 Low Value 183 253 453 748 1.037 1.033 971 964 948 953 High Value 1.714 1.643 1.444 1.147 860 864 926 932 961 943 Usage Total Penetration End Market Share Start Market Share OAM UMTS BTS Marketing Multiplier Terminal Subsidy WLAN Building Begin Churn

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Risk factors

Risk in marketing parameters

Market size Market share Service determinants

Risk and uncertainty in network parameters

Technology costs Technology changes Cost components evolution Area characteristics

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Some ideas on telecommunications investments in developing countries

Demand forecasting

Effects of cross-country diffusion processes Competition level

Technology selection Critical mass effects Communications or telecommunications

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Conclusion

Risk analysis is a critical issue for telecom investment projects Need for specific problem statement, methodology and tools development Research is needed as well as coordination among key players

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Time for Questions & Answers

D.Varoutas@di.uoa.gr