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The WIK-Model Bottom-up cost analysis for the telecommunications network

The WIK-Model Bottom-up cost analysis for the telecommunications network. Geneva, 14.12.1999 Dr. Frank Schmidt, WIK www.wik.org kostenmodell@wik.org. Content. What is the WIK-Model Main Characteristics Reasons for development Structure of the WIK-Model Core network analysis

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The WIK-Model Bottom-up cost analysis for the telecommunications network

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  1. The WIK-ModelBottom-up cost analysis for the telecommunications network Geneva, 14.12.1999 Dr. Frank Schmidt, WIKwww.wik.org kostenmodell@wik.org

  2. Content • What is the WIK-Model • Main Characteristics • Reasons for development • Structure of the WIK-Model • Core network analysis • Access network analysis • Annualisation • The case for a bottom-up model

  3. What is the WIK-Model?Main Characteristics • Bottom-up network model • Tool for forward-looking cost analysis • Follows closely the LRIC (FL-LRAIC) methodology • Covers all parts of the network • Subscribers access network • Core/conveyance network • Independent of network operator data • Strong network planning part • High flexibility to cope with different network scenarios

  4. What is the WIK-Model? Partition model of the PSTN/ISDN Subscriber Access Network Access Network BackboneNetwork ANI SNI • Local exchanges • Transit exchanges • International gateways • DX4/SDH • Meshed fibre topology • POIs • local loop • MDF • SLIC • Remote concentrator • ADM/SDH • Fibre rings non-traffic sensitive traffic sensitive part + traffic routing

  5. What is the WIK-Model?Reasons for development • Regulation of a dominant carrier • Overcoming the asymmetric information problem • Understanding telcos network costs • Identification of cost drivers/cost causality • Making regulatory rate setting more transparent • Developing a platform for discussion • Identifying the reasons for diverging views

  6. What is the WIK-Model?Further applications • Estimating the cost of universal service • long run incremental/avoidable cost of service provisioning • Calculating the cost of network roll-out • Model does not demand data from an already existing network • Network planning part allows true “forward looking” analysis • Support of managerial decisions • Setting cost oriented tariffs • Improving network efficiency

  7. Structure of the WIK-Model Main characteristics • Starting point: Demand • Definition of the network and the relevant elements • Allocation of demand to network elements • Dimensioning of network elements • Calculation of investment and annual cost • Calculation of service costs on the basis of network usage

  8. Structure of the WIK-Model Input data • MDF-locations; number of lines • census data • carrier database if available • Demand: Outgoing traffic per average line • local, national, international • Network design and engineering • Technology, hierarchy, fill factors, ... • Investment and cost data • Asset prices (MEA concept) • Rate of return; asset lives

  9. Structure of the WIK-Model Network dimensioning • Starting with demand and MDF-locations the whole network is constructed endogenously • Therefore the model has built-in engineering modules with a high degree of flexibility • The resulting set of database files serves as the basis for cost analysis • The engineering part adds complexity to the model but allows an analysis independent from operators data

  10. Structure of the WIK-Model WIK-Model Core network/ conveyance network Subscribers access network

  11. Core network analysis • Core network model consists of various modules: • Classification of nodes (remote, local, backbone..) • Assignment of lower level to upper level nodes • Generation of a traffic matrix • Traffic routing and circuit group dimensioning • logical network layer • Transformation of the logical network layer into an efficient transport network • transmission layer • infrastructure layer

  12. Core network analysisStarting point: Initial node locations Local exchanges for SpainDerived from census data

  13. Core network analysis Node classification and assignation

  14. Core network analysisAnalysis of a network cluster

  15. Core network analysis Network design in the functional layer model • Two-tier backbone network • Upper level and lower level backbone nodes form a meshed network structure • Degree of meshing determined by thresholds • One-tier or two-tier access network • Star or double star topology on the logical layer • Ring structure on the transport layer • Local switching functions in intermediate nodes

  16. Core network analysis Network design (logical layer) 4 International gateway

  17. Core network analysis Network design (transport layer)

  18. Core network analysisConstructing an efficient transport network Heavily meshed logical layer between backbone nodes

  19. Core network analysisConstructing an efficient transport network Calculation of an optimal biconnected network topology

  20. Core network analysisCalculation of Investment • The network analysis yields • a set of nodes with the corresponding traffic flows and the number of main lines connected • a set of links between nodes with the corresponding traffic flows • the realization of the logical network layer in the transport network with the corresponding transmission equipment and outside plant • Investment is calculated network element by network element

  21. Access network analysis • Access network module has the following tasks: • Identify customer locations • Manual work on the basis of maps • With GIS-Interface if available • Group customers to network clusters • Assign each cluster to MDF-Sites • Find efficient cable routes within and between clusters • Conduct detailed investment analysis

  22. Access network analysis • Model has been used to set tariff for unbundled local loop access in Germany • Model is available from German NRA • Major extensions and modification are planned • Modeling of FITL network • More sophisticated algorithms for calculating efficient cable routes • Interface to GIS-System to reach a more detailed database (customer locations, roads, natural barriers...)

  23. Annualisation of Investment • Assets are valuated at actual prices • Cost of capital and depreciation • Weighted average of cost of capital • Economic depreciation as ideal solution • Annuity with plant specific real interest rate as practical approximation • Operating and maintenance cost • Derivation of mark-ups for different plant categories (switching equipment, transmission, cable...) • Investment serves as a proxy cost driver

  24. The case for a bottom-up model • Dependence on incumbents database can be reduced significantly • Improved understanding of telcos network costs • Transparent rate setting process • Model serves as a platform for discussion • Reasons for diverging views can be identified • Not a substitute for top-down analysis; rather a useful complement

  25. Applications of the model so far: • Germany: Unbundled loop (1999), Interconnection (2000) •  Austria: Interconnection (2000) Wissenschaftliches Institut für Kommunikationsdienste (WIK) GmbHPostfach 200053588 Bad HonnefGermanyTel.: + 49 - 2224 - 9225-0Fax: + 49 - 2224 - 9225-66eMail: kostenmodell@wik.orgwebsite: www.wik.org

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