12th Concertation meeting Nov. 98

1. 12th Concertation meeting Nov. 98 AC 226/ OPTIMUM Project

2. OUTLINE • Project presentation • Objectives for OPTIMUM • Planned work and Achievements • Analyse 6 business cases • Workshop and Delphi survey • Risk assessment of market and technologies • Guidelines • OPTIMUM guidelines • ACTS guidelines • EURESCOM guidelines

3. TELENOR RESEARCH AND DEVELOPMENT,, Norway INTELLSERVE LTD, Greece JVH INTERNATIONAL, Belgium FIRMA H. DANIELSEN, Norway FRANCE TELECOM, France DASSAULT ELECTRONIQUE, France ARISTEL, France ELIOS, France M3G, France SYSTEMES G, France ENST B, France CENTRO STUDI E LABORATORI TELECOMUNICAZIONI SPA, Italy UNIVERSIDADE DE AVEIRO, Portugal PLURICOM, Portugal NOKIA CORPORATION, Finland TELECOM FINLAND, Finland HELSINKI TELEPHONE CORPORATION, Finland KONINKLIJKE PTT NETHERLAND NV, The Netherlands TELE DENMARK, Denmark DEUTSCHE TELEKOM AG, Germany DATTEL AS, Czech Republic OPTIMUM Partner

4. OPTIMUM OBJECTIVE • Contribution to guidelines and recommendations for the introduction of advanced multimedia communications networks and services based on tech-evaluation of business cases. • The business cases are based on inputs from ACTS field trials and projects, expertise of specialised SMEs and market and technology evolution. • Business cases are evaluated with the Tool and methodology from R2087/ TITAN and OPTIMUM project

5. Role of OPTIMUM

6. The OPTIMUM Information Flow Demand for the Telecommunications Services Risk Assessment Services Architectures DB Geometric Model First Installed Cost Investments Revenues OA&M Costs Life Cycle Cost Cash flows, Profit & loss accounts Economic Inputs Year 0 Year 1 Year n . . . Year m NPV IRR PaybackPeriod

7. Techno-Economic Evaluation Process Case definition Architecture, dimensioning Service parameters Cost information Modelling and calculation of results Analysis of results

8. OPTIMUM BUSINESS CASES • SMEs located in an industrial park • SMEs with a common sectorial profile spread in a wide geographical area • Tele-medicine • Tele-learning • Competitive Access Provider • Economics of Multimedia Service Upgrades

9. The Internet Media server Gateway SDH/ATM regional ntw LE LMDS/ADSL/ Cable modem access STB Business Case 6Economics of Multimedia Service Upgrades • Evaluates the viability of fast access to the Internet and to other information sources • Access speed from 64kbit/s up to 10Mbit/s • Two services evaluated: • Basic service (non-real time applications) • Enhanced service (real time applications included) • Three environments modelled: • Telephone operator network using advanced digital line coding, e.g. ADSL • Cable television network using cable modems • LMDS radio access • Several service penetration scenarios evaluated • 10%, 20%*, 30% or 40% final penetration • Risk analysis performed on most sensitive and uncertain components: • Price of the access technology, service take rate, revenue per customer *Default for basic results

10. Key Results of Business Case 6 * ISDN not fully comparable, since the service is not the same. NPV expressed in kECUs (discounted at 5%) Inv/sub = Total discounted investment divided by the number of connected subscribers at year 2007 01/23/98 Techno-Economics of Multimedia Networks 12

11. Key Results of Business Case 6 01/23/98 Techno-Economics of Multimedia Networks 12

12. Risks in Business Case 6 • The most important variable regarding the risk influence is the monthly revenue per customer. A reduction of 30% or more on the revenue has a dramatic influence on the NPV. • The ranking of the analysed variables regarding risk influence is: • Monthly revenue per customer • Level of competition • Service penetration • Component price (including nominal price and price trend) • The results are similar for all technologies and for both the basic service and the enhanced service.

13. Risks in Business Case 6Probability of yielding a positive NPV for different technologies

14. BC5 - Competitive Access Provider • TE evaluation of the real access network project in an East European country • Based on the first license for a telecommunication company in the Czech Republic next to the SPT Telecom • License valid for a defined area in the centre of Prague • Very competitive conditions • Results after the second year of realisation - comparison with original assumptions • Influenced by limited financial sources • delay in the construction • part of investigations shifted to the year 1998 • some changes in the project

15. BC5 - Competitive Access Provider Object of HOST

16. BC5 - Competitive Access Provider • Comparison of the first and second TE evaluation

17. BC5 - Competitive Access Provider • Comparison of the first and second TE evaluation

18. The Delphi study in OPTIMUM • The study was performed during the OPTIMUM Workshop in Aveiro, 20-22 October 1997. • The new forecasts are similar to the forecasts from the Delphi survey in 1994

19. Demand in the residential and SOHO market • Delphi survey • Most important group of applications: - Teleworking - Information services - Tele -entertainment • 12.5% penetration of 2Mbit accesses in year 2005 • The households are willing to use 2% of their disposable income to broadband communication

20. Leading Group of Applications percentage score

21. Willingness to pay as a function of capacity

22. DELPHI- FORECAST

23. Risk assessment in OPTIMUM • Risk analysis of market parameters • Risk analysis of cost components • Risk and dependencies • Risk analysis of the Internet evolution

24. General Guidelines from OPTIMUM • OPTIMUM guidelines cannot include definite recommendations for specific actors, but represent a broader consensus view of many actors and interests. However the evaluation process and the results of the common studies give improved understanding about the techno-economic issues of advanced communication. • The value of the OPTIMUM is on one hand in the common methodology and tool that the partners and other ACTS projects use in their specific, sometimes confidential cases. On the other hand OPTIMUM includes co-operative studies that provide objective guidelines for the ACTS consensus building.

25. General Guidelines from OPTIMUM Guideline 1: • Demand and tariffs have a major impact on the viability of a particular service, whereas the cost of technology turns out to be of secondary importance. • The number of technological options is significant smaller, if an adequate infrastructure exists and the main geographic characteristics are known. • The uncertainties associated with revenues are much higher than the uncertainty on the cost of technology.

26. General Guidelines from OPTIMUM Guideline 2: • The services like telemedicine and telelearning are of great social importance. However, to be profitable they need financial support external to the telecommunication project.

27. General Guidelines from OPTIMUM Guideline 3: • The liberalisation of telecommunications is likely to lead to the fast development of the telecommunication infrastructure and to the higher quality and lower tariffs of telecommunication services. This requires a fair regulatory environment.

28. General Guidelines from OPTIMUM Guideline 4: • The broadband upgrade of the access network is of paramount importance for the incumbent operator. The costs associated with such an upgrade are at least equivalent to the overall costs of establishing the existing access network. Hence the existing infrastructure has to be utilised in an effective way.

29. General Guidelines from OPTIMUM Guideline 5: • Teleworking, information services and tele-entertainment stand out as the most promising services for broadband applications in the future. • There will be a substantial demand for broadband services in the residential and SOHO market during the next 10 years. • However, the households are not willing to pay too much more for additional broadband applications and additional capacity.

30. Specific Guidelines from OPTIMUM • The specific guidelines reported below are based on the results obtained in the various OPTIMUM business cases and on the results of the risk studies (Del. 13). • These guidelines are based on specific business cases, and should be applied carefully to other conditions.

31. Specific Guidelines from OPTIMUM Guideline 1: • In an industrial park, where SME-customers are concentrated in a small geographic area, the incumbent operators do not have big advantage from ownership of the existing copper loop. A LMDS based network can be built at reasonable investment costs. The license fees, base station site costs and interconnection costs will be the determining factors for the profitability of the competing operator.

32. Specific Guidelines from OPTIMUM Guideline 2: • The real pilot project of the multifunction network of integrated telecommunication services in Prague has confirmed the validity of basic liberalisation principles and the possibilities of entering of new operators into the branch.

33. Specific Guidelines from OPTIMUM Guideline 3: • Broadband multimedia access in the residential and SOHO’s market segment can be profitably introduced using ADSL and LMDS technology.The actual level of costs depends on many issues like existing infrastructure, licence and interconnection fees, level of operating costs etc.

34. Specific Guidelines from OPTIMUM Guideline 4: • For an industrial park with a mix of SMEs and big business customers the Broadband PON is an attractive architecture.With tariff structure based on monopolistic situation as in the Portuguese case, the establishment of this broadband network platform for a industrial park is profitable.

35. Specific Guidelines from OPTIMUM Guideline 5: • The Telemedicine case turns out to be relatively heavy in terms of investments prospects with payback periods of about 5 years.The economic viability is very sensitive to the proportion of infrastructure costs attributed to the project. For incumbent operators the tendency would be to use their existing infrastructure (if available) and treat infrastructure costs as incremental. For this scenario the default figure (3,3%) of infrastructure cost proportion is reasonable. For new operators the situation is less favourable.A further externality factor affecting the financial viability of the overall project is the potential cost benefit of national medical care savings by the introduction of telemedicine.

36. Specific Guidelines from OPTIMUM Guideline 6: • Telelearning is without question a perspective aid using telecommunication technologies and services for learning over distance.The study of the Telelearning business case has shown that the payback period - for tariffs and penetrations considered - is about five years.This result could probably be improved by assuming higher tariffs, since the tariffs applied in the study reflect more the typical residential tariff structure and do not take into consideration the willingness to pay in the SME market segment. Taking into account all advantages of the telelearning it is clear that the great interest exists to develop this perspective branch. However,the development of telearning will probably not gain momentum without the financial support of the telelearning services from governments, educational foundations and enterprises.

37. Specific Guidelines from OPTIMUM Guideline 7: • The study on economics of new multimedia services that are provided for residential and SOHO’s customers suggests that these services have good business potential when using ADSL or LMDS technologies for providing them.On the other hand HFC technology does not provide a profitable platform if the underlying cable television network is not readily two-way capable or at least easily upgradeable for interactive services. The revenue per customer is the most important factor contributing to the overall profitability. The cost of technology is of secondary importance.

38. OPTIMUM co-operation