Practical steps in Techno-Economic evaluation of network deployment planning This white paper aims at giving an overview of the techno-economic planning process for network deployment, migration and/or service offerings. We will study the entire flow, starting with a description of the existing situation, subdividing the specific problems, modelling network, processes, costs and revenues and ending with an evaluation of the relevant output parameters such as profitability. All steps are discussed indicating existing models and how they can be applied. Readers will learn to look into the network deployment problem from a techno-economic viewpoint. They will get to know how to focus on the main driving aspects first, while minimizing the chance to get lost in details. As opposed to some practices where one or more parts of the picture are neglected, we will emphasize the importance of the whole picture, choosing the required level of detail for the different parts. Furthermore a detailed analysis will show how to use real options and game theory in telecommunication cases.
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Valuing flexibility in telecom infrastructure projects. Networks 2012. Presented by Sofie Verbrugge and Mathieu Tahon.
The rapid technological change and uncertain future evolutions have a large impact on the investment projects in the telecommunication sector. When new infrastructure networks are rolled out, the initial assumptions can prove to be untrue, severely impacting the economic viability. It is therefore extremely important that projects offer flexibility to allow the management to react to unforeseen changes. Management must, for example, be able to decide to speed up the project, slow it down, or even completely abandon it. However, the standard method used to evaluate investment projects, the Net Present Value (NPV) analysis, is unable to capture the value of these different flexibility options. The Real Option (RO) concept, derived from financial literature, was proposed as a solution and allows implementing this flexibility in the standard calculations. However, Real Option Thinking (ROT) is only slowly getting accepted within the telecommunication sector. In this tutorial, we will indicate why the characteristics of this sector make it very well suited to apply real options to investment projects. In addition, we introduce the basics of real options theory and provide a practical methodology to apply real options to realistic telecom business cases. The rollout of fixed next-generation access networks offers a broad range of growth options to the operator, e.g. additional network upgrades or the introduction of new services. Using real options allows comparing the flexibility value of all these options. We provide a practical approach that can be seen as an extension to the standard techno-economic planning process of network deployment or migration. We indicate the essential requirements for the application of real options (uncertainty, flexibility and phased decision) and describe the four methodological steps: executing a standard NPV analysis, identifying the uncertainties, identifying the flexibility and calculating the option value (see figure below). To indicate the strength as well as ease of application of real option valuation, we will walk through a realistic techno-economic case, the migration from copper-based access based networks to more fiber rich and (eventually) fiber to the home networks.
Practical steps in techno-economic evaluation of network deployment planning. Globecom 2009. Presented by Sofie Verbrugge, Koen Casier, Jan Van Ooteghem and Bart Lannoo.
This tutorial aims at giving an overview of the techno-economic planning process of network deployment or migration. All steps are discussed indicating existing models and how they can be applied. We study the entire flow, starting with a description of the existing situation and the required geographic, demographic, economic and legal information and ending with an evaluation of the relevant output parameters such as profitability. Based on a definition of the rollout areas - possibly divided in smaller regions - a gradual rollout scheme can be used, e.g. starting in high-priority regions and evolving to the rest of the target area. The number of customers for a particular service is discussed based on different adoption model. Estimations for adoption allow to quantify revenues, consisting of both the calculation of direct (fees paid by customers) and indirect (additional value created for the company/operator) revenues. A second part of the modelling step considers the cost side and will get most attention. We indicate how capital (capex) and operational expenditures (opex) can be considered jointly in a hierarchical cost modeling view. For process-related costs we will describe an activity-based model with reference to the ITU eTOM model. We focus on fast cost estimations, given an accurate view based on the available input data. In the evaluation step, different approaches towards techno-economic evaluation will be discussed. We describe evaluation parameters and show how simulations can be used in order to get a better insight in the impact of the uncertainty on the planning outcome (sensitivity analysis). Finally, we identify how the basic evaluation result can be refined taking into account possible flexible reactions to uncertain changes (real options thinking) and multi-player analysis (game theory approach).
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