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Economic Analysis of Networking Technologies for Rural Developing Regions* Mubaraq Mishra Berkeley Wireless Research Center *Joint work with Tom Du, Dick.

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Presentation on theme: "Economic Analysis of Networking Technologies for Rural Developing Regions* Mubaraq Mishra Berkeley Wireless Research Center *Joint work with Tom Du, Dick."— Presentation transcript:

1 Economic Analysis of Networking Technologies for Rural Developing Regions* Mubaraq Mishra Berkeley Wireless Research Center *Joint work with Tom Du, Dick Filippini, John Hwang, Lakshminarayanan Subramanian and Reza Moazzami

2 Motivation The business motivation: Is there a business case for providing connectivity to rural populations in developing regions? Interested in the financial viability of the entire eco- system The technology motivation: Can economic analysis help us determine key technological developments needed to provide low cost connectivity?

3 Agenda Akshaya case study Financial Analysis of Akshaya Extending the Akshaya Analysis Conclusions

4 Akshaya: A Case study Joint project between the State of Kerala in India and Tulip IT Wireless IP network set up in the district of Malappuram – 630 eCenters in all Backhaul and last mile links are based on proprietary technologies 1 center for every 2000 families

5 Vettekkod Kizzisary Chekkod Pallurkotta Tavanoor Kallarakkunnu Vangalam Arikkod Nilambur Kalpakanchery Kakkancherry Pullamkode Melmuri Malappuram Vivekananda MEA PTM POP No of Akshaya centres connected km Bharti 3.04 km 7.75km 4.5 km 3.48 km 17.5 km 8.5 km 22.3 km km 22.5 km 3.5 Km km 11.5km 3.5km Sub POP

6 Akshaya Network Setup Pop - Hosts backhaul links and Access Base station Akshaya Center – Kiosk managed by entrepreneur Sub-pop - AC which also serves as a POP. Relay - Backhaul relay tower

7 Technologies considered XX X X WiFi (directional) Fiber VIP WipLLWiMaxWiFi (Omni) CDMA450 Access Technologies Backhaul Technologies

8 Total Costs for network deployment WiFi/WiMax is the most economically viable solution Fiber/WiMax is the least economically viable For Wireless, last mile costs dominate backhaul costs OpEx is huge !

9 CapEx for network deployment WiFi/CDMA450 has the lowest deployment Largest cost for fiber is installation

10 OpEx for network deployment WiFi/CDMA450 suffers from recurring spectrum lease cost Termination costs for a large portion of the OpEx

11 Conclusions for Akshaya WiFi with directional antennas + WiMax has most attractive economics. WiFi/CDMA450 has lowest cost of deployment. Largest cost for Fiber is installation. Wireless backhaul (both WiFi and VIP) technologies have at most 1/8 the backhaul CapEx VS Fiber Largest component of the capital investment for providing connectivity is the cost of the end-user devices. Cost of backhaul/access radio equipment on towers is miniscule

12 Extending the Akshaya Analysis Flat Terrain: If tower heights could be halved: IRR jumps by 1.8% Lower Population density: Coverage area can be doubled : IRR jumps by ~3% Cheaper end devices: PC costs can be halved : IRR jumps by ~10%

13 Extending the Akshaya Analysis: Handset Scenario Base case assumptions Convert the 630 centers into cellular handset retailers 6 CDMA450 Base-stations Start at 2 min usage increasing (by 1 min each year) to 6 min usage per day per subscriber Charge $0.02 per minute ~100,000 handsets (~1.58% penetration) With recurring Spectrum costs: Can subsidize handsets up to $38 each to breakeven With no recurring Spectrum costs: Can subsidize handsets up to $45 each to breakeven

14 Regulatory Effects (spectrum, duties, etc.) Regulation costs Upfront licensing fees Recurring spectrum license fee (8%-12% of adjusted gross revenue in India) Custom duties on wireless/PC/Handset Rights of ways costs (Tower lease etc) Termination charges Total costs regulation costs for the WiFi/WiMax scenario are 45% of the CapEx and 5 year OpEx Eliminating regulatory costs would increase the IRR by 74.5%.

15 Conclusions Entrepreneur can setup a Rural Wireless network and obtain an attractive 40% IRR Long haul wireless technologies incur must lower cost/unit of demand than Fiber Backhaul and Access Point Radio cost is small - hence it makes sense to make more expensive radios if we can improve coverage or reduce power dissipation. Costs linked to regulatory policies constitute a substantial portion of the overall network cost structure

16 Q & A

17 Appendix – Comparison of Technologies

18 Equipment required based on technology TechnologyNumber of POPs/Number of sub- POPs/Number of Relay POPs Average Number of Links per POP/sub- POP WipLL+VIP18/16/03 WiMax+WiFi18/16/03 CDMA450+WiFi3/3/03 (includes redundancy) WipLL+Fiber18/16/03

19 Financial Model - Assumptions Interested in the financial viability of the entire eco- system Revenue/Cost Charge $0.02 per minute Interconnection termination fee of $0.005 per minute Network utilization starts at 20% grows at 15% per year Other PCs cost $500 each 3 PCs per center Discount rate of 10%

20 Akshaya Business Model Tulip provides and maintains connectivity to Akshaya Center (AC) Micro loan (2L/center) to local entrepreneur for PC (min. 5 PCs per center) to run and operate AC Revenue model for Akshaya Monthly fee from AC ($20/month) Government offices Commercial customers (insurance, banks, car manufacturers., etc) 1 st family member trained for free, each additional family charged a small fee by entrepreneur Training subsidized by government

21 Discussion: Handset Scenario Base case assumptions Convert the 630 centers into cellular handset retailers 6 CDMA450 Base-stations Start at 2 min usage increasing (by 1 min each year) to 6 min usage per day per subscriber Each CDMA cell tower with 6 sectored antennas can cover 1000 customers No upfront spectrum auction cost for 450 MHz band Charge $0.02 per minute

22 Handset results Key results At ~100,000 handsets (~1.58% penetration), can subsidize handsets up to $38 each to breakeven Each base station can handle up to 69 simultaneous calls

23 Handset results (no spectrum costs) Assume no spectrum costs At ~100,000 handsets (~1.58% penetration), can subsidize handsets up to $45 each to breakeven Each base station can handle up to 69 simultaneous calls

24 Market size opportunity

25 Value chain

26 Classification of Telecommunication markets Key factors: Population density Purchasing power per user Bandwidth demand per user Urban/developed markets: High Pop density, High purchasing power, high BW demand => Fiber Rural/developed markets: Low Pop density, High purchasing power, high BW demand => ? Rural/developing markets: Low Pop density, Low purchasing power, low BW demand => ?

27 Rural Connectivity Market Individual purchasing power is low but community purchasing power is high Rural networks are coverage constrained while Urban networks are capacity constrained Demand is difficult to forecast Difficult Markets Low Literacy Markets are hard to reach, disorganized, and very local in nature. Lack of credit also impedes market development. Implication: Sharing of devices to reduce cost

28 NPV Sensitivity Analysis (Network utilization vs. Charge per minute) A minimum price of $.02 is needed for positive IRR.

29 NPV Sensitivity Analysis (PC cost vs. # of PCs per center) A minimum of 2 PCs are needed to generate enough demand for positive IRR

30 Basic Network Setting

31 Basic Economic Terms Capital expenditure (CapEx) Tower cost Backup power equipment cost Installation costs Radios/Networking/PC cost Upfront Spectrum cost Operational expenditure (OpEx) Salaries Maintenance Power cost Recurring Spectrum lease cost

32 Basic Economic Terms Net Present Value (NPV) – Current value of future transactions at given Rate of Return Internal Rate of Return (IRR) - Discount rate ‘r’ for which NPV = 0


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