We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
Published byGabriel Harper
Modified about 1 year ago
© 2008 Marvin A. Sirbu 1 Carnegie Mellon FTTx Architectures and Why it Matters for the Open Access Debate Marvin A. Sirbu Department of Engineering and Public Policy Carnegie Mellon University firstname.lastname@example.org http://www.andrew.cmu.edu/user/sirbu/
© 2008 Marvin A. Sirbu 2 Carnegie Mellon Conclusions Up Front FTTP networks have significant economies of scale n facilities-based competition is unlikely to be sustainable Service-level competition can exist over shared network infrastructure n Sharing possible at different levels n Sharing of dark fiber requires attention to fiber layout There is great variety in the models of sharing which can be found today A wholesale-only provider is financially viable n It is not necessary to be vertically integrated to be profitable
© 2008 Marvin A. Sirbu 3 Carnegie Mellon Outline Models of Competition in FTTP Alternative FTTP architectures: impact on competition Economics of FTTP Economics of a Wholesale/Retail split
© 2008 Marvin A. Sirbu 4 Carnegie Mellon Outline Models of Competition in FTTP Alternative FTTP architectures: impact on competition Economics of FTTP Economics of a Wholesale/Retail split
© 2008 Marvin A. Sirbu 5 Carnegie Mellon Facilities based competition – each competitor builds FTTP network
© 2008 Marvin A. Sirbu 6 Carnegie Mellon UNE (LLU) based Competition in FTTP Dark fiber based – network owner wholesales dark fiber Wavelength based – network owner wholesales wavelengths
© 2008 Marvin A. Sirbu 7 Carnegie Mellon Open Access based competition – network owner wholesales transport capacity
© 2008 Marvin A. Sirbu 8 Carnegie Mellon Sharing Network Infrastructure: Summary Layer:Shared Infrastructure… 0Conduit and collocation facilities. 1 (Physical Layer Unbundling) Dark fiber leasing, or perhaps, Optical Layer unbundling (CWDM or DWDM in PONs) 2 (Data Link Layer Unbundling) Dark fiber and link-layer electronics at each end. For example, Ethernet-based VLAN, or ATM-based PVCs. 3 (Network Layer Unbundling) Basic network service provided. For example, IP Layer 3 service over cable using policy-based routing to multiple ISPs
© 2008 Marvin A. Sirbu 9 Carnegie Mellon Examples of Sharing at Different Layers 0Open access to ducts Portugal France 1Dark fiber at layer 1 Stokab in Stockholm 2VLAN service at layer 2 UTOPIA Amsterdam Pau
© 2008 Marvin A. Sirbu 10 Carnegie Mellon 10 Multiple Layer Separation Amsterdam Source: http://www.citynet.nl/upload/Wholesale-bandwidth-Amsterdam-Citynet.pdf
© 2008 Marvin A. Sirbu 11 Carnegie Mellon Issues and Problems If you build a wholesale network, will there be service providers? n Kutztown, PA wanted to do only up to layer 2 and couldn’t find service providers to run over the network Operations finger pointing between wholesaler and retailer n Provo Utah sold its layer 2 wholesale network to a service retailer arguing that integrated operations are cheaper Economies of scale n Operating company to light the fiber in multiple cities –Axione –Packet Front
© 2008 Marvin A. Sirbu 12 Carnegie Mellon Outline Models of Competition in FTTP Alternative FTTP architectures: impact on competition Economics of FTTP Economics of a Wholesale/Retail split
© 2008 Marvin A. Sirbu 13 Carnegie Mellon Home Run Architecture Implications for Competition Physical layer unbundling possible – wholesaler can sell individual fiber Also supports open access
© 2008 Marvin A. Sirbu 14 Carnegie Mellon Active Star Architecture Implications for Competition Physical layer unbundling is difficult n requires competitors to collocate electronics at remote node n Must provide feeder fibers for each competitor Logical layer unbundling possible - supports open access
© 2008 Marvin A. Sirbu 15 Carnegie Mellon Curb side Passive Star Architecture (PON) Implications for Competition Physical layer unbundling not possible Logical layer unbundling possible - supports open access Separate λ’s may be used for Data and video
© 2008 Marvin A. Sirbu 16 Carnegie Mellon WDM PON Implications for Competition Physical layer unbundling not possible Optical layer unbundling possible – wholesaler can sell wavelengths Also supports open access
© 2008 Marvin A. Sirbu 17 Carnegie Mellon Design Considerations in a PON: A Curb-side PON Both OLTs needed if only one home in each splitter group subscribes
© 2008 Marvin A. Sirbu 18 Carnegie Mellon Design Considerations in a PON: A Fiber Aggregation Point (FAP) PON Fiber Aggregation Point PON supports all models of competition
© 2008 Marvin A. Sirbu 19 Carnegie Mellon How many homes should be aggregated at an Optimal FAP? OFAP allows deferring investment in OLTs until penetration requires it
© 2008 Marvin A. Sirbu 20 Carnegie Mellon OFAP as a Real Option to Phase-in New Technologies OFAP also supports flexibility in future split ratios - 10 Gbps GPON, GEPON - WDM PONs
© 2008 Marvin A. Sirbu 21 Carnegie Mellon OFAP Benefits with an Active Star Architecture Higher utilization of RT and OLT ports Neighboring homes can be served by different technology generations RT & OLT to be deployed as needed Larger serving area
© 2008 Marvin A. Sirbu 22 Carnegie Mellon Sharing in the “Second Mile” As video becomes dominated by unicast Video on Demand (VOD) metro aggregation network costs soar In smaller communities, access to regional transport to a Tier 1 ISP is a major barrier to entry Retail service providers sharing an FTTH access network may also need to share at the metro/regional level in order to be economically viable. n NOAAnet There is a tradeoff with distributed video servers n Sharing a content delivery network (e.g. Akamai) may be an alternative. –This requires distributed colo space and interconnection n See Han, S. et al “IPTV Transport Architecture Alternatives and Economic Considerations,” IEEE Comm Mag, Feb 2008 n Lamb L., “The Future of FTTH – Matching Technology to the Market in the Central Office and Metro Network,” NOC 2008. n NSP, “A Business Case Comparison of Carrier Ethernet Designs for Triple Play Networks,”
© 2008 Marvin A. Sirbu 23 Carnegie Mellon Regulatory Implications If regulators want to be able to require dark fiber unbundling, they need to require compatible fiber layout n OFAP PON vs curb-side PON n Even larger OFAP for competitive active star –Need for additional feeder fibers for competitors All architectures support logical layer (“bitstream”) unbundling n IPTV unbundling possible at bitstream layer n If video distributed over a separate wavelength, issues of access to RF multiplex.
© 2008 Marvin A. Sirbu 24 Carnegie Mellon Outline Models of Competition in FTTP Alternative FTTP architectures: impact on competition Economics of FTTP Economics of a Wholesale/Retail split
© 2008 Marvin A. Sirbu 25 Carnegie Mellon Simple FTTH Economics: FTTH Includes Fixed Plus Variable Costs e.g. for Verizon YE06 n Fixed=$850 n Variable=$880 Source: http://investor.verizon.com/news/20060927/200 60927.pdf $ Take Rate (R = customers / homes passed) 100%0% Fixed costs Cost = Fixed + R * Variable Slope = avg cost Adapted from Friogo, et.al. http://ieeexplore.ieee.org/iel5/35/29269/01321382.pdf
© 2008 Marvin A. Sirbu 26 Carnegie Mellon Cost Per Subscriber vs Take Rate $1730
© 2008 Marvin A. Sirbu 27 Carnegie Mellon How Much Revenue to Support FTTH? One operator estimates $90/month per subscriber n $40 for ongoing services cost n $50/month to cover capital costs Assume an average of 10 year lifetime, 5% cost of capital n Fiber lasts 40 years n Electronics lasts five years $50/month can amortize $4700 What if Average Revenue Per User (ARPU) is less? $30/month can amortize $2800
© 2008 Marvin A. Sirbu 28 Carnegie Mellon Cost Per Subscriber vs Take Rate Percent take rate needed to break even Capital that can be amortized with $50/mo/sub Capital at $30/mo/sub Adapted from Frigo et. al.
© 2008 Marvin A. Sirbu 29 Carnegie Mellon Cost Per Subscriber vs Take Rate Capital that can be amortized with $50/mo/sub Adapted from Frigo et. al. Consumers Competition Take Rate
© 2008 Marvin A. Sirbu 30 Carnegie Mellon Economic Implications: If revenue available to amortize plant is only $30/month, must reach penetration of > 45% room for at most 2 facilities-based providers This analysis understates the problem n No customer acquisition (marketing/sales) cost included –Customer acquisition drives up Fixed costs pushing breakeven penetration higher n Unlikely to see >90% total penetration
© 2008 Marvin A. Sirbu 31 Carnegie Mellon Regulatory Implications Facilities-based competition among fiber network providers is unlikely n Economies of scale Regulators should be cautious of waiving open access requirements in return for investment in fiber n Could lead to remonopolization At best duopoly competition n If service competition limited to ISPs which own facilities greatly reduced service level competition n Operators will have Significant Market Power (SMP) n Reduced service-level competition raises Network Neutrality issue
© 2008 Marvin A. Sirbu 32 Carnegie Mellon Net Neutrality Can third parties compete with vertically Integrated ISPs? Apps + Con- tent Apps + Con- tent Apps + Con- tent
© 2008 Marvin A. Sirbu 33 Carnegie Mellon Outline Models of Competition in FTTP Alternative FTTP architectures: impact on competition Economics of FTTP Economics of a Wholesale/Retail split
© 2008 Marvin A. Sirbu 34 Carnegie Mellon Economic Analysis: Motivating Question Open Access: Network operator provides wholesale transport to service providers n Do sustainable prices exist for an infrastructure-only provider? Build a supply/demand model and calculate welfare effects for different industry structure models
© 2008 Marvin A. Sirbu 35 Carnegie Mellon Structural separation interferes with the ability to price discriminate Vertically integrated entity Can sell 7 bundles: Voice, Data, Video, Voice-Data, Voice-Video, Data- Video, Voice-Video-Data Can set 7 prices Dark fiber wholesaler Can sell only dark fiber access Can set only one price Does this make a wholesaler less likely to recover costs vis-à-vis a vertically integrated entity?
© 2008 Marvin A. Sirbu 36 Carnegie Mellon Wholesale Prices and Arbitrage A dark fiber wholesaler can set only one price A lit fiber wholesaler can set a price for data or video bandwidth but cannot set a separate price for the bundle n Video bandwidth is sufficient to offer both video and data services to customers, so n Wholesale price of “bundle” bandwidth and “video” bandwidth must be the same
© 2008 Marvin A. Sirbu 37 Carnegie Mellon We have studied 3 models Single Service Provider 2-service Assumptions FTTP network only network serving market Voice services are provided over a separate network FTTP network used to provide only data and video services Duopoly 2-service Market already served by (cable) incumbent when FTTP provider enters FTTP and incumbent network used to provide only data and video services Single Service provider 3-service FTTP network only network serving market FTTP network used to provide voice, video and data service
© 2008 Marvin A. Sirbu 38 Carnegie Mellon Two-service model for the Wholesale-Retail Split Demand Model n Consumers have different willingness to pay for voice, video and data services: Willingness to pay for a particular service can be modeled by a statistical distribution for a particular market n There is correlation between the willingness to pay for voice, video and data for one particular consumer: One can imagine a 3-space where the coordinates of each point give her willingness to pay for voice, video and data services n For simplicity, here we assume everyone wants voice – so our demand model is 2-space, where the coordinates of each point give the willingness to pay for data and video
© 2008 Marvin A. Sirbu 39 Carnegie Mellon X 1 =Homes taking service1 (data) at price P 1 (Area BDP 1 P 3 ) X 2 =Homes taking service2 (video) at price P 2 (Area ACP 2 P 3 ) X 3 =Homes taking service3 (video and data) at price P 3 (Area ACDBZ) Demand Model.. P1P1 P2P2 A B C D P3P3 P3P3 Z
© 2008 Marvin A. Sirbu 40 Carnegie Mellon Supply Model Annualized Fixed cost for wiring up the entire market consisting of X homes = F Annualized Fixed Cost of installing CPE and drop loop = C 0 Annual incremental cost of providing data service (Service 1) per home = C 1 Annual incremental cost of providing video service (Service 2) per home = C 2 Observation: Marginal Cost of Bundle (C 0 +C 1 +C 2 ) is less than the sum of Marginal Cost of Data (C 0 +C 1 ) and Marginal Cost of Video(C 0 +C 2 ) If X 1 homes take data service, X 2 homes take video service and X 3 take both, annual cost of providing service = F + C 0 (X 1 +X 2 +X 3 ) + C 1 X 1 + C 2 X 2 + (C 1 +C 2 )X 3
© 2008 Marvin A. Sirbu 41 Carnegie Mellon Possible Industry Structures Vertically Integrated entity (Network owner provides retail service) n ‘Verizon’ Model (Profit Maximizing) n ‘Bristol’ Model (Welfare Maximizing) Structurally Separated entities (Network owner, either by regulation or choice, is only a wholesaler. The retail market is assumed to be competitive/contestable) n ‘Grant County Profit (GCP)’ (Profit Maximizing layer 2 service wholesaler) n ‘Grant County Welfare (GCW)’ (Welfare Maximizing layer 2 service wholesaler) n ‘Stockholm Profit (SP)’ Model (Profit Maximizing dark fiber wholesaler) n ‘Stockholm Welfare (SW)’ Model (Welfare Maximizing dark fiber wholesaler)
© 2008 Marvin A. Sirbu 42 Carnegie Mellon Model Results Not surprisingly, if network owner optimizes Social Welfare (e.g. Bristol) consumers are much better off than if network owner optimizes profit If network owner optimizes profit, THERE IS VIRTUALLY NO DIFFERENCE in profit for a vertically integrated firm or a wholesaler. n The fact that vertically integrated firm has more flexibility to price discriminate is not important since most households subscribe to the bundle, and wholesaler can extract the same rent. n If there is a large fraction of the population with no interest in broadband data, then vertically integrated firm can do 25% better than a dark fiber wholesaler, but still no better than a lit fiber wholesaler.
© 2008 Marvin A. Sirbu 43 Carnegie Mellon 3 services model shows less than 5% difference Stockholm and Verizon profits F=5x10 4 C 0 =8 C 1 =20 C 2 =30 C 3 =5 1 = 35 σ 1 = 10 2 = 45 σ 2 = 10 3 = 25 σ 3 = 10
© 2008 Marvin A. Sirbu 44 Carnegie Mellon Similar profits are attained in spite of a different distribution of subscribers
© 2008 Marvin A. Sirbu 45 Carnegie Mellon What if There Are Competing FTTP Operators? If services are identical, classic case of natural monopoly n Firm with higher penetration has lower costs Ruinous competition n Having sunk cost in fixed plant, each competitor is willing to price at marginal cost n negative profits Stable competition can exist only if there are n Differentiated services appealing to heterogeneous customer tastes; or n High switching costs
© 2008 Marvin A. Sirbu 46 Carnegie Mellon Duopoly Model Results We assume two operators with similar cost structures, one an incumbent, one a new entrant Assuming video and data services are sufficiently differentiated between competitors, both can survive in the marketplace If the new entrant is a wholesaler only, or vertically integrated makes no difference in its profit An incumbent competing against a dark fiber wholesaler is modestly worse off than when competing against a vertically integrated competitor n Wholesaler’s inability to price discriminate forces competitor to reduce price discrimination and lose profit.
© 2008 Marvin A. Sirbu 47 Carnegie Mellon Model assumptions and caveats Retail industry assumed to be perfectly competitive and no entry barriers; retailers make zero economic profit Revenues derived entirely from end customers, not from application service providers No economies of scope at retail assumed Incremental costs, C i, are the same in both vertically integrated and competitive retail cases n Competition should drive down incremental costs of services Layer 2 costs, C 0, are the same whether supplied competitively or by wholesaler n See above
© 2008 Marvin A. Sirbu 48 Carnegie Mellon Regulatory Policy Implications Operators, municipalities or communities that build out FTTP and choose to be wholesalers: (i) can realize sustainable prices, (ii) are likely to create greater welfare (due to innovation spurred by retail competition) and (iii) are just as likely to recover costs (vis-à-vis vertically integrated entities) Model results contradict claims by operators that vertical integration is necessary to support investment in FTTP infrastructure regulatory holiday for FTTP investment is unwarranted.
© 2008 Marvin A. Sirbu 49 Carnegie Mellon Conclusion What are the different models of competition in FTTP? n Facilities based n Service level (over shared network infrastructure) Fiber layout affects options for competition n OFAP supports fiber unbundling even for PONs n More feeder fibers required for competition FTTP networks have significant economies of scale n Unlikely to support multiple facilities-based providers n “Second Mile” sharing also important A Wholesale Operator can earn profits similar to those available to vertically integrated competitors n It is not necessary to be vertically integrated in order to “earn enough” to pay for the infrastructure
© 2008 Marvin A. Sirbu 50 Carnegie Mellon For Further Information http://www.andrew.cmu.edu/user/sirbu/pubs/Banerjee_Sirbu. pdf http://web.si.umich.edu/tprc/papers/2006/648/Banerjee_Sirbu%20TP RC_2006.pdf http://cfp.mit.edu/groups/broadband/muni_bb_pp.html
©Anupam Banerjee, Carnegie Mellon Issues in FTTP Industry Structure: Implications of a Wholesale-Retail Split (Pricing in Open Access Networks) Anupam.
Outside Plant Fiber Optics Outside Plant Fiber Optics Module 5 Fiber to the Home.
McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 12 Managerial Decisions for Firms with Market Power.
13-1 What Is Strategy? A firm’s strategy refers to the actions that managers take to attain the goals of the firm Firms need to pursue strategies that.
Ross Kelso Doctoral candidate, QUT 26 September 2006 Access to Next Generation Broadband 2006 Communications.
The Effects of Network-Sharing Regulation in Telecommunications in the EU and the United States Robert W. Crandall The Brookings Institution PFF/CEPS Conference.
Proposed Tactical Framework Telecomm Regulation Onno W. Purbo
1 Price squeeze tests in electronic communications: ARCEPs experience Competition Law and Electronic Communications Brussels, June 19, 2008.
Chapter 7SectionMain Menu Perfect competition is a market structure in which a large number of firms all produce the same product. 1. Many Buyers and Sellers.
Perfect Competition Chapter 7 LIPSEY & CHRYSTAL ECONOMICS 12e.
1 End of Regulation? Jerry Hausman Professor of Economics MIT July 2005
Electricity Power Market: Competitive and Non-competitive Markets Ito Diejomaoh.
Chapter 12 The Strategy of International Business.
The Strategy of International Business. Introduction What actions can managers take to compete more effectively as an international business? How can.
Managerial Economics & Business Strategy Chapter 8 Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets McGraw-Hill/Irwin Michael.
Chapter 11 The Strategy of International Business 1.
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 5 Competition and Market Power.
Local loop Unbundling Dr. ZOUAKIA Rochdi ANRT. Presentation outline Definition of Unbundling local loop (LLU) Importance of LLU Types of LLU : Description.
July 20, 2007 DBC confidential. Duplication strictly prohibited. 1 DigitalBridge Communications Next-generation broadband for South Carolina October 17,
Broadband Wireless The Business Case for High Capacity Presented by: Paul S. Bachow February 20,
CHAPTER 13 THE STRATEGY OF INTERNATIONAL BUSINESS.
International Business An Asian Perspective By Charles W.L. Hill Chow-Hou Wee Krishna Udayasankar.
Economics Chapter 7 Market Structures. Perfect competition is a market structure in which a large number of firms all produce the same product. There.
Chapter Monopoly 15. In economic terms, why are monopolies bad? Explain. 2.
Pure Competition Chapter 9 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
AP Microeconomics Warm Up: Why will it be hard for a monopolistic competition firm to sustain profits?
Presentation Pro © 2001 by Prentice Hall, Inc. Economics: Principles in Action C H A P T E R 7 Market Structures.
Monopoly A monopoly is a single supplier to a market This firm may choose to produce at any point on the market demand curve.
1 Federal Network Agency for Electricity, Gas, Telecommunications, Post and Railways Michael Schimmel Price squeeze tests in electronic communications.
Chapter 22: The Competitive Firm Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 13e.
Competition. Direct Competitors - Firms likely to gain or lose a substantial share of customers from each other over time because they serve the same.
PERFECT COMPETITION 7.1. Objectives 1. Describe the four conditions that are in place in a perfectly competitive market. 2. List two common barriers that.
Unit 4, Lesson 10 Competition AOF Business Economics Copyright © 2008–2011 National Academy Foundation. All rights reserved.
Next-Generation FTTH: Architectures and Enabling Components Rajeev Ram MIT Center for Integrated Photonic Systems In collaboration with Communications.
Monopoly. Market with a single supplier of a good or service -- Examples a. Local telephone b. Utilities c. DeBeers (South African Firm) controls 80%
Managerial Decisions for Firms with Market Power BEC Managerial Economics.
Monopolistic Competiton. Assumptions Many sellers and many buyers Slightly different products Easy entry and exit (low barriers)
ENTREPRENEURSHIP I Ind – Develop a foundational knowledge of pricing to understand its role in marketing. (Part II)
Constructing An Effective Statutory & Regulatory Framework for Broadband Networks Phoenix Center Symposium December 1, 2005 Disclaimer: Views presented.
Global Business Management (MGT380) Lecture #19: Global Strategy.
Chapter Monopoly 15. Why Monopolies Arise Monopoly – Firm that is the sole seller of a product without close substitutes – Price maker – Barriers to entry.
What is GPON?. Introduction and Market Overview: The Need for Fiber The way people use the Internet today creates a great demand for very high bandwidth:
Lecture 2: Porter’s Five Forces ©2009 by Marvin Lieberman How Competition Shapes the Creation and Distribution of Economic Value Introduction to Business.
©2005 Pearson Education, Inc. Chapter Distribution of Grades Midterm #2 Mean = Median = 29.
Interconnection and Access Presentation by Dale N. Hatfield Chief, Office of Engineering and Technology Federal Communications Commission June 6, 2000.
Chapter 12 The Strategy of International Business 1.
OLIGOPOLY Managerial Economics Lecturer: Jack Wu.
© 2017 SlidePlayer.com Inc. All rights reserved.