1. Center for Information and Communication Technologies
Multimedia Services in Residential Broadband Networks - Techno-Economics of Residential Broadband Deployment - Ph.D. Dissertation Defence
Lyngby, 11. June, 2007
Halldor Matthias Sigurdsson

2. Agenda Introduction Broadband Services Broadband Networks
Techno-Economics of Residential Broadband Deployment
Simulation Results
Conclusions
Lyngby, 11. June, 2007
Halldor Matthias Sigurdsson

3. Techno-Economics of Residential Broadband Deployment
The thesis was motivated by the questionable financial feasibility of coexisting FTTH and DSL deployment in Denmark
Empirical evidence:
Existing and expected wide-scale FTTH deployment in Denmark
21% households by 2007
50% households by 2016
Expected wide-scale VDSL deployment in Europe
VDSL deployment by T-Systems
VDSL deployment by France Telecom
Contradiction between (and within) literature and empirical evidence
Evidence of wide-scale upgrades of access network infrastructures:
“broadband markets are advancing to the next stage of development” (OECD 2005)
Literature findings:
“FTTH is only profitable in dense urban areas” (Olsen et al. 2006)
“The costs are such that high take rates .. are almost mandatory” (Frigo et al. 2004)
“FTTH in urban scenario does not lead to positive payback” (Monat et al. 2003)
Techno-Economics of Residential Broadband Deployment

4. Techno-Economics of Residential Broadband Deployment
The goal was to perform a multidisciplinary study of telecom vs. entrant deployment strategies
Technology
Economics
Regulation
Analyse the nature and near-future transmission requirements of converged voice, video and data services
Analyse the approaches of telecoms using Digital Subscriber Line (DSL) technology in comparison to entry strategies based on Fibre-to-the-Home (FTTH)
Investigate the effect of coexisting and competing DSL and FTTH
Broadband
Networks
Services
Multidisciplinary study with roots in the theory of technology, economics, and regulation
Evaluate and compare deployment strategies through financial feasibility
Based on the case of Denmark
Techno-Economics of Residential Broadband Deployment

5. Techno-Economics of Residential Broadband Deployment
The solution approach is based on comparing financial feasibility under competition using the theory of techno-economics combined with game-theory
Selected Theory and Methodology
Techno-Economics
Developed in RACE 2087/TITAN
Described in Ims et al. 1998
Currently under development in FP6-IST-BROADWAN and CP1-021-ECOSYS
Recently published results by Olsen et al. (2006)
Game-theory
Developed within economics during the second part of the last century
General references: Fundenberg and Tirole (1991) and Kreps (1990)
Uses the Von Stackelberg Game
Techno-Economics of Residential Broadband Deployment

6. Agenda Introduction Broadband Services Broadband Networks
Techno-Economics of Residential Broadband Deployment
Simulation Results
Conclusions
Lyngby, 11. June, 2007
Halldor Matthias Sigurdsson

7. A new approach is needed to define broadband
Previously broadband was defined through transmission capacity:
> 56 Kb/s (more than PSTN modem)
> 128 Kb/s (more than IDSN)
> 512 Kb/s …
Today many literature sources use:
> 2 Mb/s
Near-future demand:
> 20 Mb/s
The new way to define broadband is dynamic:
Broadband Definition 1: Local access link performance should not be the limiting factor in a user’s capability for running today’s applications.
Broadband Definition 2: Broadband services should provide sufficient performance — and wide enough penetration of services reaching that performance level—to encourage the development of new applications.
Based on: National Research Council, 2002
Techno-Economics of Residential Broadband Deployment

8. Quality of Packet Based Services is governed by QoS of transmission
Packet Based Network
Service Provider
User
Payload
Header
Payload
Header
Congestion
Multimedia Services have different transmission requirements:
Voice services require timeliness (<180 ms delay)  TOS1
Coding used to reduce effect of congestion
Video services require throughput (>2-10 Mbps)  TOS2
Coding used to reduce the transmission requirements
Data services require consistent data (no package loss)  TOS3
TCP used ensure retransmission of lost packages
Techno-Economics of Residential Broadband Deployment

9. Managed Networks can guarantee QoS of different types of services but only within their boundaries
PVC / VLAN mapping at local exchange
Voice
VLAN
Data PVC
Voice PVC
Data
VLAN
Network Access Providers can guarantee QoS through:
Over Provisioning
Loose control
Strict control
QoS can only be offered from within managed networks
Operators need to select provisional strategy
Limits revenue sharing on the Internet
Techno-Economics of Residential Broadband Deployment

10. Techno-Economics of Residential Broadband Deployment
To this day multimedia services have been complements to existing services but that is likely to change
Disruptive
potentials
Maturity
Adoption
Voice
Video
Data
Users have kept their traditional services
PSTN
Cable TV
Users have adapted new services IM
P2P
Traditional services such as PSTN will continue to diminish while new converged services gain maturity and momentum
Techno-Economics of Residential Broadband Deployment

11. Techno-Economics of Residential Broadband Deployment
Increased available transmission speeds are being absorbed by new services and applications
[Alcatel, ref. 1, 2004]
Désiré KARYABWITE, Victoria Falls presentation,
Broadband Development
Phase 1 (Service Profile 1)
Internet Access
Speed < 1,5 Mbps
Phase 2 (Service Profile 2)
High speed broadband
Speed 2-8
Phase 3 (now) (Service Profile 3)
Broadband Services (Voice, Video and Data)
Speed 8-24 Mbps
Phase 4 (Near future) (Service Profile 4)
Converged Multimedia Platform
Speed Mbps
Techno-Economics of Residential Broadband Deployment

12. Agenda Introduction Broadband Services Broadband Networks
Techno-Economics of Residential Broadband Deployment
Simulation Results
Conclusions
Lyngby, 11. June, 2007
Halldor Matthias Sigurdsson

13. Investment and Capacity
Two approaches are available and competing: DSL by telecoms and FTTH by entrants
Active Ethernet FTTH
Entrant / Energy Utility Company
PON/FTTH
Telecom
Demand
VDSL
Investment and Capacity
ADSL2+
ADSL
Time
Telecoms follow a migration strategy based on diminishing copper using DSL technology
Entrants / Energy Utility Companies only have a realistic option of deploying FTTH
Techno-Economics of Residential Broadband Deployment

14. Length of copper loops limits the service offerings of DSL
Low speed Data
High speed IPTV mm.
No service
SDP
Local Exchange
PDP
Optical Backbone Network
SDP
DSL technology uses the existing PSTN copper loop
Currently DSL equipment (DSLAM) is located in local exchanges
Attainable transmission speeds in DSL are determined by cooper loop length
As a result customers in the vicinity of local exchanges can get high speed transmission while customers further away can risk getting no service
Techno-Economics of Residential Broadband Deployment

15. Techno-Economics of Residential Broadband Deployment
Telecoms can increase service offerings by deploying DSLAM equipment in PDP or SDP
DSLAM in PDP
20-40 Mbps theoretical average
7-17 PDP nodes for each LE
DSLAM in SDP
67-90 Mbps theoretical average
SDP nodes for each LE
CAPEX and OPEX increases with
number nodes outside of LE and
Therefore:
cost LE < cost PDP << cost SDP
Techno-Economics of Residential Broadband Deployment

16. Techno-Economics of Residential Broadband Deployment
While telecoms can migrate between deployment strategies entrants can only deploy FTTH
Techno-Economics of Residential Broadband Deployment

17. Key decision to find position and number of nodes
An entrant only has the option of deploying FTTH
Network optimisation
Key decision to find position and number of nodes
Two FTTH technical solutions
Star based active Ethernet
Tree based Passive Optical Networks
FTTH is technologically superior
Facilitates higher transmission speeds
“Future Proof” transmission medium
Both require expensive groundwork
Neither solution is mature
Equipment prices will change
Regulatory uncertainty

18. Techno-Economics of Residential Broadband Deployment
Empirical study of Hasselager in Denmark demonstrates how telecoms map out strategic roll-out strategies
Techno-Economics of Residential Broadband Deployment

19. Agenda Introduction Broadband Services Broadband Networks
Techno-Economics of Residential Broadband Deployment
Simulation Results
Conclusions
Lyngby, 11. June, 2007
Halldor Matthias Sigurdsson

20. Basic Model Geometric Model
Rectangular geographic area divided among homogeneously distributed buildings
All buildings are assumed to connect through vertically and horizontal trenches to the nearest Aggregation Node AN LE AN LE
CPE AN
CPE AN
CPE AN

21. Modelling Financial Feasibility
The thesis follows the recommendation of the Danish NRA and uses a variant of PMT called tilted annuity
Tilted annuity can vary from year to year at the same rate as the price of the asset is expected to vary
Tilted annuity results in costs which, after discounting, cover the purchase price and financing costs of the asset
Modelling Financial Feasibility
Net Present Value (NPV)
Internal Rate of Return (IRR)
Constant Payment (PMT)
Payback-method
Techno-Economics of Residential Broadband Deployment

22. Modelling Competition
Modelling competition through game-theory
Cournot Competition / Model
Bertrand Competition / Model
von Stackelberg Model
Techno-Economics of Residential Broadband Deployment

23. Agenda Introduction Broadband Services Broadband Networks
Techno-Economics of Residential Broadband Deployment
Simulation Results
Conclusions
Lyngby, 11. June, 2007
Halldor Matthias Sigurdsson

24. Denmark was simulated through a dataset from the Danish NRA
Techno-Economics of Residential Broadband Deployment

25. DSL upgrade strategy 1 DSLAM at PDP
Least expensive upgrade alternative
Profitable in all scenarios
Room for competition
Technical problems with unbundling
Techno-Economics of Residential Broadband Deployment

26. DSL upgrade strategy 2 DSLAM at SDP
Costly and aggressive deployment strategy for telecoms
Governed by local loop characteristics
Highly affected by equipment price
Can forestall entry
Techno-Economics of Residential Broadband Deployment

27. FTTH Deployment Full cost
Dominated by trench cost
Financially feasible in cities
Requires high market share
Not feasible in other scenarios
Techno-Economics of Residential Broadband Deployment

28. FTTH Deployment Shared digging and connectivity fee
Can be financially feasible in all scenarios
Attracting customers is critical
Equipment cost becomes dominant
Techno-Economics of Residential Broadband Deployment

29. Techno-Economics of Residential Broadband Deployment
In the absence of competition there are limited incentive for an incumbent to deploy advanced DSL
Techno-Economics of Residential Broadband Deployment

30. Techno-Economics of Residential Broadband Deployment
When faced with competition deployment becomes a dominant strategy for the incumbent
Von Stackelberg game for cities
Von Stackelberg game for towns
Von Stackelberg game for Rural A
Von Stackelberg game for Rural B
Techno-Economics of Residential Broadband Deployment

31. Agenda Introduction Broadband Services Broadband Networks
Techno-Economics of Residential Broadband Deployment
Simulation Results
Conclusions
Lyngby, 11. June, 2007
Halldor Matthias Sigurdsson

32. Summary of Multimedia Networks and ServicesTV
Convergence of Networks
Multimedia
INTERNET
Modem
CPE
Convergence of Services
PSTN
Broadband needs to redefined based on services
Voice, Video, and data services require different transmission properties to function properly
Future networks will be based on the layered concept of next-generation-networks
Aggregated current need is ~ 20 Mbps
Foreseen near-future need is ~ 50 Mbps
Techno-Economics of Residential Broadband Deployment

33. Summary of techno-economic study
Telecoms can deploy financially feasible DSL from PDP or SDP
In the absence of competition, telecoms have limited incentive to deploy advanced DSL outside of local exchanges
When faced with competition deployment becomes a dominant strategy from telecoms
Energy Utility Companies can deploy financially feasible FTTH
The single most important factor (and problem they face) is securing a customer base
The broadband market in Denmark is close to saturated
EUCs predominantly choose active Ethernet while passive optical networks will dominate the future market
Techno-Economics of Residential Broadband Deployment

34. Conclusion and recommendations
Fibre will last > 30 years
FTTH equipment (cpe and switches) will last < 10 years
EUCs have experience in deploying and maintaining cables
Telecoms have experience in deploying and maintaining equipment
Cost of digging prevents telecoms from deployment
Technology and business cases prevent EUCs from deployment
Outsourcing of infrastructures is increasing in the telecom world today
Recommendations:
EUCs are fragmented and individual selection of technologies and business models will result in both success and failure
EUCs should consider cooperation with major telecoms (ILEC and CLECs), e.g. through
unbundled fibre
Techno-Economics of Residential Broadband Deployment

35. Agenda Introduction Broadband Services Broadband Networks
Techno-Economics of Residential Broadband Deployment
Simulation Results
Conclusions
Appendix
Lyngby, 11. June, 2007
Halldor Matthias Sigurdsson

36. “Information Chain” Services / Applicaitons Market and Access Networks
competition
Access Networks
Backbone Networks
Policy & Regulation
Middleware
Service Provision
Economics
Value Chain
Business Models
Techno-Economics
Cost
Techno-Economics of Residential Broadband Deployment

37. Techno-Economics of Residential Broadband Deployment
Academic Conclusion
Solved an insoluble problem
Break problem down and solve individually
Milestones are necessary
Maturing
Need for discipline
Techno-Economics of Residential Broadband Deployment

38. Development Path of IPTV
Interactivity
Development Path of IPTV
Multiplayer
Games
Customised
VoD
Content Interactivity
Broadcast TV
Linear
Unidirectional
Bidirectional
Transmission Interactivity

39. Techno-Economics of Residential Broadband Deployment
Netværkskonvergens
Henrik Clausen, IDC Telecom Konference 2006
Fra dedikerede til multifunktionelle netværker
Resultat er konkurrence mellem infrastrukturer (infrastructure competition)
Ikke én løsning er bedst
Hvad er så forskellen?
Techno-Economics of Residential Broadband Deployment

40. DSL Existing Infrastructure
Contradiction between literature and empirical evidence:
Existing and expected wide-scale FTTH in Denmark: The Danish Energy utility sector is planning FTTH deployment to xx% of danish homes in
Techno-Economics of Residential Broadband Deployment

41. DSL Existing Infrastructure
Contradiction between literature and empirical evidence:
Existing and expected wide-scale FTTH in Denmark: The Danish Energy utility sector is planning FTTH deployment to xx% of danish homes in
Techno-Economics of Residential Broadband Deployment

42. Techno-Economics of Residential Broadband Deployment
Historically transmission speeds have doubled every 1,9 years and are expected to continue doing so
Based on: Eldering, 1999
Exponential growth according to Moore’s law
Enabled by new transmission technologies
2007 predictions are ~ 20 Mbps
BT Technology Journal predicts a demand of 100 Mbps in 2010
Techno-Economics of Residential Broadband Deployment