D e v e lo p m e n t o f a B U L R IC m o d fo r fi x e d a n d m o b il e n e tw o rk s J a m e s A lle n , Ia n S tr e u le a n d D a v e L o n s d a le 2 0 A p ri l 2 0 1 0

1 4 8 9 5 -1 6 3 b

D e v e lo p m e n t o f a B U L R IC m o d fo r fi x e d a n d m o b il e n e tw o rk s J a m e s A lle n , Ia n S tr e u le a n d D a v e L o n s d a le 2 0 A p ri l 2 0 1 0

In d u s tr y p re s e n ta ti o n

Confidenti14895-1

C o p y ri g h t © 2 0 1 0 . C o p y ri g h t © 2 0 1 0 . A n a ly s y s M a s o n L im it e d h a s p ro d u c e d t h e i n fo rm a ti o n c o n ta in e d h e re in fo r O P T A. T h e o w n e rs h ip , u s e a n d d is c lo s u re o f t h is in fo rm a ti o n a re s u b je c t to t h e C o m m e rc ia l T e rm s c o n ta in e d i n t h e c o n tr a c t b e tw e e n A n a ly s y s M a s o n L im it e d a n d O P T A

C

C o n te n ts In tr o d u c ti o n P ro p o s e d c o n c e p tu a l a p p ro a c h M o d e l o v e rv ie w N e xt st e p s

Confidenti14895-1

P ro je c t o b je c ti v e s

O P T A h a s c o m m is s io n e d A n a ly s y s M a s o n t o d e v e lo p t h e B U L R IC m o d e ls

T h e p ro je c t o b je c ti v e s a re t o :

d e v e lo p a c o n c e p tu a l a p p ro a c h t o t h e mo d e ls in co n su lt a ti o n w it h t h e D u tc h i n d u s tr y

p re p a re d a ta r e q u e s ts f o r th e D u tch f ixe d a n d mo b ile o p e ra to rs

c o n s tr u c t a n d p o p u la te d ra ft m o d e ls

c o n s u lt w it h t h e D u tc h i n d u s tr y o n t h e d ra ft m o d e ls

fi n a lis e m o d e ls a n d p ro v id e c o s ti n g r e s u lt s t o O P T A

o d u c ti o n • O b je c ti v e s

C

T h e B U L R IC m o d e ls w il l d im e n s io n a n e tw o rk a n d c a lc u la te r e s u lt in g s e rv ic e c o s ts

o d u c ti o n • B U L R IC m o d e ls T ra ff ic v o lu m e s

N e tw o rk in fo rm a ti o n / a s s u m p ti o n s N e tw o rk c o s ts

U n it c o s ts In c re m e n ta l c o s ti n g a n d r o u te in g f a c to rs

N e tw o rk a s s e ts N e tw o rk e x p e n d it u re s S e rv ic e u n it c o s ts K E Y In p u t C a lc u la ti o n R e s u lt

D e p re c ia ti o n N e tw o rk a lg o ri th m s G e o g ra p h ic d a ta

Confidenti14895-1

O u r p ro c e s s w il l a ll o w s ig n if ic a n t in p u t fr o m i n d u s tr y p a rt ie s

T h ro u g h o u r re c e n t s tu d ie s f o r b o th f ix e d a n d m o b ile c o s ti n g i n o th e r c o u n tr ie s , w e h a v e r e fi n e d a n d i m p ro v e d o u r a p p ro a c h i n o rd e r to :

m a n a g e t h e r a n g e o f c o n c e p tu a l is s u e s

in te ra c t w it h m a rk e t p a rt ie s

re q u e s t a n d c o lle c t re le v a n t d e m a n d , n e tw o rk a n d c o s t d a ta

c o n s tr u c t c le a r a n d r o b u s t m o d e ls

e n a b le r e g u la to rs t o u n d e rs ta n d t h e r e s u lt s a n d i m p lic a ti o n s o f a L R IC -b a s e d c h a rg e c o n tr o l

o d u c ti o n • A p p ro a c h

C

T h e p ro c e s s c o m p ri s e s 5 p h a s e s . .. P h a s e 1 : C o n c e p tu a l a p p ro a c h

• D ra ft co n su lt a ti o n p a p e r o n co n ce p tu a l a p p ro a ch • F in a l c o n c e p tu a l a p p ro a c h p a p e r P h a s e 2 : D a ta c o lle c ti o n

• D a ta re q u e st d o cu me n t • D a ta c o lle c ti o n ( d e m a n d , n e tw o rk , c o s ts ) P h a s e 3 : D ra ft m o d e l c o n s tr u c ti o n

• D e v e lo p m e n t o f d ra ft f ix e d a n d m o b ile c o s t m o d e ls • In d u s tr y w o rk s h o p • F in a l d ra ft c o s t m o d e ls f o r c o n s u lt a ti o n P h a s e 4 : F in a l m o d e l c o n s tr u c ti o n

• R e v ie w o f c o n s u lt a ti o n r e s p o n s e s • R e v is e d m o d e ls a n d d o c u m e n ta ti o n

o d u c ti o n • A p p ro a c h P h a s e 5 : F in a l p re s e n ta ti o n a n d re su lt s

• D e v e lo p m e n t o f fi n a l c o s ti n g r e s u lt s a n d p re s e n ta ti o n • In d u s tr y w o rk s h o p

Confidenti14895-1

… in v o lv in g o p e ra to r p a rt ic ip a ti o n P h a s e 1 : C o n c e p tu a l a p p ro a c h

• In d u st ry co n su lt a ti o n p e ri o d • M e e ti n g s w it h o p e ra to rs o n r e s p o n s e s P h a s e 2 : D a ta c o lle c ti o n

• D a ta c o lle c ti o n • D a ta r e v ie w m e e ti n g s w it h o p e ra to rs P h a s e 3 : D ra ft m o d e l c o n s tr u c ti o n

• In d u s tr y w o rk s h o p i n tr o d u c in g d ra ft c o s t m o d e ls • In d u st ry co n su lt a ti o n p e ri o d P h a s e 4 : F in a l m o d e l c o n s tr u c ti o n • M e e ti n g s w it h o p e ra to rs o n r e s p o n s e s

o d u c ti o n • A p p ro a c h P h a s e 5 : F in a l p re s e n ta ti o n a n d re su lt s • F in a l in d u s tr y w o rk s h o p

C

T h e p ro je c t w il l b e f in a li s e d b y M a rc h 2 0 1 0

o d u c ti o n • T im e ta b le

Confidenti14895-1

In tr o d u c ti o n P ro p o s e d c o n c e p tu a l a p p ro a c h M o d e l o v e rv ie w N e xt st e p s

C

C o n c e p tu a l m o d e lli n g d e c is io n s

T h e c o s t m o d e ll in g w il l b e d e s ig n e d a c c o rd in g t o f o u r k e y d im e n s io n s

D e si g n a mo d e l to a id u n d e rs ta n d in g o f th e c o s ts o f p ro vi d in g f ixe d a n d mo b ile se rvi ce s in th e N e th e rl a n d s

R e fl e c t th e d e m a n d , n e tw o rk a n d c o s t fa c to rs o f th e D u tc h n e tw o rk s

E n g a g e i n d ir e c t d is c u s s io n w it h t h e o p e ra to rs in t h e m a rk e t

O p e ra to r Im p le m e n ta ti o n

S e rv ic e

IC p ri n c ip le s • O v e rv ie w T e c h n o lo g y

Confidenti14895-1

W e h a v e c o n s id e re d a r a n g e o f o p e ra to rs t o m o d e l

W e h a ve co n si d e re d a ra n g e o f o p e ra to rs *

a v e ra g e o p e ra to r: p la y e rs i n e a ch ma rke t (i .e . fi xe d a n d m o b ile ) a re a v e ra g e d t o d e fi n e a “t y p ic a l” o p e ra to r

h y p o th e ti c a l e x is ti n g o p e ra to r: b a s e d o n a c tu a l o p e ra to rs , e x c e p t fo r s p e c if ic a s p e c ts e .g . d a te o f e n tr y

h y p o th e ti c a l n e w e n tr a n t: a n o p e ra to r e n te ri n g n o w w it h to d a y ’s m o d e rn n e tw o rk d e p lo y m e n t

IC p ri n c ip le s • O p e ra to r *M o d e lli n g a c tu a l o p e ra to rs i s n o t c o n s is te n t w it h a n e u tr a l a p p ro a c h

CharacteristicDiscussion points

D a te o f e n tr y D if fe re n t fo r a ll o p e ra to rs , th e re fo re a v e ra g e d a te i s n o t m e a n in g fu l T e c h n o lo g y D if fi c u lt t o d e fi n e a n d m o d e l a n a v e ra g e t e c h n o lo g y a n d m ig ra ti o n fo r a fi x e d n e tw o rk E ff ic ie n c y A v e ra g e o p e ra to r m a y i n c lu d e in e ff ic ie n t c o s ts T ra n s p a re n c y M a k in g a c le a re r te c h n o lo g y c h o ic e e n a b le s t ra n s p a re n c y f o r b o th f ix e d a n d m o b ile R e c o n c ili a ti o n N e w e n tr a n t a p p ro a c h c a n n o t b e re c o n c ile d w it h a n y t o p -d o w n a c c o u n ts a s n o D u tc h n e w e n tr a n ts e x is t

C

O u r p ro p o s a l is t o m o d e l a h y p o th e ti c a l e x is ti n g o p e ra to r M o b il e n e tw o rk

R o lli n g o u t 2 G i n 2 0 0 4 /0 5

L a u n c h in g s e rv ic e i n 2 0 0 6

A d d in g c a p a c it y w it h 1 8 0 0 M H z

A d d in g o v e rl a y w it h 2 1 0 0 M H z

O p e ra ti o n o f 2 G a n d 3 G n e tw o rk s f o r a t le a s t 2 5 y e a rs

N o m ig ra ti o n o ff 2 G a n d 3 G

F ix e d n e tw o rk

R o lli n g o u t N G N I P c o re i n 2 0 0 4 /0 5

L a u n c h in g s e rv ic e i n 2 0 0 6

S p e c if ic c h o ic e o f a c c e s s t e c h n o lo g y

O p e ra ti o n o f th e N G N I P c o re f o r a t le a s t 2 5 y e a rs

N o m ig ra ti o n o ff N G N I P

IC p ri n c ip le s • O p e ra to r

E n a b le s u s t o c a lc u la te a c o s t th a t is b a s e d o n t h e e x is ti n g s u p p lie rs o f te rm in a ti o n i n t h e N e th e rl a n d s

A c tu a l m o d e rn n e tw o rk c h a ra c te ri s ti c s c a n b e t a k e n i n to a c c o u n t

Confidenti14895-1

M a rk e t e n tr y a n d d e p lo y e d te c h n o lo g y a re k e y i n p u ts …

IC p ri n c ip le s • O p e ra to r K P N l e g a c y T D M c o re K P N N G N c o re C a b le I P N G N c o re K P N 2 G ( n a ti o n a l) V o d a fo n e 2 G ( n a ti o n a l) T -M o b ile 2 G ( n a ti o n a l)

K P N 3 G V o d a fo n e 3 G T -M o b ile 3 G

2 0 0 4 2 0 0 9 2 0 0 0 1 9 9 4 lo n g a g o 2 0 2 0 A lt h o u g h t h e re i s c o n s id e ra b le d iv e rs it y i n in it ia l e n tr y d a te a n d te c h n o lo g y m ig ra ti o n , a c o n s is te n t p ic tu re h a s e me rg e d d u ri n g t h e p e ri o d 2 0 0 4 t o t o d a y

C

… a n d a ls o c o v e ra g e a n d l o n g -r u n m a rk e t s h a re

C o ve ra g e (f o o tp ri n t) o f th e n e tw o rk is a ke y in p u t to t h e co st mo d e l

d e g re e t o w h ic h i n v e s tm e n ts p re ce d e d e ma n d i n fl u e n ce s th e e v e n tu a l u n it c o s t o f tr a ff ic

In o rd e r to r e fl e c t re a lit y , th e m o d e lle d fi x e d a n d m o b ile o p e ra to rs s h o u ld o ff e r n a ti o n a l c o v e ra g e

A n o b je c ti v e a n d n e u tra l a p p ro a ch re q u ir e s u s in g a m a rk e t s h a re o f 1 0 0 % /N , w h e re N i s th e a ct u a l n u mb e r o f la rg e ( n a ti o n a l) n e tw o rk o p e ra to rs

IC p ri n c ip le s • O p e ra to r

H y p o th e ti c a l m o b il e o p e ra to r th a t

ro lls o u t a n a ti o n a l n e tw o rk

a c h ie v e s a l o n g -r u n m a rk e t s h a re o f 3 3 .3 %

H y p o th e ti c a l fi x e d o p e ra to r th a t

ro lls o u t a n a ti o n a l n e tw o rk

a c h ie v e s a l o n g -r u n m a rk e t s h a re o f 5 0 %

3 e x is ti n g n a ti o n a l m o b ile o p e ra to rs K P N V o d a fo n e T -M o b il e

2 e x is ti n g n a ti o n a l fi x e d o p e ra to rs K P N C a b le n e tw o rk s

Confidenti14895-1

T h e m o b il e r a d io t e c h n o lo g y i s a m ix o f G S M 9 0 0 /1 8 0 0 a n d U M T S 2 1 0 0

C u rre n t sp e ct ru m a llo ca ti o n c a n b e c o n s id e re d f a ir *

o p e ra to rs o w n s im ila r a m o u n t o f 9 0 0 M H z

1 8 0 0 M H z a n d 2 1 0 0 M H z a llo c a ti o n i s a s y m m e tr ic , b u t c o m p e n s a te d b y s p e c tr u m p a y m e n ts

It i s th e re fo re a ssu me d t h a t fo rw a rd -l o o k in g s p e c tr u m a n d c o v e ra g e c o s ts a re s y m m e tr ic a l

z

G SM/ U MT S se e ms th e c u rr e n t e ff ic ie n t te c h n o lo g y m ix

a ll e xi st in g o p e ra to rs u s e a G S M /U M T S m ix

th e y o p e ra te i n a c o m p e ti ti v e m a rk e t w h ic h s ti m u la te s e ff ic ie n t u s e o f te c h n o lo g y

4 G i s u n like ly to b e u se d t o d e live r la rg e vo lu me s o f vo ice t e rmi n a ti o n i n th e s h o rt t e rm * “F a ir ” is d e fi n e d h e re a s f u lly e n d o g e n o u s , i. e . re s u lt in g f ro m a n a u c ti o n i n w h ic h d if fe re n c e s w e re p a id f o r a t m a rk e t p ri c e

W e w ill a s s u m e t h a t th e m o d e lle d o p e ra to r h a s a 1 /3 s h a re o f 9 0 0 M H z a n d 1 8 0 0 M H z s p e c tr u m a n d 2u 1 0 M H z o f 2 1 0 0 M H z f re q u e n c ie s W e w ill u s e b o th G S M 9 0 0 /1 8 0 0 a n d U M T S 2 1 0 0 r a d io t e c h n o lo g y i n th e l o n g t e rm , w it h U M T S a s a n o v e rl a y

IC p ri n c ip le s • T e c h n o lo g y

C

M o b il e s p e c tr u m f e e s w il l a ls o n e e d to b e d e fi n e d

F o r 2 2 .5 M H z o f 9 0 0 M H z

E U R 2 2 6 .5 m il li o n b a s e d o n S E O v a lu a ti o n

F o r 4 8 M H z o f 1 8 0 0 M H z

E U R 2 2 5 m il li o n b a s e d o n 1 9 9 8 D u tch D C S a u ct io n

F o r 2 0 M H z o f 2 1 0 0 M H z

b e tw e e n E U R 5 0 m il li o n a n d E U R 1 5 0 m il li o n e s ti m a te d fr o m r e c e n t S w e d is h a n d U S a u c ti o n s o f m o b ile b ro a d b a n d o v e rl a y s p e c tr u m

z

S p e c tr u m f e e s h a v e h is to ri c a lly b e e n a ssi g n e d b y d if fe re n t m e c h a n is m s ( e .g . a u c ti o n , a llo c a ti o n , e x te n s io n , tr a d e , e tc .)

W e p ro p o s e t o a p p ly a “ c u rr e n t v a lu a ti o n ” fo r m o b ile s p e c tr u m , b a s e d o n r e c e n t a u c ti o n s t h a t a re like ly to i n d ica te t h e va lu e o f sp e ct ru m fo r mo b ile n e tw o rk u se i n T h e N e th e rl a n d s

T h e vi e w s o f in d u st ry p a rt ie s a re re q u e st e d o n o u r p ro p o sa l

IC p ri n c ip le s • T e c h n o lo g y

Confidenti14895-1

F o r th e m o b il e c o re , th e re a re t h re e s im il a r p la u s ib le a rc h it e c tu ra l o p ti o n s (b ) U p g ra d e d s w it c h in g (a ) S e p a ra te s w it c h in g (c ) C o m b in e d I P s w it c h in g

2G/ 3G MSC BSC / RNCBSC / RNC

GSN s

Internet BSCsRNCs

2G GSNs3G GSNs PoI MGWMGW

MSSMSS BSC/ RNCBSC/ RNC

Data routers and GSNs

Internet PoIPoI 3G MSC2G MSC 2G radio layer3G radio layer2G radio layer3G radio layer2G radio layer3G radio layer

Internet

W e s e e k i n d u s tr y v ie w s o n t h e r e le v a n t m o d e rn t e c h n o lo g y t o i n c lu d e i n t h e m o b ile s w it c h in g a n d t ra n s m is s io n l a y e r a n d h o w t h e c o s ts o f a n y v a ri a n ts in t h is t e c h n o lo g y s e q u e n c e s h o u ld b e r e c o v e re d

z

le a s e d lin e s

s e lf - p ro v id e d m ic ro w a v e lin k s

le a s e d fi b re n e tw o rk

T ra n s m is s io n o p ti o n s

IC p ri n c ip le s • T e c h n o lo g y

C

F o r fi x e d a c c e s s , it i s l e s s c le a r w h ic h n e tw o rk s h o u ld b e m o d e ll e d

IC p ri n c ip le s • T e c h n o lo g y (c ) F T T N / V D S L (a ) T ra d it io n a l c o p p e r (e ) F T T H / P T P (d ) F T T H / G P O N (b ) C a b le

City node MDF Cabinet NTPcopper/ fibre copper copper

City node NTPfibre

City node Splitter Splitter NTPfibre

fibre fibre

Metro node Local fibre node(s) NTPcoax

coax

W e s e e k v ie w s f ro m t h e I n d u s tr y G ro u p m e m b e rs o n t h e a p p ro p ri a te f ix e d (a c c e s s ) te c h n o lo g y t o m o d e l, o n t h e r e le v a n t te c h n o lo g y t o i n c lu d e i n t h e fi x e d t ra n s m is s io n l a y e r, a n d o n h o w t h e c o s ts o f a n y v a ri a n ts i n t h is te c h n o lo g y s e q u e n c e s h o u ld b e r e c o v e re d

traffic-sensitive assets

K e y

Confidenti14895-1

T h e f ix e d c o re n e tw o rk w il l n e e d t o b e N G N -b a s e d

T h e c h o ic e o f N G N c o n tr o l la y e r is h e a vi ly in fl u e n ce d b y th e a cce ss n e tw o rk a rc h it e c tu re

T h e o p ti o n s a re

c a b le h e a d -e n d s

N G N a c c e s s g a te w a y s ( A G W s )

N G N 3 G d ig it a l lo o p ca rri e rs (D L C )

N G N I P /E th e rn e t b ro a d b a n d a c c e s s p la tf o rm s ( IP B A P )

z

F o r c o p p e r- o ri e n ta te d d e p lo y m e n ts , a n N G N D L C co re w o u ld b e a p p ro p ri a te

F o r fi b re -o ri e n te d d e p lo y m e n ts , a n I P - B A P a p p ro a ch i s mo re re a so n a b le

A G W s a re a p p ro p ri a te f o r re mo te cu st o me rs, a n d a re u n like ly to b e re le v a n t in t h e N e th e rl a n d s

T h e E C R e c o m m e n d a ti o n s ta te s t h a t “t h e co re p a rt co u ld i n p ri n ci p le b e N G N -b a s e d ”

IC p ri n c ip le s • T e c h n o lo g y T h e re fo re , if a c o p p e r o r fi b re a c c e s s l a y e r is d e p lo y e d , th e n w e c o n c lu d e t h a t th e I P B A P a rc h it e c tu re i s t h e m o s t a p p ro p ri a te o p ti o n . If a c a b le n e tw o rk i s t o b e m o d e lle d , th e n a c a b le h e a d -e n d w o u ld b e a p p ro p ri a te

C

T h e m o d e l n e e d s t o c o n s id e r m o re s e rv ic e s t h a n j u s t v o ic e t e rm in a ti o n

T h e a im o f th e m o d e l is t o u n d e rs ta n d t h e c o s ts o f fi x e d a n d m o b ile v o ic e t e rm in a ti o n

H o w e ve r, f ixe d a n d mo b ile n e tw o rks typ ica lly co n ve y a w id e ra n g e o f s e rv ic e s , le a d in g t o

e co n o mi e s o f sca le a n d sco p e

a l o w e r u n it co st f o r vo ice a n d d a ta se rvi ce s

z

A f u ll list o f se rvi ce s n e e d s to b e u s e d w it h in t h e m o d e l

th is w ill a llo w a llo c a ti o n o f s h a re d a n d n e tw o rk c o m m o n c o s ts

D e ta ils o f th e p ro p o s e d s e rv ic e s a in t h e co n su lt a ti o n p a p e r

W e p ro p o s e a ls o t o e x c lu d e r e ta c o s ts ; a “ n e tw o rk s h a re ” o f b u s in e o v e rh e a d s ( e .g . C E O , e tc .) w ill b e s p e c if ie d

e st ima te d a t 5 0 % o f o ve rh e a d e x p e n d it u re s

IC p ri n c ip le s • S e rv ic e s

Confidenti14895-1

T h e m o d e l m u s t c a p tu re a ll s e rv ic e s (a t a n e tw o rk * v o lu m e )

IC p ri n c ip le s • S e rv ic e s F ix e d s e rv ic e s R e ta il o n -n e t (l o c a l a n d n a ti o n a l) R e ta il o u tg o in g t o i n te rn a ti o n a l, m o b ile a n d o th e r fi x e d o p e ra to rs W h o le s a le in c o m in g /o u tg o in g / tr a n s it : lo c a l a n d ta n d e m R e ta il D ia l- u p I n te rn e t R e ta il a n d w h o le s a le x D S L x D S L d a ta b a c k h a u l R e ta il T V se rvi ce s L e a s e d l in e s O th e r tr a n s m is s io n s e rv ic e s

M o b ile s e rv ic e s O n -n e t v o ic e O u tg o in g t o i n te rn a ti o n a l, f ix e d a n d o th e r m o b ile o p e ra to rs W h o le s a le i n c o m in g /t ra n s it S M S o n -n e t, o u tg o in g W h o le s a le S M S i n c o m in g 2 G p a c k e t d a ta L o w -s p e e d 3 G p a c k e t d a ta ( R e le a s e -9 9 ) H ig h -s p e e d 3 G p a c k e t d a ta ( H S P A ) *M V N O s a n d s e rv ic e pr o v id e r v o lu m e s w ill b e i n c lu d e d i n t h e m o d e lle d n e tw o rk o p e ra to rs

C

A s in g le t ra ff ic f o re c a s t s h o u ld f e e d b o th m o d e ls , fo r c o n s is te n c y

IC p ri n c ip le s • S e rv ic e s 0 1 0

2 0

3 0

4 0

5 0

6 0

7 0 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8

Min ute s ( bill io ns )

M o b ile -o ri g in a te d F ix e d -o ri g in a te d In te rn e t d ia l- u p V o iP -o ri g in a te d

D ia l- u p a lm o s t c o m p le te ly g o n e

F ix e d V o IP t ra ff ic in c re a s in g T ra ff ic o n f ix e d n e tw o rk s d e c lin in g s h a rp ly T ra ff ic o n m o b ile n e tw o rk s i n c re a s in g

Confidenti14895-1

In te rc o n n e c ti o n e s ta b li s h m e n t s e rv ic e s a re c o s te d a s w e ll

In c u m b e n t o p e ra to rs t y p ic a lly o ff e r a ra n g e o f re g u la te d co -l o ca ti o n s e rv ic e s , s o m e o f w h ic h m a y b e u se d f o r in te rco n n e ct io n co - lo c a ti o n

T h e s c o p e o f th e s e s e rv ic e s m a y c h a n g e w it h N G A , d e p e n d in g o n th e a rc h it e c tu re

C o s t e le m e n ts a re

p h y s ic a l s p a c e

e q u ip m e n t

z

In te rc o n n e c ti o n e s ta b lis h m e n t re q u ire s a ra n g e o f ta sks, o ft e n b e in g v a lid a te d b y b o th p a rt ie s

T h e t a s k s v a ry d e p e n d in g o n w h e th e r it c o n c e rn s c ir c u it -s w it c h e d o r V o IP i n te rc o n n e c ti o n

C o s t e le m e n ts a re

m a n a g e m e n t

a d mi n ist ra ti ve a n d t e ch n ica l ma n -h o u rs O n ly re g io n a l in te rc o n n e c ti o n a n d c o -l o c a ti o n w ill b e m o d e lle d , i. e . in te rc o n n e c ti o n a t a ro u n d 2 0 r e g io n a l p o in ts

C o -l o c a ti o n E s ta b li s h in g i n te rc o n n e c ti o n

IC p ri n c ip le s • S e rv ic e s

C

C h o ic e s m u s t b e m a d e w h e n im p le m e n ti n g a L R IC m e th o d o lo g y

A n u mb e r o f a re a s n e e d t o b e co n si d e re d

W h a t s iz e o f in c re m e n t? – e .g . m a rg in a l, s e rv ic e i n c re m e n ta l o r a ve ra g e i n cre me n ta l

W h a t d e p re c ia ti o n m e th o d ? – e .g . e c o n o m ic d e p re c ia ti o n , a c c o u n ti n g d e p re c ia ti o n

R e a s o n a b le r e tu rn o n c a p ita l? – W AC C

W h ic h m a rk -u p m e th o d (i f a n y )?

IC p ri n c ip le s • Im p le m e n ta ti o n

2 Confidentia14895-16

T h e re a re t w o a p p li c a b le i n c re m e n t d e fi n it io n s

L R A IC is t h e p re v a ili n g a p p ro a c h i n E u ro p e

a ll s e rv ic e s w h ic h c o n tr ib u te t o e co n o mi e s o f sca le a re t re a te d to g e th e r a n d e q u a lly

in Pl u s L R A IC co mmo n co st s a re m a rk e d u p

P u re L R IC is r e c o m m e n d e d b y t h e E C

c o n s id e rs i n c re m e n t to b e a ll tr a ff ic o f a s in g le s e rv ic e

in c re m e n ta l c o s ts a re t h o s e a v o id e d w h e n n o t o ff e ri n g t h e w h o le sa le te rm in a ti o n s e rv ic e

IC p ri n c ip le s • I m p le m e n ta ti o n • I n c re m e n ts

A n

in c re m e n t fo r m u lt ip le s e rv ic e s ( e .g . tr a ff ic ) T h e i n c re m e n t o f a n e n ti re s

(e .g . te rm in a ti o n )

A s m a ll in c re m e n t fo r th e m

u n it o f tr a ff ic

C

B a s e d o n O P T A ’s r e q u ir e m e n ts , w e w il l u s e t h re e a lt e rn a ti v e m e th o d s

T h e m o d e l w ill u s e t h re e a p p ro a c h e s t h a t d if fe r in t h e d e fi n it io n o f th e in c re m e n t a n d t h e t re a tm e n t o f c o m m o n c o s ts P u re B U L R IC Pl u s B U L R A IC P lu s A c c e s s B U L R A IC

IC p ri n c ip le s • I m p le m e n ta ti o n • I n c re m e n ts 1 2 3

Confidenti14895-1

T h e p u re B U L R IC a p p ro a c h o n ly in c lu d e s i n c re m e n ta l c o s ts

T h e P u re B U L R IC a p p ro a ch i s b a se d o n th e E C R e c o m m e n d a ti o n ; it s p e c if ie s

o n ly t h e c o s t ‘w h ich i s a vo id e d w h e n n o t o ff e ri n g v o ic e t e rm in a ti o n ’ is a llo c a te d t o t h is s e rv ic e

w h o le s a le t e rm in a ti o n t re a te d a s t h e ‘la s t’ s e rv ic e i n t h e n e tw o rk

n o n -t ra ff ic re la te d co st s, su ch a s s u b s c ri b e r c o s ts , a re n o t a llo c a te d

n e tw o rk c o m m o n c o s ts a n d b u s in e s s o v e rh e a d s a re n o t a llo c a te d t o t h e e n d re s u lt T h e c o lo u r- fi lle d b o x e s i n t h e d ia g ra m s o n s lid e s 3 1 -3 4 i n d ic a te t h e c o s ts in c lu d e d i n t h e u n it c o s t o f te rm in a te d t ra ff ic f o r e a c h m e th o d

IC p ri n c ip le s • I m p le m e n ta ti o n • I n c re m e n ts

Mo bil

e ed Fix

Network share of business overheads

Voice termination incremental cost All other traffic and subscriber driven network costs Network share of business overheads

Voice termination incremental cost All other traffic and subscriber driven network costs

1

C

T h e o th e r a p p ro a c h e s r e q u ir e t h e d e fi n it io n o f s u b s c ri b e r in c re m e n t

A s u b s c ri b e r in c re m e n t c a p tu re s c o n n e c ti o n /c o v e ra g e c o s ts w h ic h a re n o t tr a ff ic -s e n s it iv e

T h e d e fi n it io n h a s to b e co n si st e n t a c ro s s f ix e d a n d m o b ile

W e p ro p o se t o a p p ly

a l a rg e i n c re m e n t o f a ll s u b s c ri b e rs c a p tu ri n g t h e c o s t to c o n n e c t to t h e n e tw o rk

‘S u b s c ri p ti o n ’ is c o n s id e re d t o b e p ro v id in g e n d u s e rs w it h a c c e s s t o th e tr a ffi c -s e n s iti v e n e tw o rk

z

T h e s u b s c ri b e r in c re m e n t th e re fo re re q u ir e s

in a mo b ile n e tw o rk

a u n iq u e SI M ca rd

H L R a n d V L R re g ist ra ti o n s

c o v e ra g e w it h in f o o tp ri n t

in a f ix e d n e tw o rk

la s t- d ro p t o N T P

c o p p e r p a ir /f ib re /c a b le

sh a re d st re e t d u ct s b a ck to p o in t o f tr a ff ic c o n c e n tr a ti o n ( tr a ff ic - s e n s it iv it y )

W e w il l e x c lu d e a ll f o rm s o f e n d u s e r te rm in a l/ h a n d s e t

IC p ri n c ip le s • I m p le m e n ta ti o n • I n c re m e n ts

Confidenti14895-1

P lu s B U L R A IC i s c o n s is te n t w it h p re v io u s r e g u la to ry c o s ti n g

T h e Pl u s B U L R A IC a p p ro a c h f o c u s e s o n c o n s is te n c y w it h

th e p re v io u s a p p ro a c h i n E u ro p e f o r fi x e d c o s ti n g

O P T A ’s p re v io u s m o b ile c o s ti n g p ro je c t

A v e ra g e i n c re m e n ta l c o s ts o f tr a ff ic a re d e fi n e d i n a g g re g a te , th e n a llo c a te d t o v a ri o u s t ra ff ic s e rv ic e s u s in g r o u te in g f a c to rs

C o mmo n co st s a re i n cl u d e d

A l a rg e t ra ff ic i n c re m e n t im p lie s t h a t c o s ts co mmo n t o mu lt ip le t ra ff ic se rvi ce s a re in c lu d e d i n t h e a v e ra g e i n c re m e n ta l c o s t o f tr a ff ic

IC p ri n c ip le s • I m p le m e n ta ti o n • I n c re m e n ts

Mo bil

e ed Fix

Network share of business overheads

Traffic incremental costs = additional radio sites, BTS, additional TRX, higher capacity links, additional BSC, MSC, additional spectrum, etc

Subscribers = HLR, LU, SIM Mobile coverage network = radio sites, BTS, first TRX, backhaul link, minimum switch network, licence, etc. Network share of business overheads Traffic incremental costs = all switches, sites and inter- switch transmission infrastructure to the first point of traffic concentration

Subscriber sensitive costs = last-drop connections Shared costs of access = trench, duct and cable from the last-drop to the first point of traffic concentration Access and core shared trench

2

C

P lu s A c c e s s B U L R A IC t re a ts s u b s c ri b e r c o s ts a s c o m m o n

T h e Pl u s BU L R A IC a p p ro a ch a ssu me s a s e p a ra te s u b s c ri b e r (a c c e s s ) s e rv ic e

In s te a d , th e Pl u s A c c e s s B U L R A IC a p p ro a c h c o n s id e rs a n y i n c re m e n ta l c o s ts a s s o c ia te d w it th e s u b s c ri b e r a c c e s s s e rv ic e a s c o m m o n c o s ts to t h e t ra ff ic-re la te d se rvi ce s

T h is p re s e n ts a f u lly i n c lu s iv e n e tw o rk c o s t o f te rmi n a ti o n

T h e mo b ile re su lt ca n a lso b e co n si d e re d co mp a ra b le t o t h e ma rke d -u p re su lt f ro m O P T A ’s p re v io u s c o s ti n g p ro je c t, i n w h ic h lo c a ti o n u p d a te c o s ts w e re a d d e d t o t e rm in a te d tr a ff ic

IC p ri n c ip le s • I m p le m e n ta ti o n • I n c re m e n ts

Mo bil

e ed Fix

Network share of business overheads

Traffic incremental costs = additional radio sites, BTS, additional TRX, higher capacity links, additional BSC, MSC, additional spectrum, etc Subscriber costs = HLR, LU, SIM Mobile coverage network = radio sites, BTS, first TRX, backhaul link, minimum switch network, licence, etc Network share of business overheads

Traffic incremental costs = all switches, sites and inter-switch transmission infrastructure to the first point of traffic concentration Subscriber sensitive costs = last-drop connections Shared costs of access = trench, duct and cable from the last-drop to the first point of traffic concentration Access and core shared trench

3

Confidenti14895-1

T h e re a re s e v e ra l a p p ro a c h e s t o d e p re c ia ti o n i n a c o s t m o d e l …

IC p ri n c ip le s • I m p le m e n ta ti o n • D e p re c ia ti o n

100

150

200

250

300 year 0year 1year 2year 3year 4year 5

An nu al co st

Operating expenditures Depreciation (HCA) Cost of capital employed (HCA) 050

100

150

200

250

300 year 0year 1year 2year 3year 4year 5

An nu al co st

Operating expenditures Depreciation (CCA) Cost of capital employed (CCA) 050

100

150

200

250

300

350 year 0year 1year 2year 3year 4year 5

An nu al co st

Operating expenditures Annuity charge (tilted) 0

100

200

300

400

500

600 year 0year 1year 2year 3year 4year 5

An nu al co st

Economic cost recovery

Straight-line historical cost accountingStraight-line current cost accounting Tilted-annuitiesEconomic depreciation

C

… w e p ro p o s e t o u s e e c o n o m ic d e p re c ia ti o n

T h e p ri m a ry f a c to r in t h e c h o ic e o f a d e p re c ia ti o n m e th o d i s w h e th e r n e tw o rk o u tp u t is c h a n g in g o v e r ti m e

in m o b ile n e tw o rk s , tr a ff ic v o lu m e s h a v e g ro w n s ig n if ic a n tl y o v e r re c e n t ye a rs a n d mo b ile b ro a d b a n d vo lu me s a re g ro w in g st ro n g ly

in f ixe d n e tw o rks, t ra ff ic w a s h ist o ri c a lly v o ic e -d o m in a te d a n d f a ir ly s ta b H o w e ve r, w it h vo ice a n d d ia l-u p t ra ff ic d e cl in in g a n d b ro a d b a n d a n d o th d a ta i n c re a s in g , th is i s n o l o n g e r th e c a s e

T h e re fo re , in b o th c a s e s , e c o n o m ic d e p re c ia ti o n i s o u r p ro p o s e d m e th o d ; o u p ro p o s a l is r e in fo rc e d b y t h e n e e d f o r c o n s is te n c y b e tw e e n t h e t w o B U L R IC m o d e ls

W e p la n t o i m p le m e n t th e s a m e m e th o d a s i n O P T A ’s e x is ti n g m o b ile te rmi n a ti o n BU L R IC mo d e l

IC p ri n c ip le s • I m p le m e n ta ti o n • D e p re c ia ti o n

Confidenti14895-1

T h e I R G , W P C II a n d b e n c h m a rk s u n d e rp in o u r W A C C c a lc u la ti o n …

W e w ill f o llo w t h e I R G * Be st P ra c ti c e f o r th e W A C C c a lc u la ti o n

u s e t h e C a p it a l A sse t Pri ci n g M o d e l to d e te rm in e c o s t o f e q u it y

c a lc u la te t h e c o s t o f d e b t a s th e su m o f ri sk-f re e ra te a n d d e b t p re mi u m

a p p ly a n a p p ro p ri a te g e a ri n g le ve l fo r th e h yp o th e ti ca l e x is ti n g f ix e d a n d m o b ile o p e ra to rs

z

P a ra m e te r v a lu e s a re p ro p o s e d t o b e d e te rm in e d a s f o llo w s

m a rk e t- s p e c if ic p a ra m e te rs (r is k -f re e r a te , ta x a n d e q u it y ri s k p re m iu m ) w ill b e t a k e n f ro m W P C II p ro c e s s **

s e c to r- s p e c if ic p a ra m e te rs w ill b e b a s e d o n

b e n ch ma rks (E , g e a ri n g )

c o s t o f d e b t e s ti m a te f o r K P N ** , c o rr e c te d f o r g e a ri n g a c c o rd in g t o I R G ** N E R A , A p ri l 2 0 0 9 *I n d e p e n d e n t R e g u la to rs G ro u p

P ri n c ip le s V a lu e s

IC p ri n c ip le s • W A C C

C

0 .0

0 .2

0 .4

0 .6

0 .8 F ix e d o p e ra to rs F ix e d -m o b ile o p e ra to rs M o b ile o p e ra to rs

… l e a d in g t o a n o m in a l* W A C C o f 9 .6 % ( fi x e d ) a n d 1 1 .0 % ( m o b il e ) P a ra m e te r F ix e d M o b ile R is k -fr e e r a te 3 .8 % 3 .8 % E q u it y p re m iu m 6 .1 % 6 .1 % A s s e t b e ta 0 .5 1 0 .6 7 C o s t o f e q u it y (p o s t- ta x ) 1 0 .3 % 1 0 .2 % C o s t o f d e b t 5 .6 % 5 .1 % G e a ri n g 5 2 % 3 2 % T a x 2 5 .5 % 2 5 .5 % N o m in a l W A C C ( p re - ta x ) 9 .6 % 1 1 .0 %

A s s e t b e ta b e n c h m a rk 0 %

2 0 %

4 0 %

6 0 % F ix e d o p e ra to rs F ix e d -m o b ile o p e ra to rs M o b ile o p e ra to rs

G e a ri n g b e n c h m a rk

IC p ri n c ip le s • W A C C * T h e m o d e l w ill b e b a s e d o n r e a l- te rm s c a lc u la ti o n s , th e re fo re a r e a l te rm s W A C C w ill u lt im a te ly b e a p p lie d

Confidenti14895-1

In P lu s B U L R A IC , w e s u g g e s t a E P M U f o r c o m m o n c o s ts

E C R e c o m m e n d a ti o n s p e c if ic a lly e x c lu d e s r e c o v e ry o f c o m m o n co st s fro m vo ice t e rmi n a ti o n

H o w e v e r, ( p a rt o f) t h e c o m m o n c o s ts h a v e b e e n i n c lu d e d i n t h e c o s t b o u n d a ry i n p re v io u s re g u la to ry co st in g me th o d s

T h e m o d e l w ill t h e re fo re i n c lu d e o p ti o n s to r e c o v e r c o m m o n c o s ts , in d ic a te d b y Pl u s BU L R A IC a n d P lu s A c c e s s B U L R A IC

z

T o r e c o v e r c o m m o n c o s ts f ro m in c re m e n ta l s e rv ic e s , a m a rk -u p m e c h a n is m n e e d s t o b e d e fi n e d

W e p ro p o s e t o a p p ly a n e q u i- p ro p o rt io n a l ma rk-u p (EPMU ), o n th e g ro u n d s t h a t it i s :

o b je c ti v e a n d e a s y t o im p le m e n t

c o n s is te n t w it h r e g u la to ry p ra c ti c e e ls e w h e re

IC p ri n c ip le s • Im p le m e n ta ti o n • M a rk -u p m e c h a n is m

C

In tr o d u c ti o n P ro p o s e d c o n c e p tu a l a p p ro a c h M o d e l o v e rv ie w N e xt st e p s

Confidenti14895-1

A m o d u la r a p p ro a c h w il l b e u s e d i n th e c o n s tr u c ti o n o f th e m o d e l

d e l o ve rvi e w D e m a n d m o d u le

C o re m o d u le

C o s t m o d u le D e m a n d v o lu m e s

N e tw o rk c o s ts

R o u te s h a ri n g a n a ly s is U n it c o s ts In c re m e n ta l c o s ti n g a n d ro u te in g fa c to rs

n e tw o rk a s s e t d im e n s io n in g N e tw o rk e x p e n d it u re s S e rv ic e u n it c o s ts K E Y In p u t ‘A c tiv e ’ c a lc u la tio n R e s u lt

D e p re c ia ti o n N e tw o rk a s s u m p ti o n s

N e tw o rk g e o d a ta ‘Offl in e ’ c a lc u la ti o n

In te rc o n n e c ti o n m o d u le

C

T h e i n te rc o n n e c t m o d u le w il l re q u ir e d a ta f ro m a ll o p e ra to rs

O p e ra to rs t y p ic a lly o ff e r a r a n g e o f in te rc o n n e c ti o n s e rv ic e s a n d r e la te d c o -l o c a ti o n c o m p o n e n ts

B u ild in g a m o d u le c a p tu ri n g t h e c o s o f th e s e s e rv ic e s w ill r e q u ir e d e ta ile d a ta f ro m t h e o p e ra to rs

th is w ill b e a s k e d f o r a p a rt o f th d a ta re q u e st

T h e s e rv ic e c o s ti n g i n t h e m o d u le w fo c u s o n t h e c o s t o f re g io n a l in te rc o n n e c ti o n (u p t o a ro u n d 2 0 lo ca ti o n s d e p e n d in g o n t o p o lo g y)

C o s t o f in te r- co n n e ct io n E q u ip m e n t c o m p o n e n ts S p a c e c o m p o n e n ts M a in te n a n c e c o m p o n e n ts

Pre p a ra ti o n c o m p o n e n ts

S e rv ic e d e ma n d (r e q u e s ts )

d e l o ve rvi e w N e tw o rk te st in g

Confidenti14895-1

In tr o d u c ti o n P ro p o s e d c o n c e p tu a l a p p ro a c h M o d e l o v e rv ie w N e xt st e p s