Techno-economic modelling of telecommunications networks and services

Citation

Varoutas, D., Hammainen, H. and Welling, I. (2009), "Techno-economic modelling of telecommunications networks and services", info, Vol. 11 No. 3. https://doi.org/10.1108/info.2009.27211caa.001

Techno-economic modelling of telecommunications networks and services

Article Type: Guest editorial From: info, Volume 11, Issue 3

Telecommunications techno-economics[1] aims to bridge the gap between telecommunications engineering and economic/business aspects. The techno-economic approach supports decision making by telecommunication operators, service providers, manufacturers, and regulators in light of heavy competition in telecommunications markets, technology lifecycle and the changing business value in information, telecommunications and media technologies. In particular, the rapid evolution of internet technologies as well as the convergence of future wireless and fixed networks mandate innovative business concepts via a financial and technology blend. Techno-economics aim to provide engineers, economists, managers and policymakers with early, quantitative information regarding technology investment projects and service deployment scenarios.

This special issue accommodates original contributions in this area, earlier versions of which were presented at the 6th Conference on Telecommunication Techno-Economics (CTTE2007) in Helsinki, Finland on 14th and 15th of June 2007. CTTE (www.ctte-conference.org) is the major international event for the presentation of original and fundamental concepts and studies in the field of telecom techno-economics and serves as a forum for communication among researchers and practitioners working in a wide variety of scientific areas with a common interest in improving techno-economics and advanced telecommunications and services.

Contributions to this special issue span cost modeling in fixed network to business case analysis of mobile and fixed network investments. Casier et al. provide a bottom-up approach to calculate the optimal bottom price for new services introduced in a network taking into account the different parameters which determine the bottom price. Although the customer price is based on the adoption patterns and the cost model used, the paper is based on the use of these models for determining the bottom price, under specific adoption and cost models. The sustainable and competitive cost margin as well as the associated sensitivities regarding the adoption patterns and cost models are investigated and discussed.

Mas Machuca, Moe, Eberspächer, Jäger and Gladisch propose a service cost model in order to evaluate the impact of different management functionalities or network functions over the service cost. Following a classification of costs associated with OpEx into networked and service based costs, the interconnection between these two classes over the lifecycle of the network and services is investigated by using a Markov Chain framework in order to incorporate the dynamic behavior of the services. By applying the methodology in the analytical and non-analytical forms and over two different cases, the associated utility is presented and discussed.

Using real option valuation, Riihimäki challenges the standard net present value (NPV) approach to the technology and construction strategy of networks. By valuing WiMAX networks the author examine the influences of different uncertainty models and the shapes of the resulting investment costs, NPV, and NPV ratios. He shows that the shape of the uncertainty – or error – in the parameters does not affect the shapes of the investment costs or NPV distribution, but the subject of the uncertainty – i.e. the parameters for which the uncertainty is modeled – really matters. In particular, the uncertainty in the service rate growth or population growth parameter influence the resulting distributions and thus the parameters and assumptions behind such models must be examined carefully.

Harno presents a techno-economic comparison of European mobile telecom business players position, whether building on UMTS plus HSPA, or migrating to the WiMAX path for mobile broadband. The cases considered are network operators having an already existing nationwide GSM/GPRS/EDGE network coverage over a period spanning 2006-2013. Full quantitative modeling of both cost and revenue sides provides useful insights of the economical differences of versatile network deployments. The paper emphasizes risk and sensitivity analyses, which reveal more of the case dynamics than bare economic key figures and supports the decision making process regarding the deployment plans of the available network technologies.

Krämer investigates whether and how bundling services may achieve leverage of market power from the telco’s home to a secondary service market (e.g. video broadcasting). By incorporating a formal game-theoretic model where the telco firm holds a monopoly in the market for telecommunications services while competing with a cable firm in the market for video broadcasting services, the paper shows how telcos can achieve market power leverage by bundling its services, which therefore is more profitable than offering each service separately. In particular, the quality leverage mechanism adopted by the author reveals that bundling alters the optimal service quality choice of the competitors favourably and thus bundling communications services can not only have significant ramifications for the quality of these services, but also for competition in the industry.

The techno-economic aspects of fixed-mobile convergence (FMC), are discussed by Rokkas, Varoutas, Katsianis, Smura, Renjish, Heikkinen, Harno, Kind, Von Hugo, Monath. As FMC is expected to offer benefits for network and service operators as well as end-users, operators which own both fixed and mobile networks are keen to exploit these benefits in order to save costs and generate new revenues. However, identifying an appropriate roadmap for FMC migration in order to prevent substitution effects or conflicts among fixed and network operations is challenging. The results and analysis of an FMC migration case study for an integrated operator in a Western European market are presented and discussed, showing the benefits from cost savings, customer retention and prevention of revenue erosion by migrating to FMC.

In another paper, Rokkas, Katsianis, Kamalakis, Varoutas and Sphicopoulos evaluate the business prospects of free space optical (FSO) technology as an alternative last mile solution. By using the TONIC/ECOSYS tool and taking into account several network, demographic and marketing parameters, the authors calculate several economic indicators. In addition, they explore market and technology uncertainties through risk analysis. They conclude that FSO technology could provide a viable alternative in cases where the existing duct availability is limited especially compared to fiber-to-the-home (FFTH) solutions.

Pöllänen and Eloranta investigate the consumer spending dynamics and their influence in telecommunications investment opportunities. Since demographic factors such as population density, income, mobile penetration and mobile activity strongly affect investment analysis, the authors analyse these effects on mobile usage. Starting with a global view to consumer spending and an analysis of how much income is spent on communications in different demographic conditions, a focus on South Africa especially in rural areas was carried out, giving an insight on potential telecom investment opportunities.

Taken together, we hope that this collection of papers gives some indication of the breadth of the techno-economic approach and its potential to assist in decision making in business and policy making.

Dimitris Varoutas, Heikki Hämmäinen, Ilari Welling

About the Guest Editors

Dimitris Varoutas (D.Varoutas@di.uoa.gr) holds a Physics degree and MSc and PhD diplomas in communications and techno-economics from the University of Athens. He is a lecturer on telecommunications techno-economics in the Department of Informatics and Telecommunications at the same University. He has been participating in numerous European R&D projects in the RACE I &II, ACTS, Telematics, RISI and IST frameworks in the areas of telecommunications and technoeconomics. He actively participates in several techno-economic activities for telecommunications, networks and services such the ICT-OMEGA project, as well as the Conferences on Telecommunications Techno-Economics. He also participates in or manages related national activities for techno-economic evaluation of broadband strategies, telecommunications demand forecasting, price modelling etc. His research interests span design of optical and wireless communications systems to techno-economic evaluation of network architectures and services. He has published more than 40 publications in refereed journals and conferences in the area of telecommunications, optoelectronics and techno-economics, including leading IEEE journals and conferences. He is a member of LEOS, Communications, Circuits and Systems, Education and Engineering Management Societies of IEEE and serves as reviewer in several including IEEE journals and conferences.

Heikki Hämmäinen (heikki.hammainen@tkk.fi) holds a PhD in Computer Science from Helsinki University of Technology. He is a professor of Networking Business at the Department of Communications and Networking in Helsinki University of Technology (TKK). In addition to an academic career at TKK, he has a long career with Nokia, both in research and business. His main research interests are related to techno-economics and regulation of new mobile services and networks. Some special items recently include mobile handset bundling, measurements of mobile user behavior, techno-economics of radio networks, and mobile operator business games. He is active in several professional endeavours including the board of International Telecommunication Society, editorial board of Nordic-Baltic Journal of ICT, co-chair of CTTE, and as a reviewer in several journals and conferences.

Ilari Welling (ilari.welling@nokia.com) received his MSc degree in telecommunication engineering from the Helsinki University of Technology in 1996. He joined the Nokia Research Center in 1995, where he has been studying the techno-economic aspects of telecommunication networks. He has been coordinating the European Union project IST TONIC and the CELTIC project ECOSYS. Mr Welling has authored/co-authored several international journal articles and presented papers in conferences in the field of telecom techno-economics. He has also co-authored several publications including the bookBroadband Access Networks: Introduction Strategies and Techno-economic Evaluation (Chapman & Hall, 1998).

Notes

1. A term originally introduced by the RACE2087/TITAN project