Download Telecommunication networks

Series of lectures
“Telecommunication networks”
Lecture#12
Economic indexes
of the networks
Instructor: Prof. Nikolay Sokolov, e-mail: [email protected]
The Bonch-Bruevich Saint-Petersburg State
University of Telecommunications
Background
Cost-effectiveness of a telecommunications network can be
estimated from two points of view. Firstly, information exchange
is of appreciable benefit when producing any goods or services.
From this point of view, it is very hard to estimate efficiency of
the telecommunications network by units adopted in economics.
It is considered that in countries of EU, one dollar of investments
increases growth of social product by 2.0 – 2.5 dollars. In the
USA this index is even higher: from 4.0 to 8.0 dollars. One of the
possible approaches for obtaining of such estimates is based on
information volume mentioned in the second lecture.
Secondly, the cost-effectiveness of telecommunication network is
estimated from the optimality of its construction, maintenance,
and development points of view. In this lecture exactly that
approach to the analysis of cost-effectiveness related to
telecommunication networks is discussed.
Jipp curve (1)
Jipp curve is a term for a graph plotting the number (density) of
telephones against wealth as measured by the Gross Domestic Product
(GDP) per capita. The Jipp curve shows across countries that teledensity
increases with an increase in wealth or economic development (positive
correlation), especially beyond a certain income. In other words, a
country's telephone penetration is proportional to its population's buying
power. The relationship is sometimes also termed Jipp Law or Jipp's Law.
The Jipp curve has been called "probably the most familiar diagram in the
economics of telecommunications". The curve is named after A. Jipp, who
was one of the first researchers to publish about the relationship in 1963.
The number of telephones was traditionally measured by the number of
landlines, but more recently, mobile phones have been used for the graphs
as well. It has even been argued that the Jipp curve (or rather its
measures) should be adjusted for countries where mobile phones are more
common that landlines, namely for developing countries in Africa.
Jipp curve (2)
Jipp curve (3)
Metcalfe’s Law
Main trends
The following processes play an important role in
the development of modern telecommunications
system:
•Conversion to so-called "customer economics";
•Convergence of telecommunications networks;
•Integration in telecommunications;
•Consolidation in telecommunications;
•Changing of transmission and switching
technologies;
•Market of the new services;
•Increasing role of the content-oriented services.
Classifications of clients (1)
Income share
Portion of clients
Х1%
20%
Portion of clients
100%
Х2%
Х3%
Laggards
Late majority
20%
20%
Х4%
Early majority
20%
Х5%
20%
Early adopters
Innovators
Time
a) Ranking of clients by the level of income
b) Ranking of clients by the time of the service using
Classifications of clients (2)
Source: Telcordia Technologies
Users’ expenses on
telecommunications services
User expenses on
telecommunication services
Absolute value
Share from total income
DMIN
DMAX
Total user
income
Tree of solutions
In practice, risk can be analysed with the help of the solution tree
an example of which is shown on the figure. It represents graph of
tree topology. Solution tree allows calculate if not all, then at least
general totality of variants describing possible scenarios of
telecommunications network development.
D
F
B
PAB
A
G
E
H
X
Y
PAC
C
Triple-play service based
on the current networks
Customer Premises Network
TS
PC
TV with
Set-top-box
Access Network
Core Network
Call
Center
PSTN
Intrenet
CATV
Video Server
Service Nodes
Triple-play service based
on the NGN technology
Customer Premises Network
TS
PC
TV with
Set-top-box
Access Network
Core Network
Service Nodes
Juran’s spiral
14
13
12
11
2
14
10
13
9
3
1
8
4
12
11
5
1
2
3
10
9
4
8
7
6
5
1 – market research; 2 – working out of design statement; 3 – designing and constructing; 4 –
composition of technical requirements; 5 – technology elaboration and production preparation; 6 –
supply of materials and machinery; 7 – making of tools, accessories and controlling and measuring
apparatus; 8 - production; 9 – production process control; 10 – control of finished product; 11 –
checkout of product performance characteristics; 12 - sale; 13 – exploitation and maintenance; 14 (1)
– market research
NGN as economical solution
Increase of communication Operator’s revenues is possible by
solving of two important problems. Firstly, independently or with
assistance of services Providers, it is expedient to take over another
niche, implicitly related to telecommunications business. The cases
in point are information services which, in the long run will provide
increase of Operators’ revenues. Secondly, revenues increase can be
achieved when minimizing expenses. In this instance the matter
concerns optimal ways of infocommunication system development
and perfecting of maintenance processes. Efficiency of these
processes determines, to a great extent, the level of Operational
expenses on the system management.
NGN concept – from the economic point of view can be considered
as fulfilment of new requirements of potential clients at the expense
of comparatively slight increase of CAPEX with essential decrease
of OPEX.
Main indexes (1)
GNI per capita – Gross national income (GNI) is the sum of value added by all
resident producers plus any product taxes (less subsidies) not included in the valuation
of output plus net receipts of primary income (compensation of employees and
property income) from abroad. GNI per capita is gross national income divided by
mid-year population.
GDP per capita – Gross domestic product (GDP) is the sum of value added by all
resident producers plus any product taxes (less subsidies) not included in the valuation
of output. GDP per capita is gross domestic product divided by mid-year population.
Growth is calculated from constant price GDP data in local currency.
Capital expenditures (CAPEX) are expenditures creating future benefits. A capital
expenditure is incurred when a business spends money either to buy fixed assets or to
add to the value of an existing fixed asset with a useful life that extends beyond the
taxable year. CAPEX are used by a company to acquire or upgrade physical assets
such as equipment, property, or industrial buildings.
Operating expenses (OPEX) are non-capital expenses incurred by a company in
normal operations: salaries and wages, insurance costs, floor space rental, electricity,
computer maintenance contracts, software maintenance contracts, and so on. In brief,
almost all routine expenditures a company makes are operating expenses, except for a
few special non-operating expenses (such as costs of financing a loan, or one-time
costs for closing a plant), and except for capital costs.
Main indexes (2)
Cash flow is the movement of cash into or out of a business, project, or financial product.
It is usually measured during a specified, finite period of time. Measurement of cash flow
can be used
•to determine a project's rate of return or value. The time of cash flows into and out of
projects are used as inputs in financial models such as internal rate of return, and net
present value.
•to determine problems with a business's liquidity. Being profitable does not necessarily
mean being liquid. A company can fail because of a shortage of cash, even while
profitable.
•as an alternate measure of a business's profits when it is believed that accrual accounting
concepts do not represent economic realities. For example, a company may be notionally
profitable but generating little operational cash (as may be the case for a company that
barters its products rather than selling for cash). In such a case, the company may be
deriving additional operating cash by issuing shares, or raising additional debt finance.
•cash flow can be used to evaluate the 'quality' of Income generated by accrual
accounting. When Net Income is composed of large non-cash items it is considered low
quality.
•to evaluate the risks within a financial product. E.g. matching cash requirements,
evaluating default risk, re-investment requirements, etc.
Main indexes (3)
Net present value (NPV) of a time series of cash flows, both incoming and
outgoing, is defined as the sum of the present values (PVs) of the individual cash
flows. In the case when all future cash flows are incoming (such as coupons and
principal of a bond) and the only outflow of cash is the purchase price, the NPV is
simply the PV of future cash flows minus the purchase price (which is its own PV).
NPV is a central tool in discounted cash flow (DCF) analysis, and is a standard
method for using the time value of money to appraise long-term projects. Used for
capital budgeting, and widely throughout economics, finance, and accounting, it
measures the excess or shortfall of cash flows, in present value terms, once
financing charges are met.
The NPV of a sequence of cash flows takes as input the cash flows and a discount
rate or discount curve and outputting a price; the converse process in DCF analysis,
taking as input a sequence of cash flows and a price and inferring as output a
discount rate (the discount rate which would yield the given price as NPV) is called
the yield, and is more widely used in bond trading.
Each cash inflow/outflow is discounted back to its present value (PV). Then they are
summed. Therefore NPV is the sum of all terms,
Main indexes (4)
Rt
1  i 
t
,
where
•t – the time of the cash flow
•i – the discount rate (the rate of return that could be earned on an investment
in the financial markets with similar risk.)
•Rt – the net cash flow (the amount of cash, inflow minus outflow) at time t.
For educational purposes, R0 is commonly placed to the left of the sum to
emphasize its role as (minus) the investment.
The result of this formula if multiplied with the Annual Net cash in-flows and
reduced by Initial Cash outlay will be the present value but in case where the
cash flows are not equal in amount then the previous formula will be used to
determine the present value of each cash flow separately. Any cash flow within
12 months will not be discounted for NPV purpose.
Net present value (NPV)
This index allows finding the correlation between
investments and future income.
Cash Flow on the input CFin (t ) is directed towards
network modernization, which can be considered an
investment project. As a result, output flow CFout (t ) is
generated.
CFin(t)
Network modernization
(Investment process)
CFout(t)
Examples of sensitivity analysis
NPV
NPV
x
xMIN
x0
xMAX
y
yMIN
y0
yMAX
Example of NPV (1)
NPV(t)
Payback
period
Network implementation
Network
creation
modernization
t
Example of NPV (2)
Source: ITU
Polygon of competitiveness
w12
w11
S1
w24
w12
w21
w14
w13
S2
w23
Simple definitions
Average revenue per user (1)
Average revenue per user (sometimes average revenue per unit)
usually abbreviated to ARPU is a measure used primarily by
consumer communications and networking companies, defined as
the total revenue divided by the number of subscribers.
This term is used by companies that offer subscription services to
clients for example, telephone carriers, Internet service providers,
and hosts. It is a measure of the revenue generated by one customer
phone, PC, etc., per unit time, typically per year or month. In
mobile telephony, ARPU includes not only the revenues billed to
the customer each month for usage, but also the revenue generated
from incoming calls, payable within the regulatory interconnection
regime.
This provides the company a granular view at a per user or unit
basis and allows it to track revenue sources and growth.
Average revenue per user (2)
Impact of the new technology (1)
Source: http://www.telegeography.com
Impact of the new technology (2)
Impact of the new technology (3)
Value added services
New economic model
Source: Telcordia Technologies
Economic indexes of the networks
Questions?
Instructor: Prof. Nikolay Sokolov, e-mail: [email protected]