Claudio Adriani WiTech LTE Forum 2009 Lisbon

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Even if LTE is still technically in an early phase, it is raising unprecedented interest from equipment vendors and operators, as it promises to fundamentally change the telecommunications industry enabling new personal services and applications. However, in these uncertain economic times, there is no room for risky and poorly analyzed business decisions that will influence heavily the success of the LTE initiative. Therefore, the keystone is to proceed through a thorough business case analysis, adopting a holistic and iterative approach, capable of taking into account all market, technical, economic and financial aspects, to ensure the best possible alignment between business and technology strategies, identifying clearly the main cost drivers and evaluating correctly the feasibility of the investment. This requires not focusing on the single facets of the revenue forecast, technical decisions and cost calculation, but considering all these different elements in a comprehensive and integrated view, building the business case through successive iterations. This speech will set out the guidelines for this holistic and iterative approach in order to transform such promising technology in a real business. This presentation will be supported by a business case related to the deployment of a LTE infrastructure to provide broadband services across Italy.

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Claudio Adriani WiTech LTE Forum 2009 Lisbon

  1. 1. LTE: moving from a promising technology to real business Claudio Adriani, CTO 8th September 2009 VIP Executive Arts Hotel, Lisbon
  2. 2. Content  Company Profile  LTE key characteristics  The approach to have a sound and reliable Business Case  An LTE Business Case 2
  3. 3. WiTech – At a glance  Solutions, consulting and engineering company founded in 2003 as a spin- off of the University of Pisa, Italy  Gained quickly a foothold in the NGN/NGS scenario focusing on standard 3G and 4G wireless technologies such as HSxPA, WiMAX and LTE.  Providing the market with:  State-of-art Business Case Analysis tools for WiMAX and LTE  Next-Gen OSS/BSS components and integrated solutions, with a focus on the delivery of turnkey WiMAX CSNs, that leverage the company‟s modular and scalable WROP (access & service management) and TelcoGIS (geographic information system) platforms  Selected high-value services such as strategic consulting on technology and investment plans and engineering services for network planning and design  Regular Member of the WiMAX Forum and a Member of the TM Forum. 3
  4. 4. Content  Company Profile  LTE key characteristics  The approach to have a sound and reliable Business Case  An LTE Business Case 4
  5. 5. LTE - Why it is a Promising Technology? Improved radio specifications:  OFDMA digital modulation schema  Multiple antenna technologies  Scalable bandwidth  Time-frequency resource allocation New core architecture:  Flat and IP based architecture  Low latency  More efficient QoS  GSM/UMTS backward compatibility 5
  6. 6. LTE - The Natural Evolution of the 3G Family LTE is a cost-effective evolution from an existing 3G infrastructure:  Re-use of existing network assets (sites and infrastructure, backhauling, spectrum frequencies, etc.)  Enhanced user experience and new services for (hopefully) higher ARPU  Frequency refarming (optimized spectrum usage)  Lower cost per Mbyte GSM HSPA UMTS LTE 6
  7. 7. Content  Company Profile  LTE key characteristics  The approach to have a sound and reliable Business Case  An LTE Business Case 7
  8. 8. You Need a Holistic and Iterative Approach …. …. to have a sound and reliable Business Case  Taking into account all market, technical, economic and financial aspects  Ensuring the best possible alignment between business and technology strategies  Identifying clearly the main cost drivers  Evaluating correctly the feasibility of the investment Avoid focusing on the single facets separately but consider all these different elements in a comprehensive and integrated view, building the business case through successive approximations 8
  9. 9. The Value of an Integrated Business Case Analysis Tool  The holistic and iterative approach can be more effectively adopted when equipped with an appropriate business case analysis tool capable of performing all key analyses in a integrated manner  Market Analysis: estimating the potential market and revenues for LTE services  Technical Analysis: dimensioning the network infrastructure to derive the required bill of quantities  Economic & Financial Analysis: calculating all key economic & financial projections and indicators  Scenario & Sensitivity Analysis: analyzing the influence of parameter and boundary condition changes 9
  10. 10. Content  Company Profile  LTE key characteristics  The approach to have a sound and reliable Business Case  An LTE Business Case 10
  11. 11. The Whole Picture Technology 2.6 GHz, 10 MHz, FDD User Equipment Service Profile Flat data + voice USB Dongle Home Smartphone Netbook GW Usage scenario Operator Target Market Consumers Existing 3G Households Operator SoHo Territory Italy Dense Urban Urban Suburban 11
  12. 12. Market Analysis – Territorial Data  Key information for the coverage and capacity planning North East Italy North West Italy Central Italy South Italy Islands Target % 100 % 100 % 50 % 0% 12
  13. 13. Market Analysis – Service Profile Personal Mobile Silver Mobile Gold € 27.20 € 19.20 € 24.90 20 20 20 Mbps Mbps Mbps 4 1 4 4 Mbps 64 32 64 32 Mbps 128 64 Mbps Kbps Kbps Kbps Kbps Kbps Kbps DL UL DL UL VoIP lines DL UL DL UL DL UL DL UL PIR CIR per user PIR CIR PIR CIR Targeted to Consumers Targeted to Consumers Targeted to SoHo Home Office Silver Office Gold € 36.90 € 41.90 € 49.90 20 20 20 Mbps Mbps Mbps 2 4 1 4 1 4 Mbps 256 128 Mbps 512 256 512 256 Mbps Kbps Kbps Kbps Kbps Kbps Kbps DL UL DL UL VoIP lines DL UL DL UL VoIP lines DL UL DL UL VoIP lines PIR CIR per user PIR CIR per user per user PIR CIR Targeted to Households Targeted to SoHo Targeted to SoHo 13
  14. 14. Market Analysis – Users and Revenues Forecast  The potential market and turnover have been estimated taking into account the “Bass Diffusion Model” (inclination to innovation and „word of mouth‟ phenomenon):  Penetration rate @ Y10: Consumers 9%, Households 6%, SoHo 5%  Churn rate @ Y10: Consumers 7%, Households 5%, SoHo 3%  Net Users @ Y10 4M  Revenues @ Y10 1.5 B € 14
  15. 15. Technical Analysis – Technology Profile  Parameters:  Operating Band: 2.6 GHz  Channel Bandwidth: 10 MHz  Duplexing Format: FDD 15
  16. 16. Technical Analysis – Equipment Configuration Enhanced NodeB User Equipment 16
  17. 17. Technical Analysis – Performance  The LTE performance has been evaluated by taking into account:  Link Budget Analysis (eNB/UE configuration, margins, etc.)  Path Loss (Cost 231 Hata Model)  Modulation & Schemes distribution  Average Radius: 1.2 ÷ 2.5 Km  Average Capacity per Sector:  MIMO 2x2: UL 9.5 Mbps, DL 16.2 Mbps  MIMO 4x4: UL 20.5 Mbps, DL 34.9 Mbps 17
  18. 18. Technical Analysis – Network Dimensioning  A number of relevant parameters have been taken into consideration:  Down and up link capacity demand per year  Existing backbone infrastructures, sites and radio links  Wireless backhaul technology distribution  6624 eNB  19872 Logical Sectors  34 MME  34 S-GW  34 P-GW  2264 Radio Links 18
  19. 19. Technical Analysis – Network Roll-out  The network roll-out has been defined in terms of the percentage of year-on-year deployed infrastructure by taking into account capacity requirements  Steady-state condition (100% roll-out) @ Y5 19
  20. 20. Economic & Financial Analysis – CAPEX and OPEX  To forecast expenditures, all main CAPEX and OPEX figures have been defined and calculated  Total Cumulated CAPEX 1.6 B €  42% UE  27% eNB  Total Cumulated COS 3.2 B €  29% VoIP  22% eNB  Total Cumulated SG&A 1.4 B €  62% Mktg & Sales  16% G&A 20
  21. 21. Economic & Financial Analysis – Profit & Loss  EBITDA > 0 @ Y3  EBIT > 0 @ Y3  Net Income > 0 @ Y4 21
  22. 22. Economic & Financial Analysis – Cash Flow  Peak Funding 780 M €  PBP 6 Years  NPV @ Y10 858 M € 22
  23. 23. Total Cost of Ownership
  24. 24. Scenario & Sensitivity Analysis – Critical factors  The most critical factors for the success of the LTE initiative have been identified analyzing the influence of parameter and boundary condition changes:  Service bundles  Segment market penetration  Operating frequency  Duplexing format  Channel Bandwidth  MIMO features 24
  25. 25. Scenario & Sensitivity Analysis 25
  26. 26. Scenario & Sensitivity Analysis – Channel Bandwidth 10 MHz 5 MHz 20 MHz eNB 6624 10011 51% 5051 -24% Sectors 19872 30033 51% 15153 -24% Radio Links 2264 4295 90% 1320 -42% Cumulated Total CAPEX [M€] 1578 1898 20% 1451 -8% Cumulated Total OPEX [M€] 4619 5114 11% 4441 -4% Cumulated Total COS [M€] 3239 3733 15% 3061 -5% EBITDA @ Y10 [M€] 872 811 -7% 894 3% EBIT @ Y10 [M€] 807 737 -9% 833 3% NPV @ Y10 [M€] 858 507 -41% 988 15% Funding Peak [M€] 780 1162 49% 659 -16%
  27. 27. LTE Business Case Conclusions Broadband device proliferation ARPU Enhanced user experience Value added applications Spectral efficiency CAPEX Reuse existing network assets Flat and IP based architecture OPEX Flat and IP based architecture 27
  28. 28. TEA|LTE – Key Characteristics  Analyzing the business case for the LTE initiative with a holistic approach, in an integrated and iterative way, taking into account all critical aspects  Supporting a fast and simplified configuration of more than 500 input parms with a number of them pre-set to typical/recommended values in the technical part  Enabling the user to view results instantly in an animated graphical format through a dashboard-styled and very easy-to-use GUI  Compliant with the latest version of the LTE standard  Allowing the definition of custom bands  Allowing the manual setting of the number of Users, eNodeBs, Logical Sectors, Radio Links, MME, S-GW and P-GW 28
  29. 29. Obrigado! Claudio Adriani WiTech S.p.A. CTO Via Giuntini 25 56023 Navacchio di Cascina PISA claudio.adriani@witech.it Italy Phone: +39 050 775 056 int 216 www.witech.it Mobile +39 347 17 39 202 Phone: +39 050 775 056 +39 050 754 719 +39 050 754 720 Fax: +39 050 75 47 22 E-mail: tea.info@witech.it
  30. 30. Back up slides – The Business Case Analysis Tool TEA|LTE Claudio Adriani, CTO 8th September 2009 VIP Executive Arts Hotel Lisbon
  31. 31. TEA|LTE  Empowering 4G LTE players with an effective business case analysis tool to set a solid foundation for a successful initiative  Unique and integrated application  Built over five years of extensive industry experience with strategic assignments and projects for major operators and equipment suppliers  Full compliant with the latest version (Release 8) of the LTE standard 31
  32. 32. TEA|LTE – Key Characteristics  Analyzing the business case for the LTE initiative with a holistic approach, in an integrated and iterative way, taking into account all critical aspects  Supporting a fast and simplified configuration of more than 500 input parms with a number of them pre-set to typical/recommended values in the technical part  Enabling the user to view results instantly in an animated graphical format through a dashboard-styled and very easy-to-use GUI  Compliant with the LTE standard  Allowing the definition of custom bands  Allowing the manual setting of the number of Users, eNodeBs, Logical Sectors, Radio Links, MME, S-GW and P-GW 32
  33. 33. TEA|LTE - Four Main Integrated Analyses Analyzing the Estimating the influence of potential parameter and market and boundary revenues for 4G condition LTE services changes Calculating all Dimensioning the key economic & network financial infrastructure projections and to derive the indicators required bill of quantities 33
  34. 34. TEA|LTE – Market Analysis Estimating the potential market and revenues for 4G LTE services:  Extension of the geographical areas (up to 5) to be served and their specific scenario distribution  Market segments (up to 6) to be addressed  Service profiles (up to 6) to be offered  Market segment penetration per year  Impact of churn 34
  35. 35. TEA|LTE – Technical Analysis Dimensioning the network infrastructure to derive the required bill of quantities:  Technology characterization  Type of eNB (up to 3) and UE (up to 6)  Path loss model for the link budget analysis  Down and up link capacity demand per year  Existing backbone infrastructures  Existing sites  Existing radio links  Wireless backhaul technology distribution 35
  36. 36. TEA|LTE – Economic and Financial Analysis Calculating all key economic & financial projections and indicators to assess the feasibility of the initiative:  CAPEX & OPEX  Depreciations  Interest rate on borrowings, tax rate, discount rate  Financing  Equity  Perpetual growth 36
  37. 37. TEA|LTE – Scenario and Sensitivity Analysis  Analyzing the influence of parameter and boundary condition changes, to identify the most critical factors for the success of the initiative  Allowing a fast and iterative fine-tuning of the business case, in real-time and total privacy  Presenting the results in an animated graphical format instantly from the different Market, Technical, Economic & Financial perspectives 37
  38. 38. TEA|LTE – Comprehensive Report  Automatically compiled and published in editable and PDF formats.  Containing a complete summary (with tables, diagrams and charts) of:  Inputs and assumptions  Results of the market analysis  Outcome of the technical modeling  Economic and financial statements for up to ten years 38

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