White Paper: Revenue- and Cost-Optimized Architectures for ...


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  1. 1. White Paper Revenue- and Cost-Optimized Architectures for Multiplay Services Prepared by www.heavyreading.com
  2. 2. TABLE OF CONTENTS I. EXECUTIVE SUMMARY ...................................................................................... 3 II. ADVANCED BROADBAND SERVICE DIFFERENTIATION ............................... 4 2.1 Multiplay Service Definitions (Including IPTV)....................................................... 4 2.2 Service Flexibility & Dynamic Bandwidth Allocation.............................................. 5 III. BROADBAND NETWORK ARCHITECTURE ALTERNATIVES ......................... 7 3.1 Assumptions & Requirements ............................................................................... 7 3.2 The Nature of IP Video & Its Impact on Network Bandwidth................................. 8 3.3 Centralized Intelligence & Policy Enforcement Architecture ................................. 8 3.4 Distributed Intelligence & Policy Enforcement Architecture .................................. 9 IV. COMPARING REVENUE IMPACT..................................................................... 11 4.1 Guiding Assumptions .......................................................................................... 11 4.2 Results ................................................................................................................ 11 V. COMPARING CAPEX & OPEX .......................................................................... 12 5.1 Guiding Assumptions .......................................................................................... 12 5.2 Cost Comparisons Among Alternative Broadband Network Architectures.......... 13 VI. SUMMARY.......................................................................................................... 15 LIST OF FIGURES Figure 1 Multiplay IP Service Definitions ................................................................. 4 Figure 2 Centralized Broadband Network Architecture ........................................... 9 Figure 3 Distributed Broadband Network Architecture .......................................... 10 Figure 4 Advanced Broadband Service Impact on ARPU ..................................... 11 Figure 5 Capex Comparison.................................................................................. 13 Figure 6 Opex Comparison.................................................................................... 14 Figure 7 Net Present Value Comparison ............................................................... 14 © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 2
  3. 3. I. Executive Summary Residential broadband services are driving much of the infrastructure spending in the telecom market today and will continue to do so in the foreseeable future. Service providers' network buildouts and expansions, worldwide, are directly resulting from the need to deliver a range of new broadband services to residential subscribers. IPTV is one of the primary services impacting network architecture and vendor selection given its demanding quality of service and bandwidth requirements. With that said, it is still only one of many services that carriers need to plan for when considering the demands of a diverse subscriber base. For telecom operators, IPTV has represented the most challenging aspect of completing the triple play. As IPTV has evolved from a planned to a deployed service, carriers have found that service flexibility and additional service differentiation beyond basic triple-play bundles have been the factors enabling them to achieve the highest average revenue per user (ARPU). Residential sub- scribers are demanding the flexibility to choose any mix of advanced, IP-based video, voice, and data services, in real-time, delivered with high quality and have the network dynamically adjust to meet their service request. This "multiplay" approach puts the subscriber in control of the services being delivered. In planning for the delivery of true service flexibility, carriers are investigating multiple network architecture alternatives. The underlying IP-based network is the bedrock on top of which differ- entiated multimedia services will be delivered. The subscriber's primary desire is to receive the requested service(s) with the desired quality level and a competitive price. What could set provid- ers apart is to allow subscribers to build their own service bundles, plus set priorities for services to meet their own needs. Herein lies the challenge for the service provider. Which approach will provide the ability offer a flexible selection of services beyond the triple play to maximize ARPU, and total revenue with the lowest possible total costs? Certain approaches are better at delivering this than others. For IP/Ethernet-centric access networks, questions still remain relative to exactly how and where to manage and enforce quality of service (QOS) and policy decisions for the multitude of ad- vanced broadband services available to the subscriber. These issues clear up when a provider moves to a multiplay offering which allows each subscriber to choose their own service mix and prioritize the services such as premium gaming, Unlicensed Mobile Access (UMA), video teleph- ony, or high-quality video streamed to the PC. This paper compares three solution scenarios supporting a multiplay mix across a network grow- ing from 10,000 to 30,000 DSL access multiplexers (DSLAMs) over five years. The first connects a DSLAM directly to a broadband services router where subscriber management QOS and ser- vice shaping functions are centralized. The second scenario adds an Ethernet aggregation switch between the DSLAM and router. The last model distributes these subscriber management and policy enforcement functions to the DSLAM and intelligent Ethernet aggregation switches. Each approach is discussed and evaluated within this white paper. With the modeling assumptions in this paper, the centralized approach capable of prioritizing ser- vices within both IP over Ethernet and Point-to-Point Protocol (PPP)-based streams generates over $1 billion in added services by year five over today's distributed approach which can priori- tize only within IP over Ethernet. The centralized approach saves up to 34 percent in capital ex- penditure (capex) and 45 percent in operational expenditure (opex) over the distributed approach over the five-year period, all while adding new services on the centralized models. Fundamen- tally, the models point out the financial benefits of fewer and less complex components, and more efficient service provisioning. Additional insights on these specific network architecture topics can be found in Heavy Reading's report titled IP Video and the New Broadband Edge. © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 3
  4. 4. II. Advanced Broadband Service Differentiation Service providers are quickly moving beyond delivering basic triple-play service bundles to a mul- titude of next-generation broadband services comprising both discrete and blended video, voice, data, and other multimedia services. This section explains the importance of advanced broad- band service flexibility in supporting these services. This white paper emphasizes the importance of advanced broadband services beyond IPTV and basic triple-play bundles to a true multiservice or "multiplay" bundle. With that said, it's important to realize that IP video services, because of their unique characteristics (high bandwidth, guaranteed QOS requirements, etc.), are shaping next-generation broadband network architecture decisions and associated cost structures. 2.1 Multiplay Service Definitions (Including IPTV) Figure 1 defines a wide variety of the advanced IP services carriers are delivering and/or plan- ning to deliver. It's important to keep in mind that service definitions and packages will vary from carrier to carrier and that new and differentiated services are constantly being defined, so this table provides just a sampling of the IP services being discussed and delivered in the industry today, subject to change. The challenge is that many of these services need to be delivered with some form of assured forwarding. This defies the simplistic QOS approaches, which assume that only voice and video services need prioritization, while the majority of services can be delivered on a best-effort basis. Figure 1: Multiplay IP Service Definitions SERVICE TYPE SERVICE DEFINITION National broadcast channels (ABC, CBS, NBC, Fox, ESPN, etc.). Local broadcast channels (local variants of national channels, public educa- tion, government, regional sports, etc.). Broadcast IP Video Premium channels (HBO, Showtime, Cinemax, etc.). Services Combination of standard-definition (SD) and high-definition (HD) content. Predominantly multicast, although narrowcast and/or unicast may be used for targeted consumer groups. Locally-Stored Video on Demand (VOD) – Widely popular titles broadcast to user's CPE. Network-Stored VOD – Titles ranging in popularity stored on VOD servers in the network. Most popular content will be distributed, while titles without as much simultaneous viewing may be centralized. Subscription-Based VOD – Subscription version of prior two service options, Stored pre-defined number of titles within a given time. IP Video Personal Video Recorder (PVR) – Subscribers with appropriate viewing Services rights can record content for later viewing. Rights may vary based on single, multiple, or unlimited content use. DRM may enforce sharing between set-top boxes (STBs) within home. Network-Based Personal Video Recorder (nPVR) – Similar to PVR, but content is stored on the network rather than on the user's STB. All stored video services have Fast-Forward, Rewind, Stop, and Pause op- tions, increasing demands on the IP STB and service delivery network. © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 4
  5. 5. SERVICE TYPE SERVICE DEFINITION Telephony Services (VOIP & Fax) – Incoming call notification, caller ID, and call logging; voicemail (as audio or text email); VOIP-based fax services. Voice & Video Communication Unlicensed Mobile Access – WiFi cellular for 3G from the home or business. Services Video Telephony Services – Interactive-quality point-to-point conferencing. Multi-Party Videoconferencing – Collaboration services. Radio Broadcast Service – Worldwide broadcast radio content delivered over TV audio output or attached speaker system. Streaming Audio Music On Demand – Audio version of VOD. Services Music Subscription Service – Subscription service enabling users to store collections, by genre for example. Premium download single-user and multi-user gaming. Gaming Subscription-based interactive PC or TV-based gambling, karaoke, etc. Services Subscription-based premium hosted gaming, single user or teams in leagues or unstructured play. Tiered-rate data services. VPN services. Data backup and restoration. Home & Collaborative services. Business Premium service-oriented architectures. Data Services Managed Home Services – Home monitoring, home network security, home network administration. Managed Business Service – Security monitoring, network security service, network administration and remote IT help-desk services. Why is this discussion important? As we will see in Section IV, the ability to offer additional ser- vices delivered with high reliability to a subset of the market can have a significant impact on ARPU for all users and a dramatic boost to overall revenue. In fact just getting a modest up take on two additional services generated more than a billion dollars in our five-year model. 2.2 Service Flexibility & Dynamic Bandwidth Allocation IP-based network platforms enable service providers to deliver a vast array of new and differenti- ated services beyond what they offer today. Taking advantage of the network platform so that subscribers can control exactly which services they receive will be critical. Service providers with real-world experience in delivering multiple advanced broadband services, including IPTV, have found that basic triple-play bundles and inflexible service packages don't yield the results they set out to achieve viz. decreasing churn rates, acquiring new customers, increasing ARPU, etc. One real-world example is Hong Kong-based broadband service provider PCCW. PCCW has been historically emphatic that service flexibility and a mix of a la carte service options is required to realize revenue and profitability goals while achieving subscriber acquisition targets and main- © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 5
  6. 6. taining customer satisfaction. They have found that all services are not for all subscribers, but rather that subscribers vary significantly relative to the services they request, and thus want the ability to flexibly pick and choose between a number of discrete and/or integrated video, voice, and data service options. In order to deliver this level of advanced broadband service flexibility, the underlying network must be nimble in its ability to quickly support a new service or service variant, and/or dynamically adjust network capacity based on real-time service requests within customer connections over the last mile and between aggregated service bandwidth deeper in the broadband service deliv- ery network. Statically dimensioning and partitioning network bandwidth on a per-service basis in the network makes it difficult to add new services or adjust to fluid and ever-changing service re- quests from the large base of residential broadband subscribers. At first glance, such an approach may seem reasonable given that it protects bandwidth dedi- cated for IPTV relatively well from other burstable IP services such as high-speed Internet and many of the applications that will take advantage of high-speed Internet bandwidth. Consider that more and more multimedia services (Internet video, single- and multi-player gaming, video te- lephony, music streaming and downloads, photo sharing, etc.) to the PC are growing just as rap- idly, if not more so, than walled-garden IPTV services to the set-top box. Supporting these appli- cations with appropriate bandwidth and QOS, be it between different subscribers' homes or be- tween different users within the same subscriber household, will be critical on a going-forward basis. Granular QOS, scaleable and intelligent queuing mechanisms, and detailed subscriber awareness will be critical features in the network to support such dynamic service delivery. © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 6
  7. 7. III. Broadband Network Architecture Alternatives Now that we've outlined the primary service drivers for next-generation broadband networks, this section will examine the network architecture alternatives that will form the bedrock atop which services will be delivered. It's important to keep in mind that there are many detailed technical issues to take into consideration, beyond what is laid out below. The following subsections simply outline the guiding assumptions and generally characterize each architectural option. 3.1 Assumptions & Requirements Following are our critical guiding assumptions relative to the service goals networks must support, regardless of their architecture. These are not listed in order of priority, but should be seen as a set of interrelated guidelines for meeting service provider, and ultimately subscriber, expectations. 1. IPTV, when used as a standalone acronym, includes multiple IP video services such as broadcast TV, VOD, PVR/nPVR, and other video-integrated data and voice services. 2. IPTV, given its high bandwidth and reliability requirements, must be given high priority throughout the end-to-end broadband network architecture. 3. Tiers of VOIP and high-speed Internet, in addition to other services such as gaming, are just as important as IPTV and must be delivered without compromise when IP video ser- vices are present in the network. 4. IPTV and Internet TV are two different services. IPTV is a video service supplied by a telecom service provider that owns the network infrastructure and controls content inges- tion and distribution over that network for reliable delivery to the consumer (generally to the TV/IP STB). This is essentially a private/"walled-garden" network controlled by the service provider. Internet TV, which is rapidly emerging in parallel, consists of content sourced from anywhere on the Internet that can be streamed and/or downloaded by the user (generally on a PC). Both IPTV and Internet TV are delivered over a broadband connection, albeit with different levels of bandwidth, control, and QOS. 5. IPTV must meet and/or exceed the performance, availability, and quality-of-experience metrics currently being delivered by cable and satellite TV. Similarly, VOIP must do the same relative to traditional circuit-based telephony services. 6. Traditional best-effort IP networks are inadequate to support robust and scaleable IPTV services with of acceptable quality. Definitive enhancements such as high availability, multicast and unicast video call admission control, knowledge of bandwidth for shaping of services to fit within the local loop, and granular, deterministic QOS, among other re- quirements, are critical for successful delivery of advanced broadband services. 7. Understanding and therefore having the ability to prioritize services within both IP over Ethernet as well PPP over Ethernet will be critical for expanding multiplay service ARPU. 8. Formal service-level agreements must be defined by the service provider. To enforce policies appropriately, the supporting network architecture and policy-control solution must understand service priority under different usage scenarios. This dictates a high- availability network, including service-level security to defend against disruptive attacks. 9. Frequent "busy signals" and/or service denials are unacceptable and impair customer loyalty and recurring revenue opportunities for both multicast and unicast IPTV services. Service denial may be impossible to avoid in extreme peak-usage scenarios, but such cases should be rare and supported by a graceful message informing the subscriber why the service is unavailable or offering viable alternatives. 10. Grossly overprovisioning network bandwidth is not an acceptable solution to provide a non-blocking or near-non-blocking broadband network. Such a solution will not meet the cost targets of the service provider nor enable it to achieve a profitable business model. © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 7
  8. 8. 3.2 The Nature of IP Video & Its Impact on Network Bandwidth IPTV/VOD services are inherently resource-intensive, with relatively unpredictable demand fluc- tuations. Although service providers and vendors are building networks in support of some con- currency assumptions, with additional solutions for dealing with fluctuating peak-level demands, the challenge remains paramount. The issues that define the nature of IPTV/VOD services and lead to unpredictability and resource-intensiveness – and that are thus important characteristics to take into consideration when making network architecture decisions – include: • Broadcast Channel Concurrency – The number of concurrent broadcast channels watched influences multicast replication throughout the network. The network architec- ture should support a flexible approach to multicast replication for broadcast IPTV. • VOD Concurrency – VOD concurrency directly affects the amount of unicast network traffic and is therefore a major variable in network design and reliable service delivery. Initial peak concurrency rates will likely be about 10 percent, although as VOD content (free and paid) and features such as nPVR are added, this is expected to grow to more than 20 percent in the short term. • HD Content Growth: HD content grows in direct proportion to increased network band- width, whether broadcast or unicast. Even with advances in compression technologies, an MPEG-4 HD stream will consume roughly 8 Mbit/s (2 Mbit/s for SD). While these are the most obvious influences on resources, additional elements such as trick-play commands and nPVR services will add to the relative unpredictability of resource requirements. The VOD server deployment architecture itself, be it centralized or distributed, will also play an important role in the availability of any particular VOD service. Similarly, the location of broadcast content insertion and replication points will affect multicast distribution efficiency and cost. 3.3 Centralized Intelligence & Policy Enforcement Architecture From an operational perspective, the centralized architecture looks very similar to current broad- band edge architectures – although there are significant enhancements to support advanced ser- vices such as IPTV. Legacy broadband edge networks are centralized around traditional broad- band remote access servers (B-RASs) that aggregate output from DSLAMs, provide user PPP or IP-over-ATM sessions, enforce QOS policies, and route traffic to an ISP's backbone network. The term "centralized" derives from the centralized control point for injecting and enforcing QOS policies for all broadband services on a per-subscriber basis. In legacy broadband networks, there was only one residential service – Internet – whereas in next-gen broadband edge networks there are multiple services – advanced video, voice, data, and other multimedia services. The broadband edge router in the centralized architecture assumes a full set of integrated sub- scriber management functionality. The centralized control point for QOS and policy management techniques used for high-speed Internet services is maintained but expanded, providing carriers with an operational model with which they are comfortable. This expansion includes the ability to handle both IP over Ethernet and PPP-based services and to selectively prioritize individual ser- vices within those packet streams. The addition of policy management and control solutions, open to third-party products, provides another level of centralized intelligence for understanding the resources available for any given service at any given time. Support for Layer 2 Control Protocol is also an important enhancement that enables the broadband edge router to have an intelligent understanding of the access loop bandwidth capacity. Understanding the real-time changes to available network capacity is critical for assuring that service requests for any advanced broadband service can be granted. Figure 2 illustrates the centralized broadband network architecture. © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 8
  9. 9. Figure 2: Centralized Broadband Network Architecture Within this broadly defined "centralized" architecture, there are two different models: • The aggregated model assumes a relatively simple carrier Ethernet aggregation layer. This may be recommended when the utilization of DSLAM uplinks is relatively low. • The non-aggregated model assumes the DSLAM links will connect directly to the broad- band edge router, with no intermediate aggregation layer. Given that broadband service demands will vary between markets, a combination of these mod- els is likely to be deployed. Both differ from distributed architectures, which always assume a more intelligent Gigabit Ethernet aggregation layer is in place to handle part of the end-to-end load for policy enforcement and QOS, among other things. When there is no separate aggregation layer, the aggregation function may be collapsed directly onto the broadband edge router, due to its significantly increased capacity (now hundreds of Gbit/s, instead of tens of Gbit/s) and Gigabit Ethernet port density. All advanced broadband ser- vices will go through the centralized broadband edge router. Scaleable and granular queuing mechanisms will be supported to ensure that any number of broadband services can be added to the network and that bandwidth can be dynamically adjusted on a per-service, per-subscriber basis, depending on service demands. The desired consolidated multiservice approach requires that each service policy be applied dynamically per-subscriber and scale to tens of thousands of subscribers running dozens of services. 3.4 Distributed Intelligence & Policy Enforcement Architecture The distributed broadband network architecture represents a greater departure from traditional networks, in many ways designed specifically for new services such as IPTV. With that come the challenges of maintaining existing services and operational models for high-speed Internet and other advanced broadband services. The distributed architecture puts much more emphasis on the redefinition of the traditional B-RAS, assuming that its functions are distributed between the IP edge router, the Gigabit Ethernet aggregation switch, the DSLAM, and the policy control platform. Although QOS policies are centrally managed via a policy management system, they are en- forced in a distributed manner between broadband access, aggregation, and edge nodes. Like its centralized cousin, the distributed broadband architecture is driven primarily by the addi- tion of IP video services. All network elements (access, aggregation, and edge nodes) are © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 9
  10. 10. Ethernet-centric, supporting system capacity, port density, and subscriber density requirements for new IP video services. DHCP-based authentication mechanisms, rather than PPP-based ones, will primarily be supported. Full-blown subscriber management and advanced queuing ca- pabilities are not integrated into any single network element, thereby potentially creating chal- lenges when it comes to dynamically adjusting bandwidth based on variable service demands. Carrier Ethernet is the cornerstone of many underlying technologies related to this architecture. For example, the intelligence of the Gigabit Ethernet aggregation device is leveraged to optimize scaleability and distribute QOS enforcement throughout the network. Virtual LANs are used in the aggregation layer to manage QOS per subscriber, and in the broadband edge layer to manage QOS per service. Virtual private LAN service is often deployed between the aggregation devices and the edge devices, for such things as traffic separation (of different-priority services within the same subscriber pipe, or different service types across subscribers) and fast restoration capabili- ties, in the event of link failures. Figure 3 illustrates the distributed broadband architecture. Figure 3: Distributed Broadband Network Architecture Distributed network architectures normally rely on more intelligent DSLAMs in the access layer. This could lead to higher capex in the overall network design, given that the number of DSLAMs is far greater than the number of aggregation or edge nodes in the network. This could create a problem, as the increased intelligence adds time and cost. The problem is that the DSLAMs must be put in with full functionality for the first subscriber – creating a front-loaded model that must be flash cut in up-front across the entire network where services are to be offered. An aggregation layer may be required in certain network scenarios, but at times may complicate service provi- sioning and lead to additional points of failure in the network. By comparison, centralizing the complex tasks yields better utilization of these resources up-front and can support a mix of legacy service in neighborhoods with only ATM DSLAMs, as well as new services in neighborhoods with only one Ethernet DSLAM rolled out at a time. While there is no single "right" network architecture, moving to a controlled multiplay network al- lows providers to charge more for services. This creates a distinction between the two ap- proaches from a financial perspective, as the next section will demonstrate. Ultimately, the ser- vice provider must have a clear vision of its overarching goals and service offerings. Since many advanced broadband services haven't yet been conceived, it is important to select an architecture that will enable the carrier to flexibly add new services to the network as they are identified. © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 10
  11. 11. IV. Comparing Revenue Impact Of the three network models described above, the first two utilize a centralized architecture, put- ting most of the network intelligence into the edge routers, while the third distributes some intelli- gence to the DSLAM and/or aggregation switches. In the centralized (non-aggregated) model, DSLAM uplinks are directly connected to the broadband edge router; in the centralized (aggre- gated) model, DSLAM uplinks are aggregated by a simple carrier Ethernet switch, which is di- rectly connected to the broadband edge router; and in the distributed model, DSLAM uplinks are aggregated by intelligent carrier Ethernet switch/routers, which are directly connected to broad- band edge routers. The first two models are often combined within a network, with larger DSLAMs directly connected to the edge router while smaller DSLAMs are aggregated using an Ethernet switch. The impact of these models on revenue is considered below. 4.1 Guiding Assumptions Our assumptions when considering revenue impacts were as follows: • All new IPTV-related services are supported using IP over Ethernet (DHCP). • The centralized model allows broadband service providers to support new PPP-over- Ethernet (PPPoE) encapsulated services, in addition to DHCP services. This is an advan- tage, as operators may not want to migrate existing users and services in cases where DHCP provides no additional benefits. • The centralized model adds two new (PPPoE-based) services: premium gaming and UMA. Take rates were intentionally assumed low (15 percent for gaming and 30 percent for UMA in year five). • Since the distributed model doesn't support PPPoE, it cannot concurrently support many unicast (personalized) services. 4.2 Results The impact on overall subscriber ARPU is significant, even if take rates for gaming and UMA ser- vices are just small percentages of overall users. A $2 difference in ARPU can be seen in the first year. With a low incremental cost, these services add $1 billion in total revenue by year five. Since the distributed model does not easily support these services, Figure 4 shows additional revenue only for the centralized models. Figure 4: Advanced Broadband Service Impact on ARPU © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 11
  12. 12. V. Comparing Capex & Opex Now that the overarching goals, primary service drivers, and supporting network architecture models are laid out, this section will compare the costs of implementing these architectures. De- pending on the specific services offered by the carrier, it may have several architectural options. 5.1 Guiding Assumptions The following assumptions were used in comparing the cost differences between centralized and distributed broadband network architectures: 1. DSLAM and access network costs are the same for all three architectures. If anything, this favors the distributed model, because simpler, lower-cost DSLAMs could be de- ployed in a centralized model. The primary goal here is to compare architectures from an aggregation and edge-routing perspective, not to compare different access-network al- ternatives, such as ADSL2, ADSL2+, VDSL2, BPON, EPON, GPON, Active Ethernet Ac- cess, etc., which are more easily enabled in a centralized intelligence architecture. 2. DSLAM deployment grows from 10,000 sites to 30,000 sites over five years, with an av- erage of 291 users per DSLAM over a five-year period (the number varies based on de- ployment and number of subscribers). 3. The aggregation layer in the centralized model is 25 percent less expensive network- wide, since it doesn't require the same subscriber service handling (shared shaping) fea- tures as the distributed model. Potential trade-offs of using a lower-cost aggregation de- vice in the centralized architecture, such as the possibility of reduced high-availability functionality and/or true carrier-grade Ethernet support, were not taken into consideration. 4. Capex for all three scenarios includes all system-level hardware (chassis, line cards, con- trol cards, fabric cards, fans, etc.) and software. Costs were based on industry estimates for the appropriate equipment that would need to be deployed in support of the specific network architecture in question. 5. Opex for all three scenarios is forecast using activity-based cost models for: a. Service provisioning b. Service administration c. Equipment maintenance d. Network management (monitoring, configuration management, repair, etc.) e. Installation, test, and turn-up f. Power and space 6. A forecast window of five years is used for extending service take rates over time, fore- casting subscriber growth rates for IPTV, and comparing costs over the life of the project. 7. The potential target market for IP video customers was estimated at 10.5 million broad- band subscribers on "day one" – that is, present immediately as sales targets for adding IPTV services to existing high-speed Internet services. This number is forecast to grow conservatively at 5 percent each year for the life of the project. 8. It's unrealistic to assume that IPTV would be available to all 10.5 million broadband sub- scribers on day one, since it takes time to build the rest of the service-layer infrastructure (head-ends, VOD servers, IPTV middleware, DRM, etc.) and network-layer infrastructure necessary to deliver IPTV. We thus created a variable to identify what percentage of the target market would be available to receive IPTV services – set at 10 percent in year one, 20 percent in year two, 40 percent in year three, 60 percent in year four, and 80 percent in year five. This does not assume that all of these subscribers would actually purchase IPTV services. © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 12
  13. 13. 9. Estimated take rates for IPTV were used in conjunction with the numbers above to come up with the total number of IPTV subscribers over time. We assumed take rates of 10 percent in year one, 15 percent in year two, 20 percent in year three, 25 percent in year four, and 30 percent in year five. This calculation yields 105,000 IPTV subscribers in year one, growing to more than 3 million in year five. 10. We assumed the use of MPEG-4 encoding, thus requiring 2 Mbit/s per SD stream and 8 Mbit/s per HD stream. 11. We assumed an initial package of 210 channels (200 SD, 10 HD) for day one. The num- ber of SD channels stays constant for the life of the project (a conservative assumption); the number of HD channels grows modestly to 20 percent of the total in year five. 12. 25 percent of the broadcast channels were assumed to be multicast to the DSLAM. 13. VOD concurrency was assumed to grow modestly over time, starting at 8 percent in year one and growing to 10 percent in year two, 12 percent in year three, 16 percent in year four, and 20 percent in year five. 14. We assumed that 100 percent of IPTV subscribers were high-speed Internet subscribers at an average data rate of 0.5 Mbit/s with a 10:1 oversubscription. 15. We assumed that subscribers would adopt VOIP services (at a data rate of 100 kbit/s with a 2.5:1 oversubscription) at 10 percent in the first year, growing to 50 percent. 5.2 Cost Comparisons Among Alternative Broadband Network Architectures The capex chart below includes the incremental costs for the centralized models to support the two additional services. Even with the added burden of the two additional multiplay services, the centralized approaches always require fewer investment dollars. In year one, both the aggregated and the non-aggregated centralized models require approxi- mately $25.5 million less than the distributed model. This difference grows by year five, with the non-aggregated model costing $77 million less and the aggregated model $65 million less than the distributed model. Over the five years, the distributed approach can cost as much as $136 million more the aggregated and $236 million more than the non-aggregated centralized model. Figure 5: Capex Comparison The results show that in the early years, when DSLAM utilization is low, centralization lowers capex. This logic applies whenever utilization of Gigabit Ethernet from the DSLAM is 25 percent or less. The initial capex spike in year one is due to the deployment of 10,000 DSLAMs; we also assumed a large number of DSLAMs deployed in year five, as broadband penetration begins to max out. Higher DSLAM deployment correlates to higher capex in those years. © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 13
  14. 14. As traffic grows in years two, three, and four with moderate DSLAM deployment, Gigabit Ethernet utilization increases. Here the centralized model scales better. Overall, capex is 34 percent lower for the non-aggregated centralized model and 20 percent lower for the aggregated centralized model, versus the distributed model. Figure 6: Opex Comparison Opex is fundamentally driven by labor costs. Unlike other models that assess this as a percent- age of revenue or capital, we compared costs directly by making assumptions about the complex- ity of provisioning, administration, and network operations required. Service and customer care accounts for a large part of opex here (remember, we are looking only at aggregation and edge- router management). The centralized models simplify and consolidate these processes, making their opex about 45 percent lower than the distributed model's over the five-year period. Figure 7: Net Present Value Comparison By our calculations, the net present value of the centralized models is more than $3 billion greater than that of the distributed model. The major influences on the net present value are the assump- tions regarding additional revenue, while lowering both capex and opex. The point is that is im- portant to consider how each architecture affects revenue, operations, and capital investment. © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 14
  15. 15. VI. Summary The intent of the paper is to point out the business and financial measures a company should adopt to make IPTV/multiplay deployments as successful as possible. Carriers need to consider: • Simplifying the network architecture to minimize capital investment • Simplifying provisioning and operational processes to increase productivity of work forces • Enabling new services as cost-effectively as possible to continue to increase ARPU, revenue, and profits Based on the assumptions used in this white paper, the centralized architecture variants (aggre- gated and non-aggregated) both increase revenue and yield lower total cost of ownership than the distributed model. The centralized models generated more than $1 billion in additional reve- nue by year five. Capex is up to 34 percent lower, and opex 45 percent lower, over the five-year period modeled. The distributed architecture costs more, even though it may support fewer ser- vices. The result is that the centralized model has a $3 billion net present value advantage over the distributed model. As the industry moves forward with advanced broadband network deployments in support of a range of IP-based services, understanding of the technical pitfalls and the solutions required to address them grows with each passing day. The next phase of the broadband services market is fast approaching, as carriers move beyond trials and controlled service rollouts with IP video. Ad- vanced service flexibility – defined in this paper as the need to dynamically support a wide range of differentiated video, voice, and data services – will be a critical phase in establishing industry leaders among both vendors and service providers. Initial deployments and early trials can be supported, to some extent, without many of the ad- vanced features and services outlined in this white paper. Transitioning IPTV and other advanced broadband services into a mass market, however, will undoubtedly require robust, flexible, dy- namic, and cost-effective network architectures, as discussed here. With that said, it is always important to continue looking forward to the next challenges, so that the network infrastructure and technology deployed today anticipates tomorrow's potential prob- lems and opportunities. Internet TV is one such service challenge that cannot be overlooked. The business model and optimal service delivery model for this service is not yet fully understood, but various Internet ser- vice providers have expressed a strategic interest in providing it – and as a result, redefining ad- vertising paradigms. The success of PCCW's Internet VOD service to the PC shows that both models can coexist and provide parallel advertising opportunities. The fact of the matter is that the importance and bandwidth demands of Internet-sourced video will grow, especially among the younger generation of Internet users. Providing assured network resources will become a factor if and when such services evolve from the current download model to an instant-viewing model. Internet TV could emerge as either complementary to or competitive with walled-garden IPTV, depending on how the value chain of video content delivery evolves. Regardless, network- and service-infrastructure layer solutions, in addition to newly emerging solutions, will need to take this trend into account over the next few years. However, let's not get too far ahead of ourselves: The highest priority should be placed on solving problems for short- to medium-term market requirements, and those problems lie squarely in the in the sights of flexible service delivery for a wide range of advanced broadband services, includ- ing and beyond IPTV. This will be a critical development to watch for during the remainder of 2006 and into 2007. © HEAVY READING | JULY 2006 | WHITE PAPER – OPTIMIZED ARCHITECTURES FOR MULTIPLAY SERVICES 15