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ITU Sub-Regional Seminar on IMT-2000

Warsaw, 2-4 October 2001

UMTS Deployment
Issues and Economics

Overvieweing key options and economic aspects


of UMTS deployment

Davide Grillo
UMTS Task Force

UMTS Deployment, Version 3.1.3 DG/Slide 1 of 24


UMTS Deployment
The operator’s decisions

! “Entry level” network

! Timing of functional enhancements

! Timing of capacity increases

! Tariff policy and its evolution

UMTS Deployment, Version 3.1.3 DG/Slide 2 of 24


UMTS Deployment
Features of UMTS releases (1)

Rel-99
" Full set of WCDMA technology
from GSM to support the new RAN
" Evolution of the core network

Rel-4
" More reliable packet transfer
in the core network
" Evolution from GPRS
and « best effort »

Rel-5
" IP real time application support

UMTS Deployment, Version 3.1.3 DG/Slide 3 of 24


UMTS Deployment
Features of UMTS releases (2)

Services & System Aspects


Release 1999 Release 4 Release 5
• Services as available • Authentication algorithm • Development/Selection
with GSM • Transcoder-Free of a Multi-Rate Wideband
• Multimedia messaging Operation (TrFO) Speech Codec (50Hz-
• Tandem Free aspects for 7kHz)
3G and between 2G and for Wideband Speech
3G systems Telephony in multiple
radio environments
• Virtual Home • IP-based multimedia
Environment (VHE) and services
Open Services • Push Services
Architecture • Enhancements to:
(OSA) evolution − Security
• Location Services (LCS) − VHE
− OSA
in
− Global Text Telephony
Circuit Switched and − Location Services
Packet Switched domains − 3G radio access
UMTS Deployment, Version 3.1.3 DG/Slide 4 of 24
UMTS Deployment
Features of UMTS releases (3)

3G Radio Access
Release 1999 Release 4 Release 5
• Completely new Radio • New TDD mode (1,28 Mcps) • Intra-domain connection of
Access Network (UTRAN), for narrowband applications RAN Nodes to Multiple Core
built “from scratch” Network Nodes
• Radio interface
• Different base technology • High Speed Downlink
improvements, e.g.:
compared to GSM: Packet Access
− UTRA repeater
Wideband CDMA instead
of TDMA
• Radio Access Network • Evolution of UTRAN
improvements, e.g.: transport:
• FDD and TDD − Robust Header support of IP and radio
(both 3.84 Mcps) Compression (first use bearers for efficient IP-based
• Adopted by ITU as part of IETF RFC 3095) • multimedia
Separation services
of resource
of the IMT 2000 family reservation and radio link
activation benefits to high
bit-rate users

UMTS Deployment, Version 3.1.3 DG/Slide 5 of 24


UMTS Deployment
Features of UMTS releases (4)

Core Network
Release 1999 Release 4 Release 5
• CAMEL Phase 2 and 3 • Evolution of Transport in the CN • Provisioning of IP-Based
• Basic UMTS Security issues • Non-Transparent Real Time Multimedia Services (SIP Call
Facsimile Control protocol)
• EDGE
• Circuit Switched (CS)
• ACSI (Advanced Speech • Packet Switched (PS) Emergency
Emergency Call Enhancements
Call Items) Call Forwarding Call Enhancements
Enhancements • Enable Bearer Independent • CAMEL Phase 4
• GPRS CS Architecture • Intra Domain Connection of
• Transcoder-Free Operation RAN Nodes to Multiple CN
• GPRS Tunnelling Protocol
• ASCI Enhancements Nodes
Enhancements
• Operator Determined Barring • Reliable end-to-end QoS for
• Handover
(ODB) for Packet Oriented Packet Switched domain
• GSM-UMTS internetworking
Services
• Mobile Station Classmark
• Multicall
• Circuit Switched Bearers
in UMTS
• OSA
• Unstructured Supplementary
Service Data
UMTS Deployment, Version 3.1.3 DG/Slide 6 of 24
UMTS Deployment
UMTS Release 99

Service & Home HLR SCP


Environment Plane

Circuit Domain
BSS BSC
BTS
2G-3G 2G-3G PSTN/
MSC MSC
PLMN

IP/ATM
Transport Plane
IuCS 2G-3G
SGSN INTERNET
UTRAN RNC
IuPS
GGSN
Node B
Packet Domain

UMTS Deployment, Version 3.1.3 DG/Slide 7 of 24


UMTS Deployment
UMTS Release 5

HSS SCP
Service & Home
IM Domain Environment Plane
Application
Server Multimedia
Session
MGCF Control Plane
MGCF: Media Gateway Control Function
CSCF: Call State Control Function CSCF T-SGW
T-SGW: Transport-Signalling Gateway
MRF: Multimedia Resource Function MRF MGW PSTN/
MGW: Media Gateway PLMN

QoS Enabled
IP Transport Plane

SGSN
INTERNET
UTRAN IuPS
RNC GGSN
Node B
Packet Domain
UMTS Deployment, Version 3.1.3 DG/Slide 8 of 24
UMTS Deployment
UTRAN transport solutions

Node B
Backhaul RNC
Node B
Network
Hub Hub
Node Node
Node B
UMTS
Access Hub Hub
Network Node Node

Node B
RNC

Node B

Node B
Node B

UMTS Deployment, Version 3.1.3 DG/Slide 9 of 24


UMTS Deployment
RAN: Key options

! Physical media and the transport technique


# Low capacity microwave (PDH)

# High capacity microwave or optical links (SDH STM-1/STM-4)

# ATM, LMDS, XDSL, leased lines

! Topologies
# Tandem

# Ring

# Star

UMTS Deployment, Version 3.1.3 DG/Slide 10 of 24


UMTS Deployment
Architecture for core network
transport
GGSN

GGSN GGSN

RNC
RNC
Region 2
RNC MSC Gn
RNC
Region 1 RNC Iu
Gn
Iur Control
RNC Iu Plane
Iur Control
Plane
Iucs
User
Gn Plane SGSN
User MSC
Plane SGSN

Gn

RNC
Region 3
RNC Iu
Iur Control
Plane

IP & ATM/SDH-WDM
User
Plane SGSN
MSC

UMTS Deployment, Version 3.1.3 DG/Slide 11 of 24


UMTS Deployment
Core Network: Key options

! Different types of UMTS terminals

! Multimedia services

! UMTS standards with respect to IP Multimedia aspects

! Replacement of first-release 3G terminals

! Speed of UMTS market growth

UMTS Deployment, Version 3.1.3 DG/Slide 12 of 24


UMTS Deployment
Service Platform: Functional
architecture

3G Applications

Unified
Others
Messaging
Video-Audio Convergent
Streaming Applications
Location Common Services and
Content Infotainment
Gaming
Based Operations & Business
Providers Services Support
Presentation Users
Services

MultiMedia Payment
Portal Customer Data M-Commerce

Profile Service Request Charging


Syndacation Rating
Content Charging Data Application
Identification
Mngmt Open Bus
Authentication
& Translation
Application Middleware Network Mngmt
& Operation

GW & SCS
Users

UMTS Network

UMTS Deployment, Version 3.1.3 DG/Slide 13 of 24


UMTS Deployment
Service platform: Key options

Service Category Market Segment


Mobile Intranet/Extranet Business
Access

Mobile Internet Access Business, consumer

Location Based Services Business, consumer

Rich Voice Business, consumer

Customized Infotainment Consumer

Multimedia Messaging Consumer


Service

UMTS Deployment, Version 3.1.3 DG/Slide 14 of 24


UMTS Deployment
Business Analysis modeling

GDP (Gross Domestic Product)


Population Market share
Income distribution Churn
Inflation
Total addressable
market Subscribers Economic Capital

Marketing and technical Model


Macro Market
Model Cost
economic Share
Revenues Model
Model Model Tariff
Usage Operating IRR ($ or E
Maintenance Expenses and local currency)
Salaries
Capital Net Income
Interconnection
Service Expenditures
Quality target
price Cash-flow statement
Coverage target
License

Corporate tax rate Tax


Depreciation

UMTS Deployment, Version 3.1.3 DG/Slide 15 of 24


UMTS Deployment
RAN planning and UMTS deployment
(1)
Total population over the service area
User
population &
service
penetration

Customer Customer Customer Customer


base base base base

Dense urban Urban Suburban Rural


Business Consumer Business Consumer Business Consumer Business Consumer

CS Circuit switched services


12 ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
64 ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
128 ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦

PS Packet switched services


64 ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
128 ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
384 ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦

UMTS Deployment, Version 3.1.3 DG/Slide 16 of 24


UMTS Deployment
RAN planning and UMTS deployment (2)

Circuit switched services

¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦

Packet switched services

¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
Traffic Traffic Traffic Traffic
loading loading loading loading

RAN Dimensioning and Planning Tools


Deployment
strategies &
policies

UMTS Network Deployment


UMTS Deployment, Version 3.1.3 DG/Slide 17 of 24
UMTS Deployment
RAN planning and UMTS deployment
(3)
Total population over the service area

Total population over the service area


User
population &
User
service YN
Total population over the population
service area
&
penetration
Customer
Total population over the service
service
Customer
area
penetration
Customer Customer YN-1
base base base base
Customer User
Customer Customer Customer
Total population
base over the population
service area
base
& base base

Userservice 2 Y
penetration
population &
Customer
Dense urban
User service
Customer
Urban
Customer
Suburbanl
Customer 1 Rural Y
base penetration
base
population & base base
Customer
Dense urban Consumer
Business
service
Customer
Urban
Business
Customer
Consumer Suburbanl
Business
Customer
Consumer
0
Rural
Business
Y Consumer
base base
penetration base base
Business Consumer Business Consumer Business Consumer Business Consumer
Customer CS Customer Customer Circuit switched services
Customer
base base base base
Dense urban Urban Suburbanl Rural
CS
12 ¦ ¦ ¦ Circuit switched
¦ services ¦ ¦ ¦ ¦
Dense urban
Business
64
Consumer
¦ Business
Urban ¦ Consumer ¦Suburbanl
Business
¦Consumer ¦ Business
Rural ¦Consumer ¦ ¦
12 128 ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
Business 64
Consumer
¦Business ¦Consumer ¦Business ¦
Consumer
¦Business ¦
Consumer
¦ ¦
Dense urban Urban Suburbanl Rural
CS 128 ¦ ¦ Circuit ¦switched services
¦ ¦ ¦ ¦ ¦
PS Packet switched services
Business
CS Consumer Business Consumer Business Consumer Business Consumer
12 ¦ PS 64 ¦ ¦ ¦ Circuit¦switched
¦ services ¦
¦ Packet switched
¦ ¦services ¦ ¦ ¦ ¦ ¦ ¦
64 ¦ 128¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
CS 12 128 ¦ ¦ 64¦ 384¦ ¦ ¦ Circuit
¦ ¦ ¦ ¦services
¦switched ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
64 ¦ 128 ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
12 128 ¦ ¦ ¦ 384 ¦ ¦ ¦ ¦ ¦ Traffic
¦ ¦ ¦ ¦ ¦ Traffic ¦ ¦ ¦ ¦ Traffic ¦
PS Packet¦switched services ¦ ¦ ¦ ¦ ¦
Traffic
64 ¦ ¦ ¦ ¦ loading ¦ ¦ loading ¦ ¦ loading loading
128 PS ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
64 ¦ ¦ Traffic ¦ Packet switched¦ servicesTraffic ¦ ¦ Traffic ¦ ¦ Traffic
128 ¦ ¦ loading ¦ ¦ loading ¦ ¦ loading ¦ ¦ loading

PS 64 384 ¦ ¦ ¦ ¦ ¦ Packet ¦switched ¦ services


¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦
128 ¦ ¦ ¦ ¦ ¦RAN Dimensioning ¦ ¦
and Planning Tools ¦
64 384 ¦ ¦ ¦ ¦
Traffic ¦
¦ ¦ ¦
Traffic ¦
¦ ¦ ¦
Traffic ¦
¦ ¦ ¦
Traffic
128 ¦ ¦ loading ¦ ¦ loading ¦ RAN Dimensioning ¦ loadingand
¦ Planning ¦ Tools loading
Deployment
384 ¦ ¦
Traffic ¦ ¦
Traffic ¦ ¦
Traffic ¦
strategies &¦Traffic
loading loading loading
Deployment policies loading
Traffic Traffic Traffic strategies &Traffic
loading loading RAN Dimensioning loadingand Planning policies loading
Tools
YN
RAN Dimensioning Deployment
and Planning Tools
UMTS Network Deployment

RAN Dimensioning and


strategies &
policies
UMTS
Planning Network Deployment
Tools
YN-1
Deployment
strategies &
policies
Deployment
strategies & Y2
UMTS Network Deployment
policies
Y1
UMTS Network Deployment
Y0
UMTS Network Deployment
UMTS Deployment, Version 3.1.3 DG/Slide 18 of 24
UMTS Deployment
Net Present Value: Definition

! Net Present Value (NPV):


# Cumulative discounted cash-flow generated to date, or less
formally

# The profitability of a business, as appreciated a Year 0, over a


span of N years - N ranging from 1 to the economic life of the
system

UMTS Deployment, Version 3.1.3 DG/Slide 19 of 24


UMTS Deployment
Share of investments over network components

Year 0 Year 3 Year 4 to Year 10


Rel-99 from Rel-99 Capacity increases
to Rel-5
RAN
- Node Bs 55% 55% 60%
- RNCs 30% 35% 30%
- UTRAN transport infrastructure 15% 10% 10%
Core Network
- MSCs & MSC servers 50% 0% 0%
- SGSNs & GGSNs 35% 60% 65%
- MGWs 0% 10% 10%
- CSCFs, MGCFs, T-SGWs, 0% 20% 15%
MRFs 15% 10% 10%
- Core network transport
infrastructure Year 0 Year 3 Year 4 to Year 10

Service Market Segment 65% 60% 50%


- Business 35% 40% 50%
- Consumer
3% yearly reduction in over the whole
Tariffs economic life cycle

UMTS Deployment, Version 3.1.3 DG/Slide 20 of 24


UMTS Deployment
Net Present Value: Reference
scenario
16000

14000 [MEuro]

12000
SM+ & SP+ & TE+
10000

8000 Reference scenario

6000
SM- & SP- & TE-
4000
Reference offering
2000
Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
0

-2000

-4000

-6000
[time]
-8000
SM: Service Mix SP: Service Penetration TE: Tariff Erosion
UMTS Deployment, Version 3.1.3 DG/Slide 21 of 24
UMTS Deployment
UMTS business plan: Sensitivity
analysis

Deviation from SM+ ⇒ Y3: +10%, Y10: +25%


assumed service mix SM- ⇒ Y3: -10%, Y10: -25%

Deviation from
SP+ ⇒ Y3: +10%, Y10: +25%
assumed service
SM- ⇒ Y3: -10%, Y10: -25%
penetration

Yearly deviation TE+ ⇒ +10%


TE- ⇒ -10%
from tariff erosion
Alternative scenario Year 0 Year 3 Year 4 to Year 10

Service Market Segment


- Business 65% 60% 50%
- Consumer 35% 40% 50%

SM: Service Mix SP: Service Penetration TE: Tariff Erosion

UMTS Deployment, Version 3.1.3 DG/Slide 22 of 24


UMTS Deployment
NPV: Alternative business plan

16000
Alternative offering
14000 [MEuro]
Alternative scenario
12000
SM+ & SP+ & TE+
10000

8000 Reference scenario

6000
SM- & SP- & TE-
4000
Reference offering
2000
Y0 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10
0

-2000

-4000

-6000
[time]
-8000
UMTS Deployment, Version 3.1.3 DG/Slide 23 of 24
UMTS Deployment
Conclusions

! Strategic, market and economic decisions play a fundamental


role in planning investments for phased functional and capacity
enhancements along the economic life of the network
! A balance has to be striven between actions decided in the
early stages of the network deployment and actions which may
be deferred
! Whatever deployment policy is chosen, a significant margin of
flexibility for adjusting the deployment plan has to be factored
from the outset

UMTS Deployment, Version 3.1.3 DG/Slide 24 of 24