African Journal of Business Management Vol. 5(13), pp. 5271-5280, 4 July, 2011 Available online at http://www.academicjournals.org/AJBM ISSN 1993-8233 ©2011 Academic Journals
Full Length Research Paper
Modeling of next generation network deployment in developing countries Dragan Bogojevic1* and Natasa Gospic2 1
Alcatel-Lucent Serbia, Omladinskih brigade 88a, Belgrade 11070, Serbia. Traffic and Transportation Engineering Faculty, Vojvode Stepe 305, Belgrade 11000, Serbia.
2
Accepted 11 March, 2011
The development of next-generation networks (NGN) is a growing trend in the global telecommunications sector. Although the technological requirements are known, NGNs target a new generation of users, sources for revenue, and regulation. Telecom firms in developing countries are encountering new challenges in managing NGN deployment and often seek to draw upon experiences from developed countries. However, the differences in technological needs, market profitability, and legislative framework are remarkable, and the mapping of those experiences is not always possible. In this paper, the authors analyze the main differences between developed and developing countries to define an appropriate approach for developing countries. Also, examples of NGN introduction in developing countries are analyzed and discussed from the viewpoint of speeds, investments, and revenue opportunities. Based on the analyses discussed in this paper, an analytical framework for a national model to plan and deploy NGNs in emerging economies is proposed, with the focus of facilitating developing countries’ paths towards implementing an NGN. The roles of government and public-private partnerships are emphasized. Key words: Next-generation networks, broadband access, developing countries, analytical framework, national model, public-private partnership, government. INTRODUCTION From a technological perspective, NGN is based on a new architecture that modifies both the core and access portions of a telecommunication network and changes the way it delivers services to end-users. The telecommunication industry is evolving towards NGN as it adopts the convergence of different network architectures into an all-IP (Internet Protocol) network that guarantees seamless connectivity to all services over any access network and any device. In its Recommendation Y.2001, International Telecommunication Union (ITU) has defined NGN (ITU-T, 2004). Why have telecom operators/service providers in developed countries (DCs) completely or partially replaced their existing PSTN (Public Switched Telephone Network), which has brought them enormous revenues
*Corresponding author. E-mail:
[email protected] Tel: +38163-238-352. Fax: +381-11-2288-298.
and profits over the past few decades? Some global vendors have concluded that currently there exists an unstable and unsustainable business model that is split between the web world and networks and is suboptimal for everyone concerned. On one hand, the Web World exists - it is a space where application and content providers (like Google, YouTube, and Amazon) run various applications and services, many of which are Web 2.0 centric and targeted at the Digital Youth, who are growing up completely comfortable with computers and without pre-Internet memories. Networks, on the other hand, are capital-intensive. To serve a subscriber, high speed connectivity is required everywhere – both wired and wireless. To build a network with that kind of scale, performance and carrier-grade reliability requires substantial quantities of capital. Until recently, this capital was available in the form of subscriptions and user consumption. As long as the average revenue per user (ARPU) was climbing at a rate that was in line with the investment required to upgrade the network to support
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the subscriber, the situation was sustainable. This business model of pay per use worked well because each user paid his/her own cost and facilitated investment by the network owner. Web 2.0 business models, however, have punctured the equilibrium and operators find themselves in a situation where traffic is growing 1000% for some customers, but revenues are only growing at a fraction of that rate. They obtain limited monetary compensation for their assets and support; the application/content provider has restricted access to network capabilities (such as location, presence, quality of service, and security) that could strengthen their relationship with the end user who is separated from the full value that the network and service provider could deliver. The situation in developing countries (devCs) could be even worse because investments are limited and can only be recouped by returns over the long run. However, devCs do not wish to stay behind and watch the worsening of the already-existing digital divide. The devCs would like to find a model that allows them to continue progressing towards digital economies based on Information Communications Technologies (ICT), using NGN as the infrastructure. In this paper, the authors analyze the main differences between DCs and devCs to determine an appropriate approach for devCs to take. Also, examples of NGN introduction in developing countries are examined from the point of view of speeds, investments, and revenue prospects using business cases of several operators from southeastern Europe, particularly from Serbia. Based on the analyses done in this paper, an analytical framework for a national model for planning and deploying NGN in emerging economies is proposed with the main aim of facilitating developing countries’ needs and paths towards NGN. LITERATURE REVIEW The development of broadband (BB) Internet and NGN, over the past few years, was in the focus of attention from both developed and emerging economies. Since 2009, this development is additionally forced as a key element in overcoming the current economic crisis. It is stated that broadband services play an important role in the people' social and economic lives and are effective tools against recession. All this has led to the initiation of various regional and national initiatives on the deployment of BB Internet. Analyzing the reference literature, four levels of initiatives and models for the BB deployment are identified: global, macro (country), middle (regional) and micro (company, user, citizen) level. To improve the development of broadband access at the global level, ITU and UNESCO have formed the Broadband Commission for Digital Development (BB Commission, 2009). To increase awareness of the vital
role what broadband will have in the 21st century for all countries, ITU, also, runs a campaign called “Build on Broadband”. The ITU WSIS Report (ITU, 2010b) reflects a joint effort among several international organizations (ITU, UNESCO, WHO, UNDESA) and representatives of civil society in achieving Millennium Development Goals in 2015. This report shows that progress has been made with close to five billion mobile cellular subscriptions worldwide at the end of 2010 and almost two billion people throughout the world having access to the Internet, but it is necessary to bring affordable fast broadband access within reach of the great majority of the world’s people — noting today that three quarters of the world’s inhabitants still have no access to the Internet at all. The rapid spread of broadband networks and recognition that broadband networks deliver benefits across society are key targets for future. At the macro level, in the USA, Japan, South Korea, Australia, European Union (EU) and individual countries like Greece and other, large attention is given to models of development of broadband access. In March 2010, the EU adopted a strategy for smart, sustainable and inclusive development called Europe 2020 Strategy (EU Agenda, 2010) where the role of information communication technology has been identified as one of most important. Frieden (2005) examined best practices in broadband network development with an eye toward determining the optimal mix of legislative, regulatory and investment initiatives. The paper tracked development in Canada, Japan and Korea as these nations, based on governmental efforts, had achieved success despite significantly different geographical, political and marketplace conditions. The paper concludes with suggestions that investment in a robust broadband infrastructure requires extensive coordination and cooperation among private and public sector players. The private sector needs to make the necessary investments for the incubation of ICT, but the government can create incentives for such investment by underwriting and guaranteeing loans, providing favorable tax treatment and financially supporting a portion of the necessary research, development and technology demonstration projects. At the macrolevel, these nations adopted laws that created incentives for risk taking and innovation and penalized litigation and strategies to delay making necessary investment in capital-intensive projects. At the middle-level, they linked public funding with private initiatives that aggregated demand, generated matching funds and justified the installation of ICT even in geographically unattractive locales. At the middle level, regarding the growing gap between urban and rural areas DNTA (2009) presented an overview of key elements of an analytical model to support subsidized deployment of rural broadband networks in commercial non-viable locations in the United
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States. The model evaluated the underlying economic costs to provide access to broadband service in “unserved” and “underserved” areas. The methodology is geographically-based, focusing primarily on rural areas where current networks are not available. According to the European Regional Information Society Association (http://www.erisa.be) guidelines for regional and local broadband projects, the following business models can be defined: (a) Network model of local community (local communities build, own and maintain the entire network infrastructure and provide broadband services to users); (b) Operator’s model (local communities build and maintain infrastructure and provide broadband equipment, generally through a public private partnership (PPP) model and then sell wholesale capacity to commercial service providers); (c) Passive infrastructure model (local communities build passive infrastructure, which is then transferred as a concession to an independent third party); (d) Aggregation model on request (more generic approach for local government to achieve a critical mass of users and traffics required to guarantee necessary income and justify the investment in broadband); and (e) Model of individual property (supplement in order to obtain justification for the introduction of optics in the last mile, where owner of the apartment is owner of optics, too). Bouras et al. (2009) proposes a business model for the optimal exploitation of the currently developing broadband metropolitan area (MAN) networks in Greece. The three basic levels are presented: The first level (Level 1) determines who (a private or public enterprise, etc.) exploits the network’s passive equipment (channels, optical fibers etc.); the second level (Level 2) determines who provides and exploits the active equipment of the network (switches, routers etc.); the third level (Level 3) determines who offers access to the network, the services and the content. The most attractive business model for Greece is one applied at the national level. Competition exists among private companies in the two upper levels (services and active equipment) while the National Broadband Enterprise (NBE) is responsible only for the first level (passive equipment). According to Hughes (2003), there were the following main local and regional models for broadband deployment: (1) Community operated network and services; (2) Carrier’s carrier model (The public sector develops and manages both Level 1 and Level 2. Level 3 is subject to competition); (3) Passive infrastructure model (The public sector develops and manages Level 1. Both Level 2 and Level 3 are subject to competition); (4) Aggregation of public demand (Coordinate efforts exerted by regional carriers and aiming at aggregating broadband services’ demand. The regional carrier presents the aggregated demand as an attractive clientele basis to the service suppliers, with whom it negotiates the overall purchase of broadband services and the percentage ownership upon the infrastructure).
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Tongie (2007) analyzed how new business models and new technologies can go hand-in- hand to leapfrog in emerging regions. The proposed generalized technoeconomic model of broadband connectivity indicated that last mile access and interconnections are significant barriers. Extending the open access idea with a leapfrog model, the analysis indicated that in the absence of policy and regulatory add-on costs, only ~$1/capita one-time investment provides connectivity up to an African village or a school, where it would be shared by many people. This underscores that the access in poorer regions may be shared instead of individual like in richer countries. Chen et al. (2010) provided general method for CAPEX and OPEX analysis of fiber access network architectures with consideration of changed components cost in time as well as different take rates – percentage of homes or buildings covered and subscribed for the service. Passive optical network is considered the most promising solution and always has had the lowest total cost among all the basic architectures. Zagar and Krizanic (2009), using the basic profitability evaluation methods, calculated costs of ADSL and WiMAX implementation in three different rural scenarios (80, 40 and 10 users) for fixed broadband access services and residential users in Croatia. Measuring the profitability with values of payback period, net present value and internal rate of return, results of economical analyses showed that the fixed wireless networks are less cost-effective than DSL networks for Osijek-Baranja County. Ellershaw et al. (2008) modeled and compared the deployment costs of three broadband access technologies (xDSL, passive optical networks and WiMAX wireless access) in Australian rural and remote areas, for data rates of 20 Mb/s and 50 Mb/s. The analysis showed that wireless technologies are cheapest for 20 Mb/s when the number of homes per square kilometer is less than one, and passive optical networks are the most economic for 50 Mb/s. Hengyuan et al. (2006) examined the difference of telecommunication market between developed countries and developing countries by using adopter categorization which divides consumers into five categories: Innovators, early adopters, early majority, late majority and laggard. The results indicate that the size of innovators in developing countries is smaller than that in developed countries; on the contrary, the size of early adopters in developing countries is larger than that in developed countries. Based on the examples described above, we can conclude that there is no single solution that covers all of the situations, but rather a limited number of solutions that can be selected depending on regional geography, population density, existing telecom infrastructure and adopted development policy. These solutions must be carefully introduced and executed on an effective way. To facilitate the NGN deployment authors develop the
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Table 1. NGN-related characteristics in developed and developing countries.
Characteristic Economy
Developed countries ICT based, 12,196 < GNI ($)** < 87,340
Developing countries Not ICT based, 140 < GNI ($)** < 12,195
Society
Information Society, IDI (ICT development index) = 5.89*
Towards Information Society, IDI = 2.70*
Fixed broadband penetration
Above 20%*
Below 5%*
Mobile broadband
Above 20%*
Below 5%*
Broadband access
Driven by new NGN services such as IPTV and multimedia communications
Lack of BB access – lack of demand for new NGN services
ICT price basket (cost of ICT services)
1.5* (% of national average monthly GNI per capita)
17.5* (% of national average monthly GNI per capita)
Monthly cost of fixed BB in PPP$ / as % of monthly GNI per capita
28 PPP$* / 2%*
190 PPP$* / 174%*
Expected ARPU per NGN service(s)
Above $30 for triple play
Below $10
Country’s policy and strategy for broadband
Implemented with government funds
There exists a plan but no funds for implementation
Spectrum
Digital dividend, spectrum reallocation
Usually limited or restricted
Approach to NGN
Evolutionary
No money for evolution, existing networks not ready for revolutionary approach
Drivers for NGN development
Competition, Operators Profit, Content explosion, Government
Not clear (Policy makers, Regulator, Operators, or Customers)
Services
Mobile broadband, Triple play
Internet
Expected average bandwidth
50 – 100 Mb
4 - 50 Mb
Time frame for NGN
2010 – 2020
2012 – 20x0
Sources: * ITU (2010a), ** World Bank (2010).
Analytical framework for national model for devC. Implementing the proposed model at country level requires identification of many national aspects that influence the development. Some of those aspects are illustrated on the example of Serbia.
OVERVIEW OF NGN CHARACTERISTICS DEVELOPED AND DEVELOPING COUNTRIES
IN
The usual advice for devCs on NGN deployment is to follow the path taken by DCs and try to avoid falling into traps and mistakes. Is this the right advice when we consider NGN implementation in devCs? Before an answer can be given, it is necessary to investigate the following questions: Are there basic differences between broadband (BB) telecommunications and NGN needs in DCs and devCs? Can we use the same business model if
we have a smaller number of users and with limited purchasing power? Who should invest, and who should build? Who can guarantee the deployment of the NGN? Do we need government support, and if so, what is the role of government in the development of NGN in devCs? We identified the basic differences in telecommunications and NGN deployment between DCs and devCs, factors that should be taken into account to create sustainable business models in devCs. To illustrate these differences, some typical characteristics are chosen in Table 1 to emphasize readiness for the NGN. Table 1 shows that differences between DCs and devCs are obvious and cannot be neglected when the NGN is planned. This means that a different approach/ model for devCs should be considered to best meet the specific conditions that exist in devCs. When looking at models that have been applied in DCs, it becomes clear that most companies are focusing on
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Table 2. Main telecom indicators – world, developed, developing countries and SEE, 2009.
Mobile cellular telephone subscriptions (%) Internet users (%) Mobile broadband subscriptions (%) Fixed broadband subscriptions (%)
World* 67.0 25.9 9.5 7.1
DC* 113.6 64.2 38.7 23.3
devC* 56.8 17.5 3.0 3.5
SEE** 94.73 35
