economic analysis of networking technologies for rural ...€¦ · wifi/cdma450 has lowest cost of...
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Economic Analysis of Networking Technologies for Rural Developing Regions*
Mubaraq Mishra
Berkeley Wireless Research Center
*Joint work with Tom Du, Dick Filippini, John Hwang, Lakshminarayanan Subramanian and Reza Moazzami
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Motivation
The business motivation: Is there a business case for providing connectivity to rural populations in developing regions?
Interested in the financial viability of the entire eco-system
The technology motivation: Can economic analysis help us determine key technological developments needed to provide low cost connectivity?
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Agenda
Akshaya case studyFinancial Analysis of AkshayaExtending the Akshaya Analysis Conclusions
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Akshaya: A Case study
Joint project between the State of Kerala in India and Tulip ITWireless IP network set up in the district of Malappuram – 630 eCenters in allBackhaul and last mile links are based on proprietary technologies1 center for every 2000 families
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Vettekkod
Kizzisary
Chekkod
PallurkottaTavanoor
Kallarakkunnu
Vangalam
Arikkod
Nilambur
Kalpakanchery
Kakkancherry
Pullamkode
Melmuri
Malappuram
Vivekananda
MEA
PTM
POP
22
6
2
5
12
5
25
236
8
17
30
3
2324
6
424
10
630 No of Akshaya centres connected
20
8
3
5
7
8
10
5
4
16.8 km
Bharti
3.04 km
7.75km
4.5 km
3.48 km
17.5 km
8.5 km
22.3 km
15.68 km
22.5 km
3.5 Km
14.53 km
11.5km3.5km
Sub POP
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Akshaya Network Setup
CISCOSYSTEMS
Load Batte ryLineOn On
BatterySmartBoost
ReplaceBa ttery
Test
Load BatteryL ineOn On
BatterySmartBoost
ReplaceBatte ry
Test
CISCOSYSTEMS
Pop
Sub-Pop
Backhaul Radios
Access Network Base Stations
Access Network Subscriber units
CPE Equipment
UPS/Generator/Battery
Access Network
Pop - Hosts backhaul links and Access Base stationAkshaya Center– Kiosk managed by entrepreneurSub-pop - AC which also serves as a POP. Relay - Backhaul relay tower
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Technologies consideredAccess Technologies
CDMA450WipLL WiMax
X
X
XXWiFi(Omni)
Bac
khau
l Tec
hn
olog
ies
WiFi(directional)
Fiber
VIP
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Total Costs for network deployment
WiFi/WiMax is the most economically viable solution
Fiber/WiMax is the least economically viable
For Wireless, last mile costs dominate backhaul costs
OpEx is huge !
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CapEx for network deployment
WiFi/CDMA450 has the lowest deployment
Largest cost for fiber is installation
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OpEx for network deployment
WiFi/CDMA450 suffers from recurring spectrum lease cost
Termination costs for a large portion of the OpEx
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Conclusions for AkshayaWiFi with directional antennas + WiMax has most attractive economics.WiFi/CDMA450 has lowest cost of deployment.Largest cost for Fiber is installation.Wireless backhaul (both WiFi and VIP) technologies have at most 1/8 the backhaul CapEx VS FiberLargest component of the capital investment for providing connectivity is the cost of the end-user devices.Cost of backhaul/access radio equipment on towers is miniscule
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Extending the AkshayaAnalysis
Flat Terrain: If tower heights could be halved: IRR jumps by 1.8%
Lower Population density: Coverage area can be doubled : IRR jumps by ~3%
Cheaper end devices: PC costs can be halved : IRR jumps by ~10%
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Extending the AkshayaAnalysis: Handset Scenario
Base case assumptionsConvert the 630 centers into cellular handset retailers6 CDMA450 Base-stationsStart at 2 min usage increasing (by 1 min each year) to 6 min usage per day per subscriberCharge $0.02 per minute~100,000 handsets (~1.58% penetration)
With recurring Spectrum costs: Can subsidize handsets up to $38 each to breakeven With no recurring Spectrum costs: Can subsidize handsets up to $45 each to breakeven
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Regulatory Effects (spectrum, duties, etc.)Regulation costs
Upfront licensing fees Recurring spectrum license fee (8%-12% of adjusted gross revenue in India) Custom duties on wireless/PC/Handset Rights of ways costs (Tower lease etc)Termination charges
Total costs regulation costs for the WiFi/WiMaxscenario are 45% of the CapEx and 5 year OpEx
Eliminating regulatory costs would increase the IRR by 74.5%.
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ConclusionsEntrepreneur can setup a Rural Wireless network and obtain an attractive 40% IRR Long haul wireless technologies incur must lower cost/unit of demand than FiberBackhaul and Access Point Radio cost is small -hence it makes sense to make more expensive radios if we can improve coverage or reduce power dissipation. Costs linked to regulatory policies constitute a substantial portion of the overall network cost structure
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Q & A
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Appendix – Comparison of Technologies
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Equipment required based on technology
318/16/0WipLL+Fiber
3 (includes redundancy)3/3/0CDMA450+WiFi
318/16/0WiMax+WiFi
318/16/0WipLL+VIP
Average Number of Links per POP/sub-
POP
Number of POPs/Number of sub-POPs/Number of Relay
POPs
Technology
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Financial Model - AssumptionsInterested in the financial viability of the entire eco-systemRevenue/Cost
Charge $0.02 per minuteInterconnection termination fee of $0.005 per minuteNetwork utilization starts at 20% grows at 15% per year
OtherPCs cost $500 each3 PCs per centerDiscount rate of 10%
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Akshaya Business ModelTulip provides and maintains connectivity to Akshaya Center (AC)Micro loan (2L/center) to local entrepreneur for PC (min. 5 PCs per center) to run and operate ACRevenue model for Akshaya
Monthly fee from AC ($20/month)Government officesCommercial customers (insurance, banks, car manufacturers., etc)
1st family member trained for free, each additional family charged a small fee by entrepreneurTraining subsidized by government
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Discussion: Handset Scenario
Base case assumptionsConvert the 630 centers into cellular handset retailers6 CDMA450 Base-stationsStart at 2 min usage increasing (by 1 min each year) to 6 min usage per day per subscriberEach CDMA cell tower with 6 sectored antennas can cover 1000 customersNo upfront spectrum auction cost for 450 MHz bandCharge $0.02 per minute
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Handset resultsKey results
At ~100,000 handsets (~1.58% penetration), can subsidize handsets up to $38 each to breakevenEach base station can handle up to 69 simultaneous calls
Revenue (year 5) 4,300,128$ OpEx (year 5) 1,792,285$ Total Upfront CapEx 184,290$
Backhaul 25,170$ Last Mile (Access) 159,120$
Total Annual Handset Capex 746,550$ NPV 689,483$ IRR 28.4%
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Handset results (no spectrum costs)
Assume no spectrum costsAt ~100,000 handsets (~1.58% penetration), can subsidize handsets up to $45 each to breakevenEach base station can handle up to 69 simultaneous calls
Revenue (year 5) 4,300,128$ OpEx (year 5) 1,319,271$ Total Upfront CapEx 184,290$
Backhaul 25,170$ Last Mile (Access) 159,120$
Total Annual Handset Capex 746,550$ NPV 1,378,658$ IRR 44.8%
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Market size opportunity
China IndiaRural Population 783,000,000 745,000,000 Total Addressable Area (sq km) 4,663,205 3,166,285
Number of Centers 78,300 74,500 Number of PCs 234,900 223,500 Number of BaseStations ($1000 ea) 45,299 30,758 Number of subscriber units ($250 ea) 78,300 74,500 Number of backhaul radios ($500 ea) 90,598 61,516
$ value 227,623,000$ 191,891,000$
Total (million) 419.51$
( 5 people per family, 1 center for every 2000 families, 3 PCs/center)
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Value chain
Network design and deployment
Rights of way:Spectrum, towers
Networkequipment
Network operation and maintenance
Billing andcustomer support User devices
Services andapplications
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Classification of Telecommunication markets
Key factors: Population densityPurchasing power per userBandwidth demand per user
Urban/developed markets: High Pop density, High purchasing power, high BW demand => Fiber
Rural/developed markets: Low Pop density, High purchasing power, high BW demand => ?
Rural/developing markets: Low Pop density, Low purchasing power, low BW demand => ?
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Rural Connectivity Market
Individual purchasing power is low but community purchasing power is highRural networks are coverage constrained while Urban networks are capacity constrainedDemand is difficult to forecastDifficult Markets
Low Literacy Markets are hard to reach, disorganized, and very local in nature. Lack of credit also impedes market development.
Implication: Sharing of devices to reduce cost
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NPV Sensitivity Analysis(Network utilization vs. Charge per minute)
A minimum price of $.02 is needed for positive IRR.
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NPV Sensitivity Analysis(PC cost vs. # of PCs per center)
A minimum of 2 PCs are needed to generate enough demandfor positive IRR
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Basic Network Setting
PeeringPoint
AccessNetwork
AccessNetwork
AccessNetwork
Kiosk
Kiosk Kiosk
T1/T3City/Internet
Backhaul network
POPS
Rural distribution Network
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Basic Economic Terms
Capital expenditure (CapEx) Tower costBackup power equipment costInstallation costsRadios/Networking/PC costUpfront Spectrum cost
Operational expenditure (OpEx)SalariesMaintenancePower costRecurring Spectrum lease cost
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Basic Economic Terms
Net Present Value (NPV) – Current value of future transactions at given Rate of Return
Internal Rate of Return (IRR) - Discount rate ‘r’ for which NPV = 0
Economic Analysis of Networking Technologies for Rural Developing Regions*MotivationAgendaAkshaya: A Case studyAkshaya Network SetupTechnologies consideredTotal Costs for network deploymentCapEx for network deploymentOpEx for network deploymentConclusions for AkshayaExtending the Akshaya AnalysisExtending the Akshaya Analysis: Handset ScenarioRegulatory Effects (spectrum, duties, etc.)ConclusionsQ & AAppendix – Comparison of TechnologiesEquipment required based on technologyFinancial Model - AssumptionsAkshaya Business ModelDiscussion: Handset ScenarioHandset resultsHandset results (no spectrum costs)Market size opportunityValue chainClassification of Telecommunication marketsRural Connectivity MarketNPV Sensitivity Analysis(Network utilization vs. Charge per minute)NPV Sensitivity Analysis(PC cost vs. # of PCs per center)Basic Network SettingBasic Economic TermsBasic Economic Terms