Report from the 4th Workshop on Telecommunications Technoeconomics
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- 1.Subject Area – Objectives
- 2.State of the Art in technoeconomics
- 2.1IST-TONIC Methodology
- 2.2Marketing Forecasting Model: Methodology assessments
- 3.Approach for marketing forecasts modelling
- 3.2Overview of 4G business case: market assumptions
- 4.Results 4.1Market Sizing: demand forecast
- 4.23G financial perspectives in Europe [6]
- 4.3A case study in Greece
| Market forecasts and business case modeling for 3G and wireless services in Europe
(Report from the 4th Workshop on Telecommunications Technoeconomics)
1.Subject Area – ObjectivesWireless services and applications are becoming more and more pervasive in the business and everyday life. Wireless access wherever we need: Home, Car, Office, Airport, Hotel as well as commercial areas. Bluetooth, Wireless Lan and HiperLan2 are changing our wireless market view. Over the next years, about 70 licenses for UMTS (Universal Mobile Telecommunication System) spectrum will be distributed in Europe, either through auctions or comparative hearings. Now, more than ever, fixed and mobile operators are making critical decisions, which will shape their business over the next ten years. The main challenge is to maximize investment efficiency to provide wireless next-generation and mobile data services. The main topics covered in this paper are related to applications /services market forecasts and evaluation issues. The scope of this paper is to provide current trends and tools to evaluate the future wireless market evolution in Europe. The market assumptions are based on the future scenario taking in consideration the next generation wireless services. A smooth evolution is envisaged from 3G mobile generation to next 4G wireless wave: a learning process from the customers' side is highlighted and business visions are derived and crossed with other sources (ITU). The model outputs are market figures to be used as a starting point for evaluation. As a consequence this business evaluation tool may provide a better understanding on the future market demand. 
W- Figure 1: Next generation technologies A fundamental issue is to think long-term scenarios and to provide true market projections for the mobile next generation wave. To this purpose, specific tools and business models with a particular stress on the economics and revenues drivers have been developed and introduced ([1],[2]) The use of simulators will facilitate the understanding of the initial situation and its possible evolutions, as well the identification of the future economical potentialities. Consultants predict major trends in wireless and mobile markets (e.g. they forecast mobile data growth and decreasing voice revenues). Available analysis provide us with medium term forecasts covering GPRS and UMTS growth until 2005. Forecasts are based on past experience and trends estimation. Beyond 2005, only rough estimations are available. 2.State of the Art in technoeconomicsSeveral activities for technoeconomic evaluation of existing and emerging mobile and fixed networks are spread across Europe. Here we described two of them as presented in the 4th Workshop on Telecommunications Technoeconomics, which organized from IST-TONIC project in Rennes, France during 14-15 May 2002 [3]. 2.1IST-TONIC MethodologyEU IST-TONIC [1] project is a precursor in the investigation of the economic side of network deployments and the forecast of demand for mobile and fixed services. The techno-economic modeling was carried out using the TONIC tool, which has been developed by the IST-TONIC project using the TERA tool [4] as the basis. This tool is an implementation of the techno-economic modeling methodology developed by a series of EU co-operation projects in the field. The tool has been extensively used for several techno-economic studies [5][6][7] among major European telecom organizations and academic institutes. 
Figure 2 – Techno-economic Methodology from IST-TONIC project [1] The base of the model’s operation is a database, where the cost figures of the various network components are reposited. These figures are constantly updated with data gathered from the biggest European telecommunication companies. The database outputs the cost evolution of the components over time. A dimensioning model is used to calculate the number of network components as well as their cost, for the set of services and the network architectures defined. Finally the future market penetration of these services and the tariffs associated with them, which have been calculated through market forecasts and benchmarking, are inserted into the tool. All these data are forwarded into the financial model of the tool that calculates revenues, investments, cash flows and other financial results for the network architectures for each year of the study period. An analytical description of the methodology and the tool can be found in [8]. 2.2Marketing Forecasting Model: Methodology assessmentsThe purpose of this market model is to construct a system that can provide with preliminary market forecasts for a range of major telecommunication businesses. The model is able to provide market forecasts for a range of wireless telecommunication businesses including 3G, existing wireless as well as new opportunities to form part of the overall business plan. The business model tool provides good results based on the input information. However, high quality and reliable results will require intervention from a skilled analyst to input and interpret other factors such as likely competitive environment - therefore the user will need to be highly skilled in understanding telecommunications markets 
Figure 3: Marketing Forecasting Model [2] The market model development involves several stages [2]:
3.Approach for marketing forecasts modelling3.1Overview of next generation wireless marketing forecasts toolsThe next generation wireless business case relies on a wide range of market assumptions into the model as well as other analysis that is used to assist us in forecasting process. The next generation wireless business model is based on a number of modifications and extension to 3G marketing planning The business model covers a wide range of areas including:
3.2Overview of 4G business case: market assumptionsThe main market assumptions are the following:
The forecast of overall mobile e-commerce users is taken as due proportion of mobile data users forecast available from statistical different sources, and managed by specific forecasting routine software on the global mobile market. The growth of mobile e-commerce in Europe is an average value measured according to linear functions of Internet & mobile CAGR in European countries.
We forecast mobile revenues by estimating the average revenue per subscriber in western European countries, and then multiply that estimation by the number of subscribers. Revenue per subscriber takes account of all revenues lines (e-commerce, gambling, advertising & trading and other value-added services). 4.Results4.1Market Sizing: demand forecastHistorical data on wireless data and benchmarking analysis of over 200 different countries have been used to estimate demand curves for a number of country groupings. There are a number of factors, which affect the levels of demand. Examples of these include:
The business model can be used to identify best-practice values, where possible, based on all relevant international benchmarks, on the effect these factors will have on the future demand for telecommunications services (e.g. a 50% reduction in prices will result in a 20% increase in volume). 
Figure 4: 3G and beyond European market 4.23G financial perspectives in Europe [6]A detailed technoeconomic analysis of 3G market in Europe has been already performed in ACTS-TERA and IST-TONIC project, based on TONIC tool. The techno-economic prospects for a newcomer and especially for an incumbent operator planning to deploy the UMTS technology are found to be quite positive (Figure 5) according to this study [6]. With four operators sharing the market, the customer base appears sufficient to achieve a positive NPV over the study period in all four cases. The IRR is higher than the 10% discount rate, which shows that the investment is sound over this period. Table 1 summarizes the economic results of the two basic scenarios (large and small country) for both the incumbent and new entrant. Table 1: Summary of the economic results for operators with 25% end market share
Specifically, the following elements were identified to have major consequences on the profitability of this new business:
Figure 5 - NPV – IRR – Payback Period for incumbent and newcomers for L-arge and S-mall European Countires 4.3A case study in GreeceIST-TONIC methodology has applied in the case of Greece. Based on the official data for the Greek market, announced by the operators (Figure 6), and assuming a subscription penetration of 120% until 2012, we can estimate the demand for mobile services in Greece (total population 11M). 
Figure 6 – Number of Mobile Subscriptions in Greece Based on these results and assuming that the percentage of subscribers holding more than one mobile station starts from 0% and saturates to 33%, the subscriber penetration has been estimated as well. For the estimation of both demand curves a logistic model with four parameters [9][10] was applied. The curves are illustrated in the diagram below.
The total subscriber penetration is split into three different mobile system generations, namely GSM or 2G, GPRS or 2.5G and UMTS or 3G. When the period of study starts in 2002 only GSM users are considered to be in the mobile market. Their number will constantly decrease until 2012 when they will totally disappear. The first GPRS users have been appeared in 2002. The saturation level for 2.5G is 40% for Greece and will be reached in 2007. Following that period there will be a decline in the demand down to the level of 25% until 2012. As for the UMTS users, they will appear at the end of 2003 and their number will increase to reach a percentage of 75% of the total mobile market in 2012 when the case study ends. A logistic model [9] was also applied to estimate the percentages for the different system generations for the years 2002 – 2012. The results are illustrated in the diagram below. 
Figure 8 – Penetration Forecast for different Systems Combining the results for the total mobile subscriber penetration and the market share of each of the mobile systems, the penetration forecast for these systems has been calculated. 
Figure 9 – Mobile Subscriber Penetration Forecast In order to achieve a better approach of the real market the subscribers have been divided in business and residential users based on the network usage and the services they use. The following figure illustrates the investments, revenues and cash balance for the basic scenario.
The biggest amount of the investments is required in the first two years in order to install the UMTS BTSs in urban and suburban areas. Rural areas network implementation in 2006-2007 will call for substantial investments. The lowest point of the cash balance curve indicates the maximum need for funding. For the operator of our study this amount is €1.137 billion. The significant slope of the cash balance curve at the end of the period indicates good future earning potential. The techno-economic prospects for an incumbent operator planning to build and operate a UMTS network in Greece are found to be encouraging, according to specific assumptions and scenarios. A more detailed analysis of 3G economics in Greece can be found in [6].
5.ConclusionsThe technoeconomic analysis of 3G and 4G is mandatory for a 2G-like success story across Europe. The economic figures for these kinds of services are quite positive under specific circumstances. Tools and methodologies for market and business case modeling (presented in 4th Workshop on Telecommunication Technoeconomics) have been highlighted, in order to aware about this research area. ACKNOWLEDMENTS The authors would like to thank all the partners of IST-TONIC project for their useful support and discussions, as well as for the organization of the 4th Workshop on Telecommunications Technoeconomics, which gave the opportunity to exchange ideas and to prepare this paper. 6.References
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