modelling: the business rural areas

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1 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas Analysys Consulting Limited St Giles Court, 24 Castle Street Cambridge, CB3 0AJ, UK Tel: +44 (0) Fax: +44 (0)

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3 Exercises in STEM modelling The business case for WiMAX vs DSL in rural areas Contents 0 Introduction...1 Overview of the training exercises...1 Doing the exercises Working with STEM...5 Exercise 1: Open the model in the Editor...5 Exercise 2: Explore the outputs in the Results program...10 Exercise 3: Modify an input and run the model Subscribers and connections (DSL ports)...22 Exercise 4: Forecast demand and equipment installation...22 Exercise 5: Geographical deployment...27 Exercise 6: Capex, depreciation and operating costs Call minutes and Erlangs; GBytes and Mbit/s...31 Exercise 7: Volume-driven traffic model for voice...31 Exercise 8: Peak-driven traffic model for data...34 Exercise 9: Adding scenarios...36 Exercise 10: Dimensioning for video streams Bandwidth dimensioning (WiMAX sectors)...40 Exercise 11: Creating an Expression Transformation...40 Exercise 12: Sectors and base stations...42 Exercise 13: Coverage model Financial elements...47 Exercise 14: Understanding the difference between cashflow and profit...47 Exercise 15: Adding sub-totals with Collections...50 Exercise 16: Performing sensitivity analysis in STEM

4 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 6 Market sizing Exercise 17: Adding custom inputs and formulae Exercise 18: Testing the market model Exercise 19: WiMAX as a disruptive technology Backhaul and video content Exercise 20: Delivery model for video Exercise 21: Creating another Expression Transformation Exercise 22: Adding the video server Links to Excel NBED intersperse? Exercise 23: Linking a scalar input from Excel Exercise 24: Linking a time-series input from Excel Exercise 25: Exporting model data to Excel Exercise 26: Pulling STEM results back into Excel Exercise 27: Running a STEM model from Excel Customising the model Exercise 28: The macro-economic approach Exercise 29: Adding geo-types the hard way Exercise 30: Working with template replication Exercise 31: Adding regional aggregation with Collections Financial elements II Exercise 32: Working Capital Exercise 33: Interest and Tax Exercise 34: Funding an investment Exercise 35: Financial instruments (Debt Facilities) Refinements Exercise 36: A more dynamic market model Exercise 37: An Erlang model for video dimensioning CONFIDENTIAL

5 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas Miscellaneous...75 Exercise 38: Equipment migration...75 Exercise 39: Lifetime costing and service costs...76 Exercise 40: Pre-run installation...77 Exercise 41: Cost-dependent tariffs and tariff feedback to demand...78 Exercise 42: Churn and cumulative acquisition costs...79 Exercise 43: Other Transformations NBED intersperse?...80 Exercise 44: Cost allocation and cost breakdown...81 Exercise 45: Definition of data; copying and printing...82 Exercise 46: Icons, link styles and colour blocks NBED intersperse?...83 Exercise 47: Help and auditing...84 CONFIDENTIAL

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7 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 1 0 Introduction This is a book of exercises which accompanies a training course in the Analysys STEM business-modelling software for networks. The exercises build up essential skills by working through and making various additions to a simple case study which compares WiMAX and DSL technologies for the provision of broadband in a rural area. These models will use most of the basic functions of STEM. Note: you don t have to build any models until Section 1. Overview of the training exercises This set of exercises looks at the deployment of broadband technologies in a rural area network over 10 years from You will review a basic model and then add detail to it as you learn about additional features within STEM. Scenario Operators are considering BBFWA technologies such as WiMAX as a more cost-effective solution for delivering IP-based services in low-density subscriber areas. In the area under consideration there are 2000 homes connected over conventional copper to a local exchange. In this rural area, some homes are a significant distance from the exchange, and only 60% are within reach of the current available DSL technology. WiMAX is suggested as an alternative broadband solution. A network will be deployed during 2006, with the launch of commercial service scheduled for January The model considers scenarios for each technology in isolation, and also running both in parallel.

8 2 Introduction Services The business envisages WiMAX as a total replacement technology for the outlying homes: voice and Internet services will both be carried over WiMAX for the relevant subscribers. The model captures the revenue from these separate access platforms, as well as from the individual services, and performs a high-level dimensioning of the relevant network elements according the numbers of subscribers and associated traffic levels. The model also considers the addition of an IPTV service, and its impact on service revenues and required network elements. Network architecture The model starts with a very simple network architecture, as follows: DSL or WiMAX CPE DSLAM (and line rental, if this is an alternative operator) WiMAX access sectors and base stations backhaul core network set-top box and video server Thus we have two different access technologies, but the same backhaul and core network are used by both systems. Doing the exercises You will review the structure and assumptions within this model and investigate how changes to selected inputs affect the results. From time to time, you will be required to create new elements where further detail is required, or to emulate existing structures so that you gain experience in linking elements together. You may also customise the assumptions to suit your own national context. Finally we will consider various extensions and refinements in order to illustrate different approaches to setting up a STEM model. Spot checks As you work through each exercise, try to predict the effect that your changes will make before you run the model. Remember that the purpose of a model is to produce results, so do not be afraid of spending as much time in the Results program as in the Editor.

9 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 3 As you work through the exercises, we will indicate which graphs are the most important to look at. However, in general it will be useful to look at the following graphs and consider the questions indicated: Service Demand Connections, Busy-Hour Traffic: are these the numbers which you intended? Resource Capacities and Resource Utilisation Ratio: is there spare capacity where you expect it to be? Resource Installed and Incremental Units: are there as many of each Resource as you expect? If they are being replaced, are they disappearing from the network when you expect them to? Service Revenue and Operating Charge per Connection: how does the charge per connection compare with the revenue? Can you explain why it is changing over time? Network Operating Profit: are there any periods when a loss is made? Network NPV: how long does it take the cash balance to become positive? What are its maximum and minimum? Always note how the cash balance changes as you move from one model to the next. To draw these graphs, select Draw from the Graph menu in the Results program after running each model. Immediate results To help you get started, we have pre-programmed a series of views in the Results program which provide a shortcut to a several key graph selections. These views may be further customised as the exercises progress, and saved as a results workspace. Tip: When you save a copy of a model from the STEM model Editor, the results workspace is also copied on disk. So make sure you save the results workspace before proceeding to the next exercise in order to carry forward the latest views.

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11 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 5 1 Working with STEM Exercise 1: Open the model in the Editor Start menu 1. Go to the Start menu in Windows, and locate Analysys STEM on the Programs menu. Here you will find various shortcuts, including STEM Model Editor, which is how we will typically start STEM. All of the functionality of STEM can be accessed directly from the STEM Model Editor, and these other shortcuts are just provided for the sake of convenience, e.g. to consult the soft copy of the STEM User Guide (which comprises two c. 400-page volumes in hard copy). 2. Click STEM Model Editor to start STEM. The STEM Model Editor (hereinafter referred to as the Editor ) loads, and looks like this:

12 6 Working with STEM The Editor Here you can see the main menu (File, Edit, View, ), the toolbar, a view window for Model1, and the Run Period dialog (also for Model1). In fact, we are going to start with an existing, prepared model. 3. Select Open from The File menu, or press <Ctrl+O>. The Open model dialog is displayed. Browse to a folder called WiMAX-DSL (your training instructor will advise on the location if not immediately apparent) and then select the model file of the same name, WiMAX-DSL. Windows is usually configured to hide file extensions, but if this is not so on the machine you are working on, then you will see WiMAX-DSL.dtl. 4. Double-click the filename or click Open to open the model. STEM loads the WiMAX-DSL model, which appears as shown overleaf. (The unmodified Model1 is closed in the background.)

13 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 7 View window Here you will see each of the elements of this model displayed as icons in the view window. Take some time to explore the model and read the names of these elements. The Zoom window in the top-left of the view shows a miniature picture of the entire view, with an inner rectangle indicating the portion which is currently visible. 5. Click and drag this inner-rectangle to scroll in both directions at once.

14 8 Working with STEM Elements Service elements,, capture assumptions for demand and tariff. Resource elements,, represent unit costs and build constraints for hardware, software, licences, buildings and human resources. These are the most important elements in STEM as they respectively drive all of the revenues and costs in a model. The other types of element will be explained in context as we proceed through the exercises. You can create as many elements as you like from the toolbar in order to capture the level of detail required for a given analysis. Icon menus Each icon provides direct access to the related input data: 6. Right-click the service icon for DSL access. An icon menu is displayed with several groups of items. The first group are the primary inputs, Demand, Tariffs and Requirements, while the second are secondary inputs relating to more advanced features. The remaining items are common to all element types

15 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 9 7. Select Demand. The Service Demand dialog is displayed. This dialog gathers all of the primary assumptions relating to the service demand, which we will explain in later exercises. For now, don t change anything; just try to get a feel for the range of available inputs. 8. Select Close from the dialog menu, or click at the top-right of the dialog, or press <Alt+F4> to close the dialog. 9. Repeat the last two steps to explore the inputs for Tariffs 10. Select the resource icon for DSL shelf and explore the inputs for Capacity and Lifetime, and also for Unit Costs. 11. Finally close all of the data dialogs you have explored so far. View, zoom window, element, icon, icon menu, data dialog. Service, Resource.

16 10 Working with STEM Exercise 2: Explore the outputs in the Results program Now we are going to look at some of the results of the model. Save the model as WiMAX-DSL02 To make it easier to jump back to earlier exercises, and as a kind of simple version control to recover from any inadvertent changes you may make along the way, we will save a new copy of the model for each exercise. 1. Select Save As from the File menu and modify the filename to show the exercise number at the end, like this: WiMAX-DSL02. Use 02 rather than just 2 so that the model names will sort in the right order in the Open Model dialog when the numbers get into double digits! Run the model Scenarios Because the WiMAX-DSL model is pre-programmed with a number of scenarios, the process for generating the results is slightly longer than for a simple model where you would just select Run from the File or press <F5>. 2. Select Scenarios from the File menu, or press <Shift+F5>. The Scenarios dialog is displayed.

17 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 11 The model includes independent scenarios for technology and the provision of video, and a pre-defined selection indicates the technology video combinations of most interest. The specific data for each defined scenario are applied to the relevant inputs of the working model (which you see in the Editor) when each scenario is run in turn. Separate results are available for each scenario, and also the working model. Run All For now it is easiest to run everything, as the entire process is very quick for such a small model. 3. First select Include Working Model (below the list of scenarios). 4. Then click All (in the box labelled Run) or press <Alt+A>. The model is first saved to disk before the scenarios are generated and run. Once the working model and scenarios have been run, the updated results are automatically loaded into the STEM Results program, where a series of charts are displayed in the following views from a pre-defined workspace.

18 12 Working with STEM Services and bandwidth The first view displayed includes five charts which display the following results: Connections for the three services, voice, Internet access and video Voice channels Voice bandwidth Total bandwidth on WiMAX access and backhaul Data bandwidth for Internet access and video. 5. Right-click the background of any chart, or select Format from the main menu, and then select Show Graph as Separate Table to display the numerical data. The pre-defined workspace includes five other views. 6. Select View from the main menu in the Results program. The View menu is displayed, listing each of the pre-defined views. 7. Select Access Technology. The selected view is displayed. 8. Look through each of the views in turn to get a feel for the range of results generated. The logic behind these results is explained later.

19 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 13 Select Current Window from the Help menu or press <F1> to access the online help, which contains an alphabetical listing of every STEM result (with an explanation and definition) and links to documentation of each of the relevant calculation topics (model features). Access technology Connections in the scenario for DSL access only Connections in the scenario for WiMAX access only Connections for both technologies in the dual scenario. DSL architecture DSL access connections DSL shelf: installed, slack and used capacity Utilisation ratio for DSL shelf and DSLAM chassis DSL shelf: installed and incremental units. WiMAX architecture WiMAX access bandwidth WiMAX Access Sector: installed, slack and used capacity WiMAX Access Sector: planned units, deployment units, used units WiMAX Access Sector: installed and incremental units. Network aggregation Service revenue: DSL access, WiMax access, voice and video Resource capital expenditure: CPE and access network elements. Business evaluation Network operating profit Network operating profit margin Network net present value (NPV) technology scenarios Network NPV video scenarios. You can use <Page Up> and <Page Down> to step through these views, rather like a slideshow. In fact many more detailed results are also available for each element and scenario, as we shall see in the later exercises. Run, working model, scenarios. Workspace, results view, graph, show graph as table View menu, page up/down, online help.

20 14 Working with STEM Exercise 3: Modify an input and run the model To complete our high-level understanding of working with STEM, we are going to change one of the inputs and see how it affects the results. 1. Select Editor from the STEM menu in the Results program, or click the Editor tab in the Windows taskbar, or press <At+Tab> to switch back to the Editor. Save the model as WiMAX-DSL03 Global data For simplicity, we are going to change one of the global assumptions in the model, namely the 60% within reach of the available DSL technology. Whereas the element-specific data are accessed from the associated icon menus, the global inputs are accessed from the main menu: 2. Select Data from the main menu in the Editor. The Data menu is displayed. 3. Select Run Period. The Run Period dialog is displayed

21 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 15 Run Period These inputs govern the time domain for the model ten years from 2006, with 2005 as year zero and the granularity of results generated. 4. Use the cursor-down (down arrow) key, or click in the cell as shown, to select the Years in Quarters field. 5. Enter 10. The focus will switch to the formula bar and the buttons will be enabled. 6. Press <Enter> or click to accept the change. It is not necessary to click in the formula bar to start editing; the focus shifts automatically when you start typing. Press <F2> if you want to modify (rather than replace) the existing text. 7. Close the Run Period dialog. 8. Select User Data from the Data menu. The global User Data dialog is displayed.

22 16 Working with STEM User Data User Data are provided as an extension to the core STEM model inputs and enable you to fully customise a model with your own specific parameters which can be linked in turn through to the core inputs via formulae. (We shall explore this process thoroughly in a later exercise.) The first field has been names as Reach prop (short for proportion). The value 0.6 indicates that 60% of homes are within reach of the available DSL technology. Almost all STEM inputs can be time series, and we shall change this number to increase over time as the technology is improved. Notice that the cells in this dialog appears as buttons: we shall see how to quickly enter constant values, and more generally, how to enter time series. 9. Use the cursor keys or right-click to select the Reach prop button. 10. Type the higher value of 0.8 and press <Enter>. The button changes to read Constant { 0.80 }. 11. Press <Enter> or left-click on the Reach prop button. A Constant dialog is displayed for the Reach prop field. Right-click to select a time-series button in a data dialog without actually pressing it.

23 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 17 Time series inputs 12. Select Type from the dialog menu. A range of parameterisations is offered, from each of which a time-series can be generated. We will experiment with these different types throughout the exercises. Interpolated Series 13. For now, select Interpolated Series (as the next easiest choice to understand and work with after Constant). An Interpolated Series dialog is displayed. 14. Change Y0 to 2012, and then enter 2010 in the next empty Period. (Don t forget to press <Enter> to commit the 2015 change first.)

24 18 Working with STEM You can press <Tab> to commit an edit and move directly to the next cell in an any data dialog. When you commit the 2010 change, the columns are automatically sorted in chronological order t put the 2010 first. You will see that the same value of 0.8 is shown in grey for Change the value of 0.8 to 0.6 for 2010 and press <Enter>. Graphing a timeseries input 16. Click the button on the dialog menu, or press <Alt+G>. A graph is displayed showing how the parameters are interpreted. As the name suggests, STEM performs a linear interpolation between the given inputs, and makes a constant extrapolation up to the first period and on from the last period. 17. Close the graph window.

25 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 19 Press <F1> on the Interpolated Series dialog (or any time-series dialog) to get more background on how these time-series inputs work. 18. Go back to the Scenarios dialog. Notice that, because the model has been modified, it now says Save and Run rather than just Run. 19. Make sure that Include Working Model is still checked and click All. The model is saved to disk, the scenarios are re-generated and run, and the updated results are loaded into the Result program. Because we have saved the model with a new name, we are asked: 20. Press <Y> or click Yes to close the workspace for the previous model, WiMAX-DSL02, to avoid having both sets of results open in parallel. The most direct change to the results appears in the DSL architecture view, where it is clear that more DSL ports are required, a further DSL shelf is required and the utilisation of the DSLAM chassis increases from 80% to 100% (all five shelves filled). 21. Switch back to the Editor, change the Reach prop value to 0.6 in 2012 (and thus constant throughout, as before), and then re-run the scenarios and see the graph change directly. (There is no prompt this time because it is the same model.) Data menu, Run Period, formula bar, User Data, time-series button Type menu, Interpolated Series, Graph button, online help, close current workspace.

26 20 Subscribers and connections (DSL ports) 2 Subscribers and connections (DSL ports) In this series of exercises we are going to look at how forecast subscribers are treated in STEM, and the simplest dimensioning model for equipment required on a per-connection basis. (We will look at traffic modelling in the following exercises.) We will study the essential utilisation, installation and cost results for a resource, and see how STEM takes geographical deployment into account when a service demand is distributed over multiple sites.. Finally we will study a number of different depreciation options. Exercise 4: Forecast demand and equipment installation For this exercise w e shall return to the original WiMAX-DSL model, so please close the results, switch back to the Editor, close WiMAX-DSL03 and re-open the original model. Use the recent-file list at the foot of the File menu in the Editor! Save the model as WiMAX-DSL04 We start by reviewing the customer assumptions for DSL access. 1. Open the Demand dialog from the DSL access service icon menu. The demand is specified as a number of Homes, calculated as a penetration into an underlying customer base. In this case the customer base is defined by reference to a separate Market Segment element, DSL market. 2. Move the service Demand dialog to one side (by clicking and dragging

27 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 21 in the dialog caption) so that you can the DSL market and DSL access icons underneath. Market Segment 3. Open the icon menu for DSL market and select Size. You will see that the DSL market size is defined by a formula, which takes the value 900 throughout the working model. We will come back to the custom inputs (user data) driving this formula later. 4. Close the Size dialog (but leave the Demand dialog on the screen) and look at the arrow running from DSL market to DSL access. Linking and unlinking 5. Right-click the arrow and select Unlink from the popup menu which appears. The arrow disappears, the background shading is removed from DSL access, and the Customer Base button in the Demand dialog changes to say Market Segment (<none>). 6. Click and drag on the DSL market icon. It moves! 7. This time, press and hold the <Ctrl> key first, and then click and drag on the DSL market icon. This time a copy ghosts off the original. 8. Drop the copy on the background to create a copy of the element. (It will be named DSL market 1.) 9. In fact, this isn t what we want to do, so just delete the copy: select Delete from the icon menu, or just press <Delete>. 10. Ctrl-click and drag the DSL market icon again (COPY MODE), but this time drag it onto the DSL access icon. Release the mouse when you see the mouse cursor flip to point downwards over the icon. The link between the DSL market and DSL access elements is restored,

28 22 Subscribers and connections (DSL ports) and you will see that this is reflected on the Customer Base button in the Demand dialog. Time series 11. Look inside the Customer Base button. You will see that this is another time-series dialog with its own Type menu. 12. Pull down the Type menu and note that (reference to) Market Segment is another parameterisation alongside Constant and Interpolated Series. So you can define the Customer Base for a service as one of the usual parameterisations, or as a reference to a separate Market Segment element. This structure is very economical when (in general) multiple services are defined with separate penetrations into a common customer base (market). Penetration and connections 13. Close the Customer Base dialog and look inside the Penetration button. This is also governed by a formula where the values start at zero (to the end of 2006) and then rise to 97% by 2015 So we should expect the demand in connections for the DSL access service to reach 900 * 0.97 Homes, i.e. around 874 Homes. We will check this result at the end of this exercise. Now we are going to look at how the DSL access service is delivered. The primary network interface is a port on a line card on a shelf in a DSLAM. However, there is no need to model down to individual cards, as they are typically purchased as fully-configured shelves, and this is the basic building block we start with. DSL shelf 14. Close the previous dialogs and look at the Capacity and Lifetime for the DSL shelf resource. You will see that this has a capacity of 320 Ports and a Physical Lifetime of 10 years. 15. Click the button on the dialog menu, or press <Alt+N>. A note is displayed: 20 ports per card 16 cards per shelf. So one unit of this resource supports up to 320 units of demand (Homes). 16. Select Move from the dialog menu and go to the Unit Costs dialog.

29 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 23 You will see a capital cost of EUR5000. This is for the unit, i.e. the whole shelf, not an individual port. (The currency unit is defined in the global Financial Data dialog.) Requirement 17. Close both dialogs and note the green link between DSL access and DSL shelf. This indicates the Requirement for capacity of the DSL shelf from the DSL access service. 18. Right-click the green link and select Edit from the popup menu. Note that the Basis is Connections and the Mapping is 1.0. We will experiment with other bases in later exercises. 19. Close the Requirement dialog and then select Requirements from the icon menu for the DSL access service. You will see a button for each resource defined in the model. Most are grey, indicating no mapping. 20. Click the button labelled DSL shelf. The same Requirement dialog is displayed equivalent to double-clicking the green link. 21. Experiment with unlinking and re-linking. You will see that linking is equivalent to setting the relevant Mapping to 1.0. This time we will just press <F5> to run the working model. The Result program will load the results. Close the previous workspace if it was still open, as before. Most of the pre-defined graphs will be blank because we have not run the scenarios. This time we are going to learn how to draw graphs ourselves. 22. Select Close All from the Graphs menu and confirm the prompt. The graphs are closed. Drawing graphs 23. Select Draw from the Graphs menu. A list of pre-defined graphs is displayed. Select Service Demand Connections and click OK (or just double-click the graph name). The Choose Elements To Draw dialog

30 24 Subscribers and connections (DSL ports) is displayed, showing each of the services defined in the model. 24. Select DSL acces and click OK (or double-click the name). The graph is displayed. Check the value in the last year. Is that as expected? 25. Repeat this process for the following charts. In each case, think about what the graph means and whether you agree with the results. Resource Capacities Resource Utilisation Resource Installed and Incremental Units Resource Capital Expenditure Resource Depreciation and Amortisation. 26. If there is time, try going back to the Editor and changing the Physical Lifetime to five years. What impact do you expect on the results? 27. Re-run the model to find out! If you still have the graphs for Resource Capacities and Resource Installed and Incremental Units on the screen, please select Save Workspace from the File menu so that these charts will appear automatically when we move on to the next exercise! Market Segment, unlink, ctrl-drag, Customer Base, Penetration Capacity and Lifetime, Unit Costs, notes Requirement link, dialog, basis, mapping, Service Requirements Drawing graphs, connections, used and installed capacity, installed and incremental units Equipment replacement

31 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 25 Exercise 5: Geographical deployment So far, the installation of the DSL shelf is driven only by the number of ports required, which are assumed to be co-located at a single exchange or remote concentrator unit. Now we will consider the case where there might be several separate sites, each requiring DSLAM equipment. Save the model as WiMAX-DSL05 1. Click the button on the toolbar. A new Location element is created as Location 1 and appears as an icon near the bottom left of the view. 2. Move the icon somewhere to the left of the DSL shelf resource. 3. Rename Location 1 as DSLAM sites. 4. Select Sites from the icon menu, enter a constant 2.0, and then close the Sites dialog. 5. Ctrl-drag from DSLAM sites onto DSL shelf to link the elements. A pale blue arrow is drawn, denoting a deployment link. 6. Look at the graphs for Resource Capacities and Resource Installed and Incremental Units. What is different? Can you explain the results? 7. Switch back to the Editor and select Deployment from the second group of items on the icon menu for DSL shelf. The Deployment dialog is displayed.

32 26 Subscribers and connections (DSL ports) 8. Select the Distribution field and click the drop-down button on the formula bar to review the available options. The One for one default just ensures that there is at least one unit per site. 9. Experiment with each of the other options and see how they affect the results. (Re-run the model keeping the same filename.) 10. Press <F1> on the Deployment dialog to find a detailed description of these options. Toolbar, Location, rename, Sites Deployment, Distribution, Monte Carlo Factor

33 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 27 Exercise 6: Capex, depreciation and operating costs Before we move on to another part of the model, let s take a closer look at the cost outputs for the related DSLAM chassis. This has a capacity of five shelves, which means that only one unit is installed at present. This makes it easier for us to understand the financial results. Save the model as WiMAX-DSL06 1. Review the Capacity and Lifetime and Unit Costs inputs for the DSLAM chassis. (We ll look at how this element is driven later.) 2. Note that there is a unit capital cost of EUR5000, an annual maintenance cost of EUR250 (defined as 5% of the capital cost), and an annual operations cost of EUR100. Depreciation 3. Select Draw from the Graph menu and draw the following charts for DSLAM chassis: Resource Capacities Resource Installed and Incremental Units Resource Capital Expenditure Resource Depreciation and Amortisation. How do you explain the depreciation result? How would it be affected if the lifetime of the resource were shorter, say five years? Draw New 4. Select Draw New from the Graph menu. The Edit Graph Definition dialog is displayed. Here you can create a new graph choosing directly from the full list of built-in results. 5. Select Column as the Graph Type. 6. Select Stack as the Graph Style

34 28 Subscribers and connections (DSL ports) 7. Select Resource as the Type of result. Operating costs 8. Select the following results: Maintenance Cost Operations Cost. Hold the <Ctrl> key to make a non-contiguous selection. 9. Click OK to draw the graph. Can you explain these results? Why is the Operations Costs increasing? Why is the Maintenance Cost different in years compared to quarters (assuming that your run period specifies only five years in quarters)? Don t confuse Operations Cost (the operational cost of the equipment, such as heating and power) with Operating Costs (the sum of all annual running costs, such as Maintenance Cost and Operations Cost). Depreciation policy 10. If there is time, look at the Depreciation Policy options in the Capacity and Lifetime dialog for DSLAM chassis. 11. Try setting the Financial Lifetime to 3, or Depreciation rate to 0.25, and review the impact on the depreciation results. Of course it would be more realistic for the DSLAM chassis to have the same deployment constrain as the DSL shelf. Fix this if you can! Maintenance Cost, Operations Cost, Depreciation Policy Draw New, Operating Costs

35 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 29 3 Call minutes and Erlangs; GBytes and Mbit/s Now we are going to look at the services offered to customers Voice, Internet Access and Video and how the traffic is forecast for each type. Exercise 7: Volume-driven traffic model for voice For this exercise we shall return to the original WiMAX-DSL model, so please close the results, switch back to the Editor, close WiMAX-DSL06 and re-open the original model. Save the model as WiMAX-DSL07 1. Hold down the <Shift> key and click first the icon for Voice, and then Internet Access and Video in turn. All three icons are selected. 2. Right click the last icon (Video) and select Demand from the common icon menu. A tabular Demand dialog is displayed for the selected elements with one column for each (in the order they were selected).

36 30 Call minutes and Erlangs; GBytes and Mbit/s Annual Traffic 3. Look at the inputs for Voice. You will see an assumption of 3000 Call Minutes. This is the annual volume for an average subscriber, which is a bit less than 10 minutes a day. Conversion 4. Look at the next group of inputs. We assume that this volume is spread over 365 days in the year. (It would be fewer for a business service.) On a typical day, 20% of the traffic presents in the busiest hour. A unit conversion factor of 60.0 is provided to convert from minutes to an average calling rate measured in hours per hour. Busy Hour Traffic 5. Note that the busy-hour traffic unit for Voice is Erlangs. The busyhour traffic is calculated from the assumptions above and the remaining inputs for Voice are disregarded. Erlang Transformation 6. Move the Demand dialog to one side and click the icon labelled Voice channels. This is an Erlang transformation. 7. Select Input and Transformation from the icon menu and review the inputs. You will see that it takes the busy-hour traffic from the service as an input and applies a 0.5% Grade of Service (GoS) assumption to calculate a requirement in channels. What do you think this means? How would you find out more? Multiplier Transformation 8. Close the dialog for the Erlang transformation and open the inputs for the next transformation, Voice bandwidth. You will see that it takes the output of the Erlang Transformation (in channels) and applies a multiplier of 64 / 1000 to convert to required bandwidth in Mbit/s given an assumed 16kbit/s bandwidth per circuit. 9. Draw the following graphs and see if they match your expectations. (Try to work out the orders of magnitude in your head first.) Service Demand Connections (Voice) Service Demand Traffic (Voice) Service Demand Busy-Hour Traffic (Voice)

37 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 31 Transformation Output (Voice channels) Transformation Output (Voice bandwidth). Check the option, Apply to all selected graphs, in the Choose scenarios to draw dialog to avoid repeating the same selections for each graph. 10. Try changing the assumptions for Annual Traffic per Connection and GoS to see how they influence the results. Annual Traffic, Conversion, Busy-Hour Traffic Erlnag Transformation, Multiplier Transformation Apply to all selected graphs

38 32 Call minutes and Erlangs; GBytes and Mbit/s Exercise 8: Peak-driven traffic model for data Now we shall look at the Internet Access service and compare how voice and data services are dimensioned. Save the model as WiMAX-DSL08 1. Return to the Demand dialog for all three services and look at the column for Internet Access. The penetration for this service is constant at 1.0, meaning that all subscribers will use this service. 2. Notice that Traffic Calculation is set to Peak Driven. This means that the calculation starts with the busy-hour traffic assumptions and works up to the annual traffic (volume). 3. Look at the inputs for Nominal Bandwidth per Connection and Contention Ratio. These assume a nominal 2 Mbit/s service, but peaking at an average of 1/50 of that over all subscribers. What factors might influence the contention ratio? Think about how you use applications like and Web browsing, how intensively you use these applications, and what proportion of your time might be away from the computer. 4. Review the formula for Annual to Busy-Hour Unit Ratio and try to explain each of the factors involved. 5. See if your explanation is consistent with an Annual Traffic Unit of GBytes! The annual traffic is calculated from the assumptions below and here the Annual Traffic per Connection input for Internet Access is disregarded. 11. Draw the following graphs and see if they match your expectations.

39 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 33 (Try to work out the orders of magnitude in your head first.) Service Demand Connections (Internet Access) Service Demand Traffic (Internet Access) Service Demand Busy-Hour Traffic (Internet Access) Try changing the assumption for Contention Ratio to see how it affects the results. Nominal Bandwidth per Connection, Contention Ratio

40 34 Call minutes and Erlangs; GBytes and Mbit/s Exercise 9: Adding scenarios Since the business model may be quite sensitive to the assumed contention ratio, we are going to add some scenarios to the model to allow us to readily compare the business performance for different contention ratios. Save the model as WiMAX-DSL09 1. Select the Contention Ratio field in the Demand dialog for Internet Access and set it back to the original value of Select Create Scenarios from the Variants menu on the dialog. The Choose Dimension for New Parameter dialog is displayed. 3. Double-click <new Dimension>. Four new elements are created, Dimension 1 and Variants 1, 2 and 3, and the Variant Data dialog is displayed with the original value of 50.0 copied into the three columns for Variant 1, 2 and Change the values for Variant 2 and 3 to 25.0 and 10.0 respectively. 5. Click the button on the toolbar to create an additional Variant 4. An extra column is added to the Variant Data table. 6. Enter the value 1.0 for the last variant. 7. Select Scenarios from the File menu. Now you will see that each of the original scenarios appears four times with a variant for each of the new variants we have added. In other words, the scenario space is now technology video contention ratio. 8. Select the four consecutive scenarios Dual/Base/Variant 1 4 and then click Selection in the Save and Run box to run these four scenarios.

41 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas Select Draw from the Graph menu and choose Network NPV. 10. Select all four scenarios (which you have just run) in the Choose scenarios to draw dialog and check All scenarios on one graph. Click OK to draw the graph. See how the business performance compares. 11. Draw the graph again, but this time set Operation to Difference in the Choose scenarios to draw dialog, and select Dual/Base/Variant 1 as the base result. This time the graph shows the NPV of the other scenarios compared to the original assumption. This kind of NPV delta is often taken as a decision metric against a reference or do-nothing scenario. Dimension, Variant, scenario All scenarios on one graph, Operation, Difference, Base result

42 36 Call minutes and Erlangs; GBytes and Mbit/s Exercise 10: Dimensioning for video streams Finally we shall look at the Video service, which is ultimately rather more complicated when we consider how the content is actually delivered from original source to the customer, via video servers at the exchange. For this exercise we shall again return to the original model, so please close the results, switch back to the Editor, close WiMAX-DSL09 and re-open the original model. Save the model as WiMAX-DSL10 1. Return to the Demand dialog for all three services and look at the column for Video. 2. The penetration input for this service is entered as an S-Curve. Take a few moments to look at the parameters, and press <Alt+G> to see how these are interpreted over time. 3. The initial dimensioning model is similar to Internet Access, but with a peak bandwidth of 5.5Mbit/s for a single video stream and contention ratio of (Usage surges are more likely for video, where a popular program may draw may simultaneous viewers.) These parameters define the video bandwidth to the customer, but we have a different model for the background streaming from original source to the video server at the exchange. Expression transformation 4. Select User Data from the Video service icon. You will see that two inputs, renamed as TV channels and Bandwidth, are used to calculate a Total bandwidth for the background video update. 5. Close this dialog and open the Input and Transformation dialog for the transformation, Video backhaul bandwidth. You will see that this transformation takes the number of Video subscribers as its input, but then defines its output independently using a formula which refers to the separate background update bandwidth described above.

43 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas Draw the following graphs and see if they match your expectations. (Try to work out the orders of magnitude in your head first.) Service Demand Connections (Video) Service Demand Traffic (Video) Service Demand Busy-Hour Traffic (Video) Transformation Output (Video backhaul bandwidth). 7. Try varying the Contention Ratio and TV channels inputs to see which results are affected. Does this make sense? 8. How would you model the dimensioning and cost of the video server? Try your ideas if there is time! 9. What is different (in real life) between Internet usage and video-ondemand? How else could we model the video bandwidth to the customer? User Data, Expression Transformation

44 38 Bandwidth dimensioning (WiMAX sectors) 4 Bandwidth dimensioning (WiMAX sectors) Now that we have understood how traffic is modelled for the respective services, we are going to look at the dimensioning of the WiMAX access network, which of course is traffic driven rather than connection driven. Exercise 11: Creating an Expression Transformation Again, we shall return to the original model to make sure that everyone keeps in step, so please close the results, switch back to the Editor, close WiMAX-DSL10 and re-open the original model. Save the model as WiMAX-DSL11 1. Scroll the view in the Editor so that you can see from the three services across to a transformation called WiMax access bandwidth. 2. Note the pink arrows drawn to this transformation. Temporarily click and hold over each link to highlight its end-points. 3. Look at the Input and Transformation dialog for WiMax access bandwidth. This is another Expression Transformation, but with a more interesting formula, (Input1 + Input2 + Input3) * Input4. What is the purpose of Input 4? 4. We are going to build a parallel copy of WiMax access bandwidth as an exercise, and you are not allowed to use copy and paste! 5. Create a new transformation from the toolbar. 6. Rename it as My WiMax access bandwidth.

45 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas Look at the Input and Transformation dialog for the new element and change the Type to Expression. (You will note Erlang and Multiplier among the other options.) 8. Close the dialog, and then use ctrl-drag and drop to link up the inputs. 9. For the service inputs, click the newly-crated pink arrows to change the basis from Connections to Busy-Hour Traffic. 10. Go back to the Input and Transformation dialog and enter the Expression as shown above. 11. Go to the Other Details dialog for the Transformation and enter the Output Unit as Mbit/s. If your model does not run first time, you can use Check for Errors and Next Error on the File menu in the Editor to help find out what is wrong. 12. Draw the graph Transformation Output for the original WiMax access bandwidth transformation and your version. 13. Remember to check All Elements on One Graph. 14. See how the results compare. Are they same? If not, why not? Creating a Transformation, change Type, adding and modifying inputs, Expression, Output Unit Check for Errors, Next Error All Elements on One Graph

46 40 Bandwidth dimensioning (WiMAX sectors) Exercise 12: Sectors and base stations Now we are going to see how the calculated WiMAX access bandwidth translates into installation of the WiMAX radio network, starting with the WiMAX radio interface, installed in sectors. Return to the original model again. Please close the results, switch back to the Editor, close WiMAX-DSL11 and re-open the original model. Save the model as WiMAX-DSL12 1. Look at the Capacity and Lifetime inputs for WiMAX access sector and note that we have given it a capacity of 30 Mbit/s. 2. Draw the graph Resource Capacities for WiMAX access sector. Why is there so much slack capacity to start with? (You may have noticed the Location element, Site Coverage Plan.) Why is there a gradual installation of capacity during 2006, before the service is launched? Planned Units 3. Switch back to the Editor and select Other Details from the icon menu for WiMAX access sector. 4. Look for the Planned Units input, just after Pre-Run Installation. 5. Click the time-series button to review the interpolated series within. We have modelled a gradual roll-out in advance of service launch. Maximum Utilisation 6. Go back to the Capacity and Lifetime dialog and change the Maximum Utilisation input to 0.8.

47 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas Re-run the model and note the impact on the Capacities graph. Why would you factor this 60% into your network planning? Resource Unit Utilisation 8. Draw the graph Resource Unit Utilisation for WiMAX access sector. It should look something like this: Can you explain these results? Planned Units, Maximum Utilisation Resource Unit Utilisation

48 42 Bandwidth dimensioning (WiMAX sectors) Exercise 13: Coverage model Let s look in more detail at the deployment of the WiMAX access sectors. Save the model as WiMAX-DSL13 1. Look at the Sites input for the location element, Site coverage plan. This is entered directly as an interpolated series. How could you extend the input parameters for this element to derive this series from the following three assumptions? Total coverage required = 200 sq km Coverage per sector = 20 sq km Roll-out factor = the current sites input normalised to 1.0 at the end. OK, you don t have to think too hard! Try these steps. 2. Select Up from the Move menu on the Sites dialog. The top-level dialog for the location element is displayed. Copy and paste 3. Right-click to select the Sites field, and then select Copy from the dialog Edit menu. 4. Click the Move menu again, and this time select User Data. The User Data dialog is displayed. 5. Right-click to select User 3, and then select Paste Formula from the dialog Edit menu. User 3 should become an interpolated series. 6. Change the interpolated-series data to 0.5 in Y1 and 1.0 in Y3, and then close the Interpolated Series dialog. Rename Field 7. Move back up to User 1, and select Rename Field from the Edit menu. The Rename Field dialog is displayed. 8. Press <Tab> to move down to the Element box (or click with the mouse), type Total coverage required, and press <Enter. The field is

49 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 43 now labelled as directed in the dialog. 9. Enter the constant value 200 directly on the button. 10. Repeat the last two steps for User 2 and User 3 with Coverage per sector = 20 and Roll-out factor = the values already normalised. 11. Move the User Data dialog to one side, and click back to the top-level dialog (where you copied the Sites input), or press <Ctrl+F6> to switch dialogs without the mouse. Reference mode 12. Press <F2> to start entering a formula on the button, and then click on the button for User 1. A reference to User 1 (renamed) should appear in the formula bar for Sites. 13. Type a / and then click on User 2 to pick up the next part of the formula. 14. Type a * and then click on User 3 to pick up the last part of the formula, and then press <Enter> to commit the formula. It should look something like this:

50 44 Bandwidth dimensioning (WiMAX sectors) 15. Look at the results for Resource Capacities again. The results should be the same as before, but now you can drive the calculation on an area-coverage basis. 16. Try changing the Coverage per sector assumption. Are the results as expected? Is the Planned Units input for the WiMAX access sector resource still compatible with this change? How would you make the model more robust in this respect? Copy and paste (fieldwise), Rename Field, reference mode.

51 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 45 5 Financial elements OK, you can relax a bit. At least, we are not going to change the model very much in the next exercises. Instead we are going to have a closer look at the financial reporting in STEM. Exercise 14: Understanding the difference between cashflow and profit Return to the original model again. Please close the results, switch back to the Editor, close WiMAX-DSL13 and re-open the original model. We won t save a separate copy since we aren t going to change anything. 1. Just press <F5> to run the working model. The pre-defined views are loaded into the Results program. 2. Close all the graphs, and then use Draw New to plot two network results Operating Profit and Cashflow before Financing on one graph. You should see that the business makes a profit from 2009 in the working model. Cashflow before Financing is slightly different. Draw Precedents 3. Select Draw Precedents from the Graph menu, or press <F2>. The Select Result dialog is displayed. 4. Choose Operating Profit. (It s much simpler!) A graph of the results which contribute to Operating Profit is drawn, and the exact definition appears in the status bar (at the bottom of the screen). Press <F1> for an explanation, or <F2> for the precise formula. So you can see that Operating Profit = Revenue Depreciation Operating Costs. (Depreciation + Operating Costs is referred to as Operating Charge.) 5. Close the precedents graph and press <F2> again. This time select

52 46 Financial elements Cashflow before Financing. Now you will see that Cashflow before Financing = Cashflow from Operations Capital Expenditure Change in Investments. 6. Press <F2> again and select Cashflow from Operations. Then you will see that Cashflow from Operations = Pre-Tax Profit +Depreciation Change in Debtors less Creditors. If you disregard Change in Investments and Change in Debtors less Creditors, you should see that the cashflow results add back depreciation and subtract capital expenditure. In other words, profitability takes account only of the current-year depreciation, whereas cashflow allows for the actual expenditures being made in a year. NPV and Discount Rate 7. Draw Network NPV. You will see that it takes somewhat longer for the cashflows to pay back! 8. Press <F1> if you don t know what NPV means, or what a Discount Rate is. Edit Constants 9. Select Constants from the Edit menu. The Edit Constants dialog is displayed. 10. Select Discount Rate, change the value from 0.1 to 0.15, and click OK. What happens to the payback period? Has the business case changed? 11. Change the Discount Rate back to 0.1. Operating Profit, Operating Charge Cashflow before Financing, Cashflow from Operations, NPV, Discount Rate Draw Precedents, Edit Constants

53 Exercises in STEM modelling: the business case for WiMAX vs DSL in rural areas 47 Exercise 15: Adding sub-totals with Collections You may recall that one of the pre-defined views for this model was called Network Aggregation, and showed capital expenditure as a stacked column for all Resources in the model. 1. Have a look at the view now. As you can imagine, this would quickly get too detailed if the number of resources increased. Instead, it is conventional to categorise these costs and just show a few sub-totals at the highest level. We will make a simple change in the Editor to enable such an approach. Save the model as WiMAX-DSL15 2. Scroll the view so that you can see the DSL equipment, and press <Shift> select both the DSL shelf and DSLAM chassis resources. 3. Scroll the view if necessary to see the WiMAX equipment and keep <Shift> pressed while selecting WiMAX access sector and Basestation site. Show / In a New View 4. Right-click Base-station site and select Show / In a New View. A new view is created showing just these four icons (which still relate to the same underlying data). Arrange Visible 5. Select Arrange Visible from the Elements menu and accept the default options in the Arrange Elements dialog. (Experiment with these options in the main view of a copy of the model if you have time later.) Rubber-band 6. Click and drag on the view background to rubber-band a selection around the DSL elements. Just these two icons should be selected.

54 48 Financial elements Collection 7. Click the button on the toolbar. A Collection element is created, with links to the two DSL elements, and a shaded rectangle drawn around them ( colour block ). 8. Move the Collection icon alongside the DSL elements and rename it as DSL equipment. 9. Repeat the process for the WiMAX elements.