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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. Motivation.

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economic analysis of networking technologies for rural developing regions

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

motivation
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?
agenda
Agenda
  • Akshaya case study
  • Financial Analysis of Akshaya
  • Extending the Akshaya Analysis
  • Conclusions
akshaya a case study
Akshaya: A Case study
  • Joint project between the State of Kerala in India and Tulip IT
  • Wireless IP network set up in the district of Malappuram – 630 eCenters in all
  • Backhaul and last mile links are based on proprietary technologies
  • 1 center for every 2000 families
slide5

Kallarakkunnu

Chekkod

6

Arikkod

3.04 km

2

Kakkancherry

Kizzisary

8.5 km

3.5 Km

12

7.75km

Malappuram

22

5

Melmuri

4.5 km

17.5 km

8

5

Vivekananda

3.48 km

Nilambur

20

8

5

3

3.5km

16.8 km

11.5km

25

Vettekkod

22.3 km

8

4

Vangalam

17

15.68 km

10

14.53 km

Pullamkode

Kalpakanchery

5

MEA

6

23

3

Pallurkotta

22.5 km

PTM

Tavanoor

7

23

24

30

10

6

4

No of Akshaya centres connected

630

24

Sub POP

POP

Bharti

akshaya network setup
Akshaya Network Setup
  • Pop - Hosts backhaul links and Access Base station
  • Akshaya Center – Kiosk managed by entrepreneur
  • Sub-pop - AC which also serves as a POP.
  • Relay - Backhaul relay tower
technologies considered
Technologies considered

Access Technologies

CDMA450

WipLL

WiMax

WiFi

(Omni)

WiFi

(directional)

Backhaul Technologies

Fiber

VIP

total costs for network deployment
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 !

capex for network deployment
CapEx for network deployment

WiFi/CDMA450 has the lowest deployment

Largest cost for fiber is installation

opex for network deployment
OpEx for network deployment

WiFi/CDMA450 suffers from recurring spectrum lease cost

Termination costs for a large portion of the OpEx

conclusions for akshaya
Conclusions for Akshaya
  • WiFi 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 Fiber
  • Largest 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
extending the akshaya analysis
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%

Extending the Akshaya Analysis
extending the akshaya analysis handset scenario
Extending the Akshaya Analysis: Handset Scenario
  • Base case assumptions
    • Convert the 630 centers into cellular handset retailers
    • 6 CDMA450 Base-stations
    • Start at 2 min usage increasing (by 1 min each year) to 6 min usage per day per subscriber
    • Charge $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
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/WiMax scenario are 45% of the CapEx and 5 year OpEx

Eliminating regulatory costs would increase the IRR by 74.5%.

Regulatory Effects (spectrum, duties, etc.)
conclusions
Conclusions
  • Entrepreneur can setup a Rural Wireless network and obtain an attractive 40% IRR
  • Long haul wireless technologies incur must lower cost/unit of demand than Fiber
  • Backhaul 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
financial model assumptions
Financial Model - Assumptions
  • Interested in the financial viability of the entire eco-system
  • Revenue/Cost
    • Charge $0.02 per minute
    • Interconnection termination fee of $0.005 per minute
    • Network utilization starts at 20% grows at 15% per year
  • Other
    • PCs cost $500 each
    • 3 PCs per center
    • Discount rate of 10%
akshaya business model
Akshaya Business Model
  • Tulip 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 AC
  • Revenue model for Akshaya
    • Monthly fee from AC ($20/month)
    • Government offices
    • Commercial customers (insurance, banks, car manufacturers., etc)
  • 1st family member trained for free, each additional family charged a small fee by entrepreneur
  • Training subsidized by government
discussion handset scenario
Discussion: Handset Scenario
  • Base case assumptions
    • Convert the 630 centers into cellular handset retailers
    • 6 CDMA450 Base-stations
    • Start at 2 min usage increasing (by 1 min each year) to 6 min usage per day per subscriber
    • Each CDMA cell tower with 6 sectored antennas can cover 1000 customers
    • No upfront spectrum auction cost for 450 MHz band
    • Charge $0.02 per minute
handset results
Handset results
  • Key results
    • At ~100,000 handsets (~1.58% penetration), can subsidize handsets up to $38 each to breakeven
    • Each base station can handle up to 69 simultaneous calls
handset results no spectrum costs
Handset results (no spectrum costs)
  • Assume no spectrum costs
    • At ~100,000 handsets (~1.58% penetration), can subsidize handsets up to $45 each to breakeven
    • Each base station can handle up to 69 simultaneous calls
classification of telecommunication markets
Classification of Telecommunication markets
  • Key factors:
    • Population density
    • Purchasing power per user
    • Bandwidth 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 => ?
rural connectivity market
Rural Connectivity Market
  • Individual purchasing power is low but community purchasing power is high
  • Rural networks are coverage constrained while Urban networks are capacity constrained
  • Demand is difficult to forecast
  • Difficult 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

npv sensitivity analysis network utilization vs charge per minute
NPV Sensitivity Analysis(Network utilization vs. Charge per minute)

A minimum price of $.02 is needed for positive IRR.

npv sensitivity analysis pc cost vs of pcs per center
NPV Sensitivity Analysis(PC cost vs. # of PCs per center)

A minimum of 2 PCs are needed to generate enough demand

for positive IRR

basic economic terms
Basic Economic Terms
  • Capital expenditure (CapEx)
    • Tower cost
    • Backup power equipment cost
    • Installation costs
    • Radios/Networking/PC cost
    • Upfront Spectrum cost
  • Operational expenditure (OpEx)
    • Salaries
    • Maintenance
    • Power cost
    • Recurring Spectrum lease cost
basic economic terms1
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