Techno-economic Evaluation of FTTC/VDSL and FTTH Roll-Out Scenarios: Discounted Cash Flows and Real Option Valuation

Theodoros Rokkas; Dimitris Katsianis; Dimitris Varoutas

doi:10.1364/JOCN.2.000760

Journal of Optical Communications and Networking
Vol. 2,
Issue 9,
pp. 760-772
(2010)
•https://doi.org/10.1364/JOCN.2.000760

Techno-economic Evaluation of FTTC/VDSL and FTTH Roll-Out Scenarios: Discounted Cash Flows and Real Option Valuation

Theodoros Rokkas, Dimitris Katsianis, and Dimitris Varoutas

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Theodoros Rokkas, Dimitris Katsianis, and Dimitris Varoutas, "Techno-economic Evaluation of FTTC/VDSL and FTTH Roll-Out Scenarios: Discounted Cash Flows and Real Option Valuation," J. Opt. Commun. Netw. 2, 760-772 (2010)

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Abstract

Due to the increasing demand in data rates telecom operators are faced with the question of when to upgrade their access network infrastructure toward fiber-to-the-home (FTTH). In this paper a techno-economic study of fiber-to-the-cabinet/very high bit rate digital subscriber line (FTTC/VDSL) and FTTH deployments is performed. The economics and risks associated with the incumbent’s decision to invest in dense urban and urban areas are analyzed using both discount cash flow (DCF) analysis and real options analysis (ROA). The results revealed that in the case of investment subsidization, the option value to expand in a later phase can significantly improve the financial metrics of the business cases. The analysis made is based on the ECOSYS techno-economic methodology and tool.

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Area Type	Dense Urban	Urban
Duct distance between central and local exchange $(L_{1})$ (km)	4.7	7.7
Duct distance between local exchange and building $L_{2}$ (km)	0.9	1.4
Number of central exchanges	1	1
Number of local exchanges	4	4
Cabinets	256	256
Number of buildings	1024	2048
Subscribers per building	64	32
Total population per area (N)	65,536	65,536
Business customers	1638	1147
Total service area (A) $({km}^{2})$	12	32
Density (D) $(houses ∕ {km}^{2})$	5641	2048
Duct availability between LEx and cabinet	95%	55%
Duct availability between cabinet and buildings	65%	30%

Name	Download FTTC/VDSL (MB)	Download/Upload FTTH (MB)	Contention Ratio	Initial Monthly Price (€) FTTC (2009)	Initial Monthly Price (€) FTTH (2009)
Residential Service Basket
Basic	6	100	1:20	20	34
Premium	12	300	1:20	28	46
Silver	24	500	1:20	33	54
Gold	50	1000	1:20	38	64
Business Service Basket
Basic	6	100	1:5	97	100
Premium	12	200	1:5	135	169
Silver	24	500	1:5	178	223
Gold	50	1000	1:5	231	290

NPV	Total (M€)	Dense Urban (M€)	Urban (M€)
FTTC/VDSL	$- 2.3$	4.4	$- 6.7$
FTTH	$- 24.1$	$- 4.4$	$- 19.7$

Upgrade Year	Phase 1 DU	Phase 2 U	Total
1	4.40	$- 4.08$	0.32
2		$- 1.84$	2.56
3		$- 0.09$	4.32
4		1.06	5.46
5		1.61	6.01
6		1.48	5.88

Upgrade Year	Phase 1 DU	Phase 2 U	Total
1	$- 4.38$	$- 14.60$	$- 18.98$
2		$- 10.00$	$- 14.38$
3		$- 6.37$	$- 10.74$
4		$- 3.41$	$- 7.79$
5		$- 1.55$	$- 5.93$
6		$- 0.72$	$- 5.10$

Parameter	Min	Max	Alpha $(α)$	Beta $(β)$	Logical Explanation
Duct availability	0%	100%	10	3	There is a large percentage of ducts (70%–80%) available for fiber deployments in European countries.
Tariff erosion	95%	120%	2	3	The strong competition bounds the upper value in tariff erosion.
Network operations	18%	22%	2	3	No significant change is expected.
Penetration	0.98	1.02	2	3	No significant change is expected.

	FTTC/VDSL	FTTH
Mean value	$- 5.30 M €$	$- 27.83 M €$
Standard deviation	4.02 M€	5.62 M€
Percentage positive	9%	0%
Percentage above base case	23.1%	25.9%
Volatility	76%	20%

Upgrade Year T	$d_{1}$	$d_{2}$	Phase 2 ${NPV}_{dcf}$	Phase 2 ${NPV}_{ro}$	Total DCF	Total ROA
1	$- 2.46$	$- 3.26$	$- 4.08$	5.82	0.32	10.22
2	$- 0.87$	$- 2.00$	$- 1.84$	6.89	2.56	11.29
3	$- 0.37$	$- 1.76$	$- 0.09$	6.96	4.32	11.36
4	$- 0.10$	$- 1.70$	1.06	6.30	5.46	10.70
5	$- 0.04$	$- 1.83$	1.61	4.84	6.01	9.24
6	$- 0.11$	$- 2.07$	1.48	2.46	5.88	6.86

Upgrade Year T	$d_{1}$	$d_{2}$	Phase 2 ${NPV}_{dcf}$	Phase 2 ${NPV}_{ro}$	Total DCF	Total ROA
1	$- 5.63$	$- 6.03$	$- 14.60$	1.57	$- 18.98$	$- 2.81$
2	$- 2.75$	$- 3.32$	$- 10.00$	3.81	$- 14.38$	$- 0.56$
3	$- 1.89$	$- 2.58$	$- 6.37$	5.23	$- 10.74$	0.86
4	$- 1.56$	$- 2.37$	$- 3.41$	5.52	$- 7.79$	1.15
5	$- 1.54$	$- 2.44$	$- 1.55$	4.57	$- 5.93$	0.19
6	$- 1.85$	$- 2.83$	$- 0.72$	2.61	$- 5.10$	$- 1.77$

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Journal of Optical Communications and Networking