Got Fiber? Now What?

Today’s rapid migration toward a multi-service IP based network in a
highly competitive environment presents unparalleled challenges for
telecommunications companies. Previously, a highly regulated framework
governed network upgrades and new service deployments. Today, telecom
activities are occurring in less regulated markets.

Increased competition introduces a new dynamic, revenue growth that
many companies are still struggling to understand. Speed to market, new
products, revenue maximization, and return-on-investment now replace
the previous emphasis on cost control.

The key to success in this new environment is to incorporate new,
multidimensional data into network deployment decision processes.
Planning networks with consideration for total return requires a
complex market and product analysis integrated into a network cost
model. The spatial nature of this modeling makes geographic information
system (GIS) tools highly effective.

The Drive for Efficiency
Today’s competitive environment gives consumers more options for
service offerings as well as choices among providers and therefore,
more market power. The model based on rate of return has been replaced
with a more complex return-on-investment (ROI) model. Risk has been
introduced into the equation. Companies can no longer count on a
guaranteed rate of return on their capital investment. They need to
determine a ROI based on revenue forecasts predicated on projected
penetration rates and price structures. (See Figure 1.)

Figure 1. Plan network expansion based on revenue potential.  

Further complicating ROI calculation is the fact that a penetration
rate itself is affected by alternative competitive offerings and
pricing. Higher prices now run the risk of increasing churn and
defections and actually lowering revenue, which does not bode well for
the high-fixed-cost telecommunications business model. Industry
executives now realize that they can build the most capital-efficient
and technologically superior network, and still fail to meet revenue
targets because of too-high pricing or slow time-to-market.

Today, upgrades and technology convergence are the driving forces
behind a company’s ability to offer competitive Triple Play services.
Companies in traditional markets, whether they are telephone or CATV,
are willing to expand plant investment as both a defense and growth
strategy. Defensively, customers are less likely to change service
providers if they sign up for bundled services.

In addition, it is less expensive to manage a customer who purchases
three services than it is to manage three customers purchasing a single
service. Multiple service providers who can deliver lower costs and
less churn have a competitive advantage over their competitors, and can
exploit flexible and discount pricing. They often use this advantage to
steal customers from their competitors.

But network technology is only one part of the equation for success.
Unless a technology delivers benefits far beyond those of the
alternative, the average consumer remains ambivalent about the
underlying technology.

Remember Betamax versus VHS? Most technologists agree that Betamax
technology was superior to VHS, yet VHS dominated the market due in
part to its extended recording time. In telecom-munications, the
technological superiority of an all-fiber versus fiber-copper versus a
hybrid fiber-and-coaxial-based network is debatable, depending on the
services offered. A company that relies solely on the superiority of
its network technology will always be vulnerable in a competitive
market.

The lesson here is that deploying the best network technology will
not guarantee success in the telecommunications market. The key to
success will be optimization of the network investment. While network
technology can reduce costs and provides a platform to introduce new
services it is only one component of the optimization process.

Reducing Functional Silos for ROI
Optimizing capital allocation requires a much more sophisticated model
in today’s competitive market. Many of the major processes (market
analysis, traffic forecast, network planning) are geospatial, meaning
they have a geographic component that lends itself to spatial analysis.
Therefore, GIS is a natural tool to be used for effectively modeling
the environment and improving the decision process.

The analysis requires revenue forecasts that consider a complex mix
of market factors such as total market potential, serviceable homes,
alternative services, consumer spending patterns, and competitive
response. The revenue forecast must then be evaluated against the
network construction parameters including capital costs; service
availability; time of construction; and other risk factors.

The analysis must consider all the factors and the
interrelationships between them. As an example, delays in construction
will reduce revenue by delaying the initiation of service and
increasing the time competitors have to adjust their sales campaigns.
Therefore, any construction delays must be weighed against potential
revenue loss. If the lost revenue significantly exceeds the costs
incurred to avoid the delay, an increase in construction costs might be
the preferred alternative.

GIS can serve as a data integration tool that helps managers
evaluate the potential return and associated risks of their capital
investment plans. The ability of GIS to create a mash-up of marketing
and network information provides a collaborative tool useful to both
marketers and engineers to improve their decision process.

It is no longer possible for companies to allocate capital resources
based solely on cost. However, it is difficult to include revenue
potential in the engineering decision process. Likewise, it is hard for
marketing to include the capital costs of pursuing a specific market.
Companies have traditionally used average costs in the expectation that
good results in one area would compensate for poor results in another.
Unfortunately, many times using average costs results in over-spending
on capital projects, and revenues that fall short of forecasts.

Determining capital priorities must begin with the market
assessment. In the competitive market, the pursuit of customers and
revenue is the primary goal. The marketing assessment must include more
that just a revenue forecast based on homes passed and customer
willingness to purchase; the cost of providing service must be a
component of the evaluation. This requires an understanding of
proximity to existing infrastructure and expected construction capital
requirements, which will impact activation costs. Accurate ROI
calculation requires realistic revenue forecasts and all associated
costs, and accuracy in ROI calculations influences how the money
lenders view their investment risk. (See Figure 2.)

Figure 2. Maximize ROI by determining proximity of fiber networks to high revenue commercial customers.  

With GIS, engineering not only receives more refined direction, but
also can view the service area in the same context used by marketing.
Seeing market forecasts by area side-by-side with existing
infrastructure information provides a more complete picture and helps
the engineer deliver decisions that align with the overall corporate
goals and objectives.

However, access to the service area is just one component of the
cost factor. Engineering must also determine inside and outside plant
equipment requirements based on the overall demand forecast. Because
forecasting new service demand is difficult, since there is a lack of a
historical base on which to base it, there is a tendency to estimate
high in order to avoid equipment shortages and held orders. The
GIS-based demand forecast developed by marketing assists the engineers
with capacity planning and helps ensure alignment between cost and
revenue estimates.

GIS helps solve other long standing issues regarding major network
upgrades by accurately managing cost of construction and evaluating
profitability in a given geographic area. Since many major network
construction projects proceed at an uneven pace due to permitting
issues and other delays, bits of unfinished work remain even though the
majority of the project is complete. The unfinished work makes it
difficult to evaluate the total cost of a project before final
completion, especially when the metric is cost per home passed or
serviceable home. As a result large projects have a tendency to be over
budget.

The ability to analyze construction progress, cost, and delivered
homes, on a geographical basis provides valuable insight into a work in
progress. When this information is available early in the
implementation phase, corrective action can be taken to put a project
back on track. Once services are activated, detailed ROI information is
identified by correlating penetration rates and revenue against capital
cost. When significant capital is committed to large networks, this
ability to determine financial performance and make adjustments early
in the deployment can save millions of dollars.

Controlling OPEX
The provisioning and plant activation process also benefits from GIS.
When Cox Communications introduced its data and telephony service into
the Phoenix, Arizona, metropolitan market, they failed to appreciate
the impact of installing new drops on service commitment dates. The
service was initially launched in relatively new neighborhoods, most of
which had buried drops. The distribution plant was located on just one
side of the street so installation for homes on the opposite side of
the street required a surface cut or under-street bore for sent access.

Without records to identify which homes were adjacent to the plant,
sales representatives assumed worse case, that all customers requesting
service needed a street crossing, which required a permit and a two- or
three-week lead time for installation. As a result all potential
customers were quoted the worse-case installation interval even if they
were only a few feet from the pedestal. This might be acceptable in a
monopoly environment but it can result in lost customers when
competitive service providers exist. Using GIS to access real network
and customer location information, sales representatives can provide
potential customers with accurate installation intervals during the
initial sales call. (See Figure 3.)

Figure 3. Accurately provide service intervals by identifying drop connection requirements.  

Telecommunications companies take pride in their operational
efficiency. This drive to achieve greater efficiency led to the
creation of highly specialized work groups. As the technological
complexity of the network increased, it was felt that groups organized
around specific work functions could perform more efficiently. Key
performance indicators (KPI) that measure specific objectives were
created for each functional group.

As an example, engineering is measured against held orders and
capital cost per unit of network constructed, while provisioning is
measured on service order completions.

An unfortunate side effect of this organizational structure is that
it created silos within the company. Groups worked in isolation, and
communications between them was difficult. KPIs for one group often
conflicted with KPIs for another group. Companies, recognizing that
these silos were impediments to their overall success, implemented
programs to improve the cooperation and collaboration between groups,
but met with limited success.

GIS technology provides a collaborative platform for information
exchange and can significantly open the field for collaboration among
work groups. Market analysis can identify new market opportunities that
incorporate existing network infrastructure information into analysis
and deployment plans.

For example, Verizon found FTTP an attractive architecture for its
FiOS service due in part to the amount of aerial plant in its primary
market, the northeastern United States. Replacing copper drops with
fiber is less costly in an area served with aerial plant. Understanding
the relationship between revenue and capital cost allowed the company
to select a cost-effective design and improve its ROI.

Building telecommunications networks that deliver Triple Play
services in a competitive market is significantly more complex than
delivering a single service in a regulated market. Fortunately, GIS
tools help companies modify internal processes and expand the types of
data used in the decision matrix.

A well-implemented GIS promotes collaboration and cooperation, and
eliminates the functional silos that have plagued the industry for
years. Using GIS, companies have better information to support
decisions that efficiently allocate capital, reduce costs, and improve
customer service.

About the Author - Randall Frantz

Randall
Frantz is Manager of Telecommuni-cations and LBS Solutions, ESRI. He
has more than 25 years of experience in cable and telecommunications.
For more information, visit: www.esri.com/telecom or email:
rfrantz@esri.com.