The Hybrid Cost Proxy Model: Portugal Edition D. Mark Kennet William W. Sharkey Instituto das...
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Transcript of The Hybrid Cost Proxy Model: Portugal Edition D. Mark Kennet William W. Sharkey Instituto das...
The Hybrid Cost Proxy Model: Portugal Edition
D. Mark Kennet
William W. Sharkey
Instituto das Comunicações de Portugal
16-17 November, 2000
2
Forward-looking economic cost Represents the cost of a competitive new entrant
with newly constructed facilities if it: Operates efficiently using modern technology
employed in efficient network configurations Serves the total demand for costed item Serves customers located in their current positions
connected by efficient network routing to efficient switching machines
Earns a “normal” return appropriately adjusted for risk
3
Definition of efficient network model Most economically efficient technology
capable of providing stated level of service Model should reflect substitution between
technologies as relative prices change
4
Implications of FLEC assumption
Embedded network is irrelevant Except for scorched node wire center assumption Assists consistency with record-keeping and
geographical constraints Assumes use of only current best, least-cost
technologies Costs must be those of a network that is efficient
for the desired purpose (e.g. voice grade network for universal service; higher quality network design may be appropriate for interconnection and unbundled element pricing)
5
Advantages of Proxy Model Approach
Proxy modeling: Minimizes data collection requirements and
administrative burdens on companies Is the only methodology reasonably capable of needed
levels of disaggregation Addresses consistently the costs of families of
interrelated network elements Provides transparency and rigor to the costing process
6
HCPM Overview Open data structure
Input files can be easily verified and modified by the user
Alternative inputs can easily be accommodated (both publicly available Census data and geocoded customer location information can be used)
All source code is freely available
7
HCPM Overview (cont.) Loop design module deploys plant to the specific
locations determined by customer location module
Explicit optimization routines are used minimum cost spanning tree algorithms for
the design of feeder and distribution routes optimization over technology type: fiber,
HDSL, or analog
8
A Typical Wire Center
WireCenter
SAI RT
SAI
Serving Area
Trunks toOther Wirecenters
Serving Area
Serving Area
Serving Area
NID
Feeder Cable(Copper or Fiber)
Distribution Cable (Copper)
Drop orService Wire
Terminal/Splice
LEGENDNID = Network Interface DeviceRT = Remote TerminalSAI = Serving Area Interface
ExchangeArea
Boundary
RT SAI
Adapted from Engineering and Operations in the Bell System, 2nd Edition, 1983
9
Steps in Network Design Use a clustering methodology to determine
serving areas (SA) Overlay a grid structure on each cluster and
assign customer locations to micro-grid cells
Design distribution plant for each SA Design feeder plant to connect all serving
areas to the central office switch
10
The Clustering Algorithm Divisive method Maximal size serving areas are created subject to
maximum copper distance constraint maximum line count constraint
11
Geocode and Surrogate Locations, Évora service territory
Évora
12
Closer view of Évora locations
13
Clusters Created for Évora
14
Grid Overlay for Every Serving Area (Cluster)
Microgrid
15
Distribution Plant in a Microgrid
Vertical Branching Cable
Cable Junction Points
Drop Wire
16
Cable Junction Point
Microgrid Boundary
SAI
Populated Cell
Unpopulated Cell
Connecting Microgrids to a Remote Terminal
17
Distribution Network for Évora
-28 -26 -24 -22 -20 -18 -16 -14 -12 -10 -8 -6 -4
kilofeet, east-west
-20
-10
0
10
20
kilo
fee
t, n
ort
h-s
ou
th
Distribution routing calculated by HCPM
18
Pinetree feeder
Feeder backboneServing Area Interfaces
Central office
Feeder branches
19
“Optimized” feeder routing
Central officeServing areainterfaces
20
The Feeder Algorithm Minimum structure distance network
21
The Feeder Algorithm (cont.) Minimum cable distance network
22
The Feeder Algorithm (cont.) Balanced network
23
The Feeder Algorithm (cont.) Balanced network with rectilinear distance
24
The Feeder Algorithm (cont.) Balanced network with junction nodes
25
Feeder Network for Évora
-8.02 -8.00 -7.98 -7.96 -7.94 -7.92 -7.90 -7.88 -7.86 -7.84
degrees longitude
38.53
38.54
38.55
38.56
38.57
38.58
38.59
38.60
38.61
38.62
38.63
de
gre
es la
titu
de
Feeder Route Map Produced by HCPM
26
The Switching and Interoffice Network
Tandem Switch
InterofficeTrunks
IXC or CLEC
Wire
Center
Wire
Center
End office
Switch
End office
Switch
Dedicated
CommonCommon
Direct
Point of Presence
27
Switching Costs Line ports Trunk ports Common control call processing Signaling network costs
28
Interoffice Networks
(a) Mesh-like Interoffice Network
A B
b
C
(b) Interoffice Ring Network
C
BA
29
Expenses
Cost of capital Depreciation Operating Expenses Overhead Costs
30
Cost of capital Very contentious issue – essentially two
broad choices Base on historical rate of return; or Assume that competition changes capital
market structure for firms Should real option value be included?
31
Economic depreciation Difficult to estimate “economic
depreciation since depreciation allowances in telecommunications were determined under “cost plus” regulation
International benchmarks may prove useful