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Presentation of the 1st draft model
Development of the Danish LRAIC model for fixed networks
February 2020
CONFIDENTIAL
This presentation is aimed at achieving a common understanding on the model submitted to consultation to maximise the efficiency and relevance of this regulatory process
2
Procedures to respond to the 1st public consultation
Description of the consultation materials
Introduction to the model, its inputs and outputs
Presentation of the model’s associated documentation
Key differences with the current price decision
Q&A session to address stakeholders’ concerns
Improved alignment
between all parties involved
Easier reviewing process for
service providers
More accurate and relevant
feedback
Avoid misunderstandings
CONFIDENTIAL
1. Introduction to the Public Consultation
3. Overview of the main inputs of the Excel model
4. Key outcomes of the model
2. Introduction to the model’s structure and architecture
Contents
3
CONFIDENTIAL
1. Introduction to the Public Consultation
3. Overview of the main inputs of the Excel model
4. Key outcomes of the model
2. Introduction to the model’s structure and architecture
Contents
4
CONFIDENTIAL
In accordance with the original timetable of the Project, the DBA has launched the 1st consultation with the industry on 3 February
5
1 Phase 5 Activity led by Axon/DBA 4 Activity with support from stakeholders
Project Activities and Tasks
Phase 1. Inception and development of the model's methodology
1.1 Development of the model's methodology
1.2. Public consultation on the model's methodology with the industry
Phase 2. Data collection
2.1 Development of the data collection templates
2.2. First data collection process with Service Providers
2.3. (Potential) Second data collection process (equivalent process as for the first one)
Phase 3. Development of the 1st draft model to be submitted for consultation
Phase 4. Yearly update of the cost model and public consultations
4.1. 1st Consultation with the industry
4.2. 2nd Consultation with the industry
2019 2020
A M J J A S O N J J AD J F M A M
Project timetable as presented in the kick-off meeting held in May 2019
The 1st consultation on the model and its associated documentation has been launched on 3 February, in
line with the timings set in the Project’s timetable presented to the stakeholders in May 2019.
The 1st consultation process has been scheduled for 5 weeks. This means that stakeholders’ feedback is
expected by no later than 6 March 2020.
CONFIDENTIAL
The fixed LRAIC model submitted to consultation needs to be understood in the light of the MRP published in 23 October
6
The 1st draft fixed LRAIC model has been developed following the guidelines stablished in the Model
Reference Paper (MRP) published by the DBA in 23 October.
The MRP was already consulted from 1 July to 30 August. This consultation starting on 3 February is
therefore solely focused on the draft model and not the MRP.
Illustrative excerpt of the MRP Illustrative excerpt of the position statement
CONFIDENTIAL
To answer to this 1st consultation process, stakeholders are invited to use the template included in the consultation document
7
Illustrative excerpt of the template to comment
Service Providers are requested to disclose their position to each of the questions raised, together with their
comments and justifications.
DBA kindly requests that stakeholders state their position through the template provided.
# Category Question Position (Agree / Partially
Agree / Disagree) Comments and justifications
1 Inputs
Do you agree with the demand considered for the modelled operator?
If you don’t agree, please justify your position and provide supporting information and references.
2 Inputs
Do you agree with the coverage levels considered for copper, fibre and coax access networks? If you don’t agree, please justify your position and provide supporting information and references.
… … ...
CONFIDENTIAL
Some additional indications to the provision of feedback to the 1st
consultation process
8
All comments will have to be submitted by 6 March 2020.
• Each stakeholder has to provide only one filled-in template with its position to the questions raised.
• Comments should be as precise and brief as possible, while making sure they are justified.
• The comments and answers section of the position statement to be produced at the end of this 1st
consultation round will prioritize comments that are i) significant for the results of the model and ii)
have been thoroughly justified.
Meeting 26 February 2020, deadline for prioritized questions 19 February 2020
• A working session on the fixed LRAIC model will be conducted on 26 February 2020. After this session,
DBA will circulate its answers to all questions received.
• Questions from stakeholders received by DBA by 19 February 2020 will be prioritized at the meeting.
To provide you with the best answers (including relevant illustrations, examples etc), we urge you to
send in questions before this date.
CONFIDENTIAL
1. Introduction to the Public Consultation
3. Overview of the main inputs of the Excel model
4. Key outcomes of the model
2. Introduction to the model’s structure and architecture
Contents
9
CONFIDENTIAL
The implementation of the model has been performed over two different software platforms to fully exploit their advantages
10
R model Excel Model
Powerful tool that allows us to work with high
volumes of data:
• >3,5 million homes
• >1,4 million roads
The R model is used for the geographical
analysis:
• Location of the network nodes
• Distance between nodes
• Access network elements
The results from the R model are seamlessly
loaded into the main excel model.
Network dimensioning and costing algorithms
are implemented in the Excel model.
The model is fed with inputs from the R
model as well as with other inputs that are
only relevant for the Excel model (e.g.
demand).
The Excel model is mainly responsible for
costing the network and allocating the costs
to the modelled services.
We expect most of the stakeholders’ review
efforts to be focused on the Excel model.
CONFIDENTIAL
The geographical model implemented in R calculates a set of key dimensioning indicators that are later used in the Excel model
The R model architecture is based on three main
blocks:
• Inputs: Information characterizing the
geographical conditions of Denmark (e.g.
addresses, routes) as well as TDC’s network
(e.g. nodes locations).
• Calculations: Algorithms to perform the
geographical analysis of the networks.
• Outputs: Generation of key dimensioning
indicators such as the average distance of the
local loop.
The R model can be controlled through a user-
friendly interface. The end-user does not need to
get involved into R programming.
11
Architecture of the R model
Calculations
Inputs
Results*
1. Data cleaning
3. Definition of the routes between nodes
4. Calculation of network elements
2. Location of network nodes
5. Definition of the disaggregation levels
Address database
Route database
Coverage database
Nodes locations
Distribution of lines Coverage
Equipment inventory and disaggregation
Transmission characteristics
Note(*): The outputs of the R model are generated for each combination of geotype, region, regulation and dwelling type
CONFIDENTIAL
A complete version of the R Model with a sample dataset has been circulated with stakeholders as part of the 1st Public Consultation
While the sample R model shared with the
industry includes all algorithms employed, it has
been loaded with inputs from only two random
areas* in Denmark in order to:
• Preserve the confidentiality of the data of the
modelled operator.
• Shorten execution times, as the R model is
computationally intensive.
Stakeholders can analyse the algorithms in this
sample R model and assess the reasonability of
the results produced for these two sample areas.
The complete outcomes of the R model (although
with some degree of anonymization) are available
in the Excel model.
12
Note(*): Locations of the access nodes included in this area have been randomised as well.
Areas included in the sample version of the R model
CONFIDENTIAL
The outputs from the R model can be easily exported into the Excel model
13
1. Exporting R results 2. Filling the template 3. Importing to Excel
CONFIDENTIAL
The Excel model follows a classical Bottom-Up approach, with three distinct blocks, to calculate the service-level results
14
Architecture of the Excel model
Geographical inputs
Location of network nodes
Routes between network nodes
Network footprint assessment
Aggregation of the results into levels
Results: Network costs of the services
Market and network inputs
Bottom-Up LRAICModel
architecture
Resources Costing (CAPEX & OPEX)
DIMENSIONING MODULE
Access network
Dimensioning drivers
Copper Fibre Coax
Transmission network
L3 Access
Aggregation
Distribution
Core
Inputs Calculations Outputs
The Excel model architecture is based
on three main blocks:
1. Inputs: Information required to
calculate the results. This includes
the demand of the services,
network information, among
others.
2. Calculations: Algorithms to
characterize the network and
calculate the costs of the network
elements involved.
3. Outputs: Allocation of the network
costs to services and presentation
of the services’ costs in different
levels of disaggregation.
CONFIDENTIAL
Inputs included in the Excel model have been anonymised to preserve confidentiality
The Excel model’s inputs which have been extracted
from the data provided by the modelled operator have
been anonymised to preserve their confidentiality.
To anonymise these inputs, they have been generally
multiplied by a random factor between ±30% (and up
to ±50% in some cases – e.g. demand forecasts –).
The inputs that have been anonymised are presented
in a red background so they are easily distinguishable.
The anonymisation of the inputs implies that the
results included in the model for consultation do not
represent the actual figures handled by DBA.
Some of the real outcomes produced by the model
have been included in this presentation and in the
consultation document.
15
Illustrative example of anonymised inputs
Information about the chains in the aggregation network
Chain code # of nodes Route length (km) % of traffic
AGG-1 6 153 3,90%
AGG-2 3 110 2,73%
AGG-3 6 176 5,43%
AGG-4 9 360 5,55%
AGG-5 4 162 5,37%
AGG-6 3 153 4,74%
AGG-7 7 224 4,25%
AGG-8 6 173 4,08%
AGG-9 4 131 2,55%
AGG-10 4 172 5,00%
AGG-11 3 156 2,57%
AGG-12 1 309 1,02%
AGG-13 8 230 3,71%
AGG-14 4 135 2,35%
AGG-15 4 89 2,52%
AGG-16 3 71 3,73%
AGG-17 2 28 2,44%
AGG-18 4 84 3,49%
AGG-19 3 20 3,79%
AGG-20 3 10 9,07%
AGG-21 6 121 3,04%
blank - - -
blank - - -
blank - - -
blank - - -
TOTAL 93 3.067 81,35%
CONFIDENTIAL
The inputs considered play a key role in the determination of the model’s outcomes (unit costs per service)
The 1st draft model includes the inputs
that are representative of the modelled
operator at the moment (i.e. TDC).
However, if different inputs were used
(e.g. coverage, demand of another
operator) the outcomes delivered by
the model would differ.
The control panel of the model
(“COVER” worksheet) allows the users
to quickly select different sets of inputs
or scenarios to test their impact on the
results (note: the “RUN” button needs
to be pushed to assess how the new
inputs will impact the model’s outputs).
Overview of the COVER sheet of the model
LRAIC Model for Fixed Networks
Control panel
Execution mode Full execution
Execution time 03:22 1
Input scenarios
Demand scenario Base case
selected.demand.scenario
Copper shutdown year 2.030
selected.copper.shutdown GENERAL CHECK
Annualisation of copper shut-down costs GRC annualised within active years OKselection.annualisation.copper.shutdown
Remove fully depreciated assets? Yes
selection.fully.depreciated
Percentage of fully depreciated assets 50%
selection.fully.depreciated.percentage
Annualisation methodology Economic Depreciation
selection.annualisation.method
WACC 4,54%
input.wacc
Risk premium 2,00%
input.risk.premium
Consider productivity factor? Yes
selection.productivity.factor
RUN
UPDATE
KPIs
CONTENTS
MAP
16
CONFIDENTIAL
1. Introduction to the Public Consultation
3. Overview of the main inputs of the Excel model
4. Key outcomes of the model
2. Introduction to the model’s structure and architecture
Contents
17
CONFIDENTIAL
Inputs (and thus, the results) of the model have been prepared to be representative of the current modelled operator (TDC)
Therefore, the 1st draft model, including its inputs (see section 3 of this presentation) and outputs (see
section 4 of this presentation), are so far only representative of TDC.
However, this situation could change in the future, as captured in the MRP:
“Nevertheless, if any other operator is also designated to have SMP in markets 3a and 3b, the model
should be ready to assess its costs following the methodology described in this document.”
In such situation, while the structure and architecture of the Excel and R models would be preserved as
shown before in section 2 of this presentation, their inputs would be adjusted to reflect the operations of
the new SMP operator. A different set of inputs would be developed for each modelled operator based on
their actual data thus leading to different results for each SMP operator.
18
MRP: “The modelled operator(s) should be, at all times, the SMP operator(s) in markets 3a and 3b. For the time being, this implies that TDC is going to be the only modelled operator.”
CONFIDENTIAL
The model relies on four main categories of inputs to calculate the final results at service level of the modelled operator (TDC)
19
Input Description Main sources
► Operators (TDC)► Existing LRAIC model
Demand
Demand of the services
included in the cost model
for the 2005-2038 period.
Geographical inputs
Network volumes in the
different access networks
(copper, fibre and coax).
► Roads and buildings data► Network nodes (TDC)
Network inputsInputs related to network
parameters
► Industry constants► Configuration of TDC’s
network
Unit costs
Unit CapEx, OpEx trends and
useful lives of the network
elements.
► Operators (mostly TDC)► Existing LRAIC model► International benchmarks
CONFIDENTIAL
Demand
Unit costs
Geographical inputs
Network inputs
DisclaimerThe figures included in this section have been anonymised with a random factor to protect data confidentiality. They are shown as in the Excel model
20
±50%
Input Anonymisation Factor
±30%
±30%
±30%
CONFIDENTIAL
-
0,5
1,0
1,5
2,0
2,5
3,0
Access l
ines (
MM
)
Copper Fibre Coax
We have defined the demand based on the data provided by TDC, distinguishing the lines to be supported by each access network
Service demand is one of the main
inputs of the cost model:
• Crucial to determine the
dimensioning of the transmission
network as well as the final drop
cabling.
• Basic input in the calculation of
the unit costs of the services.
As per the MRP, each access
network supports its own demand.
The demand of each service has
been anonymised independently of
the others.
21
Access lines in each access network*
Expected shut down in 2030See next slide
Note(*): The number of lines included in this figure has been anonymised with a random factor to preserve the confidentiality of the data
CONFIDENTIAL
The model considers that, as a base case, the copper network could be switched-off in 2030
The exact year in which the copper
access network is going to be shut
down by the modelled operator is
unknown so far. As such, the copper
switch off year is an input of the
Excel model that can easily be
adjusted by the user.
As a base case, the model considers
the copper network to be switched off
in 2030. In all scenarios, we consider
a copper shut down timeframe of 5
years. Over this period, users are
progressively disconnected from the
copper network and switched to the
fibre access network.
22
Access copper lines under different switch-off scenarios*
-
0,5
1,0
1,5
2,0
2,5
3,0
Access l
ines (
MM
)
Switch-off in 2030 No switch-off
Note(*): The number of lines included in this figure has been anonymised with a random factor to preserve the confidentiality of the data
CONFIDENTIAL
Data provided by the operators has been the main source to populate unit cost inputs
23
Op
Ex
Cap
Ex
Type of cost Description Source
Unit CapEx► Acquisition and
installation costs (DKK per element)
► Based mostly on information from TDC► Crosschecked with data from other operators and
Axon’s international benchmark.
CapEx Trend► % of yearly change in
unit CapEx
► Operators did not provide this data.► Input based on data from the existing cost model
and Axon’s international benchmark.
Useful life► Time for asset
depreciation (years)
► Operators provided only financial (book) data.► Input based on data from the existing cost model
and Axon’s international benchmark.
Unit OpEx► Operational and
maintenance costs (% of unit CapEx)
► Operators provided limited data.► Input from the existing cost model, Axon’s
international benchmark and KPIs from TDC’s AS.
OpEx Trend► % of yearly change in
unit OpEx► Based on inflation data extracted from public
sources
Percentage of labour costs
► Costs related to man-work (% of OpEx)
► Input based on data reported by TDC (AS).► These percentages are used to calculate the
weight of the productivity factor.
CONFIDENTIAL
The unit prices of copper and coax civil infrastructure assets have been adjusted to remove fully depreciated assets (1/2)
24
Based on the figures provided by TDC in its FAR, the percentage of fully depreciated civil infrastructure assets
in TDC’s copper access network has been estimated at around 36,8%*.
However, there are three main factors that could distort the representativeness of this figure:
1. The lack of visibility with regards to the assets purchased before 1995, as they do not appear in TDC’s
FAR, but may have been in use by TDC in 2005. This could lead to this percentage being underestimated.
2. The need to assume that the percentage of fully depreciated assets in 2005 was the same as in 2018 due
to the lack of any other information. This could probably lead to an overestimation of this percentage.
3. The uncertainty with regards to the optimal useful lives to be considered. Regulatory useful lives should
be preferred, but they were only used for regulatory purposes since the late 2000s. This means that TDC
probably recovered most of the access assets’ costs beforehand based on its financial useful lives. The
consideration of the regulatory useful lives, as proposed, may underestimate this percentage.
Taking all this into consideration, observations #1 and #3 would imply a higher percentage of fully
depreciated assets, while observation #2 would lower this percentage.
Note(*): Please see the main consultation document for further details on the calculation of this figure.
CONFIDENTIAL
The unit prices of copper and coax civil infrastructure assets have been adjusted to remove fully depreciated assets (2/2)
25
As a result of the uncertainty described in the previous slide, the model includes an option in the control
panel to define the percentage of fully depreciated assets. Alternatives included for this percentage are
30%, 40%, 50% and 60%. These alternatives have been defined in consistency with the BEREC’s
benchmark on this matter.
As per the observations presented in the previous slide, DBA has considered the percentage of fully
depreciated copper and coax civil infrastructure assets to be 50% as a base case in the 1st draft model. This
percentage has been considered when producing the results shown throughout this presentation.
However, we invite stakeholders to comment on (and justify) the percentage they consider to be more
representative for the modelled operator.
CONFIDENTIAL
Geographical inputs are used to calculate the passive infrastructure needs of the copper, coaxial, fibre and transmission networks
26
►Addresses database.
►Routes database.
►Network nodes.
►Coverage (including
forecasts) for each
access network.
Step 1:Input assessment
Excel Model
►Determination of
routes between the
network nodes and
buildings.
►Calculation of the
location of distribution
points.
►Analysis of the
quantity of network
elements required.
Step 2:Geographical analysis
►Definition of the
existing geotypes.
►Assigning the
corresponding
geotype to each
building.
►Aggregation of the
network elements into
each geotype.
Step 3:Geotype aggregation
CONFIDENTIAL
Step 1: Input assessment. While addresses and routes’ databases are public, network nodes have been extracted from TDC’s data
27
Network nodesRoutesIdentification of Buildings
Extracted from the DBA’s addresses database
Extracted from the DBA’s routes database
Extracted from the nodes database provided by TDC
CONFIDENTIAL
Step 1: Input assessment. The coverage footprint is defined separately for each of the three access technologies and is one of the key inputs
28
Copper and coax
Input based on data from TDC.
Coverage levels are constant in the modelling
period.
However, in order to avoid inefficiencies in
copper, we consider no CapEx reinvestment or
OpEx continuity after the switch-off of a Central
Office (CO).
Fibre
Input based on data from TDC.
Coverage expected to increase over time.
Coverage of the three access networks*
-
0,5
1,0
1,5
2,0
2,5
3,0
3,5
Ho
mes c
on
necte
d (
MM
)
Copper Fibre Coax
Note(*): The number of connected homes included in this figure have been anonymised with a random factor to preserve the confidentiality of the data
CONFIDENTIAL
Step 2: Geographical analysis. Based on these inputs, the R model calculates the volume of network elements needed in each access network
29
The final aim of the geographical analysis is to
calculate the number of passive network
elements.
The network elements constitute the resources
needed in order to reach the coverage footprint of
each access network in Denmark.
Examples of access network elements assessed in
the geographical analysis include cables, trenches
and manholes, joints, splitters… All this
information is calculated at building level.
The algorithms implemented in the R model are
thoroughly described in the descriptive manual
(section 4).
Outputs CalculationsInputs
If # of homes passed
Street Cabinet of 192 homes passed
Street Cabinet of 384 homes passed
Number of Street Cabinets of 384 homes passed
Nº of SCs = Homes passed /
Max.capacity of SC
Number of homes passed
per MDFSC sizes
< 192 homes passed > 384 homes passed
Between [192,384]
homes passed
Illustrative algorithm used in the R model
CONFIDENTIAL
Step 2: Geographical analysis. In addition, the R model calculates the required transmission network based on TDC’s data
The transmission network is divided into
four different layers:
• L3 Access: Represents the connection
between the access and transmission
networks (approx. 1000 nodes).
• Aggregation: Aggregates the traffic
from the different L3 Access chains
(approx. 90 nodes).
• Distribution: Conveys the traffic
towards the core network (approx. 12
nodes).
• Backbone: Highest layer which
enables full interconnection between all
core nodes (4 nodes).
30
Architecture of the transmission network
L3
Access
Netw
ork
L3 Access NodeA
gg
. N
etw
ork
Dis
trib
uti
on
n
etw
ork
Co
re
netw
ork
L3 Access Node
Agg. Router Agg. Router
Dist. Router Dist. Router
Core Router Core Router
Access Network
Access Network
CONFIDENTIAL
Step 3: Geotype aggregation. Data at building level is aggregated based on the region, building type, regulatory status and geotype
While the classification of the homes based on region, type of building and regulatory status is direct, we
performed a clustering analysis to categorise each central office into URBAN, SUBURBAN and RURAL.
31
Disaggregation of the central offices into geotypes
-
5
10
15
20
25
0 50 100 150 200
Bu
ild
ing
s c
overed
by C
O (
‘00
0)
Area covered by CO (km2)
Rural
Suburban
Urban
Region Urban Suburban Rural
Hovedstaden 12,0% 26,0% 62,0%
Midtjylland 0,9% 6,0% 93,1%
Nordjylland 0,5% 4,1% 95,5%
Sjælland 0,4% 4,8% 94,8%
Syddanmark 1,1% 3,6% 95,3%
CONFIDENTIAL
Finally, a set of inputs characterizing the network is introduced in the Excel model and mainly used for dimensioning purposes
A number of different inputs are relevant in
order to dimension the traffic-side of the
network.
These inputs include, among others:
• Broadband traffic, based on the average
yearly consumption of a typical user in each
access network
• Spectrum in coaxial networks and its
utilisation from each service (broadband,
VoD, TV).
• Traffic per user/channel in TV networks,
to properly account for multicast traffic.
These, along with other inputs, play a relevant
role in the calculations of the Excel model.
32
Broadband traffic per line in each access network*
-
1.000
2.000
3.000
4.000
5.000
6.000
7.000
GB
/acti
ve lin
e/
year
Copper Fibre Coax
Note(*): Figures included in this exhibit have been anonymised with a random factor to preserve the confidentiality of the data
CONFIDENTIAL
1. Introduction to the Public Consultation
3. Overview of the main inputs of the Excel model
4. Key outcomes of the model
2. Introduction to the model’s structure and architecture
Contents
33
CONFIDENTIAL
1. Introduction to the Public Consultation
3. Overview of the main inputs of the Excel model
4. Key outcomes of the model
2. Introduction to the model’s structure and architecture
Contents
34
4.1 Reconciliation of the number of assets and cost base
4.2 Service-level results
4.3 Comparability with the previous fixed LRAIC model
CONFIDENTIAL
We have successfully validated the reconciliation of the model’s results with TDC’s operational and financial data
35
Type of reconciliation Description Sources Conclusion
Resources
► The number of elements calculated by
the model is compared to the actual
number of elements reported by the
operator.
► Reconciliation target: ±10%
► Volumes
reported in
the Data
Request
► Existing
LRAIC
model
✓
Cost base
► The reconciliation of the cost base
compares the costs of the model with
those of the operator.
► Reconciliation target: ±10%
► Regulatory
accounts of
TDC ✓
CONFIDENTIAL
The reconciliation in terms of network elements is highly accurate compared to the figures reported by TDC
36
-50%
-30%
-10%
10%
30%
50%
Fibre Cable Trenches
(km)
OLT MSAN - PTP
% v
ari
ation
Copper networks* Fibre networks*
Coax networks* Transmission networks*
-50%
-30%
-10%
10%
30%
50%
Copper
cable
Trenches
(km)
MSAN MDF DP
% v
ari
ation
-50%
-30%
-10%
10%
30%
50%
Coax
cable
Coax
trenches
CMC TAP Coax
cabinet
% v
ari
ation
-50%
-30%
-10%
10%
30%
50%
TX fibre Core
router
L3 router Subm.
cable
Landing
stations
% v
ari
ation
Consistent with coverage
data
Migration towards the chain config.
Migration to DOCSIS 3.1
Note(*) References from TDC for the elements coloured in grey were not available. However, we compared the reasonability of these figures, when possible, with the results of DBA’s previous fixed LRAIC model.
CONFIDENTIAL
AS AS (exc. voice,
mobile, etc.)*
Cost base for
reconciliation
CapEx
To assess the reconciliation of the cost base with TDC’s data, we extracted its costs from an analysis of its AS information
TDC reported its Accounting Separation (AS)
results with a deep disaggregation for the year
2018.
This information included details on the OpEx
and CapEx from network elements associated
to the copper, fibre, coax and core and
transmission networks.
TDC already identified the voice costs that
should not be included in the reconciliation
analysis of the model.
In addition, TDC provided descriptions that
allowed us to discard elements that were not
relevant for the current modelling exercise
(e.g. customer equipment or installation).
37
Cost base from TDC’s AS
AS AS (exc. voice,
mobile, etc.)*
Cost base for
reconciliationO
pEx
Copper access Fibre access Coax access
Transmission Mobile Other
Note(*): Categorisation of voice, mobile and other costs not relevant for the LRAIC model was provided by TDC.
CONFIDENTIAL
TDC Model TDC Model
CapEx (Depreciation) OpExCost
(MM
DKK)
Copper Fibre Coax Transmission
The reconciliation of the cost base shows reasonable outcomes for each network section, both in terms of OpEx and CapEx
CapEx reconciliation
To calculate a depreciation from the model that is
comparable to the one from TDC, the following
adjustments have to be made in the model:
• WACC (and premium) is set to zero
• Cost trends are set to zero
• Non-network overheads are set to zero.
• Tilted annuities depreciation is selected
• Adjustment for fully depreciated assets
(without indexing) to all years of the model.
OpEx reconciliation
No adjustments are performed to the base OpEx
produced by the model for the reconciliation.
38
-1,8%
Reconciliation in terms of cost base
+3,9%
CONFIDENTIAL
1. Introduction to the Public Consultation
3. Overview of the main inputs of the Excel model
4. Key outcomes of the model
2. Introduction to the model’s structure and architecture
Contents
39
4.1 Reconciliation of the number of assets and cost base
4.3 Service-level results
4.2 Comparability with the previous fixed LRAIC model
CONFIDENTIAL
Five key methodological factors hamper the comparability of the results between the current and the previous model
40
Demand considered
Fully depreciated assets
Fibre access topology
Network footprint
Depreciation profile
The new model considers the actual network footprint of each access technology, including rollout forecasts, instead of a full network coverage of DK.
Each access technology handles only the lines they actually support. In the old model, the same total demand (sum of customers in TDC’s copper, coax and fibre networks) was considered in each network.
The actual mix between PTP/GPON from TDC is considered in the new model. The previous model considered either all PTP or all GPON.
A new functionality to exclude fully depreciated assets has been added for copper and coax access networks.
The current model adopts economic depreciation as a base case, while the previous one mainly relied on tilted annuities. However, the new model can calculate cost based on tilted annuities.
CONFIDENTIAL
-
20
40
60
80
100
120
140
160
Copper Fibre Coaxial
Ho
mes c
on
necte
d
(n
orm
ali
sed
)
The new model considers TDC’s actual footprint in each access network in terms of homes connected
41
0%100%
Impact at service level
► The results for each access network represent more accurately the costs borne by the modelled operator in
its deployment.
► In the case of fibre networks, the model calculates the costs of the areas where the operator has decided to
deploy its services. This leads to lower costs if the areas targeted are more urbanised than the average.
New modelPrevious model
Same footprint for all access
networks
-
20
40
60
80
100
120
140
160
Copper Fibre Coaxial
Ho
mes c
on
necte
d
(n
orm
ali
sed
)
Footprint based on actual homes
connected in each network
CONFIDENTIAL
-
20
40
60
80
100
120
140
160
Copper Fibre Coaxial
Dem
an
d (
no
rm
ali
sed
)
Similarly, the new model considers only TDC’s demand from each access network separately, instead of the same demand for all
42
0%100%
Impact at service level
► Linked to the consideration of the actual footprint of each access network, the model considers the actual
demand of the SMP operator in each access network, thus maximising the representativeness of the results
obtained for each access network.
New modelPrevious model
Same demand for all access
networks
-
20
40
60
80
100
120
140
160
Copper Fibre Coaxial
Dem
an
d (
no
rm
alised
)
Demand based on actual
active lines in each network
CONFIDENTIAL
The new model considers the actual fibre topology deployed by the modelled operator in each area of Denmark
43
0%100%
Impact at service level
► The model calculates different unit costs for PON and PTP fibre services considering the economics of the
specific areas where they are actually provided.
New modelPrevious model
The model allowed two deployment alternatives:
• GPON national network
• PTP national network
As previously described, the model considers the
actual footprint of the SMP operator.
Further, the model considers that some areas
have been covered with a PTP topology and some
others with a GPON topology.
Finally, the model considers future deployments in
the basis reported by the modelled operator.
CONFIDENTIAL
The new model excludes the costs from the legacy passive assets in line with the requirements from the EC’s 2013 Recommendation
44
0%100%
Impact at service level
► The model calculates the costs for copper and coax access services considering only the assets from the
modelled operator that are not fully depreciated.
► This consideration implies lower unit costs compared to a purely Current Cost Accounting approach.
New modelPrevious model
The model did not consider any adjustment for
fully depreciated assets or any other adjustment
required by EC’s 2013 Recommendation* as the
methodology was developed before the
publication of these guidelines.
As described in the MRP, the model does not
consider any costs from the fully depreciated
assets located in the modelled operator’s copper
and coax access networks.
Due to the relative uncertainty in the share of
fully depreciated assets, the model includes
different percentages that can be selected by the
user to assess their impact on the results.
Note(*): 2013/466/EU Commission Recommendation of 11 September 2013 on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment are relevant.
CONFIDENTIAL
The consideration of Economic depreciation in the model ensures even costs through the modelling period*
45
0%100%
Impact at service level
► The model considers an even cost throughout the modelling period, only affected by the unit cost trends.
► Compared to a tilted annuities approach, in the future, copper and coax unit costs should be higher (as
demand decreases) and fibre unit costs should be lower (as demand increases).
New model – Example for fibre networksPrevious model – Example for fibre networks
2018 2020 2022 2024 2026
Dem
an
d a
nd
un
it c
ost
Unit cost (tilted annuities) Demand
2018 2020 2022 2024 2026
Dem
an
d a
nd
un
it c
ost
Unit cost (econ. depr.) Demand
Demand based on actual
active lines in each network
Note(*): Only affected by the cost trends introduced for the unit prices of the assets. In this exemplification the cost trend is set to zero and the unit cost is constant (horizontal line).
CONFIDENTIAL
1. Introduction to the Public Consultation
3. Overview of the main inputs of the Excel model
4. Key outcomes of the model
2. Introduction to the model’s structure and architecture
Contents
46
4.1 Reconciliation of the number of assets and cost base
4.3 Service-level results
4.2 Comparability with the previous fixed LRAIC model
CONFIDENTIAL
The model presents results for two main sets of services
47
Recurring Services
Unit costs of the services are presented for the modelled period
(2005-2038). Results may be presented under any desired
combination of geotypes.
Consistently with the price scheme in DBA’s Price Decision, the
unit costs of the services are presented as DKK/service/year.
Non-RecurringServices
Non-Recurring services (also referred to as ancillary services) are
those that are often needed in the provision of recurring services
(e.g. installation for VULA services).
The results of the Non-Recurring services are presented for the
period modelled (2005-2038).
DISCLAIMER: The results presented in the next slides (real outcomes obtained by DBA) differ
from the outcomes of the Excel model as its inputs have been anonymised.
CONFIDENTIAL
The model calculates the results for recurring services from 2005 to 2038. These are presented in worksheet 8A of the model.
48
One of the main objectives of the model is to
calculate the costs of the recurring services.
Some of these services, such as VULA or LLU
are often the most relevant in the
development of fixed bottom-up models.
The results are presented in a tabular view
that shows the unit costs of the different
services for any desired combination of:
• Region
• Geotype
• Type of building
• Regulated or Non Regulated areas
Results of recurring services in the model*
Note(*): Results presented in this table are only illustrative as they have been anonymised.
Region All
Degree of urbanisation All
Type of building All
Regulated areas All
Service Units 2005 … 2017 2018 2019 2020 2021 2022 … 2038
Access.Copper.Wholesale.VULA
(POI0)DKK / Lines / Year 695 … 890 911 933 954 976 1.000 … -
Access.Copper.Wholesale.VULA
(POI1)DKK / Lines / Year 725 … 927 949 971 993 1.015 1.040 … -
… … - … - - - - - - … -
Access.Fibre.Wholesale.Raw
access (POI0)DKK / Lines / Year - … 796 806 819 834 857 870 … 1.164
Access.Fibre.Wholesale.Raw
access (POI1)DKK / Lines / Year - … 1.206 1.220 1.236 1.255 1.282 1.300 … 1.683
Access.Fibre.Wholesale.VULA
access (POI1)DKK / Lines / Year - … 985 993 1.003 1.016 1.037 1.048 … 1.317
… … - … - - - - - - … -
Access.Coaxial.Wholesale.BSA
Access (POI2/POI3)DKK / Lines / Year 524 … 586 593 602 612 622 632 … 935
… … - … - - - - - - … -
CONFIDENTIAL
ACCESS. Coaxial lines show the lowest unit cost for the line rental, fibre the highest, and copper lines fall in between
49
Dynamics in the footprint and
demand of the operator, as well as
the characteristics of coax access
networks, make the coax access
units costs be the lowest.
Both copper and coax unit costs
are affected by the removal of
fully depreciated assets, while
fibre unit costs are not.
The upward trend of the results is
linked to the expected increase in
the unit prices of the assets (price
trends). Costs for copper are
expected to raise faster due to the
higher cost trend for copper cable
compared to fibre and coax.
Unit costs of copper, coax and fibre access under real conditions*
-
200
400
600
800
1.000
1.200
1.400
1.600
1.800
DKK/l
ine/y
ear
Raw copper Raw fibre (POI1)
BSA coax (access only)
Expected shut down
Note(*): Figures are representative of the average of all geotypes
CONFIDENTIAL
ACCESS. The inputs of the model, especially in terms of take-up and footprint, lead to lower costs for coax compared to copper
50
Concept
Geographical
footprint
Customer
take-up
Copper
Nation-wide
network, reaching
most rural areas
Medium-level take-
up, but rapidly
decreasing over
time.
Fibre
New network,
reaching mostly
urban areas
Lowest take-up
compared to copper
and coax, but
increasing over time.
Coaxial
Network with
roughly half the
reach of copper.
Gap in rural areas
Highest take-up
compared to copper
and fibre, but
decreasing over time.
The diverging characteristics of each access network generate differences in their unit costs that go beyond
the economics of each technology. In particular, the key divergences are identified in the coverage of these
networks (nationwide copper, with fibre located in urban areas and a rural gap in coax) and their take-up.
If the same take-up and footprint was considered for all three networks, the highest unit costs would be
obtained for fibre, followed by coax and finally copper (which would be the cheapest option).
CONFIDENTIAL
-
1.664
875972
1.013
490
915993
1.255
612
834
-
200
400
600
800
1.000
1.200
1.400
1.600
1.800
2.000
Raw Copper VULA Copper (POI1) Raw Fibre Coax BSA (access only)
DK
K/
lin
e/
year
Price decision Model unit cost Model unit cost (PON fibre)
ACCESS. The draft results are similar to the 2020 regulated prices for copper, albeit visibly below for fibre
51
Model Results vs Price Decision 2020
+5%
-25%*
+25%
Note(*): Difference compared to a PTP-based service
Note(*): Figures for Coax BSA have been extracted from the old access model (considering only passive network elements), as they are not included in DBA’s price decision.
Price inside the DONG Area
Price in the rest of the country
+24%*
+2%
**
Model unit cost (PTP fibre)
CONFIDENTIAL
ACCESS. Copper - No significant differences are identified in the unit costs obtained compared to the 2020 Decision
52
Fibre access topology
Demand considered
Network footprint
Depreciation profile
Fully depreciated assets
Explanation
► As there is an almost nation-wide
coverage of copper, this factor only
generates a minor difference.
Impact
=► A slightly higher demand considered in
the previous model leads to higher unit
costs in the new model.
► This aspect does not apply to copper
networksN/A
► The removal of fully depreciated assets
lowers the overall cost base for copper
networks
► The Economic Depreciation leads to
lower costs than tilted annuities in the
year 2020.
CONFIDENTIAL
ACCESS. Fibre – The methodological changes between the new and old MRP explain most of the differences in FTTH unit costs
53
Fibre access topology
Demand considered
Network footprint
Depreciation profile
Fully depreciated assets
Explanation
► TDC’s fibre footprint does not include
remote (expensive) areas, lowering the
costs compared to the old model.
Impact
► Only demand for fibre is considered in
the new model, which leads to higher
unit costs compared to the old model.
► TDC’s deployment with fibre nodes
closer to the end user leads to lower
access unit costs in the new model.
► This does not apply as the fibre
network is modelled following a purely
CCA approach.N/A
► Economic depreciation leads to lower
costs than tilted annuities in 2020, but
higher unit costs in the following years.
CONFIDENTIAL
BITSTREAM. The diverging trend observed in the bitstream costs per access network is explained by their footprint
The unit costs obtained for copper
networks are higher than for its
coax and fibre counterparts.
This may be counter-intuitive, as
the traffic in fibre and coax
networks is higher than in copper
networks.
This situation is driven by the
different footprint of each
technology (for instance, there is
no fibre in remote areas, where
transmission costs are higher)
which, in turn, results in an
uneven allocation of transmission
costs.**
54
Unit costs of copper, coax and fibre bitstream lines*
-
50
100
150
200
250
300
350
DKK/l
ine/y
ear
Copper Fibre Coax
Note(*): In each year, the cost per line is calculated based on the average uncontended broadband speed for that year. Access costs are not includedNote (**): Additionally, the increasing share of copper and coax lines located in rural areas, explains the rising cost trend exhibited by these services (as the unit costs for these services are higher in rural areas than in urban areas).
Start of the copper
shutdown
CONFIDENTIAL
BITSTREAM. If the same footprint for all access network was considered, copper would become the cheapest option
In this case, the differences
between technologies is easily
explained by the average
consumption per line in each
access network.
The cost per uncontended Mbps
decreases rapidly as the network
is ready to handle more capacity.
As traffic consumption per line
tapers-out, cost per line becomes
relatively flatter over time.
Note that this does not represent
the actual scenario considered in
the model (the previous one is).
55
-
50
100
150
200
250
DKK/l
ine/y
ear
Copper Fibre Coax
Unit costs of copper, coax and fibre bitstream lines*
* In each year, the cost per line is calculated based on the average uncontended broadband speed for that year.
Start of the copper
shutdown
CONFIDENTIAL
BITSTREAM. The model’s results for bitstream are generally below the regulated prices for 2020, especially for fibre
56
Note(*): Difference compared to PTP-based bitstream
Note(**): The cost per line is calculated based on the average download consumption per user for that year based on the inputs presented in slide 29. Figures include access costs
1.0281.109
2.0612.156
1.149 1.199
1.948 1.987
1.123 1.162
-
500
1.000
1.500
2.000
2.500
3.000
3.500
Copper BSA (layer 2) Copper BSA (layer 3) Fibre BSA (layer 2) Fibre BSA (layer 3)
DK
K/
lin
e/
year
Price decision Model unit cost (Copper)
Model unit cost (PON Fibre) Model unit cost (PTP Fibre)
Model Results vs Price Decision 2020**
+12%+8%
-8%*-5%*
In fibre, differences are explained by the factors described in
previous slides
CONFIDENTIAL
The model also calculates the unit costs of non-recurring services from 2005 to 2038. These are available in worksheet 8B.
57
The non-recurring and supporting services
currently defined in DBA’s price decision are
included in the cost model.
The calculation of these services is relatively
straightforward, considering the staff costs,
the time required to perform each activity
and any additional CapEx involved.
The model considers trends for CapEx, the
salaries and a productivity gain.
The inputs have been mostly based on data
from the existing model, as TDC decided not
to update most of the parameters.
A proposed increase of +20% in technician
costs by TDC was rejected as no justification
was provided for this increase.
Results of non-recurring services in the model*
ServiceService
Identifier2005 … 2017 2018 2019 2020 2021 2022 2038
Migration Services.From
Raw/Shared Copper to
BSA/VULA
5.5.2.1
226
…
230 233 232 232 232 232
…
237
Migration Services.From
BSA/VULA (without PSTN) to
Raw Copper
5.5.2.2
266
…
270 273 272 272 272 273
…
277
Migration Services.From
BSA/VULA (without PSTN) to
Shared Copper
5.5.2.3
210
…
214 216 215 215 215 216
…
220
Migration Services.From BSA
(without PSTN) to BSA (with
PSTN)
5.5.2.4
72
…
73 74 73 73 73 73
…
74
… … … … … … … … … … … …
Installation.New installation
(unassisted) – eBSA5.6.2.4
463
…
471 476 474 474 474 475
…
484
Installation.New installation
(unassisted) – VULA5.6.2.5
429
…
435 440 439 438 439 440
…
447
Installation.New installation
(unassisted) – Raw Fibre5.6.2.6
389
…
395 400 398 398 398 399
…
406
… … … … … … … … … … … …
Note(*): Results presented in this table are only illustrative as they have been anonymised.
CONFIDENTIAL
198
668
534
692
211
712
569
692
-
100
200
300
400
500
600
700
800
900
1.000
Migration Services
(From Raw/Shared
Copper to BSA/VULA)
New installation (engineer assisted) –
Raw Copper
Visit by a technician Interconnection of fibre
pairs in optic distributor
between points
termination (backhaul)
DK
K/
lin
e/
year
Price decision Model unit cost
Absence of key changes in the inputs/calculations of non-recurring services causes results to be in line with the regulated tariffs
58
Model Results vs Price Decision 2020
+7%
+7%
+7%
-%
CONFIDENTIAL
MADRID (HQ)Sagasta, 1828004, MadridSpain
Tel: +34 91 310 2894
MEXICO CITYTorre Mayor, Paseo de la Reforma 505-41, CDMX 06500, Mexico
Tel: +52 55 68438659
ISTANBULBuyukdere Cad. No. 255 NurolPlaza B.04 34450 MaslakIstanbul, Turkey
Tel: +90 212 277 70 47
59
Manager
Gonzalo Arranz
Principal
Alfons Oliver
Any questions? Please, contact:
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