Product Type: Market Research Report
Published by: Analysys Mason
Published: January 2008
Product Code: R51-254Description Given their stagnating revenue and the decline in their core service propositions, most incumbent operators are embarking on next-generation network (NGN) transformations. The principal reasons that operators give for this investment are the requirements to cut costs by rationalising core businesses and to re-engineer to better take advantage of the opportunities presented by pervasive IP networking. NGN roll-outs also represent a way for incumbents to reduce their burden of regulation and to transform their asset bases; both these outcomes could have broader implications for the industry.
This report examines the relative merits of the three main approaches to NGN investment: a move to a full NGN core (such as that being carried out by BT), investment in next-generation access (NGA) with a core overlay (like that by Deutsche Telekom), and a full-IP strategy of rolling out NGA and NGN at the same time (like that of KPN). Using a return on investment (ROI) model, the report identifies critical dependencies and assesses the ability of each strategy to attain the desired outcomes of cost saving and revenue enablement, given different market and regulatory environments.
Next-Generation Network Architecture: what and when? answers your key questions:
- What are the key dependencies and critical success factors for the different NGN strategies?
- What are the potential benefits of these strategies, in terms of cost transformation, and how time-dependent are they?
- Is there sufficient demand for centralised services?
- What are the regulatory issues associated with NGNs?
- How much leverage can incumbents expect to exert on regulatory authorities?
- What are the long-term implications of NGNs for the market structure?
Table of Contents - 0 Summary
- 1 NGN upgrades are underway, but outcomes are uncertain
- 1.1 There are three basic approaches to network transformation
- 1.2 Most incumbent operators have three explicit reasons for NGNs
- 1.3 Some incumbent operators have a stronger incentive to re-engineer than others
- 1.4 Operators hope that heavy investment will deliver less heavily regulated forms of market dominance
- 2 NGNs both reduce and transform the network cost base
- 2.1 The capital cost of an NGN can be substantially higher than that of next-generation access
- 2.2 A single network will result in lower cash costs, but not necessarily lower capex
- 2.3 Real cost savings are often out of line with long-term plans
- 2.4 NGNs transform the asset structure of operators
- 3 Serious doubts remain over the scale of the new revenue for NGN operators
- 3.1 Different approaches to NGN investment reveal different revenue mixes and different co-dependencies
- 3.2 Lower underlying costs may damage the unit value of fixed voice
- 3.3 IPTV may take off in the residential market, but revenue opportunities for telcos’ retail arms may still be limited
- 3.4 Demand for managed services from SMEs is likely to bring limited revenue growth
- 3.5 Networked enterprise IT offers revenue growth for players with scale and credibility
- 3.6 Opportunities for wholesale divisions may be much greater
- 3.7 NGN’s centralised service delivery runs counter to recent trends
- 4 Regulation threatens the benefits to incumbents of NGNs
- 4.1 A set of increasingly familiar problems surrounds NGAs
- 4.2 Operators may have to hand on NGN cost savings to competitors, in the form of lower interconnect charges
- 4.3 Structural and functional separation raise further complications
- 4.4 The vertically integrated model persists
- 5 NGNs are a better investment than NGAs
- 5.1 NGNs reduce costs, but growth in business services revenue requires focused execution
- 5.2 NGA-only approaches are focused too closely on defending a share of a low-opportunity market
- 5.3 Fibre is the ultimate goal, but core transformation is the priority
- Actions
Companies discussed in this report: AT&T, BT, Deutsche Telekom, eircom, France Telecom, KPN, Slovak Telecom, Telecom Italia, Telstra, Verizon.
List of Figures and Tables
Figure 1.1: IP MPLS overlay for fixed voice (partial PSTN replacement): before and after
Figure 1.2: Fixed network evolution: current situation and strategy of selected incumbent operators
Figure 1.3: Simplified overview of legacy overlays
Figure 1.4: Simplified overview of BT’s 21CN switching and transmission
Figure 1.5: Simplified overview of Deutsche Telekom’s FTTN network
Figure 1.6: Simplified overview of KPN’s next-generation switching and transmission
Figure 1.7: Average spend per minute and volume of voice calls on fixed and mobile networks in Western Europe
Figure 1.8: Major European incumbents’ exposure to fixed voice
Figure 1.9: Operating margins of retail fixed divisions of major European incumbent operators
Figure 2.1: FTEs in BT Group, by division, FY2003/4 and FY2006/7
Figure 2.2: Fixed switched voice volume as a proportion of total fixed and mobile switched voice
Table 3.1: Revenue impact of different next-generation scenarios
Figure 3.1: A typical NGN service-delivery architecture
Figure 5.1: Key financial outcomes of an NGN-only implementation
Figure 5.2: Main revenue streams from an NGN-only implementation
Figure 5.3: Key financial outcomes of an NGN-only implementation for an operator with lower IT revenue
Figure 5.4: Key financial outcomes of an NGA-only implementation
Figure 5.5: Main revenue streams from an NGA-only implementation
Figure 5.6: Key financial outcomes of an NGA-plus-NGN implementation
Figure 5.7: Main revenue streams from an NGA-plus-NGN implementation
Figure 5.8: Key financial outcomes of an NGA-plus-NGN implementation in which the NGN element is delayed until Year 4
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