Next-Generation Network Architecture: what and when?

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

AT&T, BT, Deutsche Telekom, eircom, France Telecom, KPN, Slovak Telecom, Telecom Italia, Telstra, Verizon.

• 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