STEM newsletter

A business model for WiMAX mobile

30 July 2006

Marco Cavalieri, a Masters student at CEFRIEL in Milan, has performed a review of the technical specifications for WiMAX and has researched the associated regulations and trial results. In this article, which takes the form of edited extracts from his report, we provide a possible business model of this technology, which builds on a related Masters project from last year: Nationwide implementation of a WiMAX mobile access network.

The basic business conditions and the major characteristics of the original model are updated and improved. In particular we define a more accurate path-loss model and look at tariff management in more detail. New network elements are added for a more comprehensive picture of the network.

Business model structure

The main STEM WiMAX mobile model is depicted below. It is easy to identify the market (CovSub), the services (IPBrows, MMS, VoIP, VidConf, RCM, Streaming, Gaming), and the resources for the services (RFLicence, EdgRoutNMS, BackHLnk, BSBA, Sector, InfrStrct, CPE). At the top of the view are the replicated icons that represent the location type (UR, SU, RU). The transformation icon (TotMbpsReq) calculates the total bandwidth required by each service and the variant icon (Channel) represents the two channelisation variants. In the following sections, each element is described in more detail.

STEM WiMAX mobile model (Source: CEFRIEL)

Market

The market segment of our business model is based on the Italian population. The list of the 8101 municipalities is derived from the ISTAT database, along with the area and population density of each. The list is sorted in order of decreasing population density, and divided into three different segments, associated with the urban, suburban and rural environments, respectively:

  • urban: population density ≥ 1000 inhabitants per square kilometre
  • suburban: 200 ≤ population density < 1000 inhabitants per kilometre
  • rural: population density < 200 inhabitants per square kilometre.

The number of municipalities in each segment, the population, and the area, are summarised below. The three population segments represent the potential subscribers for each environment.

Italian population (Source: CEFRIEL)

At this point we have to consider two factors, the covered proportion of population and the covered proportion of territory, and it is clear that under realistic conditions, a linear function between them does not exist. However, in our analysis, for simplicity, we have assumed a linear approximation (coverage proportion population = coverage proportion territory), so the coverage factor converts a potential subscriber into a reachable subscriber.

The reachable subscribers generate demand for a service proportionally to an assumed penetration level. The traffic demands of broadband subscribers are expected to grow steadily throughout the study period, which is fixed at ten years.

Service penetration (Source: CEFRIEL)

Service description

The next step for the definition of the model is defining the services offered, which are listed below.

IPBrows (IP browsing) A collection of services that includes Web browsing, always-on email, and remote LAN access
VoIP (voice-over-IP) A voice service delivered using Internet Protocol
VidConf (video conferencing) A service that allows individuals or groups to meet face-to-face in real time and to interact
MMS (Multimedia Messaging Service) A service that allows users to exchange multimedia communications between multimedia-enabled mobile phones and other devices. It supports text, picture and video messaging
RCM (Remote Control Monitoring) A service with which the users can control and monitor equipment in remote locations
Gaming An online, multiplayer gaming service
Streaming A service that provides short video clips. Note that a broadcast technology such as DVB-H is much more appropriate for a full movie service

IP browsing

Each service has a specific penetration level within the market segment. The penetration of the other services is expressed as a portion of IP browsing penetration, IP browsing being assumed to be a base service with 100% penetration. Resource demand is driven by the traffic in the busy hour, according to the parameters listed below.

Service parameters (Source: CEFRIEL)

Resource planning

A simplified network scheme could consist of: an Edge Router and a Network Management System (EdgRoutNMS), a Backhaul Link (BackHLnk), Base Stations (BSBA) with associated Sectors (1–6) and a cost allocated for their physical infrastructure (InfrStrct), and customer premises equipment (CPE). The effective capacity of the base station depends on the overall coverage plan, and, for the same reason, the infrastructure capacity is not mentioned because it is strongly linked with the number of base stations. An RF Licence also exists but it has to be counted as intangible, rather than tangible, equipment because it does not represent a fixed asset for the deduction of depreciation. The licences are usually assigned by an auction involving all the interested cellular operators. The most common indicator of bidder valuation is the ˆ per MHz per population criterion (ˆ/MHz/Pop.). This is the amount being offered for a spectrum lot divided by both the size of its bandwidth and the number of people living in its geographic area. The relationship between licence value and population size is not usually linear, because it also depends on the population density.

Within the resource planning lies the key variable used to generate the two principal different scenarios evaluated in this report: the ‘channelisation’. Using orthogonally polarized signals, the number of channels available effectively doubles. With these assumptions, our scenario can be realized allocating two frequency bands per operator (uplink and downlink). The choice of channelisation depends on local regulations: here, two different channelisations, 5MHz and 10MHz, are evaluated, with a total spectrum allocation of 20MHz and 40MHz respectively. These choices allow more than one operator to utilize the available spectrum.

Network equipment costs and capacities (Source: CEFRIEL)

Path-loss models for wireless channels

Propagation models are used extensively in network planning, particularly for conducting feasibility studies and during initial deployment. They are also very useful for performing interference studies as the deployment proceeds. These models can be broadly categorized into three types: deterministic, stochastic, and empirical.

The deterministic models make use of the laws governing electromagnetic wave propagation to determine the received signal power at a particular location. They often require a complete 3D map of the propagation environment, such as a ray-tracing model.

Stochastic models model the environment as a series of random variables. They are the least accurate but require the least information about the environment and use much less processing power to generate predictions.

Empirical models are those based on observations and measurements alone and are used mainly to predict the path loss but also the rain-fade and multipath effect.

All empirical models can predict mean path loss as a function of various parameters, for example distance, antenna heights, etc. They can also be split into two subcategories, namely non-time dispersive and time dispersive, which are designed to provide information relating to the characteristics of the channel.

Examples of non-time dispersive empirical models include the Hata and the COST-231 models, which were unified in the COST-231 Hata model. Examples of time-dispersive empirical models include the Stanford University Interim (SUI) channel model and the Erceg-Greenstein model, which are based on the same hypotheses but with slightly different formulae. We use the Erceg-Greenstein model as the reference model for this project.

Cell deployment

Cell deployment is fundamental to efficient coverage of all the regions without any lack of service. For this reason, we have created an automatic and adaptable cell deployment driven by two different parameters: the morphology of the covered region and the total traffic generated by users.

First of all, we took into consideration the cell radii previously obtained using the Erceg-Greenstein model, and calculated both the maximum and minimum number of cells for the full coverage.

Then, we linked the information about the minimum and maximum cells for full coverage through a geographical coefficient to finally achieve the real number of cells necessary for coverage of the region depending on its morphology.

We obtained the total traffic expressed in MHz which each single cell has to support, and then deduced which hardware could satisfy such capacity, implying how many sectors would be required on a generic base station. We also calculated the average number of sectors necessary to fulfil the cell capacity requirement.

Finally, we considered two different strategies for the sector equipment in each base station, with a common starting point. The starting point is to install a base station per cell with only one sector, i.e. an omni-directional antenna. Then, the deployment proceeds depending on the maximum value of the average sectors per cell in each environment obtained in the previous formula. For radio-planning reasons, that entails a 2- or 4-sector base station under the first strategy, and a 3- or 6-sector base station under the second strategy. These two deployment plans are dictated by the possible interference and the possibility that further RF planning will be necessary.

The model separately considers these parameters for the urban, suburban and rural segments.

Tariffs

The role of the tariff manager in a telecoms company is fundamental. (S)he has not only to decide the right economic value to assign to a certain portion of bandwidth but also has to stimulate the population to spend as much as possible on services.

We assume three different types of tariff (shown below): the first one is prepaid and aimed at the basic consumer while the other two are flat and aimed at medium and high-end consumers. Each table includes parameters, such as Nominal Tariff, Revenue (calculated directly from the service traffic and the nominal tariff), and the Discounted Revenue, (the reduced revenue as a result of discounts to encourage consumers to take up the various offers).

Reference tariff (Source: CEFRIEL)

Medium profile tariff (Source: CEFRIEL)

High profile tariff (Source: CEFRIEL)

We assume that the market shares of the tariff plans are 70%, 20% and 10% respectively. This leads to the total traffic and the nominal and discount revenues shown below.

Global average tariff (Source: CEFRIEL)

Model results for 5MHz and 10MHz scenarios

The scenarios run for 10 years. Bearing in mind that, at a national level, more than one licence is granted, the penetration of IP browsing (the base service), expressed as an S-curve, has a saturation value of 0.35 in Year 10 (i.e. 35% of the covered population is served by this operator).

The model calculates the capacity utilisation (Mbit/s used and slack) for each type of location. Note that total capacity and used capacity are driven quite differently and behave quite differently: total capacity is driven by cell deployment, and used capacity is driven by bandwidth required (which in turn depends on the penetration of different services). The difference between total and used capacity is the slack capacity.

Both the base station capacity and the total spectrum allocation (20MHz for the 5MHz scenario and 40MHz for the 10MHz scenario) are fixed as inputs to the model. Base station capacity is equal for all scenarios because of the cell planning strategy: it adjusts itself to both the geographic and traffic requirement, apart from the channelisations. In fact, the model parameter that will change is not the proportional capacity utilisation but the number of frequencies used.

In the urban environment there is practically no slack capacity at the end of our study period. Moreover, in both the suburban and rural segments, capacity usage develops according to a similar trend curve, albeit with different limiting utilisation.

The resource that mainly differentiates the scenarios is the sector. For this reason, we report in detail the sector deployment under the two channelisations to better understand its evolution during the study period. In particular, it noticeable that the sector curve in the 10MHz scenario perfectly follows the coverage factor. By contrast, in the 5MHz scenario the sector trend is the same as that in the 10MHz scenario until the end of Y2, but at the beginning of Y3, it proceeds with an irregular increment driven by minor sector-capacity upgrades.

Installed sectors (Source: CEFRIEL)

Economic analysis

Using the predictions and assumptions introduced in the previous sections, economic analyses can be carried out for different scenarios.

The revenues earned are shown in detail below. They are the same irrespective of the channelisation. The VoIP service generates the highest revenue and exhibits high penetration (90%). It generates even more revenues than IP browsing, despite IP browsing having 100% assumed penetration, because IP browsing has a very discounted tariff. By contrast, the RCM service is the least profitable service, because of its low assumed penetration (20%).

Annual revenue by service (Source: CEFRIEL)

MMS penetration as a proportion of IP browsing penetration has a saturation value of 80% and has a large impact on annual revenue. Video conferencing has a saturation value of 50% and revenues comparable to IP browsing. Finally, the gaming and the streaming services have similar annual revenues, but have very different penetration levels and tariffs. Gaming is a niche, relatively expensive service (10% penetration), while streaming is cheaper and more popular (30% penetration).

The economic analysis takes into account the network charges compared to the revenues, and an intuitive economic assessment shows positive benefits (revenues minus costs) from Y4. However, a more accurate evaluation can be made from the NPV calculation, which is a standard financial tool for planning long-term investments.

Conclusion and outlook

The 10MHz bandwidth variant seems to be the more suitable for providing broadband services to mobile users because there are wider bandwidths with higher channel bit-rate. The choice can be justified considering the service needs of a mobile user: the broadband services requested from a portable device are different in bandwidth usage from fixed-line broadband services.

It is clear that the model will have to be constantly updated because of the rapid evolution of ICT market trends. Further analyses can also be carried out comparing the results with a UMTS/HSDPA solution or another 4G solution.


The Center of Excellence For Research, Innovation, Education and Industrial Labs (CEFRIEL) partnership in Milan was established in 1988 as a partnership between organisations from academia, ICT business and public administration. CEFRIEL is one of the main centres for technology transfer in the ICT field, and a leading Italian player in ICT research, innovation and education.

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