STEM newsletter

Mobile network activity-based cost model

23 July 2009

One of our clients is currently putting the finishing touches to a massively detailed activity-based cost-allocation model of one of its international mobile network operations. The STEM model enables immediate service costing and profitability analysis to be integrated with future planning in a setup where cost allocation keys are based on a true understanding of underlying demand and revenue drivers. The STEM accelerated financial-modelling platform manages the complexity inherent in modelling service-provider functions, and gives the modeller a unique level of control which reduces the risk of errors and increases confidence in its standard outputs.

This article describes the generic and hugely simplified structure of an earlier mobile network cost model which allows for the separation of core voice, data network, service-specific and non-network costs, and uses a variety of cost allocation keys to relate these costs to the services offered to customers. By comparison, our client’s model includes literally hundreds of separate service and network elements, and in addition uses template replication to disaggregate the calculations into separate regions. The resultant model has close to 2000 model elements and – with the resource-level breakdown of allocated costs which STEM provides – in excess of 50 000 cost allocation nodes.We are all happy that this level of detail has not been attempted in a spreadsheet!

Services and subscribers

19 million subscribers are defined within the Voice subscribers service element, and this number is taken as the potential customer base for all the 11 offered data services, from Hi-speed Internet and Lo-speed Internet, through SMS and MMS, and on to Applications. Each of these then defines a penetration as the proportion of subscribers using this data service.

Detail from Services and bandwidth view

An arbitrary set of penetration data is used, resulting in the following subscriber numbers:

Subscriber results

Traffic and bandwidth aggregation

Voice traffic is calculated from an assumed average 5000 call minutes per subscriber, based on 250 busy days per year and 20% of daily traffic in the busy hour.

Detail from Services and bandwidth view

The number of required equivalent voice circuits is then calculated for a 2% grade of service, allowing for the fact that traffic is distributed across 9200 BTS sites. The required Voice bandwidth is then calculated on the basis of 16kbit/s per channel.

Voice bandwidth results

 

Detail from Services and bandwidth view

Each data service is categorised in terms of a nominal bandwidth per connection, together with an associated contention ratio.

Categorisation of data services

The effective busy-hour bandwidth requirements for each service are then aggregated into the Data bandwidth element.

Data bandwidth results

Voice and data networks

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Network elements view

For cost-allocation purposes, it is necessary to distinguish between Core network elements, dimensioned according to total Core bandwidth (the basic BTS/BSC/MSC platform), and those handling data (PSDN, IWF and so on). The Core normaliser and Data normaliser elements transform these demands to unit outputs so that known total cost data can be assigned to each network element.  (A proper dimensioning model may be applied if a more detailed analysis is required.) Core network costs will be allocated in proportion to Voice bandwidth and Data bandwidth, and again between the various data services.

Total network cost results

Service-specific costs and non-network costs

Each service will have its own specific overheads, e.g. a message server for SMS or MMS.  This outline framework model provides a single cost element for each data service, the costs of which will be allocated directly to that service. A more detailed model would show specific cost elements, each of which could be required by one or more data services. 

Service costs view

Service profitability must account for non-network elements too, and this model includes two different allocation bases for these costs:

  • BSS costs are allocated in proportion to the total number of active accounts per service, i.e. the number of subscribers using a given service as defined by its penetration.
  • Staff, Buildings, Vehicles and Other non-network costs are allocated in proportion to total annual service revenues.

Non-network costs view

 

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Total non-network cost results

Service profitability

STEM allocates the costs of resources back through intermediate transformations to the originating services responsible for demand on the network. Thus the revenue per user and operating charge per user may be compared to calculate the profitability of a service.

Service profitability results

Cost breakdown for Voice and Hi-speed Internet services

As well as aggregating the costs allocated back to services, STEM also maintains a separation between originating costs. This identifies the contribution made by each resource to the total costs allocated to a service.

Voice cost breakdown results

The cost breakdown for voice includes Core network elements and Non-network costs, while the results for Hi-speed Internet also include Data network and Service specific costs.

Hi-speed Internet cost breakdown results

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