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