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File: WTC: H:\Marketin\presentations\ACUTA - Reno Rates\Acuta Reno Rates 03.ppt 1 Rates

Strategic Funding Models for The Network Services

Department of DoIT

UW-Madison

November 15, 2002Presented by Phillip Beidelman

[email protected]

Western Telecommunication Consulting, Inc.

Consulting in telecommunications and networks


Agenda

Purpose of the work The goal for today’s meeting The current situation Where you want to go What you can expect Next steps


The Purpose of the Work

To create a strategic funding model for Network Services Network WAN Voice

Identify cost basis Allow for on-going service and technology

upgrades 5 year view


The Goal for Today’s Meeting

Today’s Goal = to alert you to issues and choices

Format Review the approach Review key concepts Alternatives Trends


The Current Situation


The Current Situation

The current rate structure does not deal with network trends on campus Increasing internet use Increased cost of the new campus network

The time is right to revisit rates

The rate structure is inadequate


How We Got Here


Industry Trends that Got Us Here

Higher Education Trends1) Rate determination changed2) Radically increased use of the internet3) Radically improved campus networks4) The LD squeeze took hold5) Organizations merged6) New technology choices emerged7) Expectations increased

UW-Madison is not alone


Where Do We Want to Go


Where Do We Want to Go

Develop a predictable funding sourceNot just for operating costRational basis for planned capital spending

driven by forecasted need Continue to meet service requirements Discourage abuse of resources


Approach to Rate Development



Five PhasesI. Line of Business analysis

II. Unit cost analysis

III. Market analysis

IV. Preliminary rate development

V. Implementation: 5 year rate plan development


Phase I - Line of Business Analysis

Step 1: Establish the team

Annie Stunden Jack Duwe Joanne Jones Perry Brunelli Heidi Genthner Catie Isenberg Robert Lee Lavonne Frank

Phillip Beidelman Dean Oyama Scott Foy



Key concepts & terminologyCost basedActivity based“Basic Product & Service Elements”

(BPSE)™ concept“Line of Business” concept



Key concepts & terminologyBasic Product & Service Elements (BPSE)WTC working definition: A product or

service that can be obtained from another source



Key concepts & terminologyLine of Business (LOB)WTC working definition: A BPSE or group

of BPSEs for which a fee is charged



Step 2: Identify Basic Product & Service Elements (BPSE)UW-Madison has 91 of these so farCould go down or up


UW - Madison: 91 Basic Product and Service ElementsExamples include:

Answering Service

Billing Services

Cable TV

Calling Cards

Cellular Service

Internet Connectivity

Network Design and Engineering

Network Backbone Connection

Network Jack Connection

Network Operations Center

Streaming Video

WAN Engineering

Local Service

Long Distance (Domestic)

Long Distance (International)

Network Moves, Changes, Adds

Wireless LAN

Authentication Services

Phone Moves, Changes, Adds

Customer Service

Consulting on the Data Network

Dial Tone

Remote Access

Training Services

Voice Mail

Broadband Network Services



Step 3: Allocate cost to BPSEsAll SalariesAll Supplies and ServicesAll TrainingAll DirectAll IndirectDepreciation or reserves for modernization



Step 4 - Map Basic Product & Service Elements (BPSE) to Lines of Business


Map BPSE’s to LOBsExample:

CurrentLOB#1

CurrentLOB#2

CurrentLOB#3

UW-Mad LOBs

Basic Product& Service Elements

Line of BusinessAnalysis

91 BPSEsNetwork

Connection

Domain NameService

RemoteAccess

BroadbandServices

IP and SubnetAddressing

AuthenticationServices

Modem Pool

University Dial Tone

DSL


Mapping BPSEs to LOBs is Important to Allow for Peer and

Market Comparisons Later


Comparison of Rates With Peers

0

5

10

15

20

25

Cost Elements

Peer 1

Peer 2

Peer 3

Peer 4

Peer 5

Peer 6

Peer 7

Peer 8

Peer 9

Cost Element ComparisonMulti-Button Line & Telephone University Services

AdministrationSpace rentEasement right-of-way charge Switchroom environmentals 911 emergency response Maintenance: Cable RecordsMaintenance: CableMaintenance: TMISMaintenance: PBXDepreciation: TMISDepreciation: Station EquipmentDepreciation: PBXDepreciation: CableNetwork ServicesUser TrainingEmergency InfrastructureBilling ServicesRepair TechniciansOperatorsProject ManagementInter Campus CallingNOC attendants



Step 5 - Sum the cost of BPSEs to the Lines of Business



Step 6 - Identify revenue received by Line of Business for the basis year and conduct Over and Under Recovery Analysis


WTC SampleOver and Under Recovery Analysis


WTC Client Example$25 Million Budget

Over and Under Recovery Analysis


Results: LOB With No RevenueSource: WTC Client Engagements

-700000

-600000

-500000

-400000

-300000

-200000

-100000

0

($1,256,824 Total Loss)

ATM LAN

Data Consult

Auth Svcs

DNS

Consult Vc

InterBldg Cable

Spec Ckts

Const Cons

Cust Trng

800 MHz

Wireless


Results: LOB With Large LossesSource: WTC Client Engagements

-2500000

-2000000

-1500000

-1000000

-500000

0

($4,234,369)

(Total Loss)

Internet Ac

Calling Crd

Voice MAC

Auto Att

ACD

ResDial

Directory


Results: LOB With Large RecoverySource: WTC Client Engagements

-250000

250000

750000

1250000

1750000

2250000

2750000

3250000

$8,995,089

Univ Dial

Univ Inter

Univ Intra

Univ Intl

Univ Local

ResIntra

Eq Rental



Phase II - Unit Cost Analysis



Identify unit of measure to establish the “activity” level of each BPSE



Typical BPSE Unit of Measure Activity

Network connections Connections 35,000

Long Distance (Domestic) Total Minutes 816,000

Dorm networking connections Connections 1,000

Dial tone Phone lines 6,300

Network moves & changes Orders 3,000

Telephone Set Maintenance Digital Sets 1,598

Voice Mail Subscribers 1,800

Basic email Number of accounts 2,000

Enhanced email - tier 1 Number of accounts 3,000

Enhanced email - tier 2 Number of accounts 1,500

Cellular Phones Phones 200

OPX OPX Lines 30

Pagers Pagers 100

Consulting Hours 500



Identify growth factors based on a strategic business technology plan


How One WTC Client Addressed Infrastructure Planning



Strategic Forecast for Total Data & Voice Port Requirements

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Vo

ice

an

d D

ata

Po

rts

Data Ports Analog Voice Ports Digital Voice Ports VoIP Ports (Voice/Data on IP)



Strategic Forecast for Desktop Data Port Requirements

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2001 2004 2006 2012

Years

Nu

mb

er o

f D

ata

Sw

itch

Po

rts

10 Shared 100 Switched 1000 Switched


How Another WTC Client Addressed Infrastructure Planning

File: WTC: H:\Marketin\presentations\ACUTA - Reno Rates\Acuta Reno Rates 03.ppt 39 RatesPlanned Growth

45 Buildings 250 Closets13,322 Telephones18,715 Network connections

Infrastructure is builtbased on forecastCapacities

By the Year 2011+

The Campus



Create a unit cost table



Phase IIIMarket Analysis


Phase III - Market Analysis

Step 1 - Conduct local market analysis


$0.00

$21.46

$32.71

$16.15 $16.60

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

CSSUB PacBell Verizon MCI Electric Lightwave

Rat

e P

er M

onth

Exhibit VII - University Dial Tone Market Comparison

Client could charge at least $20 per month and still remain

competitive.

Market Comparisons

Client


Phase III - Market Analysis

Step 2 - Conduct peer reviewWTC historic client information


Client is not charging for this service. The Peer institutions offer between

$13.00 and $27.00.

University Comparisons

$-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

Monthly Rate

Single Line University Comparison

Single Line $- $18.90 $23.50 $13.00 $19.00 $16.23 $20.50 $27.00 $24.00 $18.50

CSUSB Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Peer 6 Peer 7 Peer 8 Peer 9Client


0

5

1 0

1 5

2 0

2 5

C o s t E l e m e n t s

E x h i b i t X X I I IC o s t E l e m e n t C o m p a r i s o n

S i n g l e L i n e U n i v e r s i t y S e r v i c e s

A d m i n i s t r a t i o n

S p a c e r e n t

E a s e m e n t r i g h t - o f - w a y c h a r g e

S w i t c h r o o m e n v i r o n m e n t a l s

9 1 1 e m e r g e n c y r e s p o n s e

M a i n t e n a n c e : C a b l e R e c o r d s

M a i n t e n a n c e : C a b l e

M a i n t e n a n c e : T M I S

M a i n t e n a n c e : P B X

D e p r e c i a t i o n : T M I S

D e p r e c i a t i o n : S t a t i o n E q u i p m e n t

D e p r e c i a t i o n : P B X

D e p r e c i a t i o n : C a b l e

N e t w o r k S e r v i c e s

U s e r T r a i n i n g

E m e r g e n c y I n f r a s t r u c t u r e

B i l l i n g S e r v i c e s

R e p a i r T e c h n i c i a n s

O p e r a t o r s

P r o j e c t M a n a g e m e n t

I n t e r C a m p u s C a l l i n g

N O C a t t e n d a n t s

University Comparisons



Phase IVPhilosophy Development and

Preliminary Rate Creation


Phase IV - Philosophy Development and Preliminary Rate Creation

Known at this pointBPSEs you provideCost by BPSE Market alternativesPeer environmentActivity levelsUnit cost

Now need a model



Types of models Egalitarian (some

call this “socialized”) Discriminatory Utility Library Market Tiered Policy (fiat)

Types of models Node bank Per capita Knowledge worker Econometric Combination



Characteristics of good rate schedulesShould not impact network designIncorporates strategic business technology

planDiscourages inappropriate behavior5-year viewCost basedCulturally congruent



Characteristics of good rate schedulesUpdated quarterly, re-evaluated annuallyBased on Basic Product & Service

ElementsAccount for entire budgetReflect all technology servicesScaleable



Characteristics of good rate schedules Recognize and recover the cost of

infrastructureA solid audit trailSet the stage for new services to be priced

both on the margin and as replacement services



Phase VImplementation: 5-Year Rate Plan

Development - Trends



Development

Significant trends impacting rate settingMore end-to-end accountability

Convergence makes this more important LAN certification is a problem Departments moving away from providing their

own services -- realize it is hard and expensive Single source technology supplier on campus

moving back this way



Development

Significant trends impacting rate setting Disproportionate cost of data networks as

they become “hardened” in preparation for more critical applications

Metered bandwidth emerges to control consumption on and off campus



Development

Significant trends impacting rate setting Network refreshment cost accelerate and

stabilize Economic life (finance term) = 3 - 5 yrs Useful life (how long it will last) = 5 - 10 yrs Technology life = 12 - 36 months


Discussion

Documents

File: WTC: H:\Marketin\presentations\ACUTA - Reno Rates\Acuta Reno Rates 03.ppt 1 Rates Strategic Funding Models for The Network Services Department of