Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaESD 71 Final Project: Second-Mile Internet Data Backhaul in KenyaKeith Berkobenberkoben [at] mit [dot] eduDecember 7, 20101ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaThe Case•An internet backhaul provider needs to service an isolated remote area with a 10km backhaul link•Common situation in developing or rural markets•At current demand levels, the link bandwidth required is very small, but demand growth is very large•Initially, low-cost solutions are viable•Within 20 years the operator will need to deploy a fiber network to service demand•The provider must decide how to design the best deployment for the local conditions•20-Year Excel simulation used to analyze design alternatives2ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaAnalysis Goals•Identify the highest value deployment strategy for the network operator’s preferences•Risk averse, sensitive to efficiency of CAPEX•Determine•Technology Mix•Decision Thresholds•Work with other concurrent projects? (road work)•Apply flexibility-in-design methods to create a realistic simulation and avoid the scenario-based design trap3ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaSystem Definition•Operator must span 10km to remote site with buried fiber optics or microwave radio•Cost/Performance trade off•Serendipitous road construction provides an opportunity to control the cost of fiber installation4ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaUncertainties: User Demand Projection•Initial demand•Demand growth•Conflicting estimates increase uncertainty•Projection must capture saturation effect5ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaUncertainties: User Demand Model•Result: “Certain” endstate but uncertain average demand6ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaUncertainties: User Demand Model•Result: “Certain” endstate but uncertain average demand7ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaUncertainties: Cost to Deploy Fiber•Cost range between $15-95K/km•Depends mainly on labor and logistics for trenching•Cost and uncertainty can be minimized by pre-planning route and sharing costs with road construction•Co-construction: $25K/km•Pre-planned, deploy on demand: $30K/km•No plan, deploy on demand: $15-55K/km (random)C = 40,000 * RAND ( ) + 15,0008ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaTechnology and Design Alternatives•Three design alternatives analyzed:9DA1: Fiber Full-Deploy Cost in year 1 $250kRecurring cost $1000/yrDA2: Fiber Partial-Deploy (flexible)Cost in year 1 $10k + Microwave (DA3)Recurring cost $0/yr + Microwave (DA3)Expansion cost when needed $300kRecurring cost after expansion $1000/yr DA3: No Fiber Prep (flexible)Cost in year 1 $50kRecurring cost $300/yr + $8201/yr (x .125, .25, .5, or 1 based on use)Expansion cost when needed Uncertain, mean $35KRecurring cost after expansion $1000/yrESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in Kenya Decision Rules10•Fixed system•Deploy fiber at outset•Fixed cost•Flexible systems•Start with microwave•Evaluate demand annually•Deploy fiber when needed•Cost fixed or variable based on pre-planning•Operator must asses demand a full year in advanceESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaModel Design•Excel model simulates 20 year project lifespan with randomized initial demand and random growth variability•Expansion decision triggered based on demand projection11ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaModel Tuning•Precision checking to 1% error•Decision rule threshold tuned to find highest ENPV of all three designs at all reasonable thresholds•Expansion triggers when extrapolation of t-1 data predicts demand in year t+1 = 122% of current capacity12Number of Model Runs Maximum error fraction for any design alternative2000 .02375000 .015810000 .013925000 .0058ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaPre-planned, staged deployment provides highest valueResultsDesign alternative # -95% ENPV +95% Standard DeviationDesign alternative 1 169,627 170,823 172,020 96,545Design alternative 2 (flex) 180,177 181,023 181,869 68,228Design alternative 3 (flex) 171,135 172,102 173,069 78,03213ESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaResults14Design alternative # B/C ratioDesign alternative 1 1.664Design alternative 2 (flex) 1.755Design alternative 3 (flex) 1.752Design alternative # ENPV/CAPEX0ENPV/CAPEXPVDesign alternative 1 0.678 0.678Design alternative 2 (flex) 3.017 1.006Design alternative 3 (flex) 3.442 1.033•Flexible designs have lower capital costs and give more efficient ROI •Operator pays a capital efficiency premium to achieve best ENPV and lowest variability•Flexible designs exhibit greater robustness to deviations in input assumptionsESD71 Final Project A Flexible Design for Second-Mile Data BackhaulESD71 Final Project Second-Mile Internet Data Backhaul in KenyaResults15•All designs are profitable in expectation•Results suggest that the operator would benefit most from pre-planning a fiber path, but delaying full fiber deployment until demand requires it (design alternative 2, benefit ~$10,000)•Design is