Financial Assessment of Citywide Wi-Fi / WiMAX Deployment

COMMUNICATIONS & STRATEGIES, no. 63, 3rd quarter 2006, p. 1.

Financial Assessment of Citywide Wi-Fi / WiMAX Deployment

Vinoth GUNASEKARAN & Fotios HARMANTZIS (*) Stevens Institute of Technology, USA

Abstract: There are several ways by which a Wireless Internet Service Provider (WISP) can deliver city wide wireless broadband services. However, it is necessary to determine a profitable business case and at the same time a cost-effective service model, which is affordable to all types of users and different classes of society. This paper proposes a service model (both data and voice) that uses two emerging wireless technologies (Wi-Fi and WiMAX) to deliver cost-effective broadband services. Wi-Fi / WiMAX have not only the potential to compete on a cost-per-megabyte basis with cable and Digital Subscriber Line (DSL), but also make ubiquitous broadband a reality. If engineering and economics are correctly applied, a Wi-Fi network can be built around an entire city with a WiMAX backhaul, instead of providing limited coverage for hotspots. On the other hand, internet telephony over a Wi-Fi network is the public access version of Voice over Internet Protocol (VoIP): users can enjoy the handiness of a cell phone-like service, while avoiding the cost of traditional cellular carriers. This paper focuses on the techno-economic modelling of Wi-Fi hot zones into a WiMAX infrastructure mesh while addressing Voice over Wi-Fi (VoWi-Fi) issues. Our study demonstrates that low-cost broadband services can be offered, while remaining economically advantageous for service providers Key words: Wi-Fi, WiMAX, VoWi-Fi, 2.5G/3G

he Wi-Fi service industry is undergoing a fundamental shift towards ubiquitous Wi-Fi, with the onset of citywide Wi-Fi deployment. The deployment of municipal broadband networks

has also been increasing in the United States 1, and the market for embedded Wi-Fi chips, including laptops, PDAs and mobile phones is

(*) Acknowledgements: Many thanks to Dr. Audrey Curtis, Director of Telecommunications & Project Management, and Dr. Kevin Ryan, Associate Professor of Telecommunications Management, both at Stevens Institute of Technology, for their countless discussions and helpful suggestions regarding this research. We also thank Dr. N. K. Shankaranarayan and Dr. Byoung Jo J. Kim, both with AT&T Labs, NJ, USA, for their valuable comments the helped us to better understanding the economics and technical aspects of infrastructure mesh topologies. 1 http://www.muniwireless.com/reports/docs/June2004Report.pdf (URL accessed on February 2005).

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growing. A market study 2 shows that in 2005, the annual shipment of Wi-Fi chipsets exceeded 100 million units; while over 90% of the laptop computers sold were Wi-Fi enabled. The number of Wi-Fi users in the United States is expected to almost equal or surpass 2.5G/3G data users in the future 3. Millions of people in developed countries already own Wi-Fi client devices to access their existing home Wi-Fi networks or office wireless networks. Taking all these factors into account, a WISP can strategically plan to deploy a city wide Wi-Fi network without spending on the client device or incurring customer acquisition costs.

WiMAX, another emerging wireless technology, is defined as Worldwide Interoperability for Microwave Access, by the WiMAX Forum 4. IEEE standard 802.16 is the foundation of WMAN (wireless metropolitan area network) of the next few decades (EKLUND et al., 2002). The forum was formed to promote WMAN broadband technology and to support vendor interoperability. It also aims to promote the conformance and interoperability of the IEEE standard 802.16. WiMAX has received broad industry support both from equipment makers and service providers as a means of broadband wireless access. Mobile WiMAX penetration is expected to be widespread between 2009 and 2012, when most wireless carriers accept WiMAX as a mobile wireless broadband service alternative to other mobile technologies. It may take a few more years for the technology to mature and compete with other wireless technologies, and also for WiMAX PC cards to be embedded in end user devices as currently seen with Wi-Fi cards.

WISPs can also take advantage of delivering voice to end users, as VoWi-Fi is now becoming a reality. WISPs can maximize their revenue by optimizing their network resources, providing both voice and data services. Wi-Fi phones are the next generation intelligent IP communications devices. Two protocols are currently being used: the H.323 and SIP (Session Initiation Protocol). The phones add SIP/H.323 based VoIP communications together with Wi-Fi installations. These phones can be used in any Wi-Fi network. There are "soft" phones that can be downloaded into a PDA or laptop with additional software, and turn into wireless speakerphones when

2 http://nwc.networkingpipeline.com/ Wi-Fi Chip sale to hit 120 million, Market study by In-Stat/MDR & Wi-Fi Alliance (URL accessed on July 2006). 3 http://www.unstrung.com/ Wi-Fi to surpass 3G,By Pyramid Report (URL accessed on July 2006). 4 http://www.WiMAXforum.org (URL accessed on May 2005).

V. GUNASEKARAN & F. HARMANTZIS 3

connected to Wi-Fi networks 5. A soft phone is software that simulates a real phone and runs on a general purpose computer, rather than a dedicated device. Soft phones are typically part of VoIP environments and can be standard-based SIP/H.323 or proprietary. There are also Wi-Fi hard phones based on both H.323 and SIP protocols. A Wi-Fi phone is a hard phone with a built-in Wi-Fi transceiver unit to connect to a Wi-Fi access point (AP), instead of an Ethernet port. It does not require a personal computer or any software to be run on a personal computer to make and receive VoIP phone calls.

Internet telephony technology allows phone calls to be made over broadband internet access (both wired and wireless). In the near future, more people will be using internet telephony as the market migrates from the traditional public switch telephone network (PSTN) towards VoIP. As a market report indicates, the customer base for broadband VoIP services is gradually growing both in North America and in major European countries, such as France, Germany, Italy, Spain, Sweden and the UK. In Europe, VoIP has already penetrated nearly one-fifth of all businesses with Spain (24 percent) and the United Kingdom (22 percent) at the forefront 6.

On the enterprise level, many companies have already established Wi-Fi networks and integration of VoWi-Fi is anticipated. A market study 7 also indicates that VoWi-Fi handsets will represent about 7% of all handsets by 2009. Therefore, it can be inferred that a home or office Wi-Fi network forms a convenient platform for internet telephony using Wi-Fi enabled phones. The customers' broadband wireless phones (VoWi-Fi hard or soft) become a substitute for mobile phones when they are on the move. By taking all these parameters into consideration, Internet Telephony over public Wi-Fi hotspots threatens to remove a considerable amount of traffic from cellular networks. There is already fierce competition between Wi-Fi and cellular networks for data services, and if internet telephony is made available in all public Wi-Fi hotspots this should constitute a serious threat to cellular operators. Currently, hotspot utilization is low and a lot of capacity is left unused. There is consequently capacity available for increasing hotspot usage and providing internet telephony in the hotspot. This increase in the utilization

5 http://www.telesym.com/ (URL accessed on Jan. 2005). 6 The Global Information Technology Report 2003-2004, Oxford University Press 2004. 7 http://www.tmcnet.com/ "Enterprise To drive Dual Mode Cellular / VoWi-Fi Handsets", by ABI Research (URL accessed on May 2006).

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rate due to voice services along with data should have a significant impact on hotspots' regular business model.

Broadly speaking, there are two types of Wi-Fi deployment as shown by (CAMPONOVO et al., 2003): selected locations or hotspots and extensive or outdoor coverage. Recently, some cities around the world have started actively engaged in deploying extensive outdoor city wide Wi-Fi networks in many different ways. As explained by BAR et al. (2006), there are nine possible options in deploying a city wide Wi-Fi network as no model fits all cities, and each option leads to a unique set of business models and policy issues.

This paper explores a single private owner model for operating the Wi-Fi service and selling it directly to customers. In this model, local government makes an agreement with a single private company to build and own the networks. Local government can also make a deal with private owners by granting a license to operate; making the WISP offer its inhabitants the service for a reduced fee (the monthly service fee should be far less than the traditional broadband service, i.e., cable and DSL). The service provider in turn may gain access to the city’s "urban furniture" (i.e., lamp posts or street poles) for reduced leasing costs to mount its antennas and equipment boxes. Extensive research has already been carried out in the area of Wi-Fi integration with cellular networks (SALKINTZIS et al., 2002). This paper focuses on how Wi-Fi will integrate with WiMAX to offer ubiquitous access, playing a key role in the emerging fourth generation wireless networks.

Infrastructure cost models have previously been applied in investment analysis for various types of wireless access provisioning (FURUSKAR et al., 2005). However, this is the first time a cost model is applied in investment analysis for the use of both Wi-Fi and WiMAX. In the cost model presented here, Wi-Fi is used to reach the end user and WiMAX provides a backhaul to offer a cost effective broadband service. Pursuing the model, this paper is organized as follows. In the next section background information is given about Wi-Fi and WiMAX technologies and how they complement each other. The third section presents a service architecture overview of Wi-Fi / WiMAX and two deployment scenarios for offering both voice and data. The engineering and economics model, followed by the cost model makes up the forth section, while the fifth section examines a city-wide Wi-Fi case. The results of the analysis are presented in this section along with some sensitivity analysis, which is followed by our conclusions.


Background of emerging wireless technologies

Wi-Fi versus WiMAX

Wi-Fi currently has a clear advantage over WiMAX since it is already available in most end user devices. The customer acquisition cost for Wi-Fi service is consequently much lower compared to other broadband technologies. Although WiMAX as the last mile alternative is a viable option, the customer acquisition cost increases as it is highly dominated by the customer premise equipment (CPE) cost. Clearly, WiMAX technology today is following in the same footsteps as Wi-Fi a few years ago. The standardization and interoperability between different vendor products may lead to higher output levels, which will result in very low equipment prices in the future. When Wi-Fi systems based on 802.11 protocols were first developed, interoperability was of paramount importance. As a result, any Wi-Fi product can easily communicate with other Wi-Fi products. Another advantage of Wi-Fi is that large scale service-level roaming between different WISPs is possible, as Wi-Fi certification has become a de facto standard for IEEE 802.11b based products (HENRY et al., 2002). It is also expected that, at some stage, WiMAX will also accomplish price and performance levels similar to Wi-Fi. Until the mobile version of WiMAX (i.e., IEEE 802.16e) becomes a reality, both Wi-Fi and WiMAX technologies can coexist, addressing different tasks. At present, a WISP can leverage the most mature technology, namely Wi-Fi, to reach the end user; at the same time, it can take advantage of WiMAX to minimize backhaul cost and efficiently reduce the time for service provisioning. If properly planned and deployed, Wi-Fi with WiMAX can turn the whole region within the geographic boundaries into a "hot zone".

Why infrastructure WiMAX mesh

In the proposed model, WiMAX is used as backhaul to feed the Wi-Fi APs. This is because the rental of wired backhaul networks constitutes a major cash outflow (BJORKDAHL et al., 2004). Thus, to reduce backhaul cost and achieve efficient use of the wired backhaul, infrastructure mesh can be used. Aggregating backhaul lines into higher capacity lines is not only cheaper, but also reduces the physical space compared to smaller speed circuits. Unlike other mesh networks, the infrastructure WiMAX mesh

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network is slightly different. It is a type of mesh which is unlike "ad-hoc" or "client" mesh. In client meshing, every client device can pass along traffic for other devices; therefore, any client can hop through other neighbouring devices or routing nodes to reach other clients in the network 8. The IEEE 802.16 options are the PMP MAC (Point to Multi Point Medium Access Control) and the mesh MAC. The PMP MAC option is the default architecture, which is supported and enhanced by the WiMAX Forum. The current mesh mode in standard IEEE802.16 -2004 is not compatible with the PMP mode and at the same time it has no relay function. A new task group, namely the Mobile Multihop Relay (MMR) study group (IEEE802.16j), is actively working on the mesh/relay mode 9.

Advantages of Wi-Fi in the last mile

Wi-Fi technology options: Wi-Fi chip makers have already announced a tri-mode chip, with IEEE802.11b/g and 802.11a as their flagship product 10. WISPs can strategically plan to deploy their APs to support as many technologies and standards as possible. This would allow the client's software to "sniff" and select the best technology available at any given spot. Another advantage of having different technology options in a Wi-Fi mesh might be the use of one technology for mesh node communications and other technologies for client to node communications. 802.11b, the most widely known, supports a smaller number of audio streams when compared to the high performance standard 802.11a or 802.11g. Nevertheless, 802.11a with eight channels can be a technology of choice for voice applications, making it an attractive alternative to 802.11g, which has only three non-overlapping channels. Wi-Fi service providers may consider installing APs that include both 802.11a for voice users and 802.11b for data users. This is a business decision; it may or may not be economical. A crucial parameter for the justification of such a decision is the amount of traffic at specific hotspot locations.

8 http://www.techworld.com/ Client Mesh vs. Infrastructure Mesh, (URL accessed on April 2006). 9 http://www.ieee802.org/16/sg/mmr/index.html: Chair of IEEE802.16j Task group- Mitsuo Nohara , KDDI corp , (URL accessed on May 2006). This task group considers multi hop relay capabilities and functionalities of interoperable relay stations (RS) and base stations. It also considers 2-hop MMR networks as mandatory. 10 http://www.pcworld.com/ Intel Eyes Tri-mode Wi-Fi (URL accessed on July 2005).


Wi-Fi service options: customers have many different options in terms of bandwidth upgrade. There are also many options for data and voice services at a lower cost. With any portable devices that have Wi-Fi clients, people can connect to the network while roaming in different metro zones throughout the city. Anyone who has a Wi-Fi client device in the city can access the network from any location by logging on to the network. Traditionally, cable and DSL networks offer a simple service model with flat pricing: a monthly subscription fee. However, Wi-Fi service providers can supply more innovative service options offering on demand service plans for both data and voice users. There are several payment options, such as a subscription fee on a monthly basis, a one time charge, for example, per connection charge, or usage-based pricing 11.

Architectural overview of Wi-Fi with WiMAX

A model is proposed incorporating WiMAX mesh with Wi-Fi systems for two scenarios where there is a mix of multi-dwelling and individual houses. The first type of architecture is the multi dwelling unit in a dense urban area where there are many subscribers per square mile; the second type is the low-density area, with individual buildings and houses where Wi-Fi / WiMAX serves as the last mile.

Type 1: Wi-Fi / WiMAX serving a multi dwelling unit

In this type of model, the majority of small offices, home offices (SOHO), and households are in multi-dwelling units or apartment complexes. As seen in figure 1a, WiMAX can co-exist with Wi-Fi to deliver megabits of data to apartments or office buildings. From there, Wi-Fi can be used to distribute services to individual houses, office rooms, lobbies, conference room, etc. Though the WiMAX standard does not describe how much capacity an operator can feed each Wi-Fi AP, a single WiMAX base station (BS) could handle hundreds of megabits per second of data and can feed one or more Wi-Fi APs mounted on tall buildings.

11 www.boingo.com (URL accessed on Nov. 2004).

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Figure 1a - Wi-Fi / WiMAX serving multi-dwelling unit

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Type 2: Wi-Fi / WiMAX serving independent houses

In the second type of model, individual buildings and houses may be packed close to each other or scattered. In this scenario, a large number of Wi-Fi APs are needed to cover the entire region. The leasing cost can also be significantly reduced, as the APs can use the lamppost or the rooftop of a residential building, reducing operating expenditures (OpEx) significantly.12 There is a provision of using APs with higher gain antennas to extend the coverage, while still limiting the maximum effective isotropic radiated power (EIRP) within the legal limit, as described by the Federal Communications Commission (FCC). The FCC, like the European Telecommunications

12 www.tropos.com (URL accessed on May 2005).


Standard Institute (ETSI) in Europe, has defined the emission characteristics for all unlicensed spectrum, including the transmission power and the allowable antenna gain in Wi-Fi devices. The Wi-Fi in an outdoor environment needs adequate power level in both the client device and the base station antennas. Since there is a power limit to the Wi-Fi client device, the uplink coverage can be obtained using high gain antennas at the APs. For a given antenna gain there is also a limit in the maximum transmit power that dictates the downlink coverage. The normal Wi-Fi AP (802.11 b or 802.11g) only covers 300 feet, which is roughly 0.0102 square miles. For outdoor Wi-Fi access coverage can be increased by using higher gain antennas. It is also feasible to extend coverage further by bearing additional cost on smart antennas or phased array antennas. Such antennas based Wi-Fi systems offer cost effective coverage and access in a ubiquitous environment. Phased array antennas give immunity to interference, have a greater coverage range and lower the overall deployment cost, compared to traditional omni antennas.

A techno-economic model for Wi-Fi / WiMAX

Infrastructure WiMAX cell layout

The WiMAX main BS with wired backhaul should be at the center of the WiMAX mesh BSs. Wi-Fi cells are then embedded in both WiMAX main or mesh cells. For example, if one considers a cluster size of nine square cells (the basic mesh architecture with one hop), there will be one WiMAX main BS surrounded by eight mesh BS as shown in figure 2. Each WiMAX mesh and main BS of one square mile area can include as many Wi-Fi cells as possible, as long as the BS has enough capacity to aggregate all the APs traffic. In this architecture, each WiMAX mesh BS aggregates all the traffic from the Wi-Fi APs and then wirelessly backhauls to WiMAX main BS. From there, it is taken to the wire backhaul and finally to the point-of-presence (POP). For example, considering this architecture for a coverage area of 135 square miles, with each WiMAX cell having a one mile radius, there will be seven WiMAX clusters with 56 WiMAX mesh BS and seven main BSs. Since there are only seven clusters, there is a need for only seven WiMAX wired backhaul facilities in the main BS for the entire 135 square miles area, to serve all the Wi-Fi APs.

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Figure 2 - One WiMAX cluster with mesh and main BS

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WiMAX mesh and main BS radio capacity planning

For radio capacity expansion, sectorization are adopted in WiMAX main and mesh BS, instead of cell splitting. The techno-economic analysis of pure WiMAX deployment is performed by GUNASEKARAN & HARMANTZIS (2005). However, this model extends that study to incorporate Wi-Fi in the last mile, while keeping a WiMAX mesh backbone architecture. The model assumes that each WiMAX BS is a micro cell with a radius of 1 mile. In this type of cell layout, the BS towers are typically around 30ft-50ft below rooftop. Operators can use both licensed and unlicensed spectrum. The WISP has the advantage of using unlicensed spectrum, and is able to deploy services immediately.

In cases where multiple operators are operating, licensed spectrum is an appropriate choice for avoiding interference. Though many wireless vendors offer flexible channel size, a standard size of six MHz is used for the calculations. With a channel size of six MHz, and spectral efficiency of three bits/Hz, the capacity per sector for each WiMAX main or mesh BS will be 18 Mbps. These are dimensioned so as to produce a maximum of only six sectors, i.e., only 60-degrees configuration.

The model implements two, four and six sectors with only two frequency channels. For more capacity, one can add more channels and still keep six sectors with 60-degree configurations. An effective sector is defined as the


total number of sectors available due to addition of more channels in the actual given sector. The effective sectors and channel numbers selected are even, so that the same channels can be used in alternate sectors to avoid co-channel interference.

Wi-Fi cell layout in the last mile

The Wi-Fi cells are optimized to fit in the WiMAX main or mesh cells. The coverage provided depends upon the surroundings and can be affected by buildings, hills, foliage and weather conditions. A typical installation supports Wi-Fi cell spacing of one-fifth to one-fourth of a mile, leading to typical densities of 15 – 25 Wi-Fi cells embedded in each square mile area. But with initial capital expenditure (CapEx) on APs, the coverage is given to the entire area in the first year. A maximum of 25 Wi-Fi APs with high gain antennas are enough to give sufficient coverage for each square mile. By deploying more APs per square mile, the demand per unit area never exceeds the capacity of a single AP at any given time of the project life. The network modelled is coverage-limited over the entire study period (ZHANG et al., 2004). Another advantage of having a large number of Wi-Fi APs is that operators can avoid outdoor CPE. This is also because operators have good coverage and adequate capacity to run all applications on top of their network, even during the first year. The subscribers within the city coverage area can freely roam without re-association or re-authentication. The whole city is covered with Wi-Fi radios and the APs are not only deployed in residential and SOHO buildings, but also in locations where groups of people meet: coffee shops, restaurants, malls, bus stops, subways, railway stations, universities, airports, convention centres. Smart antenna technologies can also be used to reduce inter-access point interference.

Wi-Fi Mesh: IEEE is setting up another new standard called 802.11s 13 to extend mobility to Wi-Fi APs in very large Wi-Fi networks. IEEE is working on the wireless LAN medium access control (MAC) and physical layer (PHY) for Extended Service Set (ESS) in mesh networking (RAMAN et al., 2005). Its mission is to develop new protocols for auto-configuring paths between APs over self-configuring multi-hop topologies in a wireless distribution system (WDS) to support both broadcast/multicast and unicast traffic in an

13 http://grouper.ieee.org/groups/802/11/ (URL accessed on Nov. 2005).

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ESS Mesh 14. Although this standard is targeted to be approved by 2008, many vendors are already developing Wi-Fi mesh systems using their own proprietary technologies.

Figure 3 - Wi-Fi cells embedded in one WiMAX cluster (One WiMAX main and eight mesh BS)

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The proposed cost model

In any type of environment, there will be a mix of both the above-mentioned scenarios. Figure 4 analyzes the main principle of the methodology used for the cost analysis. The analysis is based on the assumption that nearly 75% of the area consists of individual buildings, houses and SOHO's; while the remaining 25% is made up of multi dwelling houses and tall buildings with both houses and enterprises. The goal is to cover the entire region with wireless broadband access so that all individuals, namely residents, businesses, guests and tourists, will have the opportunity to access broadband wireless anywhere and anytime in the city. The economic feasibility of this proposed model in terms of net present value (NPV) over a five-year period is calculated. Reasonable assumptions on CapEx, OpEx, backhaul cost, leasing costs, etc., are made. With CapEx, OpEx and different kinds of service revenue streams, the life-cycle

14 www.wikipedia.org (URL accessed on May 2006).


economics are calculated in terms of investment and profitability. Unlike cable or DSL operators, a Wi-Fi / WiMAX business model has a wide range of pricing, roaming, payment and collection options that give operators the positive cash flow to offer the most innovative broadband services at affordable prices by lowering ongoing OpEx. With the proposed wireless broadband business model, the end user enjoys many different service options. Users with Wi-Fi client devices inside the city coverage area can get on demand broadband services, as well as monthly subscription access. As a long-term strategy, WISPs can build broadband wireless networks that can support both voice and data for all residential and small business customers in the serving area (WANICHKORN et al., 2002).

Figure 4 - Cost model flow diagram

Architectural OverviewWi-Fi/WiMAX–Serving Individual houses /Buildings

Wi-Fi/WiMAX–Serving Multidwelling unit

WiMAX cell layoutInfrastructure Mesh Layoutoption (1 hop to multi-hop)Number of WiMAX MeshBS in a a single cluster

Economic Modeling of WiFi/WiMAXCapital Expenditure: Wi-Fi AP’s, WiMAX Mesh BS, WiMAX main BS

Operating Expenditure - Wired Backhauling, Tower Leasing, Maintainance

Wi-Fi cell layoutNumber of Wi-Fi AP’s in asingle WiMAX cell or persquare mile areaWi-Fi Technology options(IEEE802.11a,b or g)

Backhaul capacity planningWiFi AP’s to WiMAX BSWiMAX Mesh to WiMAX MAinWired from WiMAX Main BS toPOP

Radio Capacity Planning

Channel sizeModulation typeFrequency reuse

Revenue from WiFi/WiMAX deploymentMonthly subscription fees (Data subscribers)Monthly Subscription fees (VoWiFi subscribers)On demand data service (Number of connections per month withper connection fee)On demand voice service (Number of calls per month with per callfee)

Average data subscribers per square mileTraffic assumption for Vo-WiFi usersAverage number of data connections per squaremile / per monthAverage number of Vo-WiFi connections for the whole coveragearea

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A city-wide Wi-Fi business case

The total service area is assumed to be 135 square miles, which is roughly equal to the size of the city of Philadelphia. This model uses Wi-Fi as the last mile to reach the end users and uses infrastructure WiMAX mesh for backhauling. Many cities have planned to deploy a new wireless mesh network based on the pure IEEE802.11b Wi-Fi standard. Deploying pure Wi-Fi mesh for larger areas presents a lot of engineering challenges, since this requires multi-hop nodes with self-organizing and self-healing wireless mesh networks. Though Wi-Fi mesh is also a viable option, it should be restricted to a maximum of three to four hops 15. Therefore, for larger coverage areas, there should be mix of both Wi-Fi mesh with limited hops and long distance Wi-Fi with phased array antennas.

The analysis is based on the assumption that residential light users use an average bandwidth of about 250 kbps (web browsing), while heavy users use about 500 kbps. It is also assumed that 25% of all residents are heavy users. Small businesses are assumed to use 1 Mbps on average. As shown in table 1 in appendix 1, the number of subscriptions from residential users (light and heavy users) in type 1, i.e., individual building and houses per square mile in year 1, is assumed to be ten and the number of SOHOs subscribed to the service in the first year is assumed to be five 16. In type 2, i.e., multi dwelling units, the number of subscriptions from residential users and SOHOs per square mile area is assumed to be three times that of type 1. Since there is a huge variation in the growth rate of internet users, a sensitivity analysis is done for this figure ranging from 20% to 80% per year 17. The study consequently covers the impact of engineering and economics, as a result of varied growth rates for different countries. If the maximum utilization is only 25%, the service can be oversubscribed by 4 to 1.

Both the annual subscriber growth and the oversubscription factor impact the engineering and economics of networks. The subscriber growth rate and the oversubscription factor are varied to show the impact on the number of

15 www.chaska.net (URL accessed on June 2005). 16 In United Kingdom, there are 13 internet users per 1,000 inhabitants; in France there are 27. Source: The Global Information Technology Report 2003-2004, Oxford University Press 2004. 17 The average internet user growth for 1999-2002 in United States was 52%; in France this figure was 249%. Source: The Global Information Technology Report 2003-2004, Oxford University Press 2004. For this base case analysis an average growth rate of 60% is assumed.


radio channels needed for the WiMAX main BS and its impact on wired backhaul cost. For both scenarios, the bandwidth needed for residential users (light users and heavy users) in one WiMAX infrastructure mesh cluster for one year can be calculated as follows:

Subscribers/square mile * Area (individual or multi-dwelling) * average bandwidth width per subscriber (light and heavy users).

The bandwidth needed for SOHO's in multi dwelling and individual units can also calculated in the same way.

For Voice over Wi-Fi, even if the basic codec techniques with the worst compression schemes are used, each AP can support over 20 simultaneous voice calls. The 802.11a has the capacity to handle roughly four times as much voice traffic as 802.11b. VoWi-Fi calls use no more than one percent (i.e., 100Kbps) of the total bandwidth available in either 802.11b/a or g. Therefore, the data rate required for a two way voice channel is no more than 200kbps/channel. The model assumes that only 50% of all subscribers have both monthly data and voice plans. The voice codec 18 on the handset is 64 Kbps with 20 millisecond voice frames. There are different codec types based on the number of bits per second that need to be transmitted to deliver a voice call. But even with the worst codec technique of 200 Kbps, the net present value (NPV) is much better. This does not have a major impact on the cost model. Since there are enough APs per square mile, the capacity needed never exceeds the available capacity of a given AP. However, in this model one is interested in capacity allocation for the WiMAX mesh and main BS, rather than in the last mile Wi-Fi access. If one assumes an average usage of ten minutes per hour, then the traffic generated per handset is 0.17 erlangs 19. For on demand voice service, the model does not take any busy hour voice traffic for any hand set. This is because this model assumes that on demand VoWi-Fi calls will be placed only in cases where mobile users need to make longer duration calls; as this gives them the incentive to use the cheaper Wi-Fi network instead of their regular cellular network. Therefore, on demand calls will be of longer duration than the

18 http://www.cisco.com/en/US/tech/tk652/tk698/technologies_tech_note09186a0080094ae2.shtml (URL accessed on Oct. 2005). 19 http://www.proxim.com/learn/library/whitepapers/ voice_over_wifi_capacity_planning.pdf (URL accessed on April 2005). As an example, with a total of 10,000 VoWi-Fi subscribers (approximately) at the end of year five, each having a 17% chance of being active at any given time, there are (on average) 1,700 active handsets. Therefore the active handsets in each cluster would be 1700/7 and the total voice traffic generated in each cluster would be approximately 50 Mbps at the end of year five.

16 No. 63, 3rd Q. 2006

regular fixed service residential VoWi-Fi calls, and so the model assumes that there is always fixed capacity allocated to long duration callers.

Assumptions for capital and operating expenditures

WiMAX Micro BS Sector Controllers should be available for around USD 10,000 during the second half of 2005 – 2006. A WiMAX Pico BS controller with wireless self-backhaul will be available for around USD 5,000 by the end of 2005 20. Therefore, a two sector BS should cost approximately USD 10,000. The APs should have dual-band capabilities, providing Wi-Fi connectivity for 802.11a/b/g devices and at the same time provide wireless self-backhaul to WiMAX BS controllers. These outdoor APs will cost more than the normal APs; the operators can purchase them on a wholesale basis for approximately USD1,000-2,000 per outdoor AP 21. Appendix 2 shows the number of WiMAX and Wi-Fi systems needed for the entire geographic area. OpEx include tower leasing, backhaul costs and maintenance costs. Maintenance costs are assumed to be 15% of equipment costs. The assumptions made for wired backhaul costs are as follows: T1 (1.54 Mbps) costs USD 250 per month; T3 (45 Mbps quantum) costs USD 2,000 per month; and OC3 (155 Mbps quantum) costs USD 5,000 per month. The wired backhaul is needed only in the main BS; in this case there are seven for the total coverage area of 135 square miles. The WiMAX cells are made of pico-cells; therefore, the BS antennas can be less than 50 feet. That is an advantage, as operators can use the rooftops or the lamp-posts on the streets. Since WiMAX mesh BS antennas can be less than 50 feet, operators can negotiate for lower prices for the unused tower portion. Based on this assumption, the cost of leasing space for placing a mesh BS controller is estimated at USD 100 per month; while the per-sector leasing for mounting antennas is assumed USD 150 per month. For the WiMAX main base antennas, which should be at least 100ft up on the tower, a per-sector leasing cost of USD 300 per month and another USD 300 per month for placing the BS controller is assumed. This model is based on the implicit assumption that the city is providing its urban furniture at low cost for mounting Wi-Fi APs, antennas or other equipment boxes, which is approximately USD 120 per annum for a single light post or stop light.

20 Some of the assumptions in this model are based on private conversations with members of the AT&T broadband wireless group on August 2004, and WiMAX vendors in the CTIA wireless trade show on March 2005. 21 http://www.windowsmarketplace.com (URL accessed March 2006).


The revenue model

Operators can have three sources of revenue: a) residential users (heavy data/light users and monthly VoIP), b) the SOHO's, and c) on-demand service (based on per connection fee for data and per call fee for voice). Since the wireless service offered should be affordable to all classes of the society, this model assumes a monthly subscription fee of USD 15 for light users and USD 30 for heavy users. This is about 50% less than the regular broadband fee of cable or DSL service. For business users the service can be offered at a rate of USD 60 per month. For on-demand service this model assumes an average Wi-Fi connection fee of USD 5 (good for a day). At this rate, users can transmit unlimited volume of data traffic on top of a Wi-Fi call fee of USD 2.50 per call. Only business travellers are considered using on demand service for this analysis. This revenue model assumes that 2% of business visitors in the city 22 use the pay-as–you-go service 23. Even with this small percentage of visitors using the service, operators can generate significant revenues compared to the other service models. However, not only business travellers use the on demand service. People who go to coffee shops, bookstores or libraries, etc., also use the Wi-Fi service (pay-as-you-go service). In the same way, this model assumes that 2% of them use Voice over Wi-Fi service for longer duration voice calls instead of cellular networks. By paying a Wi-Fi connection fee for data service or a VoWi-Fi call fee for voice service, users can connect to any Wi-Fi APs in the city coverage area on a given day. With a monthly plan for VoWi-Fi services (USD 20 per month), residential users can make unlimited calls, both local and long distance. Similarly, the SOHO VoWi-Fi service can be offered for USD 30 per month.

Based on these numbers, the gross revenue and NPV with terminal value 24 of the project is calculated as shown in appendix 3. For NPV calculations, the model considers a weighted average cost of capital (WACC) of 12%, which is an average for the telecom industry. The ongoing

22 The Philadelphia region attracted 6.3 million business visitors; leisure travellers rose to 17.9 million in 2003. http://www.centercityphila.org/docs/SOCC05_TOURISM.pdf (URL accessed on Oct. 2005). 23 The British Library in central London, one of the most active and the largest public Wi-Fi hotspot, has an average of 1,200 Wi-Fi connections or sessions per week. This main indoor Wi-Fi zone, allows 3,000 visitors to connect to the internet and access e-mail using either their existing service provider or the Library's pay-as-you-go service. http://www.4ni.co.uk/nationalnews.asp?id=35396 (URL accessed on May 2005) 24 Investment Valuation: Tools and Techniques for determining the Value of any Asset by Aswath Damodaran.

18 No. 63, 3rd Q. 2006

CapEx cost in the following years is minimal, since only initial investment is needed to provide the full coverage. Hence, the cash outflow in the following years is only due to the OpEx rather than capital costs. The operators can break even in the second year, as long as they are able to attract 2% of total business users 25 visiting the city, for on-demand service. To calculate the terminal value, the model assumes a growth rate of 4%, a rate below the nominal growth of the global economy. With 4% growth after the end of the life of the project (i.e., five years), the value of the project in today's worth with terminal value is calculated as shown in appendix 3. This cost model does not take into account either the marketing or the customer acquisition cost. These costs vary significantly among different WISPs and each service provider has its own marketing strategy to acquire customers.

Sensitivity analysis

The analysis shows that the ongoing CapEx cost in the following years is minimal. This is due to the fact that only an initial investment is needed to provide full coverage: the cash outflow in the following years is due to OpEx rather than capital costs. Several assumptions were made in the study and the results were tested via sensitivity analyses. Since spectrum is the most valuable asset, the total number of radio channels needed in a WiMAX main BS was tested, as the subscriber growth rate is varied from 20% to 80%. As seen in Figures 5 and 7, for higher subscriber growth, and less over-subscription factor, more spectrum is needed, i.e., additional 6MHz channels in the proceeding year. Figure 6 shows that as the subscriber growth rate increases, the wired backhaul leasing cost in WiMAX increases, although not significantly. This is because of the traffic aggregation and the quantity advantage. The study assumes 30 APs per square mile; this shows that even with more Wi-Fi APs per WiMAX cell the NPV looks better.

25 To take a conservative view, the study assumes an average of only 2,500 session connections per week in the whole coverage area. Even with 2% of the city visitors using the on demand service, operators can generate significant revenues, compared to the monthly subscription plan.


Figure 5 - Number of WiMAX radio channels (6MHz) in main BS per year, assuming different (annual) subscriber growths

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Figure 6 - Wired Backhaul cost from WiMAX main to POP per year, assuming different (annual) subscriber growths

$0

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Figure 7 - Number of WiMAX channels (6MHz) in main BS per year, for different over-subscription factors

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20 No. 63, 3rd Q. 2006

Summary and conclusion

This paper explores a viable business model for the deployment of a city wide Wi-Fi access network that uses WiMAX backhaul systems to lower infrastructure costs. In the short run, Wi-Fi access to the last mile is beneficial both for service providers and users, until mobile versions of WiMAX systems (IEEE 802.16e) become a reality. Since the backbone infrastructure is WiMAX, it should be easier to migrate to mobile WiMAX access in the future, by using the same infrastructure. The main advantage of this hybrid model (using both WiMAX and Wi-Fi) is that it turns the entire geographic area into a wireless hot zone in a very short period of time.

Wi-Fi APs cost very little and can be easily mounted on lamp posts or stop lights at a significant cost than leasing tall towers to mount the BS and antennas. The advantage of using Wi-Fi as a last mile solution is that, despite the higher density of Wi-Fi APs, it is still more economical compared to alternative infrastructure costs. This is due to the fact that the capital costs of APs are much lower and that additional investment in APs should not impact the net profit. The main economic advantage of WiMAX infrastructure mesh architecture is its low backhaul cost, due to traffic aggregation. However, additional research and standardization work is needed to bring the full benefits of mesh architecture or infrastructure mesh to 802.16/WiMAX.

A profitable business strategy for a WISP would be to serve a wide variety of customers with the same infrastructure. Another main advantage of this model is that residential and business users can access an on demand (on a daily or hourly basis) service along with their option of traditional monthly subscription. The result is one-time CapEx that can be leveraged across different customer bases, making this an optimal solution for broadband deployment. It was found that a higher operating profit can be achieved even with a smaller number of subscribers in the initial stages of the deployment. For a larger intake, the business case looks significantly better. Therefore, with lower backhaul costs and zero dollars on CPE subsidies and truck rolls, the combination of Wi-Fi with WiMAX to provide both voice and data services, represents an attractive solution for deploying city wide wireless broadband access.


References

BAR F. & PARK N. (2006): "Municipal Wi-Fi Networks: The Goals, Practices, and Policy Implication of the U.S. Case", COMMUNICATIONS & STRATEGIES, no. 61, pp. 107-125.

BJORKDAHL J., BOHLIN E. & LINDMARK S. (2004): "Financial Assessment of Fourth Generation Mobile Technologies", COMMUNICATIONS & STRATEGIES, no. 54, pp. 71-94.

CAMPONOVO G., HEITMANN M., SLABEVA K.S. & PIGNEUR Y. (2003): "Exploring the WISP industry Swiss case study", Proc. of 16th Bled Electronic Commerce Conference.

EKLUND C., MARKS R.B., STANWOOD K.L. & WAND S. (2002): "IEEE Standard 802.16: A Technical Overview of the Wireless MAN Air Interface For Broadband Wireless Access", IEEE Communication Magazine, vol. 40, no. 6, pp. 98-107.

FURUSKAR A., ALMGREN M. & JOHANSSON K. (2005): "An Infrastructure Cost Evaluation of Single- and Multi-Access Networks with Heterogeneous User Behavior", Proc. of IEEE Vehicular Technology Conference, vol. 5, pp. 3166-3170.

GUNASEKARAN V. & HARMANTZIS F.C. (2005): "Affordable Infrastructure for Deploying WiMAX Systems: Mesh vs. Non Mesh", Proc. of Vehicular Technology Conference, vol. 5, pp. 2979-2983.

HENRY P.S. & LUO H. (2002): "Wi-Fi: What’s Next?", IEEE Communication Magazine, vol 40, no. 12, pp. 66-72.

LEHR W. & MCKNIGHT L. (2003): "Wireless Internet access: 3G vs. Wi-Fi?", Telecommunications Policy, vol. 27, pp. 351-370.

RAMAN B. & CHEBROLU K. (2005): "Design and Evaluation of a new MAC Protocol for Long-Distance an 802.11 Mesh Networks", Proc. of 11th Annual International Conference on Mobile Computing and Networking, pp. 156-169.

SALKINTZIS A.K., FORS C. & PAZHYANNUR R. (2002): "WLAN-GPRS Integration for Next-Generation Mobile Data Networks", IEEE Wireless Communications, vol 9, no. 5, pp.112-124.

WANICHKORN K. & SIRBU M. (2002): "The Role of Fixed Wireless Access Networks in the Deployment of Broadband Services and Competition in Local Telecommunication Markets", Proc. of Telecommunications Policy Research Conference.

ZHANG M. & WOLFF R. (2004): "Using Wi-Fi for Cost-Effective Broadband Wireless access in Rural and Remote Areas", Proc. of IEEE WCNC / ICC, vol. 3, pp. 1347-1352.

22 No. 63, 3rd Q. 2006

Appendix 1: data and voice subcribers The tables below show the data and voice subscribers for both scenarios: individual houses and multi-Dwelling Units. Table 1 and 2 show total figures for a 1 square mile area on an annual basis. Basic assumptions for subscribers apply for the first year; for the forthcoming years, a growth rate of 60% is considered. Table 3 shows the total number of data and voice subscribers for the entire coverage area of 135 square miles.

Table 1 - Total number of data subscribers per square mile area (individual houses)

Data Subscribers (Individual houses) Year 1 Year 2 Year 3 Year 4 Year 5 Average subscribers / square mile 10 16 26 41 66 Average light users / square mile 8 12 20 31 50 Average heavy users / square mile 2 4 6 10 16 Average SOHOs / square mile 5 8 13 21 34

Table 2 - Total number of data subscribers per square mile area (multi dwelling units)

Data Subscribers (Multi Dwelling Units) Year 1 Year 2 Year 3 Year 4 Year 5

Average subscribers / square mile 30 48 77 124 199 Average light users / square mile 23 36 58 93 150 Average heavy users / square mile 7 12 19 31 49 Average SOHOs / square mile 15 24 39 63 101

Table 3 - Total data and voice subscribers for the whole coverage area of 135 square miles

Data and Voice Subscribers Year 1 Year 2 Year 3 Year 4 Year 5 Individual houses Residential light users 810 912 1,114 1,215 1,418 Residential heavy users 203 304 304 405 405 Business SOHOs 507 810 1,317 2,127 3,443 Residential VoIP(VoWi-Fi) 507 608 709 810 912 SOHO VoIP(VoWi-Fi) 254 304 355 456 557 Multi dwelling units Residential light users 777 1,215 1,958 3,139 5,063 Residential heavy users 237 405 642 1,047 1,654 Business SOHOs 507 810 1,317 2,127 3,409 Residential VoIP(VoWi-Fi) 507 810 1,300 2,093 3,359 SOHO VoIP(VoWi-Fi) 254 405 659 1,064 1,705 Number of data connections 120,000 138,000 158,700 182,505 209,881 Number of VoWi-Fi connections 120,000 138,000 158,700 182,505 209,881

Appendix 2: number of WiMAX BS and Wi-Fi APs Table 4 - Number of Wi-Fi and WiMAX systems (BS, controllers, APs)

Wi-Fi and WiMAX systems Year 1 Year 2 Year 3 Year 4 Year 5 WiMAX main BS (135 sq. miles) 7 7 7 7 7 WiMAX mesh BS (135 sq. miles) 56 56 56 56 56 Total WiMAX main BS controllers 42 42 42 42 42 Total WiMAX mesh BS controllers 112 112 224 336 336 Wi-Fi APs (30 APs /square mile) 4,095 4,095 4,095 4,095 4,095


Appendix 3: cash flow analysis From table 4, the total CapEx and OpEx needed for Wi-Fi/WiMAX systems is calculated. From table 3 the total revenue generated from all different services is calculated. The cash flow breakdown is shown below.

Table 5 - Cash flow analysis

Year 1 Year 2 Year 3 Year 4 Year 5

Total CapEx $ 9,170,000 $0 $560,000 $560,000 $0 Total OptEx $1,339,800 $2,209,800 $2,579,400 $3,033,000 $3,453,000 Revenue $2,835,180 $4,145,400 $6,225,630 $9,449,468 $14,550,426 Cash Flow ($7,674,620) $1,935,600 $3,086,230 $5,856,468 $11,097,426

Assuming WACC (r%) = 12% and stableg = 4%, and the terminal value is given by

stable

t

grCashflowTV

−= +1

Terminal value in 5 years = %4%12

3$11,514,32−

= $144,266,533

The present worth of the project including terminal value is

12.1$7,674,620= +

212.10$1,1935,60 +

312.1$3,086,230 +

412.1$5,856,468 +

512.16$11,097,42 +

512.133$144,266,5

Therefore, the value of the project in today’s worth is $88,767,000.

Appendix 4: sensitivity on stable growth rate The terminal value represents most of the value of the NPV because after the fourth year the cash flow increases due to a decrease in the CapEx and OpEx (traffic aggregation). By considering the cash flow (Cashflow t+1) for the t+1th year with 0% growth, the terminal value will represent most of the present worth as shown in the table below. In fact, even changing the stable growth rate after 5 years to 0% has little impact on current value of the project.

Table 6 - Sensitivity to stable growth rate

Growth Cash flow (t+1)th year

Terminal value in year “t” (here t=5)

Terminal value in today’s worth

NPV with terminal value

0% $11,097,426 $92,478,547 $52,474,1811 $59,381,106

1% $11,208,400 $101,894,544 $57,817,700 $64,723,995

2% $11,319,374 $113,193,741 $64,229,168. $71,135,463.

3% $11,430,348 $127,003,871 $72,065,407 $78,971,702

4% $11,541,323 $144,266,533 $81,860,705 $88,767,000

Documents

Financial Assessment of Citywide Wi-Fi / WiMAX Deployment