I. BACKGROUND
In an emerging market, cellular operator should develop their coverage aggressively to catch market momentum. But usually the development of backbone network cannot grow as fast as coverage invasion. In other hand, new coverage means low traffic that usually unjustified building high capacity backbone network. For those purpose, Lease Circuit (LC) to network partner is the solution.
LC as solution could become new problem when the LC cost is significantly big so it will burden the Operational Expenditure (OPEX) performance. In high competition industry such as Indonesia market where 11 cellular operators are compete, this cost means a lot. So, how could an operator reducing, or at least optimizing LC cost?
This paper is trying to map the problems and circumstances surrounding them, and then raise some way for solution or at least trying to inspire the reader to get ones. I use Indonesia as case.
II. WHY DO WE NEED LEASED CIRCUITS (LC)
We could categorize the reasons for lease the circuits, sorting from the most important, as the followings:
1. Need of coverage/access
In term of network coverage, Java Island is nearly 100% covered, and Sumatra Island is about 80% covered. They are among the strongest island in network coverage. But for the other big islands, those are Kalimantan, Sulawesi, and Papua, our network is comparatively weak. So, for the areas where our own network still cannot reach them, we must lease.
2. Need of Protection
Sometimes we already build the network to an area, but only one mean, let’s say microwave with 1+0/1:0 configuration, or one route fiber optic. One route network, without backup link, is very risky. If the network is fail, the area is easily blackout. We lease the circuit to provide backup link.
3. Need of Additional Capacity
Telecommunication user behavior is very dynamic, due to user mobility, effect of promotion campaign, and so on. Those sometimes make the traffic increasing dramatically. To avoid lost or revenue opportunity, it is urge to increase the capacity of network in weeks. Lease the circuit usually be the instant solution while waiting the additional capacity will be provided internally.
III. PROPOSED SCHEMES FOR REDUCING LC COSTS
There are several schemes could be applied in order to reduce LC costs. Each scheme has its own character that only fit in some conditions. Let’s see the description of them one-by-one, as the followings:
1. Mutual Restoration
When an operator has a fiber optic link with no protection, and in the same time there is another operator also has a fiber optic link, with similar destination and similar condition, they could minimize the outage by having mutual restoration cooperation. It means, first party provides some capacity to second party to be used when second party’s fiber optic is fail, and vice versa.
For the example is mutual restoration between SMW-3 submarine cable system and APCN for route Jakarta – Singapore. If SMW-3 fails, the traffic is routed to APCN, and vice versa.
In this scheme, cost only incurred for restoration time (in day), using agreed unit price that usually equal or less than commercial price. Therefore, this is the most favorable scheme because:
a. Effective to reduce the LC cost.
b. No issue in business impact such as entry barrier of accessing an area, because both operator is already exist in the area
This scheme facing obstacle when there are the difference level of urgency between two operator, and/or incompatibility of technical specs used in optic fiber. For example, one operator is using optic fiber type G.652 but another one is using G.655.
2. Capacity Swap
Theoretically, capacity swap means exchange the capacity between two operators. So if the exchanged capacity is equal, they don’t have to pay anything to other party. But due to government regulation about tax, and also for flexibility in exchanging, capacity swap means 2 operators discussing and negotiating each other needs of leased lines in a package.
Let’s say operator A needs some capacity in Java area, while operator B needs some capacity in Sumatra area. If the final figure of LC cost for operator A is X rupiah, and final figure of LC cost for operator B is Y rupiah, the actual payment should be made is only (X-Y) rupiah.
The advantage of this scheme is that the payment should be made is only the cost difference, not all the cost incurred. The disadvantage of this scheme is relating to business impact. If one operator still want to have entry barrier for other operator to access an area, the deal is difficult to be reached.
3. “Lease for Restoration” Scheme
As stated on point (II.2) one of the reason why we need leased circuit (LC) is the need of protection. The purpose of protection is to reduce the risk. In managing the risk, some rules should be applies as the followings:
1. Cost to avoid the risk is equal to possibility of risk itself. Let’s say if the risk of cable fault of JAKASUSI Cable System in a year is about 2 times (2 weeks / 4%), so the cost should be managed below 4% of main route investment per year.
2. Restoration/risk cost is a wasting cost in normal condition. In some circumstances it is more feasible to face the risk rather than throw some money away for potential loss that not sure will be happened. Therefore, we should find “equilibrium point” between both potential loss and wasting cost should be avoided.
In the way to make leased circuit cost more reasonable, Operator should ask network providers (partners) to offer service scheme called “lease for restoration”. As usage duration for restoration purpose is far less than normal usage, so the leasing cost is managed to be lower. The comparison between normal leasing and lease for restoration as the followings:
4. Temporary Leasing
Temporary leasing is a service intended to provide additional capacity for short term (10 – 60days) and ad-hoc event.
When an operator committed to provide several hotspots in World Ocean Conference in Manado in mid May 2009, it needs additional capacity from Manado to Makassar for about 10 days.
Temporary Leasing has advantage that is no booking fee, so it will be cheaper. But, disadvantage is no committed capacity available when we need it.
We could take the benefit from this scheme for:
a. Planned restoration
b. Ad-hoc restoration, as long as we sure that our partner has available capacity ready.
5. Long term leasing
This scheme has the most similarity with conventional LC. The different is only in the time of lease contract. The point of this scheme is: “instead of having 1 year contract, and then renew it for next 1 year twice, it is much more efficient to have 3 years contract since the beginning”. Network partners are tend to set price lower when contract is longer, because they will divide their overhead margin to bigger number of months, and they are happy with certain committed revenue in longer future.
So, our main task is to define, at the beginning, the period of contract. And it is a difficult task. Our vision is limited only to current year where the CAPEX and OPEX budget is approved and management commitment is stated. That’s why we always play secure by taking 1 year or less leasing contract. And that’s why we charged high. So, to enable us having further vision for 3-5 years ahead, we need to have 3-5 years blueprint in network development, that be approved and refined regularly.
To choose which scheme that fit best in a condition, we could use the flow chart below:
