Demand forecasting of FTTH service considering technology churn in Korean telecommunication market

Abstract

To solve bottleneck problem at customer``s premise, provide the converged service of communication and broadcasting, and generate new sources of revenue in the telecommunication company, the technologies of the access network are expected to evolve into the digitized HFC (Hybrid Fiber and Coaxial cable) and FTTH (Fiber To The Home). For FTTH, the initial investment amount is enormous because optical fiber must be newly laid to customers`` home. Accurate forecasting of demand is essential for the telecommunication companies`` decision-making process related to the network deployment. In this paper, the demands of FTTH was forecasted through a modified Bass model, considering the characteristic of telecommunication services in which churning to a competitive service is easily made. And then, the economic analysis was performed and sensitivity analysis was explored to examine how the uncertainty from the forecasting demand affects the economic analysis. The results of foretasting showed that the technological superiority of FTTH service offsets the difference in the fee. However, when the service fee of FTTH service is double the fee of DHFC service, DHFC service dominates the market. From economic analysis, this paper proved that FTTH service is profitable. Sensitivity analysis showed that even though profitability of 50,000KRW and 70,000KRW, which mean each service fee of FTTH, is almost same, 50,000KRW is more sensitive with respect to the change of equipment cost. The effect of marketing in DHFC service is relatively weak in comparison with the effect of application in FTTH service. This paper suggested appropriate service fee for FTTH service is 60,000KRW to maximize profitability. It is recommended for policy makers to support development of applications, induce incremental decrease of FTTH service fee for deployment and diffusion of FTTH service. Through fostering DHFC service, risks and excessive investment can be reduced and users`` choice is expa...