First Fiber Optics Network Operator Using Electricity Utilities’ Infrastructure in Palestine

TABLE OF CONTENTS

ACKNOWLEDGEMENTS

ABSTRACT

LIST OF FIGURES

LIST OF TABLES

LIST OF ABBREVIATIONS

1. Chapter One: Introduction
1.1. Overview
1.2. Problem Definition
1.3. Conceptual Framework
1.4. Research Questions
1.5. Significance of the Study
1.6. Limitations of the Study
1.7. Structure of Thesis

2. Chapter Two: Literature Review
2.1. Global Overview
2.2. Business Models: As a Strategic Management Approach

3. Chapter Three: Methodology
3.1. Research Approach
3.2. Data Collection Methods and Procedures

4. Chapter Four: Situational Analysis
4.1. Telecommunication Industry Situation In Palestine
4.2. SWOT Analysis

5. Analysis & Findings
5.1. Business Models’ Analysis
5.2. Model Design
5.1.1. Service Design
5.1.2. Organization Design
5.1.3. Technology Design
5.1.4. Finance Design
5.3. Legal & Regulatory Framework
5.4. Potential Transformation in the Telecommunication Sector.

6. Conclusion & Recommendations

7. REFERENCES

APPENDICES
Appendix A Fiber-To-The-Home in Palestine Questionnaire
Appendix B Fiber-To-The-Business in Palestine
Appendix C – Interviews
Appendix D Global statistics & Penetration
Appendix E Electricity Companies Concession Area in West Bank
Appendix F – Forecasting
Appendix G ADSL Access lines with Sharing Ratio Packages
Appendix H - Paltel ADSL Access Rates
Appendix I
Appendix J
Appendix K

ACKNOWLEDGEMENTS

First and foremost, I would like to thank my family for their endless love and support throughout my life and especially my Dad and Mom for making me be who I am.

I wish to thank my supervisor Dr. Suhail Sultan, for his consistent super encouragement, constructive criticism and direction during the course of my thesis. I would also like to express my honest appreciation to the examining committee members, Dr. Sabri Saidam, Dr. Samah Abu Assab, and Dr. Samir Baidoun for their valuable notes and remarks. I am particularly grateful to all professors, assistants, and colleagues who have helped and encouraged me along the journey of my studies at the MBA program in Birzeit University.

For all interviewees, especially the former telecom minister Dr. Mashhour Abudaka, Ramallah mayor Eng. Mousa Hadeed, and JDECO GM’s assistant Eng. Ali Hammoudeh; thanks for your stories, experiences and recommendations which helped and raised my thesis quality. Thanks for all who participated and cooperate in distributing and answering the research questionnaires that were very quantitative supportive to the study.

My sincere appreciation and thankfully acknowledge the contributions of my colleagues by their interventions and insights of many scenarios. Many thanks must go to all who was a part in the achievement of this thesis.

Finally, my thesis is dedicated to all those who believe in making an evolutional change in the telecommunication industry and those who love and fight for the best for our beloved country Palestine.

ABSTRACT

The evolution in the telecom industry with the highly increasing demand for higher capacity networks with the upcoming new applications; significant revolutions lead the global telecommunication industry to radical changes to the market structure, and to intensive challenges with the old business models and the existing regulations of the industry. In Palestine, with the global trends toward the liberalization and opening up the competition in the telecommunication market that have been raised in the last decades, unfortunately, the fixed broadband market is still monopolistic with high entry and exit barriers; there are still lack of policies and regulations; the absence of a regulatory party; in addition to the critical situation of Palestine which increase the fears and risk for investors to enter the market. Qualitative and quantitative methods, in addition to strategic management tools with a chosen business model concept based on the global fixed broadband business models are used to come up with reliable results and a valid model. The study introduces a “Full Separation” as a new telecommunication business model in Palestine with a new telecommunication company in the active network layer of the business model; it motivates and engages the electricity utilities in the new model through the use of their infrastructure, which in turn would help in reducing the highly required investment; it introduces new technologies and services; it supports and induces the government to open doors for competition through alternative infrastructures; and it highlights the importance of the existence of a strong legal and regulatory party.

LIST OF FIGURES

Figure 1.1: Conceptual Framework

Figure 2.1: FTTH Business Models. (Source: D&O Committee, 2013)

Figure 3.1: Thesis Procedure

Figure 4.1 Households with internet Access Forecasting 2015-2029

Figure 5.1: Different Business Models Scenarios in Palestine

Figure 5.2: Business Model Design (Adapted from Faber’s Design Model)

Figure 5.3: Organization Design

Figure 5.4: Proposed Electricity Street Cabinet with Fiber Optics Terminations (Adapted from UTEL products, 2014)

Figure 5.5: FTTN GPON for Mobile Operators’ Last Mile Nodes

Figure 5.6: FTTH-GPON Individual Houses’ Scenario

Figure 5.7: FTTB-GPON Buildings Scenarios

Figure 5.8: Buildings’ Smart Metering Scenario

Figure 5.9: Financial Model

LIST OF TABLES

Table 2.1 FTTH Business Models Challenges & Opportunities.

Table 4.1: SWOT for the Palestinian Telecommunication Sector

Table 4.2: SWOT for Electricity Utilities

Table 5.1: Residential Internet Speed Convergence

Table 5.2: The Potential Full Separation Model’s Scenario in Palestine

Table 5.3: Potential Transformation in the Palestinian Telecommunication Sector

LIST OF ABBREVIATIONS

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1. Chapter One: Introduction

1.1. Overview

Global Telecommunication industry has been experienced a significant revolution which leads to radical changes to the market structure, which in turn brought disruptive applications that challenged the old business models and existing regulations of this industry (Fransman, 2000). In terms of liberalization the telecommunication markets; as an example, all countries of the European Union (EU) have eliminated all barriers to entry, and this important step was achieved through the 1998 liberalization directive, while in our region, only Bahrain and Jordan from the MENA countries have implemented a policy of full liberalization in telecommunication, and therefore, this kind of policy is considered the first step to reform the industry, especially in those countries with monopolies, in order to implement a model based on low barriers to entry and competitive market that ensures benefits for customers in terms of new technologies, quality and prices (Broadband Commission, 2012).

1.2. Problem Definition

The world trends toward the liberalization of telecommunication market have been raised in the last decades, and especially the calls for the strengthening of competition in the fixed broadband market. However; in spite of opening the market for the mobile and internet services players, monopolistic fixed broadband market has been dominant in Palestine since 1997 with the privatization of the telecommunication sector that founded the Palestinian Telecommunication Company Paltel (Paltrade, 2010)

With nearly deadline to the end of the license granted to Paltel (MTIT, 2013), and which is supposed to be the end of monopoly, and with the never ending attempts to activate the role of the Palestinian Telecommunication Regulatory Authority (PTRA); there are still lack of policies and no clear vision for new entries and competitors in the fixed broadband market. High entry and exit barriers, weak regulatory framework, in addition to the critical situation of Palestine are hindering internal and external investors to take the risk of such investment. Therefore; telecommunication sector has to introduce, to innovate, and to develop the value proposition; Palestinians are really thrived to new innovative ideas, new technologies and new services.

Breaking the monopoly of the fixed broadband market in Palestine is not the only necessity, and it should not turn a blind eye to global trends and stay idle with the existing critical factors; new business models must be introduced to the Palestinian telecommunication sector rather than the current traditional model that own the market from the passive to the service layer, and put obstacles for opening the market for innovations by introducing new technologies and new services with competitive advantages and reasonable prices. Therefore; introducing new business model and new players, finding optimal solutions to reduce risks and barriers, protecting the stakeholders (investors, industry incumbents, new players, consumers, etc.) are crucial factors and emphasize the need of this study.

1.3. Conceptual Framework

The study is analyzed based on the dimensions shown in the current situation in conceptual framework (See Figure 1.1). Transformation in the telecommunication industry is needed taking into account each dimension in the current and future situation, which would result at the end in the new recommended telecommunication business model.

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Figure 1.1: Conceptual Framework

1.4. Research Questions

This research is going to answer the following main questions:

- What is the current situation of the Palestinian telecommunication industry? What are services, technologies and market requirements provided in the current operating business models in Palestine?
- What is the recommended new business model that would introduce a new value proposition in the telecommunication industry?
- How would the current industry situation be transformed to a better situation? What actions are needed to introduce the new business model with new services and new technologies with a healthy competitive sector?

1.5. Significance of the Study

Researchers studied business model concepts and conducted those studies on telecommunication companies and ICT sectors; but what differentiate this study is the admixture and aggregation between the fixed broadband business models and a convenient business model concept to be conducted on the Palestinian telecommunication industry.

1.6. Limitations of the Study

Lack of time put pressures for conducting this type of study that is analyzed on a sector level. Limited resources that is required for the transportation between different locations. Reaching Gaza Strip is difficult. There was lack of responses from enterprises, especially under the pretext of non-disclosure of information. The need of interviewing key actors persons and decision makers limits the number of interviewees and acquired a lot of time for making the required interviews protocols. Paltel and Hadara Technologies refused meeting me for the purpose of this study which limits my study results since they are important players with big customers’ base in the industry. The Southern Electricity Company (SELCO) and Nablus Municipality didn’t cooperate and gave no feedback after many attempts to prepare for interviews.

1.7. Structure of Thesis

In chapter 1, an overview of the study is presented, the research, the research purpose and questions are defined, in addition to presenting the significance of the study with its limitations. Reviewing business model concepts that are introduced by researchers, with reviewing different applications of different business models in the telecommunication industry are recited in Chapter 2. Chapter 3 explains the methodology of the study; research and strategic tools, and procedures that are used to measure and analyze the main concepts of the study.

Situational analysis for the broadband market is very necessary and is discussed in Chapter 4. An overview of the global situation is declared, especially for fixed broadband. Telecommunication industry in Palestine is illustrated. Situation analysis is supported by global and local related statistics.

Chapter 5 is the main part in this thesis; based on the main global business fixed broadband models, and a chosen suitable business model concept, analysis is conducted to come up with a new telecommunication business model. Conclusion and recommendations are presented in Chapter 6.

2. Chapter Two: Literature Review

This chapter represents global trends, statistics, and market penetration of the telecommunication industry, especially of the fixed broadband sector, and more specific in fiber optics. Business models as a strategic management approach are also to be represented and discussed taking into account previous studies concerning the technological change and the convergence of telecommunication and ICT sector in general, in order to find out a suitable business model concept for the purpose of this study.

2.1. Global Overview

Telecom operators are forced to address their broadband services with the rapid growth of internet and multimedia services, which in turn force the migration to fiber optics and next generation optical access networks (Ahsan et al., 2011).

Governance, market structure, and competition explain the gap between MENA and regions where higher broadband is prevalent, therefore; innovative infrastructure models with a suitable regulatory framework at the national and regional levels can be introduced to reduce this gap and meet the growing demand of broadband (Gelvanovska et al., 2014).

Municipal electric utilities are increasingly expanding into telecommunications; they help in liberalization the telecommunication industry and trigger the proper role for governments in promoting broadband Internet access; while Fixed line companies or providers attack such entry, arguing that it represents an unfair and less form of competition; analysis on the topic shows that electricity utilities are more likely to offer such services by supporting internally their operations (scope economies), they are relatively close to metropolitan areas (lower backhaul costs), fewer rivals in the market (cable modem and DSL service availability limited); and they less affected by regulatory barriers to entry (Gillett et al., 2009).

As a sign of the importance of broadband, a proposed bill to give each city and town in the US the ability to build broadband networks if they want, particularly those areas of limited service choices. The proposed legislation comes after the intervention of President Barack Obama by sending a letter to the Federal Communication Commission (FCC) to overturn 19 existing laws that motivate municipalities to offer competitive Internet services (Buckley, 2015).

2.2. Business Models: As a Strategic Management Approach

The following studies in this section are considered ICT industry in general; telecommunication companies and FTTH network in specific.

Analysis of ICT services in the context of Next Generation Network (NGN) was done based on the value chain and business models theories; a review of the traditional telecommunication industry in perspectives of technology, service offerings, market environment and regulation, and the business model was created based on four interrelated design domains: 1- service design 2- organization design 3- technology design 4- finance design (Xie, 2008).

A study was made on modeling the deployment of Next Generation Access Networks (NGANs) in Spain; the model is built in order to explain how new entries will take investment decision in a new Fiber-To-The-Home (FTTH) network; the study introduced the situation in Spain, especially the regulatory context, and then based on Giga Passive Optical Network (GPON) technology; it explained the parameters that have to be taken into account to build such model. Ducts and underground deployment techniques are used only since deploying aerial cables are not allowed in Spain (Vilar, 2009). A competition model of three basic stages for broadband business based on the promising opportunity of exploitation of utilities infrastructures; the first stage is the Dark Fiber Installation, optical network implementation and operation and maintenance; the second stage is the activation of optical network and the third stage is providing services. The model is applied on a real case study to prove its effectiveness (Angelou & Economides, 2013).

Nowadays, four fixed broadband business models are operating worldwide as shown in Figure 2.6: “Vertically Integrated” : is considered also as the tradition telecom model where one operator is in charge of all the layers function from physical media to retail services; “Passive sharing” : A passive infrastructure (Physical Layer) owned by one company, while other active and services layers are owned by different companies; “Active sharing”: A passive and active infrastructure owned by one company which wholesales broadband access to retail service providers ; “Full Separation”: Different layers are owned by separated companies; one controls the passive infrastructure, one operates the active network and provides broadband access and one provides access to the services it offers (D&O Committee, 2013).

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Figure 2.1: FTTH Business Models. (Source: D&O Committee, 2013)

HanseNet (Germany) has chosen to use the “vertically integrated” model involving three layers: passive, active and retail services which are all under its control and the main reason was to own technical and financial proof of concept (D&O Committee, 2013). A full separation model has been successful implemented in a big part of Netherland, especially when Reggefiber worked successfully close with Communities to have a guaranteed subscription rate and to prove that FTTH infrastructure can be a good investment even in a short time period (Paolo, 2010). Mälarenergi Stadsnät (Sweden) is a company owned by Mälarenergi ,a local power utility owned by the City of Västerås, it owns the fiber infrastructure and acts as communication operator in the network, a role which covers being a service broker (Forzati et al; 2013). In Portugal, the passive infrastructure sharing was a must but was limited to access to the ducts of the Portugal Telecom until the intervention of the national regulatory authority (ANACOM) which extended this ruling to all operators and public utility companies. In Finland, there are regular meetings among utility companies, municipalities, and telecom companies with a view to cooperating on shared infrastructure plans (Gelvanovska et al; 2014).

Deciding which model is the most convenient is mostly dependent on financial capabilities, core competencies and business activities of organizations in addition that it is very much dependent on local regulations and competitive environment (D&O Committee, 2013).

Table 2.1 below shows the challenges and opportunities of each model

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A comparison is conducted, and for the purpose of this study, the business model concept of Faber et al. (2003) is chosen; it is very convenient and inclusive since it consists of four inclusive design domains (Service, Organization, Technology, and Finance designs) which aggregated several business model concepts and suitable to discuss the main domains of the study’s conceptual framework. Since the study is conducted on the telecommunication sector, including technology domain in the business model design is indeed, because industry transformation is mainly based on product and technology convergence to support innovative business models. Investment, financial capabilities, profits and risks are important factors for any new entry and investor which also are included under the financial aspect domain. The need of a legal domain is also very necessary and must be included in the model design; Xie (2008) made a review of the traditional telecommunication industry in perspectives of technology, service offerings, market environment and regulation based on Faber’s four design domains.

Faber’s design will be conducted and analyzed after the analysis of the four FTTH business models that would come up with a suitable model for the case of Palestine. The model is discussed and analyzed in details in Chapter 5 after analyzing the telecommunication industry situation in Palestine in Chapter 4.

3. Chapter Three: Methodology

The research methodology used is explained for the purpose of this study in this Chapter. The implemented qualitative and quantitative methods are also explained and justified. Data collection methods, analysis tools and analysis procedure are mentioned. Finally the validity and reliability considerations for the combined methods are discussed.

3.1. Research Approach

A combination of the quantitative and qualitative methods is used employing both qualitative and quantitative data and offering an opportunity in order to explore deeply into the issues raised by the research questions (Saunders et al. 2011). Since the study is conducted on the telecommunication sector, assessment of the situation of stakeholders, in addition to find out their visions and the possible potential strategies of the sector; qualitative and quantitative data are very important to improve the validity of the study. Quantitative data is needed mainly from the market segments, and qualitative data is necessary from the telecommunication players and other stakeholders.

3.2. Data Collection Methods and Procedures

Primary and secondary data are collected for the purpose of the study. An academic and business literature search was conducted to capture the domain of each potential construct adequately. As part of the literature review, books and business guides (especially for Fiber optics businesses), journal articles (Academic & Applicative), tertiary literature such as indexes and catalogues, company minutes, government surveys, local Strategy & policy Documents (including the MTIT strategy of 2014-2016, and the current local telecommunication law (3/1996)), CD-ROM in university libraries, Internet sites, Statistics, and professional association surveys have been used.

Developing the conceptual framework and literature review are based on the secondary data. The conceptual framework is considered the map that ensures the measure of the main developed dimensions.

The primary data is used for answering the research questions and achieving the research objectives. As for the qualitative method, interviews are chosen to be held with key persons who represent different actors of the new business model in this study. Face-to-Face semi-structured format is used, despite considering it a time consuming and expensive method. List of interviewees, interviews’ questions and findings can be found in appendix C.

As a quantitative tool, questionnaires are chosen to target both Residential and Business subscribers to evaluate their current situation and their potential need toward broadband. They are designed to collect all necessary information needed especially for the market requirements dimension, including the potential service offering that would exceed customer’s value in addition to the potential customers demand and their financial capabilities. The purpose for the questionnaires is to assess telecommunication services; to highlight the importance of using fiber optics and its related technologies; in addition to the perspectives toward new entries and companies in the fixed line telecommunication market; for residential and business telecommunicate market segments in Palestine. Residential and business questionnaire form, findings, and validation group can be found in appendix A and B respectively.

SWOT analysis method is used and useful for the purpose of this study to assess the broadband situation in the Palestinian telecommunication industry which is important for both incumbents and potential entries to draw out the highlights strategies. Forecasting is needed to predict future demand and several key factors penetration.

Figure 3.1 gives a brief on the study procedure. Note that Business model analysis is based on a chosen business model concept, and with reference to the global FTTH business models as discussed in chapter 2, that would ensure the form of ontology of the new telecommunication business model.

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Figure 3.1: Thesis Procedure

4. Chapter Four: Situational Analysis

4.1. Telecommunication Industry Situation In Palestine

Based on the quantitative and qualitative methods, and based on local players and the MTIT published reports provided by the MTIT interconnection department, this section describes the current situation of the Palestinian telecommunication sector.

The Palestinian Telecommunication players in Palestine are legally operating under the Palestinian law “Telecom Law 3/1996", in addition to the regulatory provisions under the Israeli-Palestinian Interim Agreement on the West Bank and the Gaza Strip “Oslo Agreement” that explains the many challenges and problems such as Area C and the issuance of 3G and 4G frequencies problems, and therefore; the development of this sector is dependent on coordination between the Palestinian and the Israeli sides (Palestine Trade Center, 2010).

Providing broadband can be over fixed line, wireless and mobile networks. The Fixed broadband market structure is still monopolistic; Paltel is the only fixed landline operator in Palestine. About 398,251 fixed telephone lines and 233,374 ADSL lines are provided until the end of the 3rd quarter of 2014 (MTIT, 2013). Paltel has “vertically integrated” business model regarding the fiber optics network; It also has “Active sharing” business model regarding the ADSL access lines. Paltel provides mainly retail and wholesale services in addition to the tradition fixed line telephony service.

Duopoly wireless mobile market structure exists in Palestine; two mobile companies are operating: Jawwal and Wataniya. Currently, both operators rely on the second generation (2G) technology which is known of its limited internet speed, and they share the same challenges concerning the 3G services’ requirements for the development of existing mobile networks; they still await the release of 3G or 4G frequencies which are restricted and refused by the Israeli side too.

Competitive Internet service market exists in Palestine; more than 12 ISPs are operating and providing several services, and mainly ADSL internet service. Since ISPs do not have their infrastructure; they are forced to seek other alternative media solutions, and some of them have built their own broadband infrastructure (Fiber Optics) to connect their hubs with Israeli or other operators, and to connect some large customers, but this phenomena in my perspective is not practical, not acceptable and it is hard to find similar business model in the world where an ISP goes backward to build his infrastructure; imagine that each ISP is permitted to build his own infrastructure, what kind of infrastructure would we have in Palestine?! Wi-Fi is now the only wireless technology provided by local ISPs.

The Israeli policy is the main external factor that threatens the development of the Palestinian telecommunication industry, which need to intensify efforts on the national and international level to liberalize this important industry which in turn plays an important role in raising the Palestinian economic level.

Figure 4.1 shows the Forecasting upon previous data that retrieved from the PCBS for number of households with internet access for the coming 15 years (see appendix F), most Palestinians households will have internet access by 2022. Forecasting results indicate to a promising market with strong opportunities to new entries.

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Figure 4.1 Households with internet Access Forecasting 2015-2029

4.2. SWOT Analysis

SWOT analysis is necessary to be conducted on the Palestinian telecommunication sector in Palestine, especially for any party that would like to invest and enter the market. Kindly see table 4.5, SWOT matrix is built based on the data that are discussed in the previous sections, on the ICT Sector Strategy (2014-2016), and based on the quantitative and qualitative analysis.

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Table 4.1: SWOT for the Palestinian Telecommunication Sector

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As for Electricity utilities that would like to expand their business into the telecommunication industry, and before analyzing their situation regarding telecommunication issues, it is necessary to have a general view about the electricity distributor companies in Palestine. Five main electricity utilities are distributed in Palestine with each plays as monopoly in its excellence area. SWOT analysis is also conducted and necessary to evaluate the internal and external factors for electricity utilities regarding the telecommunication business. Kindly see in table 4.2.

Table 4.2: SWOT for Electricity Utilities

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5. Analysis & Findings

5.1. Business Models’ Analysis

Vertically Integrated, Passive sharing, Active Sharing, and Full Separation are the four fixed broadband business models operating especially for FTTH operators around the world. Challenges and opportunities differentiate and vary according to the business model type.

As indicated in chapter four, the recent model that operates and dominant in Palestine is the “Vertically Integrated” model especially for fiber optics services, With the high barriers of a monopoly market, it is difficult to find one party (local or even international) taking the risk and invests in such a big business model, and more specifically in Palestine. The complexity of totally operation that would be faced in a likely model is also an important factor, in spite of the total and high revenue that would be gained by operating as such business model. This model also is considered a form of infrastructure competition model which is not the objective of introducing a new model that must be a service oriented model that would benefit the customers at the end. The highly required and massive investment for building a new infrastructure from the beginning in Palestine as a developing countries and under the Israeli occupation which raise the barriers and limit the development of the Palestinian economy is impossible, even the incumbent operator Paltel in 1996 received an already existing infrastructure under the privatization of the telecommunication sector with a granted concession for 20 years. Therefore; Vertically Integrated model is excluded in this study.

Liberalization of the services layer (High competition between Palestinian ISPs) contributes in finding the second model Active Sharing regarding the DSL technologies; ISPs provide residential and commercial services using Paltel’s infrastructure, and here Paltel acts as a wholesaler in addition that it retails the services for ISPs for the ADSL technologies. As for fiber optics services, Paltel has an option to open the access and to retail to ISPs. JDECO case is an example of choosing an “Active Sharing” model by investing in a new company (JFO) to handle the passive and active layers operations (started as a pilot project) with the continuous attempts to get the full license. This is considered a risky decision in spite of the additional margins it would gain by acting as a network carrier; there is no effective regulatory party, no upcoming investors yet especially after conducting a feasibility study with the PIF which resulted in a low ROI. The market is yet monopolistic and JDECO’s infrastructure does not cover all districts in Palestine to strongly compete with the incumbent operator, Moreover; the lack of experience in the telecommunication business model lead to a partnership with one of the ISPs to operate the network and to market new services, but in the same time and after the liberalization of the retail services market in Palestine, it must be mentioned here that it is surely unacceptable while trying to help in liberalizing the fixed broadband market to limit the service for only one ISP. The homogeneity of the active network and its products is another factor which is very necessary and useful; it reduces the time and effort needed in configuring the active components especially in creating and customizing interfaces among the different active products, for example, if each electricity utility in Palestine would go forward to the active layer and each would subcontract different active equipment suppliers, the connectivity between several branches of the same company in different cities with different electricity utilities would be very complex. Therefore, the"Active Sharing"is also excluded in this study.

The idea of a “Passive sharing” model is owning the active and services layers and an also form of infrastructure competition as discussed Chapter 2; as an example, ISPs can go backward and invest in the active network and uses the available passive infrastructures, but with the big number of ISPs and with the low number of passive infrastructure players, it would be very complex to handle the relations and operations especially from the passive layer providers’ side; imagine the case that only one electricity utility in Palestine with around 12 ISPs who would invest in the active network and use the its infrastructure! And therefore; it would surely prefer to work with few specific ISPs and limit the access to other ISPs. Moreover; it is a waste of money on a macro level if each ISP would invest and own his active network to operate the passive network, and in the case of buildings at the access side how many active device would be installed in the basement of each building if each ISP would like to connect its customers and how many number of fibers would be specified for only one building in case of the Fiber-To-The-Building Scenario? Even with a low number of ISPs, it is always preferred to avoid the duplication of the passive infrastructure and so forth the active components. Paltel could consider this model by using alternative infrastructure in the underserved areas, and especially in fiber optics, but introducing new entries and new competitors is one of the main goals for the telecommunication sector and so for the purpose of this study, and therefore; this model is also excluded. A summary of the discussed business models options are shown in Figure 5.1.

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Figure 5.1: Different Business Models Scenarios in Palestine

The new telecommunication business model is more closely and going to take the shape of a Full Separation model in this study for the case of Palestine.

5.2. Model Design

In this study, the model is going to be designed by using Faber’s business model concept (Faber et al., 2003); the four interrelated design domains are ordinal: Service Design; Organization Design; Technology Design; Finance Design; For the purpose of this study, the organization design is analyzed on a sector level and included all possible players and stakeholders. Since Faber’s model didn’t include a regular or a legal domain; a “Legal & Regulatory Framework” is added to include all Faber’s design domains to ensure the role and need of effective legislations and regulations that would protect and help the work process of the new model especially in Palestine (see Figure 5.2).

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Figure 5.2: Business Model Design (Adapted from Faber’s Design Model)

5.1.1. Service Design

Two central important points in service design: the value proposition the providers intend and deliver, and the customers expect and perceive; and the nature of innovation, whether a ‘new version service’ or a ‘way new service’ is provided (Faber et al., 2003). Before the analysis of the potential services in the new model, market segments and current services are discussed in this section.

5.1.1.1. Market Segments & Services in Palestine

Market segmentation is necessary; two main segments are targeted in the telecommunication industry market: Residential and Business. Business segment is divided into two sub segments: Large enterprises; and small and medium enterprises (SMEs).

Referring to the 50 enterprises questionnaire, and regarding the minimum required Internet speed for businesses; 11 enterprises answered that 10Mbps is a minimum, 12 state 8Mbps, and only 5 multi-branch enterprises which have internet speed greater than 10Mbps and monthly payments more than $1000 state that at least 50 Mbps is required, three of them was not satisfied with their internet services (see appendix B). Therefore; providing internet services with higher than current internet speeds will surely exceed enterprises’ need.

ISPs in Palestine buy Backhaul services with available capacities (25Mbps – 1G, see appendix K) and resell to subscribers with the available sharing ratios (1:24 & 1:12, see both appendix G & H). Fierce Competition by introducing new FTTH operator will surely decrease the current backbone and backhaul services rates; Zone Technologies’ CEO stated that three years ago, ISPs were paying $100 for1Mbps backhaul capacity, but now, with the new trends to liberalize the market and the permission to ISPs to buy directly from other suppliers rather than Paltel, they pay only about $9 per 1Mbps from other sources, and this is due to competition.

The residential questionnaire addressed a question about the minimum required Internet speed for households; 18.49% of the Palestinians need at least minimum 2Mbps; 29.62% with minimum 4Mbps; and only 16.04% who estimated the need of at least 10Mbps (See appendix A). Therefore; providing internet speed with at least 10Mbps would indeed exceed customers’ satisfaction. 40% of the Palestinians have not heard about fiber optics, and around 65% they never heard about FTTH (See appendix A). Therefore; the absence of new services and innovative technologies in Palestinian market is surely the reason of such statistics results; how can subscribers acquire or hear about services they are not available for them?!

5.1.1.2. Future & Potential Services

Introduction of fiber optics network and especially FTTH network in Palestine would open the door for not only large enterprises, but also for underserved small and medium businesses to develop their business applications and expand their markets using new online and web technologies.

There are opportunities to expand outsourcing services to other industries rather than IT and call center services in Palestine, which in turn will lead to a better contribution to the Palestinian economy.

With FTTH GPON technology, potential internet speeds for residential, small and some medium enterprises in Palestine can be for example as in Table 5.3; the table shows the current internet speeds with the convergence that would be with the new FTTH network. Note that FTTH internet speeds go far beyond those which are mentioned in table 5.1; but they would be very starting competitive Internet speeds since higher bandwidth demand or need is not happening in first stages.

Table 5.1: Residential Internet Speed Convergence

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Potential services and new revenue opportunities are and not limited to:

- Cloud Computing Services: such market would be expanded for local and International companies.
- VOD & IPTV services: Such services would be introduced and grow in Palestine significantly; e.g. 4.5 GB standard video would be downloaded in 39 sec with FTTH 1Gbps , 6 min 31 sec with FTTH 100 Mbps, while it would take 1hr 29 min with VDSL 8 Mbps (D&O Committee, 2014), See appendix I for more details.

5.1.2. Organization Design

This section defines each actor in the new business model; its main role in the value network that is needed to provide service offering by efficiently and effectively processing their resources and capabilities; and to describe the interaction and relationships among actors that are to be realized in order to create value for the end users.

Resources, skills and responsibilities would be clearly separated between actors of the different layers. Under a legal and regulatory framework, the Organization design shown in Figure 5.3 with a new actor plays in the active layer; it is called in the study as New Telecommunication Company (NTC). The structure takes into consideration the “Full Separation” business model. Technological and financial models are to be discussed in the following sections.

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Figure 5.3: Organization Design

5.1.3. Technology Design

In this Section, the business model is to be described technically; both passive and active architecture are to be discussed to clearly distinguish the value proposition.

Last mile solutions are the most important part; it must be mentioned here that Drop cablings are those last meters cables that are installed in order to connect the subscribers’ houses or buildings, and they are usually of low-count fibers and are blown into ducts (D&O Committee, 2014). In case there are no ducts between the poles, manholes or street cabinets and the subscribers’ buildings; aerial solutions can be found.

Unique distribution solutions are found to the demand of FTTH deployments in the last miles, for aerial and new underground network areas, such solutions need surveys and customizations since all the network elements would be predesigned; a distribution cable is manufactured according to a specific installation area, and will have many tap points installed along its length; Pluggable Joints are internally spliced and ready to be plugged with both the tap points of the customized distribution cable and the dropping cables through pluggable connectors. Factories or suppliers for such solutions provide an online ordering system to configure and input all the parameters for customizations (The length of cable, the distance between poles and manholes, etc.). Such solutions are very powerful, especially if the main goal is to connect customers very quick and make operations much easier, but because of the planning and customization requirements, it would be costly.

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