Dynamic Total Cost of Ownership Optimization for IPTV Service Provider

Total Cost of Ownership (TCO) for developing communication services comprises from two parts; CAPital EXpenditure (CAPEX) and OPerational EXpenditure (OPEX). These two types of costs are interrelated and affect any service provider’s deployment strategy. In many traditional methods, selection of critical elements of a new service is performed in a heuristic manner aimed at reducing only the OPEX part of the TCO which is not necessarily optimal. In the current chapter, a brief review of the TCO for a communication service is proposed. Keywords— TCO, CAPEX, OPEX Total cost of ownership (TCO) is a financial estimate designed to help consumers and enterprise managers assess direct and indirect costs commonly related to software or hardware. It is a form of full cost accounting. Middleware and other systems needed to provide video are also part of the total CAPEX. In a business case, CAPEX can be broken into fixed and variable parts; fixed being those costs to build the requisite system and infrastructure to deliver the services, and variable being those costs incurred Pejman Goudarzi et al. with individual subscriber take rates. CPE and in home installation are considered variable costs, along with DSL line cards, since the CAPEX is incurred only when service is taken. Ideally, fixed CAPEX should be minimized since it is the “at risk” investment to enter into the business. Variable CAPEX, although directly related to actual service take rate and revenue, cannot be so excessive as to present a ROI (Rate of Investment) that it creates unacceptable ROI. IPTV business cases as well as actual deployments have shown that the in home CPE and installation costs amount to 60% or more of the total installed cost for the IPTV system [1]. With CPE and in-home installation representing the largest portion of total installed cost, it is the area best targeted for cost reduction. OPEX is composed of funds used by a company to acquire or upgrade physical assets such as property, industrial buildings or equipment. This type of outlay is made by companies to maint-ain or increase the scope of their operation. These expenditures include everything from repairing a roof to building a brand new factory. Video-on-Demand (VoD) is the next killer-app and a subset of the IPTV service. Initial trials have been well received by customers and network operators are deploying VoD to increase subscriber revenues and service profitability. VoD allows subscribers to request the programming of their choice, when they want where they want it. It is this flexibility that appeals to the broader customer base when compared with regularly scheduled network programming of broadcast video. In most traditional methods, the only objective is to minimize the OPEX part of the TCO by selecting critical components of the service in a heuristic manner. But, this approach may not necessarily result in optimal solution for the service providers. For example, in deploying the IPTV service in Iran, the service providers select the number of the required edge servers in order to minimize the OPEX part of the TCO [2]. Because of its static nature, this method doesn’t consider the interrelations between OPEX and CAPEX which varies with time. For example, though choosing a specific initial number of edge servers may be optimal at the first stages of service deployment, this may not lead to an optimal solution for TCO minimization problem as time elapses. Any solution for minimizing the TCO must take into the account the dynamic characteristics of the problem as time elapses. In the current work, a mathematical approach is developed to minimize the Dynamic Total Cost of Ownership Optimization for IPTV Service Provider TCO. The proposed method tracks the dynamic changes in the number of subscribers and takes into the account the subscribers’ geographical distributions and time.