35000 One-time set-up cost ($) 75000 First 50 lines/year ($) 130000 First 40 lines/year ($) 100000 Each extra 25 lines/year ($) 60000 Each extra 20 lines/year ($) 40000 Answer (a) 75 E (b) 150*6*8*0.15=$1080 (c) Yearly cost as is = 250*$1080=$270000. Required number of circuits for GoS of 1% is 91 circuits. Option $35k + $130k + 2*$60k = $285k, first year, and $250k/year afterwards. Option =$75k + $100k + 3*$40k=$295k, first year, and $220k/year afterwards. If a multi-year lease option is considered, then option 2 is more economical. Virtual Network Operators Deregulation of the telecommunications industry, added to the long-established leased line practice, opened the door to a new type of operator: those without a network of their own. These became known as virtual network operators or VNOs. VNOs lease capacity at wholesale price from an incumbent operator and then resell it to their customers at a lower retail price compared with the incumbent. Lease prices are usually set by the regulator and therefore are low enough that a VNO with low fixed and operating cost can make a profit. In essence these players were active at the retail layer of the telecommuni- cations multi-layer ecosystem as shown in Figure 3.23. A number of VNOs appeared in the Australian market after the telecommunications industry deregulation of the early 1990s. Several such operators were started in 1990s in Australia, for example AAPT, who offered long distance telephony and later on data communications ser- vices [12]. Capacity was initially leased from Telstra over which long-distance telephony was provided to business and individual subscribers. A VNO business model is generally constructed around low fixed cost of set up and variable costs of serving customers. For example, a VNO may lease 20 circuits for voice traffic between two cities. It will then need to find enough customers to utilise these 20 lines. If grade of service is 1%, then some 12 E of traffic may be accommodated, for a usage efficiency of 60%. The cost structure is the 