Consider the financial and technical implications of a lease versus own decision for ITS telecommunications systems.
Experiences from the Departments of Transportation (DOTS) of multiple states in selecting telecommunications options.
- Evaluate the costs of different network designs. How a network is designed is a critical determinant of the total cost; different network designs may meet the same set of system requirements, but at widely varying cost. Thus, agencies should design multiple networking scenarios and evaluate each separately. In Maryland, the SHA considered the financial implications of a range of different options for fulfilling its ITS requirements, including both lease and own options. Through performing this analysis, Maryland SHA was able to develop a network configuration that significantly reduced the total cost. Maryland SHA decided not to build a fully owned private fiber optic network, but instead selected a hybrid network infrastructure, relying primarily on leased services.
- Carefully consider the life cycle timeframe assumed in the financial analysis. To compare different network solutions, agencies must determine an appropriate life cycle, for this will impact the total cost of the telecommunications solution. Maryland considered a number of factors in selecting a ten-year network life cycle, including the rapid evolution of the technology, the ability to upgrade the network without replacing it, and the end-of-life "residual value" of the system. Maryland assumed that the accumulation of long-term lease charges over ten years would be higher than the capital costs of building a fiber-optic network over time. However, based on the ten-year life cycle that was chosen, the lease option was less than half the cost of the full-build option. As this example illustrates, the value for the life cycle should be chosen with great care. The report recommends comparing the results for different life cycle lengths to assure that the assumptions have not pre-determined the final network solution.
- Consider the level of risk in justifying an ongoing operations cost when compared to the cost of a capital acquisition. If lease fees are paid from operations funds, agencies may be faced with having to reduce system operations if operations funding is cut (or reduce other operations activities to fund the lease). While this is less of an issue with an owned system, the agency will still need to allocate funds for the maintenance of the owned system.
Other technical issues that agencies must consider with leasing include:
- The impact of using dial-up services (a subset of leased services).
- The complications of integrating a leased network with an owned network.
- The inherent weakness of certain commonly leased telecommunications architectures (i.e. the multidrop network).
Author: Vince Pearce
Published By: U.S. Department of Transportation, Federal Transit Administration and Federal Highway Administration
Source Date: 2000
EDL Number: 11488
Other Reference Number: FHWA-JPO-99-023/FTA-TRI-11-99-02URL: http://ntl.bts.gov/lib/jpodocs/repts_te/11488.pdf
Average User Rating