Mobile Broadband Network Costs

Modelling network investments and key cost drivers

February 2011

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Introduction

Contents
04
Case study on meeting the UK capacity crunch: LTE not economically viable before 2015

forecasts. As well as using this tool in our own analysis and research we are able to: W  ork closely with clients to change the parameters and input options based on their own criteria  Present our findings back in an interactive one-to-one or one-to-many strategy session P  resent a number of scenarios, based on a clients particular criteria  Answer questions and provide advice on the back of this exercise. Kris Szaniawski Principal Analyst Informa Telecoms & Media In recent years we have seen an explosion in mobile data traffic driven by significant improvements in user experience and flatrate data plans. Although this has increased operators data revenue it has also led to a decoupling of usage and revenue. As usage increases, costs can now rise faster than revenues, leading to lower margins. This shift in the underlying economics of a network has meant that cost control has now become the primary strategic focus of many operators. As a result, we have received numerous requests from our clients for greater transparency and an understanding of the future costs of networks. In response to this we have undertaken a practical, robust, independent study of network cost behaviour and the future cost per GB. In order to fully understand network costs we have built a modelling tool, which allows us to change key factors and utilise our incredible wealth of market data and This is a new service for clients and is principally aimed at network operators and infrastructure vendors that want an independent perspective to feed in to their business strategy, identify cost savings, assess vendor claims or to support business development and marketing activities. As well as including an example of our analysis, this document contains further information on the project and deliverables. To learn more about the benefits it could bring to your organisation: call us on: +44 (0)20 7017 4994 or email: costperGB@informa.com

05 08 10

Project scope and methodology

The Analysts

Utilising our insight

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Meeting the UK capacity crunch: LTE not economically viable before 2015

Dimitris Mavrakis Senior Analyst dimitris.mavrakis@informa.com Twitter: @dmavrakis

 Due to their dense deployment to meet coverage requirements, the UKs HSPA networks will be able to handle current and future traffic demands. Informa does not expect traffic congestion to start appearing until 2013 and even then only in certain hotspot areas.  With the current mobile user behaviour patterns in the UK, large-scale LTE deployment does not offer an economically viable solution to meet traffic demand.  Informa estimates that a new LTE deployment will cost an additional US$58 million compared with upgrades to existing networks, assuming that the LTE deployment begins during 2013.  Cost per gigabyte (cost/GB) in the UK is forecast to be US$6.79 during 2011, gradually declining to US$2.74 during 2015. Given that network deployment is primarily coverage-driven and networks are densely deployed, there is significant unused capacity in the network throughout the forecast period, increasing the cost/GB above average values.

to identify the most cost-efficient longterm network plan in order to meet traffic demands. This section presents the background to the mobile-network-planning tool, including methodology, input data and forecast used to power this specific scenario. The inputs for the simulations in the mobile-network-planning tool have been gathered from Informas existing databases, secondary and primary research; they have been validated by key contacts in industry, including operators, vendors, financial experts and regulators. More information about the methodology can be found on page 8 of this document.

 Suburban: Residential areas with a lower population distribution. These areas are likely to exhibit high traffic during the evening, when subscribers are at home. They are also the most demanding in terms of geographical area to be covered.

Fig 1 UK, geographical inputs

Country Total population (mil.) Population annual growth rate (%) Geotype Dense Urban Urban Suburban Rural UK 61.6 1.0 Area (km2) 11,076 44,306 75,775 113,663

Country and operator profile

The country modelled here is the UK, a developed market where there is fierce price competition and severe capacity bottlenecks in densely-populated areas. Mobile operators are currently upgrading their existing infrastructure to meet the traffic demands to ensure a high quality of experience for all mobile broadband users but under current economic conditions this is challenging and costly. As in all Informas network-planning simulations, geographic areas are segmented in four distinct groups:  Dense Urban: Areas that are densely populated in large cities and consist of both offices and residential housing.  Urban: Metropolitan areas that surround the Dense Urban geotype and typically include some office but primarily housing locations.

Source: Informa Telecoms & Media

Fig 2 UK, population distribution

12% 27%

Background
25% Informa has created an end-to-end mobile-network-planning tool, used here to identify key cost drivers when deploying a new mobile broadband network. Using Informas forecasts and subscriber data, it is possible to model a specific set of inputs that resemble a real-life network and draw conclusions according to the country profile, subscriber information, traffic forecasts and several other parameters. By changing these parameters, it is possible

36%

Rural Urban

Suburban Dense Urban

Source: Informa Telecoms & Media

04

Fig 3 UK, traffic forecast by geotype, 2010-2015

locations present the biggest challenge for mobile operators, since they are highly populated with demanding user groups Here mobile operators typically limit cell sizes to a few hundred meters in order to increase capacity and deploy a network with sufficient capacity to service these areas. However, the Suburban geotype will also present capacity challenges since commuters are likely to use the mobile network in the evening rather than the morning hours when the Dense Urban and Urban locations are likely to be congested creating new bottlenecks in non-metropolitan areas. Finally, although networks in rural locations are likely to be underused, they still need to be deployed in order to fulfil regulations and service areas where there is no copper infrastructure. Informa forecasts that the Dense Urban and Urban areas will generate by far the largest share of traffic throughout the UK network between 2010 and 2015, followed by the Suburban and Rural geotypes (see fig. 3). Typical base stations from most vendors offer the capability to extend coverage beyond the normal cell sizes. However, this study is focused on mobile broadband network planning where most operators will seek to balance wide coverage area and high capacity. Traditionally, operators have sought wider coverage area to cover as many subscribers as possible with voiceoriented networks. However, these networks have not been subject to severe capacity constraints in the same way as current mobile broadband networks are. In these networks, operators aim to artificially reduce cell size so that more cells cover a certain area, leading to a higher total of capacity available to datahungry subscribers.

Total data traffic (PB per year)

20000 15000 10000 5000 0

2010 Rural

2011

2012

2013 Urban

2014

2015

Suburban

Dense Urban

Source: Informa Telecoms & Media

Fig 4 UK, cell radius and area, by geotype

Geotype Dense Urban

Cell radius Up to 1km

Cell area (km) <3.14

Urban

<1.5km

<7.1

Suburban

<3km

<28.3

Rural

<6km

<113.1

Source: Informa Telecoms & Media

 Rural: Large areas of open country with a low population distribution and typically lower capacity/traffic requirements. Almost two-thirds of the UK population can be found in the Dense Urban and Urban

areas, which only account for 23% of the countrys land area (see figs. 1 and 2). Although Suburban and Rural geotypes cover by far the largest share of geographical area in the UK, the Dense Urban and Urban

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Fig 5 UK mobile broadband operator forecast, total installed base stations, 2010-2015

Total installed base stations (000s)

30000 25000 20000 15000 10000 5000 0 2010 Rural 2011 2012 2013 Urban 2014 2015 Dense Urban

assessing whether the time is right to start the migration to LTE or upgrade congested cell sites with as much capacity as possible before upgrading to LTE.

Results
Network simulations illustrate that there is significantly more capacity than currently required in the UK network. Coverage requirements are currently driving network deployments and simulations show that network-wide capacity restrictions will be not be reached throughout the forecast period, even though a relatively high average consumption per active device has been used. Although coverage requirements are driving deployment in order to cover as many potential subscribers as possible with 3G/ HSPA technologies capacity bottlenecks are expected to form during the latter years of the forecast period. Informa expects these traffic bottlenecks to seriously degrade the user experience for this mobile network in certain areas. When this point is reached, the mobile operator will be presented with the choice of either upgrading the existing radio networks with additional capacity (for example, new HSPA carrier introduction, upgrade to HSPA+ for existing HSPA sites, MIMO for HSPA+) or commencing the migration to LTE in order to enjoy longerterm cost savings. The close-knit distribution of base stations in Dense Urban areas satisfies current capacity requirements even though these areas are data-hungry and frequently perceived as congested. The Dense Urban and Suburban areas are expected to experience congestion during 2013 and the Rural areas during 2012, after which upgrades will be necessary. However, as Rural areas are usually covered

Suburban

Source: Informa Telecoms & Media

Fig 6 UK mobile broadband operator forecast, annual network TCO, by geotype, 2011-2015

Network TCO (US$ millions)

600 500 400 300 200 100 0 2011 Rural 2012 Suburban 2013 Urban 2014 2015 Dense Urban

Source: Informa Telecoms & Media

Informa has defined the cell sizes to be used as guidelines in the modelling tool (see fig. 4). The modelling tool initially lays out cell sites in order to cover the area set by subscriber and coverage requirements. However, it is almost certain that capacity constraints will require upgrades, additional base stations or even new radio access technologies to be deployed in order to

fulfil traffic demands and make sure that subscribers enjoy a consistent mobile broadband experience. Particularly in Dense Urban areas, it is common for capacity constraints to appear within a year or two assuming that a new network is deployed today. For mobile operators that offer mobile broadband services, this means a constant cycle of upgrades and

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Fig 7 UK mobile broadband operator forecast, cost/GB, 2011-2015

variety of cost-effective options to upgrade their existing network: A  dding new HSPA carriers in congested areas.  Introducing MIMO, Dual Cell HSPA+ and 6-sector sites are also advanced techniques that may prolong the life of existing HSPA networks. 3.66 3.09 Cost per gigabyte (cost/GB) in the UK is forecast to be US$6.79 during 2011, gradually declining to US$2.74 during 2015. In the early years of the forecast, cost/GB may not be a relevant metric since deployment is coverage-driven and there is unused capacity in the network. However, as the usage of the network increases, cost/GB drops sharply and aligns with the cost/GB figures usually cited by network vendors. In any case, existing mobile broadband networks are cost-effective even in demanding traffic scenarios and are expected to remain so throughout the forecast period. However, it is possible that drastic changes in mobile user behaviour may trigger even further traffic generation, which will congest networks quicker, forcing operators to upgrade to LTE faster. Informa does not expect LTE to be deployed in the UK market before 2015 due to the existing dense deployment of HSPA networks, which can cater for the current and near-term future mobile traffic demands. However, there may be alternative reasons to deploy LTE these include being first in the market with a 4G technology or where there is a mobile broadband network that has not been constantly upgraded to meet traffic demands. This is an extract from our analysis into deploying LTE in the UK. The full research and analysis is available to clients through the Networks channel of the Intelligence Centre.

8 7 6 Cost/GB (US$) 5 4 3 2 1 0 2011 2012 2013 2014 2015 4.61 2.74 6.79

Source: Informa Telecoms & Media

by deployments that are very sparse (typical cell radius may be as high as 10km), capacity constraints are expected when coverage is the most dominant deployment factor. Moreover, simple capacity upgrades, such as upgrading HSPA sites to 64QAM, or even deploying a few hundred sites will solve the capacity constraint in Rural areas; in contrast, capacity constraints in the Urban areas will require more intensive expenditure but these are not expected to happen during the forecast period. The number of required base stations that are primarily driven by coverage requirements are expected to rise from 13,846 at the end of 2010 to 29,703 by the end of 2015 (see fig. 5). From this, the annual total cost of ownership (TCO) for the mobile network was calculated (see fig. 6), which also included:  Depreciated capex for continuous build-out to increase coverage in all geographical areas. Capex is dominated by base-station costs, site construction,

engineering & support, core network equipment and spare parts.  Opex includes backhaul, site leases, utilities, maintenance and various other costs that recur on a monthly basis. The TCO is primarily driven by base-station build-out in the Dense Urban and Suburban areas that are expected to meet capacity constraints during 2013. These forecasts enable the cost of supplying a GB over the next five years to be calculated (see fig. 7).

Informa viewpoint
Given that significant capacity constraints will not appear in the mobile network until after 2012 and only in areas which are prone to congestion (Dense Urban and Rural locations), deploying LTE is not economically viable when existing sites can be effectively upgraded to cater for capacity demands. In Dense Urban areas, mobile operators have a

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Project scope and methodology

In order to calculate the Total Cost of Ownership (TCO) of a mobile network, several aspects have to be included in network planning in order to capture critical elements of the mobile network that affect cost. Therefore, an end-toend mobile network has been designed, including RAN, backhaul and core (see fig. 1). Several parameters for each stage of the mobile network have been included in order to address current operator demands, including 3.9G radio access networks, offload, MIMO and femtocells, as well as popular backhaul technologies to address capacity bottlenecks while reducing costs. Contrary to traditional forecasts and data, the CPG methodology does not calculate data for a region or country but only for an operator. Since network deployment plans, network costs and traffic characteristics differ significantly per operator, it is not feasible to introduce a generic network deployment plan for a whole country. However, the coverage target for most mobile broadband operators is nearly 100%

of the country population in the long term but only a fraction of the traffic throughout the national infrastructure will take place through a single operator. In order to avoid inconsistency by generalizing network design and dimensioning, only single operators are modelled. Moreover, all assumptions are clearly stated, especially those that are critical to the overall cost of the network. These parameters include over-provisioning factors (for RAN, backhaul and core), RAN capacity specifications, busy-hour dimensioning and upgrade options. Contrary to TCO, the cost/GB metric is only relevant in certain cases and phases of the mobile broadband network. In the early phases of deployment, when coverage is the driver for deployment (in first years of mobile broadband, there is usually a lag between the mobile network deployment and an average network utilization), costs are high due to deployment and traffic is low, the cost/GB metric is far higher than an

average value and can reach US$200/GB. However, this value is not indicative and not relevant until the mobile network is being well-used. Network TCO is a better indication of costs during these early phases but cost/ GB can still illustrate the difference when choosing to implement an enhancement in the mobile network (offload or optimization). In the advanced stages of deployment, when the mobile network is well-used, cost/GB can illustrate the difference in cost between different network upgrade options and provide visibility for critical decisions; for example, whether to deploy LTE early or to upgrade the current network to HSPA+ and roll out LTE when network reaches saturation? Several parameters have been introduced into the model, primarily grouped in four distinct categories:  Population information: Including addressable population, distribution between four geotypes (Dense Urban, Urban, Suburban and Rural), operator subscriber base and subscriber targets.

Fig 1 Mobile network design

Radio

Backhaul

Core

Internet

RAN: various technologies Macro, miciro, pico and femto New carrier introduction Spectrum Wi-Fi offload Antennas (MIMO) Network Sharing Site costs
Source: Informa Telecoms & Media

Leasing, fiber, copper, hybrid Deploying: fiber, RF (PTP & PTMP) Carrier Ethernet costs Statistical multiplexing

EPC, SAE costs Capacity upgrades Optimization Policy and priority-based management

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These parameters in part dictate network deployment according to coverage requirements, which may also be driven by strict regulations tied to the associated spectrum acquisition.  Country information: Including total area segmented by the four geotypes and coverage requirements.  Traffic demand: Base data that is driven by traffic forecasts, which include real traffic collected from live networks coupled with Informas expert forecasts. More information on Informas traffic forecast methodology is available upon request

 Network deployment: Several parameters are provided to the network deployment algorithm, which calculates the number of base stations, needed to satisfy capacity and coverage demands. Base station numbers ultimately drive backhaul and core but over-provisioning (capacity for backhaul and capacity/signalling for core) are also implemented. Informa has created a high-level overview of the four distinct groups of parameters that are used to calculate network TCO and cost/ GB (see fig. 2).

Fig 2 Cost/GB calculation inputs

Population information Total population Distrubution (per geotype) Operator subscriber base and targets

Country information Total area (per geotype) Coverage requirements

Traffic demand Capacity requirements Per technology Per geotype Per device type Per subscriber Indoor/outdoor

Network deployment Spectrum Technology Backhaul Core network Offload Optimization

Network TCO

Cost/GB

Source: Informa Telecoms & Media

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The Analysts

Dimitris Mavrakis Senior Analyst Informa Telecoms & Media Dimitris Mavrakis is a Senior Analyst with Informa Telecoms & Media. He is part of the Networks team where he covers a range of topics including Next Generation Networks, IMS, LTE, WiMAX, OFDM, core networks, network APIs and identifying emerging strategies for the mobile business. Dimitris is also actively involved in Informas consulting business and has led several projects on behalf of Tier-1 operators and key vendors. Dimitris has over 6 years experience in the telecommunications market. He has a strong background in mobile and fixed networks and an in depth understanding of market dynamics in the telecoms business. In the past, Dimitris has worked as a project leader to perform challenging network measurements and has lead a team of researchers to produce pioneering research and acclaimed publications. Dimitris holds a PhD in Mobile Communications and a MSc in Satellite Communications from the University of Surrey. dimitris.mavrakis@informa.com

Gareth Sims Head of Forecasting Informa Telecoms & Media Gareth is Head of Forecasting within Informa Telecoms & Medias Industry Research division, leading its centralised forecasting team. In his role Gareth is responsible for the management and development of Informa Telecoms & Medias forecasts covering the mobile, fixed and media industries. Over the last eight years he has spearheaded the development of numerous forecasting products, spanning a range of sectors from devices and networks through to applications and services. He also manages the forecasts within WCIS, an industry leading market intelligence database whose numbers are quoted extensively throughout the ICT Industry. His most recent work involved building a mobile network planning tool to help identify the most cost effective ways that operators can deploy future networks. Gareth has over ten years experience in statistical and financial modelling in the ICT industry. Before joining Informa, Gareth worked as a commercial analyst for MCI where he focused on European telecom pricing. Gareth holds a degree in Business Economics in which he specialised in Econometrics. gareth.sims@informa.com

Kris Szaniawski Principal Analyst Informa Telecoms & Media Kris is a Principal Analyst with Informa Telecoms & Media. He heads up the research programmes and analyst team tracking the mobile networks and infrastructure topic area. Kriss areas of expertise include network vendor strategy and managed services although he tracks and comments on a broad range of topics in the mobile space ranging from mobile broadband to support systems. His recent research interests include network outsourcing and sharing and mobile rural connectivity in developing markets. Kris has 17 years experience in the telecoms sector as a journalist and analyst, including the last seven years with Informa Telecoms & Media and roles before that with Ovum and the Financial Times group. He has worked on a wide range of business intelligence services, reports and consulting projects and contributed to numerous industry publications and events. Kris holds a Masters degree in European politics, business and law and a combined honours degree in English and social sciences. kris.szaniawski@informa.com

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Customized insight, analysis and advice modelled on the basis of your inputs

Given the nature of this project, the deliverables are heavily customised to meet the needs of our clients. During the process we will work closely with you and key stakeholders to look at traffic demand scenarios, network deployment scenarios and costs, and then we take your specific inputs such as: device type geotype

technology offload (femtocell, Wi-Fi) optimisation backhaul core network type.

the different outcomes and provide advice. Plus, all clients will receive an exclusive copy of our Mobile Broadband Network Costs report, which includes analysis of sample scenarios.

Once the model has been built using your criteria and information, our analysts will present our findings through a dedicated and interactive strategy session to discuss the results with you or work with you to explore

Why participate?
Operators:  Create your own network profile specific to your customer demands  Use built-in scenarios to help model your network Profile your competitors network  Evaluate Net Present Value (NPV) of network deployment options Model traffic by device type and geotype  Compare vendor claims with an independent and validated tool. Vendors:  Profile your customers networks to understand their future requirements compared to your own  Use Cost/GB to illustrate the effect of your solution in a real-life network and how it can reduce costs for the operator  Use Cost/GB as point of comparison and to validate existing methodologies you may be using for network analysis. Investor community and financial institutions:  Assess investment decisions being made by operators and the choices available to them  Evaluate vendor messages and offerings and the impact it will have on costs To support strategic advice.

Why partner with Informa Telecoms & Media?

W  e have extensive Network technology expertise provided by a dedicated team tracking, analysing and consulting on the infrastructure market, LTE and other mobile access technologies, backhaul, femtocells and policy management O  ur research benefits from unparalleled access to key industry figures via our conference communities, including the industrys leading annual event,

Broadband Traffic Management Congress. O  ur strategic insight is supported by a comprehensive range of primary data sources including WCIS and WBIS O  ur close partnership with a key set of collaborators to allow us to compare notes on methodologies and modelling approaches and to validate our inputs W  e have a proven integrated approach to forecasting. Uncertain and dynamic environments such as the mobile

broadband market require a collaborative forecasting methodology. We use this approach to integrate both industry and modelling expertise, to share ownership, create a holistic view of the market and ultimately ensure high levels of consistency and robustness O  ur scenario-based traffic forecasting model is one of the foundations of this project. We have built on three-yearsworth of traffic forecasting experience.

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