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How strong is the business case for LTE? Introduction: As the move towards LTE starts to gather pace, mobile network operators (MNOs) must ensure that they have a robust business case for its deployment. Diminishing broadband opportunities, and the deployment of femtocells and broadcasting networks, weaken the case for early implementation of LTE, and operators may need to find alternative business models to justify it. By the end of 2007, 2.8 billion mobile subscribers were using networks based on the GSM/UMTS family of standards, but just 7% of them were on 3G UMTS. Despite this low figure, 3GPP has already mapped out a series of enhancements to UMTS, including HSDPA, HSUPA, HSPA+ and LTE, which will progressively increase throughput and capacity, improve coverage and decrease latency (time delay). Deployment of HSDPA and HSUPA has already begun, while HSPA+ and LTE will become available in 2008 and 2009, respectively. It was envisaged that this series of enhancements would provide the necessary performance and capacity to support the development of usage-intensive services, such as mobile video and audio services, and would enable new services and strategies, such as fixed-line broadband substitution. Some major network operators, including NTT DoCoMo and Vodafone, have been vocal in their support for LTE. However, three important developments weaken the business case for early deployment of LTE. · The widespread availability of low-cost fixed broadband services in developed countries reduces the commercial opportunity for cellular technologies to deliver fixed broadband services. · The deployment of indoor base stations (commonly referred to as femtocells and picocells) will relieve outdoor macrocells of a substantial traffic load, because a large proportion of mobile service traffic will be generated indoors. Serving indoor users from outdoor macrocells has a disproportionate drain on network capacity, because of the additional interference it causes. · Dedicated broadcasting networks, such as DVB-H, will deliver the majority of mobile TV and radio traffic, which is a heavy load on 3G networks. One of the drivers for the enhancements to 3G networks has been long-running speculation that wireless technologies could ultimately remove the need for fixed broadband services. In reality, the widespread availability and adoption of high-performance fixed network broadband services severely limits the opportunities for mobile networks to fulfil this role. In most developed countries, low-cost DSL (and cable) services are already widely available. Furthermore, fixed broadband penetration is high in many markets and is still growing, as illustrated by Figure 1.
Figure 1: Forecast of household penetration of fixed broadband services for selected countries, 2007–2012 [Source: Analysys Research, 2008] In five years from now, indoor traffic could represent a much greater proportion of mobile traffic than it does today, increasing from 35% in 2007 to 70% or more. Achieving high-quality, high-performance indoor coverage using traditional outdoor macrocell base stations is a major challenge, and is a driver for enhancements to macrocell networks. However, recent technology developments make it economical to use indoor base stations (commonly referred to as femtocells and picocells), instead of macrocells, to improve indoor coverage. Widespread deployment of indoor base stations in homes and workplaces could mean that more than half of all mobile service traffic does not need to be carried by conventional macrocell base stations. This would have a profound impact on the need for 3G enhancements. Delivering mobile TV and radio services is a major driver of improved network capacity and throughput in mobile networks, but if most of the traffic is broadcast content, it may be more cost effective to deliver it using dedicated broadcasting networks, such as DVB-H. In June 2006, 3 Italia was the first MNO in the world to launch DVB-H services, offering 12 television channels with coverage of 60% of the Italian population. By June 2007, 3 Italia had 719 000 DVB-H customers. TIM and Vodafone launched DVB-H services in Italy during 2006. Launches of DVB-H are expected in Austria, France, Germany, the Netherlands, Spain and Switzerland in 2008. In order to assess the realistic requirements for network deployment over the next five years it is necessary to compare the capabilities of a typical mobile network (considering each of the technology options) with the anticipated evolution of the mobile service mix, as illustrated in Figure 2. Figure 2: Model comparing mobile service demand with mobile network capability [Source: Analysys Research, 2008] Our modelling reveals that the combination of femtocells, broadcasting networks and HSPA+ will be sufficient to support the likely development in mobile service traffic for at least the next five years. Femtocells will relieve outdoor macrocell networks of up to 70% of their traffic load, while a broadcasting network could remove another 7% of traffic (or substantially more if the network does not have a 3G broadcasting solution). Meanwhile, HSPA+ will provide a major improvement to the performance of 3G networks within the existing 5MHz carrier structure of UMTS. The application of advanced modulation and MIMO smart antennas will enable HSPA+ to achieve a significant improvement in the top data speed of 3G networks (up to 42Mbit/s downlink). More significantly, it will achieve a substantial improvement in coverage quality, enabling high data speeds (for example 5Mbit/s) to be much more consistent in areas of poor coverage. This will substantially improve the quality of service perceived by customers. Some MNOs may want to achieve a competitive advantage from the even greater performance offered by LTE. However, LTE upgrades will be expensive for operators, and will be difficult to justify alongside many other financial commitments, such as fixed broadband networks, unbundled DSL, indoor base stations, broadcasting networks and content. Investment in traditional 3G macrocell networks will come under increased scrutiny, and MNOs must find ways to minimise network costs, particularly if their networks have ample capacity to support services in the foreseeable future. Large operators may be able to justify the expense of an LTE upgrade, but network sharing may be the only option for others. While the mobile industry was simply not ready to embrace extensive network sharing several years ago for a number of reasons, circumstances have now changed. Network sharing will become a financial necessity for many MNOs, allowing them to operate existing networks more cheaply, for example through sharing operational costs and removing unnecessary base stations (where there is duplication of coverage and capacity by existing base stations). The combination of reduced spending on new 3G features, such as LTE, and widespread network sharing, will have profound implications for equipment vendors. Increasing market share will be essential if vendors are to maintain and increase their revenue, and consolidation will be inevitable.
This article is based on two new reports from Analysys Research. The report 3G Network Evolution from 2007 to 2012: HSPA+, LTE, WiMAX and femtocells studies the major evolution steps for UMTS, including HSDPA, HSUPA, HSPA+ and LTE, quantifying their capabilities, and the services and customer usage profiles that they can support in real network implementations. The report examines how the evolution of 3G networks will be affected by the emergence of femtocells, broadcasting networks, WiMAX and network sharing. It includes modelling of a typical 3G network to evaluate the match between service requirements and network capabilities. The report considers the best choice of 3G evolution path, and assesses the broader implications of this for MNOs and equipment vendors. The complementary report 3G Infrastructure Sharing: the inevitable future for mobile networks reviews a range of network sharing arrangements, from site sharing through to complete network sharing. It evaluates the potential cost savings and assesses other benefits. The report identifies the major challenges for network operators and discusses best approaches. It also considers the profound strategic impact that extensive network sharing will have on equipment vendors and regulators. |
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