Examine the economics of rolling out LTE
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Key note presentation at the LTE World Summit 2010 in Amsterdam.
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Examine the economics of rolling out LTE
- 1. Examine the economics of rolling-out LTE LTE World Summit 2010, Wednesday May 19th, Amsterdam, The Netherlands. Dr. Kim (Kyllesbech Larsen) International Network Economics, Technology, T-Mobile
- 2. Story…..
- 4. The incumbent mobile operator’s near-future … “it aint pretty”! The 3G traffic jam! 3G capacity crunch. Re-farming existing spectrum. New spectrum demand. Empty 2G roads - in time? Re-farming GSM! 1 MHz in LTE ≈ 5 MHz in 3G. Too little too late?
- 5. The Greenfield … “happy” short-term, a tougher future. Lots of Hz per customer! Higher speed than HSPA+? ROI optimized? Happy startup … plenty of quality. Fixed-like demand! Dramatic Hz / customer drop! Limited free cash for growth? Tougher future … growth limitations.
- 6. The mobile broadband traffic jam … Turnaround? … avoiding customer dissatisfaction …
- 7. Telco Europe is all about efficiency … … avoiding shareholder unhappiness … 2010 – 2014 ILLUSTRATION Western Europe Growth markets EBITDA GROWTH OPEX GROWTH REVENUE PRESSURE REVENUE GROWTH
- 8. The Netherlands 2014 … broadband everywhere, for everyone. Every house-hold has at least 2 PCs. Population 16.7mn House-holds 7mn Fixed broadband 6 out of 10 people will have mobile broadband. Every house-hold has (fixed) broadband. Mobile Broadband PCs 2016
- 9. The Dutch 2.6 GHz auction … is c$ 0.15 / MHz / pop cheap? € 2.6mn for 130 MHz FDD. “ cabled” entrants with wireless ambition. Is there (economically) room for 2 more?
- 10. 2.6GHz mobile coverage range is poor … the business model could mitigate this … “forced” focus on wireless DSL? Propagation Loss + Link Budget + In-Building Penetration Loss = - 3 dB 0 dB up-to: - 2 dB - 5 dB distance DL power 3 dB 2.6 GHz 1800 MHz 850 MHz 10 dB Digital dividend 2.6 GHz needs 2 more sites to match 1800 MHz mobile coverage.
- 11. Greenfield minimum requirements by 2012 … 80 km2. 75 – 125 LTE nodes. max. 460,000 (3%) pop. 1 mn (4%) LTE devices. $3.3 bn mobile data top-line. Greenfield operator Market projections Note: there are many ways to deploy the Greenfield network and ultimately will depend on the chosen business model. Illustration Cash required ca. €150 mn. 100% coverage No (0%) coverage
- 12. Greenfield minimum requirements by 2016 … 800 km2. 750 – 1,250 LTE nodes. Ca. 2.3 (14%) mn pop. 5 mn (20%) LTE devices. $4.5 bn mobile data top-line. Greenfield operator Market projections Note: there are many ways to deploy the Greenfield network and ultimately will depend on the chosen business model. Illustration Cash required ca. €400 mn. 100% coverage No (0%) coverage
- 13. Partnership with an incumbent operator will provide the Greenfield much better economics and market timing. BTS / NODE-B eNodeB Greenfield Core Incumbent Core BSS BSS Less likely Partly possible up-to 50% up-to 50% min 35% 50%-70% Capex prevention Partly possible Core Less likely scale discount scale discount ca. 35% min. 35% Opex prevention BSS Backbone (transport) Backhaul (transport) Radio (electronics) Site (acq. + build)
- 14. Is the service worth paying for ? …(it is in fixed broadband!)… 1 1/3 20 In relative usage 70 ↑ + 100 + Mobile broadband 850 MHz – 2.1 GHz BWA 2.3 – 2.5+ GHz Fixed with WiFi Mobile industry : hardly any QoS pricing mainly based on volumetric FUP. Wireless & Fixed Broadband business model uses QoS-based pricing.
- 15. Always best connected with QoS-based pricing. Mobile, Nomadic & In-door broadband 850 MHz – 2.5+ GHz with Cable/DSL HIGH QoS REQUIREMENT AND HIGH VOLUME MEDIUM QoS REQUIREMENT Bandwidth e.g.<14 Mbps Etc… e.g. < 2 Mbps BEST EFFORT Illustration $ $ $ $
- 16. Why should we care? 2.5 GHz Greenfield LTE deployment appears un-economical. Partnership model (e.g., network sharing) is essential. Managing broadband demand is a critical success factor.
- 18. Thank you very much! Acknowledgement: Denis Gautheret and many other very talented colleagues in T-Mobile & DTAG. Furthermore, many thanks to Michael Lai, CEO P1 Malaysia, for allowing re-use of their great ad campaign of „cut the wires“. Contact: [email_address] Tel: +31 6 2409 5202 http://nl.linkedin.com/in/kimklarsen
Editor's Notes
- Very often, it is claimed – especially from Femtocell equipment vendors – that Femtos enable ‘huge savings” in the macro network and only by this make the business case! So, we decided to take a closer look! Please mind: The DFP data demand (Kim Larsen) has been used as input. Further we used the Network Economic RAN and Femto cost model for this calculation. Please also mind that this is a strategic analysis, i.e. that the modelled cost increase due to traffic demand is not aligned with local budgets (click)
- We assume that only those “heavy users” will get a Femto. (Please mind that this is an important assumption. As in reality not every heavy user is likely to accept a Femto – he may not like the concept or does not have the necessary broadband subscription– our cost saving calculations should be regarded as an upper limit ! Now we know the number of Femtos, which need to be deployed in each year. We look into the Femto cost model (click – Femto TCO curve is blinking) and get the cost of Femto deployment for each year. As even with a deployment of Femtocells, the traffic in the macro network will continue to grow, we again have to look in RAN model and calulate the increase in TCO of the Macro network compared to the base year, this time however including the offload effect of Femtos. (click – Macro TCO curve - incl. Femto – is blinking) The upgrade costs of the Macro network which occur despite Femto deployment have to be added on top of the costs of the femto deployment itself. These total costs incurred by Femtos can now be compared to the costs without Femtos (thus the Macro upgrade costs stand alone) So - (click: animation starts – bottom graph appears)
- We assume that only those “heavy users” will get a Femto. (Please mind that this is an important assumption. As in reality not every heavy user is likely to accept a Femto – he may not like the concept or does not have the necessary broadband subscription– our cost saving calculations should be regarded as an upper limit ! Now we know the number of Femtos, which need to be deployed in each year. We look into the Femto cost model (click – Femto TCO curve is blinking) and get the cost of Femto deployment for each year. As even with a deployment of Femtocells, the traffic in the macro network will continue to grow, we again have to look in RAN model and calulate the increase in TCO of the Macro network compared to the base year, this time however including the offload effect of Femtos. (click – Macro TCO curve - incl. Femto – is blinking) The upgrade costs of the Macro network which occur despite Femto deployment have to be added on top of the costs of the femto deployment itself. These total costs incurred by Femtos can now be compared to the costs without Femtos (thus the Macro upgrade costs stand alone) So - (click: animation starts – bottom graph appears)
- We assume that only those “heavy users” will get a Femto. (Please mind that this is an important assumption. As in reality not every heavy user is likely to accept a Femto – he may not like the concept or does not have the necessary broadband subscription– our cost saving calculations should be regarded as an upper limit ! Now we know the number of Femtos, which need to be deployed in each year. We look into the Femto cost model (click – Femto TCO curve is blinking) and get the cost of Femto deployment for each year. As even with a deployment of Femtocells, the traffic in the macro network will continue to grow, we again have to look in RAN model and calulate the increase in TCO of the Macro network compared to the base year, this time however including the offload effect of Femtos. (click – Macro TCO curve - incl. Femto – is blinking) The upgrade costs of the Macro network which occur despite Femto deployment have to be added on top of the costs of the femto deployment itself. These total costs incurred by Femtos can now be compared to the costs without Femtos (thus the Macro upgrade costs stand alone) So - (click: animation starts – bottom graph appears)
- We assume that only those “heavy users” will get a Femto. (Please mind that this is an important assumption. As in reality not every heavy user is likely to accept a Femto – he may not like the concept or does not have the necessary broadband subscription– our cost saving calculations should be regarded as an upper limit ! Now we know the number of Femtos, which need to be deployed in each year. We look into the Femto cost model (click – Femto TCO curve is blinking) and get the cost of Femto deployment for each year. As even with a deployment of Femtocells, the traffic in the macro network will continue to grow, we again have to look in RAN model and calulate the increase in TCO of the Macro network compared to the base year, this time however including the offload effect of Femtos. (click – Macro TCO curve - incl. Femto – is blinking) The upgrade costs of the Macro network which occur despite Femto deployment have to be added on top of the costs of the femto deployment itself. These total costs incurred by Femtos can now be compared to the costs without Femtos (thus the Macro upgrade costs stand alone) So - (click: animation starts – bottom graph appears)
- We assume that only those “heavy users” will get a Femto. (Please mind that this is an important assumption. As in reality not every heavy user is likely to accept a Femto – he may not like the concept or does not have the necessary broadband subscription– our cost saving calculations should be regarded as an upper limit ! Now we know the number of Femtos, which need to be deployed in each year. We look into the Femto cost model (click – Femto TCO curve is blinking) and get the cost of Femto deployment for each year. As even with a deployment of Femtocells, the traffic in the macro network will continue to grow, we again have to look in RAN model and calulate the increase in TCO of the Macro network compared to the base year, this time however including the offload effect of Femtos. (click – Macro TCO curve - incl. Femto – is blinking) The upgrade costs of the Macro network which occur despite Femto deployment have to be added on top of the costs of the femto deployment itself. These total costs incurred by Femtos can now be compared to the costs without Femtos (thus the Macro upgrade costs stand alone) So - (click: animation starts – bottom graph appears)
- We assume that only those “heavy users” will get a Femto. (Please mind that this is an important assumption. As in reality not every heavy user is likely to accept a Femto – he may not like the concept or does not have the necessary broadband subscription– our cost saving calculations should be regarded as an upper limit ! Now we know the number of Femtos, which need to be deployed in each year. We look into the Femto cost model (click – Femto TCO curve is blinking) and get the cost of Femto deployment for each year. As even with a deployment of Femtocells, the traffic in the macro network will continue to grow, we again have to look in RAN model and calulate the increase in TCO of the Macro network compared to the base year, this time however including the offload effect of Femtos. (click – Macro TCO curve - incl. Femto – is blinking) The upgrade costs of the Macro network which occur despite Femto deployment have to be added on top of the costs of the femto deployment itself. These total costs incurred by Femtos can now be compared to the costs without Femtos (thus the Macro upgrade costs stand alone) So - (click: animation starts – bottom graph appears)
- We assume that only those “heavy users” will get a Femto. (Please mind that this is an important assumption. As in reality not every heavy user is likely to accept a Femto – he may not like the concept or does not have the necessary broadband subscription– our cost saving calculations should be regarded as an upper limit ! Now we know the number of Femtos, which need to be deployed in each year. We look into the Femto cost model (click – Femto TCO curve is blinking) and get the cost of Femto deployment for each year. As even with a deployment of Femtocells, the traffic in the macro network will continue to grow, we again have to look in RAN model and calulate the increase in TCO of the Macro network compared to the base year, this time however including the offload effect of Femtos. (click – Macro TCO curve - incl. Femto – is blinking) The upgrade costs of the Macro network which occur despite Femto deployment have to be added on top of the costs of the femto deployment itself. These total costs incurred by Femtos can now be compared to the costs without Femtos (thus the Macro upgrade costs stand alone) So - (click: animation starts – bottom graph appears)
- We assume that only those “heavy users” will get a Femto. (Please mind that this is an important assumption. As in reality not every heavy user is likely to accept a Femto – he may not like the concept or does not have the necessary broadband subscription– our cost saving calculations should be regarded as an upper limit ! Now we know the number of Femtos, which need to be deployed in each year. We look into the Femto cost model (click – Femto TCO curve is blinking) and get the cost of Femto deployment for each year. As even with a deployment of Femtocells, the traffic in the macro network will continue to grow, we again have to look in RAN model and calulate the increase in TCO of the Macro network compared to the base year, this time however including the offload effect of Femtos. (click – Macro TCO curve - incl. Femto – is blinking) The upgrade costs of the Macro network which occur despite Femto deployment have to be added on top of the costs of the femto deployment itself. These total costs incurred by Femtos can now be compared to the costs without Femtos (thus the Macro upgrade costs stand alone) So - (click: animation starts – bottom graph appears)
- … to summarize….
- We assume that only those “heavy users” will get a Femto. (Please mind that this is an important assumption. As in reality not every heavy user is likely to accept a Femto – he may not like the concept or does not have the necessary broadband subscription– our cost saving calculations should be regarded as an upper limit ! Now we know the number of Femtos, which need to be deployed in each year. We look into the Femto cost model (click – Femto TCO curve is blinking) and get the cost of Femto deployment for each year. As even with a deployment of Femtocells, the traffic in the macro network will continue to grow, we again have to look in RAN model and calulate the increase in TCO of the Macro network compared to the base year, this time however including the offload effect of Femtos. (click – Macro TCO curve - incl. Femto – is blinking) The upgrade costs of the Macro network which occur despite Femto deployment have to be added on top of the costs of the femto deployment itself. These total costs incurred by Femtos can now be compared to the costs without Femtos (thus the Macro upgrade costs stand alone) So - (click: animation starts – bottom graph appears)
- Thank you very much….