Economics of 4G Introduction in Growth Markets

2,148 views

Published on

Presented at the 4G World China Conference in Beijing, May 20, 2011.

Published in: Technology

Economics of 4G Introduction in Growth Markets

  1. 1. Economics of 4G Introduction in Growth Markets.4G World China 2011, Beijing, 20th May 2011.<br />Dr. Kim Kyllesbech Larsen, Technology EconomicsTechnology, Deutsche Telekom.<br />
  2. 2. Deutsche Telekom. <br /><ul><li>17 countries covering 300m pop and 130m HH in Europe.
  3. 3. 2010 Net Revenue EUR 62bn. & EBITDA of EUR 20bn.
  4. 4. Ca. 250 thsdemployees.
  5. 5. Ca. 100m mobile subscribers.
  6. 6. 100+ thsdradio nodes.
  7. 7. 2G: GSM, GPRS, EDGE.
  8. 8. 3G: UMTS, HSPA & HSPA+.
  9. 9. LTE:@ 800 and 1800 MHz.
  10. 10. 2 major network sharing deals (UK & PL), more to follow.
  11. 11. Spectrum bands covers from 800 MHz up-to 2.6 GHz.
  12. 12. Ca. 2m IPTV subscriptions.
  13. 13. Ca. 36m fixed network lines.
  14. 14. Ca. 17mbroadband lines.</li></ul>Netherlands <br />Netherlands <br />Poland <br />Poland <br />Germany<br />Germany<br />(mother-ship)<br />Czech <br />Czech <br />Republic <br />Republic <br />Slovakia<br />Slovakia<br />Hungary<br />Hungary<br />Austria<br />Austria<br />Romania<br />Romania<br />Croatia<br />Croatia<br />Bosnia<br />-<br />Bosnia<br />-<br />Serbia<br />Serbia<br />Herzegovina<br />Herzegovina<br />Bulgaria<br />Bulgaria<br />Montenegro<br />Montenegro<br />Macedoni<br />Macedoni<br />a<br />a<br />Albania<br />Albania<br />Greece<br />Greece<br />2<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  15. 15. A bygone time … not so long ago ...When 1 + 1 was close to 2.<br />Blablabla<br />... Bla …<br />Mobile Network<br />We talked (a lot)<br />Rarely did we use the (mobile) web.<br />We SMS’ed (even more)<br />3<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  16. 16. A new paradigm … 1 + 1 is no longer “just” 2 ... Applications have “taken over” the communications.<br />1<br />User<br />1<br />Device<br />Many applications<br />User & application initiated bandwidth demand.<br />Device & application (IP addr, keep alive, …) driven signaling resources.<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />4<br />
  17. 17. Technology progress (LOGARITMIC SCALE in peak Downlink Mbps)<br />Future mobile growth will be media and data centric.<br />Today - 2014<br />Fuelled by:<br />Today<br />Appealing<br />Terminals<br />CDMA<br />OFDM 1<br />TDMA<br />New Usages<br />Devices’ Data Usage (in MB normalized to handset usage (=100%), Dec. 2010)<br />Broadband<br />&<br />Ubiquity<br />1 DL is OFDM, UL is SC-FDMA.<br />5<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  18. 18. The smartphone decade just started.<br />Socialize<br />Smartphone sales 1<br />(Western Europe)<br />500+m Facebook users<br />of which 250+m mobile.<br />160+m RenRenusers<br />250+m Twitter accounts<br />Digitize<br />5 bn. mobile phone users<br />2.0+ bn. internet users<br />50+ Tbgenerated / day.<br />3+ bnphoto uploads/month.<br />Mobile OS share of sales 1<br />(Western Europe)<br />Individualize<br />10+ bn apps downloads.<br />400+ mdifferentsmartphones.<br />700+ m on social networks.<br />NoteAll statistics provided are estimates of year end 2010 statistics or most recently available.<br />6<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  19. 19. Uncontrolled data growth ... Smartphone traffic tsunami.<br />Smartphone indicators<br />×7<br />Data signaling<br />Problems!<br />May – June 2010 (Netherlands).<br />“iPhone overload T-Mobile (NL) network” (Volkskrant, May 2010).<br />“T-Mobile (NL) gives compensation”. <br />(2 month no data charge & iPhone users gets €30.)<br />“T-Mobile (NL) admits not able to handle data growth in its mobile network“ (Tweakers.net).<br />×6<br />Smartphones<br />×4<br />Throughput<br />×5<br />Volume<br />December 2008 to December 2010<br />7<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  20. 20. Uncontrolled data growth ... All you can eat … network indigestion...<br />June 2007 AT&T Inc. and Apple® today announced three simple, affordable service plans for iPhone™ which start at just $59.99 per month. All three plans include unlimiteddata. <br />June 2010 “AT&T wireless chief Ralph de la Vega has said the carrier is battling congestion in New York and San Francisco as a surge in smartphone use has clogged its network. “ (Bloomberg).<br />June 2009 De La Vega (AT&T) said that just three percentof smartphone users are eating up 40 percent of available capacity, and that most of it is thanks to high-bandwidth video streaming apps.<br />June 2009 AT&T announces unlimited data plans for all smartphones for $30 monthly charge.<br />June 2010AT&T Inc “will cut wireless data-plan prices for most users next week and stop offering unlimited data plans to manage soaring demand for data-hungry devices like Apple Inc.’s iPhone.”(Bloomberg)<br />September 2009 “Customers Angered as iphonesOverload AT&T.”<br />(The New York Times)<br />8<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  21. 21. Profitability pressure accelerating LTE deployment.<br />Cash pressure by un-controllable<br />mobile data growth<br />As it looks today<br /> Flat price plans and un-controllable mobile data growth will be very challenging to support with HSPA only.<br />Free cash flow<br />Trends<br /><ul><li>HSPA alone cannot sustain the traffic.
  22. 22. LTE deployment will be accelerated.
  23. 23. Home off-loading to WiFi and Femto.</li></ul>HSPA only <br />-<br />No LTE<br />HSPA, with LTE deployment<br />HSPA+LTE, 50% off<br />-<br />load<br />2010<br />2012<br />2014<br />2016<br />2018<br />2020<br />Illustration<br />9<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  24. 24. The smartphone … The “killer” device and its “killer” applications…<br />10<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  25. 25. GGSN<br />MME/SGW<br />SGSN<br />RNC<br />NodeBs<br />eNodeBs<br />HSPA<br />(CDMA)<br />LTE<br />(OFDM/SC-FDMA)<br />Transition to LTEOffer improved scale, economy & customer experience.<br />LTE vs HSPA+<br /><ul><li>Flexible bandwidth1 1.4 -> 20+ MHz.
  26. 26. Freq. span 700 MHz-> 2.6 GHz.
  27. 27. Higher speeds (×2 – ×3).
  28. 28. Higher spectral efficiency (>30%).
  29. 29. Much lower latency (<10ms).
  30. 30. Lower signalling levels 2 (ca. 60%).
  31. 31. Flat IP architecture (less nodes).</li></ul>LTE<br />20 MHz<br />1.4 MHz<br />HSPA n x 5 MHz<br />CELL_DCH<br />Connected<br />Handover<br />CELL_FACH<br />Reselection<br />CELL_PCHURA_PCH<br />Reselection<br />The QoS and policy control in LTE are much richer and flexible.<br />Idle<br />Idle<br />Reselection<br />5<br />HSPA<br />2<br />LTE<br />LTE is much better optimized for short packet transmission.<br />1 Single sided, i.e., UL or DL, 2 For data handling.<br />11<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  32. 32. LTE deployment requires “free” spectrum.<br />900 MHz (2G some 3G)<br />400 MHz<br />700 MHz (LTE)<br />800 MHz (LTE)<br />UL<br />(35MHz)<br />DL<br />UL<br />DL<br />UL<br />DL<br />UL<br />(30MHz)<br />DL<br />1,800 MHz (2G)<br />1,500 MHz (MSS L-band)<br />UL<br />(75 MHz)<br />DL<br />TDD<br />UL<br />(58 MHz)<br />DL<br />TDD<br />(20 MHz)<br />2,100 MHz (MSS S-band)<br />2,100 MHz (3G)<br />2,300 – 2,400+ MHz<br />DL<br />UL<br />(60 MHz)<br />TDD<br />(100 MHz)<br />DL<br />3G<br />TDD<br />part TDD<br />(mainly APAC)<br />3G<br />TDD<br />UL<br />(20 MHz)<br />2,600 1 MHz (4G & LTE)<br />3,400 – 3,500+ MHz<br />UL<br />(70 MHz)<br />TDD<br />(50 MHz)<br />DL<br />part TDD<br />This band provides interesting backhaul P2P options in some Greenfield scenarios<br />1 The shown structure consistent with European band plan. In USA this band is held by Clearwire and primarily used for<br />TDD WiMax.<br />12<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  33. 33. Spectrum pricing & perceived value.2.6 GHz is perceived to be of low value compared to lower frequency spectrum that offers economical and efficient coverage.<br />Average spectrum price in US$/MHz/Pop.<br />UMTS2.1 “hyper-hyped” value<br />Log-scale<br />10<br />D<br />UK<br />Economical<br />coverage<br />Artificial scarcity<br />NL<br />US 1<br />CAN<br />India 3 Max<br />Very dense, small area coverage, high GDP.<br />1<br />US<br />D 2<br /><ul><li>Very dense, small area coverage (HK).
  34. 34. Low absolute price compared to GDP.
  35. 35. Perceived value add (DK, SE).</li></ul>India 3<br />HK<br />NL<br />DK<br />US<br />SE<br />CAN<br />0.1<br />D 2<br />NOR<br />Capacity<br />enhancement<br />AT 5<br />D 2<br /><ul><li>Capacity overlay.
  36. 36. No (real) demand.
  37. 37. Government push for new entrant.</li></ul>0.01<br />India 3 Min<br />FI<br />Large area, low pop density, very low GDP<br />US 700 MHz auction 2008,<br />German 800 MHZ – 2.6 GHz auction 2010<br />Indian 3G / BWA 2.3GHz auction 2010.<br />Dutch 2.6 GHz auction 2010.<br />Austrian 2.6 GHz auction 2010.<br />NL4<br />0.001<br />0.5<br />1.0<br />1.5<br />2.0<br />2.5<br />3.0<br />Auctioned spectrum in GHz<br />13<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  38. 38. Spectrum re-farming … a very complex process...Additional spectrum provides control & mitigate risks.<br />Today <br />situation<br />E.g., GSM<br />3G<br />Ready for<br />re-farm<br />Complex &<br />Difficult to control<br />Time<br />2G<br />Add “new”<br />spectrum<br />Migrate<br />Traffic<br />E.g., LTE<br />Illustration<br />14<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  39. 39. Spectrum benchmarking.2.6 GHz requires least 9×the site density to match 800MHz.<br />800 MHz<br />DL power<br />UL power (typical limitation for coverage)<br />2.6<br />GHZ<br />Large<br />Very small<br />Coverage area<br />×9<br />×1<br />×6<br />×4.5<br />2.1 GHz<br />2.6 GHz<br />1.8 GHz<br /> 900 MHz – 800 MHz (digital dividend)<br />2×35 MHz<br />2×30 MHz<br />2×60 MHz<br />2×75 MHz<br />190 MHz<br />Low<br />High<br />Available bandwidth for LTE<br />Illustration<br />15<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  40. 40. LTE deployment models.Availability of a wide range of frequencies will be essential for economical network deployment.<br />Throughput / Capacity<br />Hot-<br />Spots<br />2.3<br />to<br />2.6 <br />GHz<br />2.3 - 2.6 GHz<br />Femto-cells<br />Rural Fixed-like<br />LTE connectivity<br />Urban – Suburban:<br />Up-to 2100 MHz<br />Rural / Nation-wide: up-to 900 MHz<br />Illustration<br />16<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  41. 41. Backhaul will force you to re-think network design.LTE’s extremely power-full air-interface, i.e., 100+ Mbps, will require extensive backhaul fiber deployment.<br />LTE air-interface<br />30mean to 100+peak Mbps<br />(per sector)<br />DWDM<br />DWDM<br />Evolved<br />Packet<br />Core<br />100 Gbps<br />DWDM<br />eNode<br />100<br />GbE<br />DWDM<br />DWDM<br />FTTS1 100+ Mbps<br />32:1<br />320:1<br />eNodesper element<br />3200:1<br />BH Throughput<br />3+<br />32+<br />320+<br />In Gbps<br />Illustration<br />17<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  42. 42. The backhaul challenge … macro vs micro.Distribute mobile broadband traffic differently.<br />Illustration<br />LTE provides up-to 100Mbps<br />per sector<br />AP (e.g., WiFi / Femto,..)<br />Node<br />FTTS1 100+ Mbps<br />100+ to<br />40 Mbps<br />300 – 7,000 active devices<br />per macro-cellular node<br />(dense-urban / urban)<br />100+ Mbps<br />shared with <br />up to 7,000 devices.<br />Home Environment<br />with ca. 2.3 people per Home 1<br />connected to Fiber, Cable or VDSL.<br />Up-to 100+ Mbps<br />shared by<br />2+ people.<br />1 Average for Western Europe.<br />18<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  43. 43. <ul><li>Today 50+% on 3G/HSPA
  44. 44. 2011+ Ramp-up LTE deployment.
  45. 45. 2015 620 mio mobile subs …10% LTE.
  46. 46. 2020 670 mio mobile subs …60% LTE.</li></ul>LTE later in Growth markets, but will catch up fast.<br />Western Europe 1<br />LTE in Europe<br />Growth Markets 1 2<br />LTE in APAC Growth Markets<br /><ul><li>Today less than 20% on 3G/HSPA
  47. 47. Before 2015 limited LTE deployment.
  48. 48. 2017 4.0 bn mobile subs …10%+ LTE.
  49. 49. 2020 4.5 bn mobile subs … 60%+ LTE.</li></ul>1 Pyramid Research (April 2011) until 2015. After 2015 technology diffusion model applied to technology development favoring LTE as main conversion technology.<br />2 China, India, Indonesia, Malaysia, Pakistan, Philippines, Taiwan, Thailand, Vietnam.<br />19<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  50. 50. Capex … for Western Europe (mature markets).Introducing LTE will increase the capital demand.<br />+5.0%<br />Illustration<br />Capex to<br />Revenue<br />Ratio<br />12+%<br />+3.0%<br />Revenue +3%<br />8.0%<br />LTE<br />Intro<br />New RAN Technology<br />Introduction<br />Incl. modernization.<br />Capex -30%<br />New Equipment ca. 10%<br />New Site Build ca. 20+%<br />Maintenance<br />Business cycle<br />Rollout intensive<br />business cycle<br />Examples of Capital opportunities:<br /><ul><li>Price erosion
  51. 51. Sync with modernization cycle.
  52. 52. Sharing opportunities.
  53. 53. Efficient multi-mode SDR equipment.</li></ul>Examples of Capital risks elements:<br /><ul><li>Spectrum acquisition (not incl. above).
  54. 54. Fiber backhaul invest (not incl. above).
  55. 55. LTE grid mismatch with legacy grid.
  56. 56. High legacy capacity investments.</li></ul>NOTE The above is an illustration of the average mobile operator. Depending on country and specific operator variations to the above should be expected. Though variations<br />are lot less dramatic as compared to growth markets.<br />20<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  57. 57. Capex … Growth Markets in Asia.Its complicated and with substantial capital uncertainties.<br />Illustration of Asia Growth Markets<br />Capexto<br />Revenue<br />Ratio<br />Revenue +8%<br />30%<br />?<br /><ul><li>+ 1.7+ Bn mobile subs
  58. 58. +165+ m 3G subs
  59. 59. + US$100+ Bn revenue.
  60. 60. Average margin 46%
  61. 61. >90% prepaid</li></ul><18%<br />Ca. 10% (lower band)<br />2004<br />(<20%)<br />2010<br />(70%)<br />2015<br />(>100%)<br />Mobile<br />penetration<br />Grow 1.5+ bn mobile data customers<br />NOTE The are some very wild swings from country to country as well as in the country. Working with averages is only meaning full as an illustration.<br />21<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  62. 62. Key challenges.What we need to be passionate about.<br />Backhaul -> Gbps will be needed -> Think Fiber and off-loading.<br />Radio nodes-> multi-mode SDR capabilities to mitigate uncertainty .<br />Spectrum -> acquisition and re-purposing of legacy bands.<br />Prepare for early LTE deployment -> might be needed sooner than later.<br />22<br />Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing<br />
  63. 63. Thank you for your interest!<br />Contact: kim.larsen@t-mobile.nl<br />Mobile: +31 6 2409 5202<br />http://nl.linkedin.com/in/kimklarsen<br />Acknowledgement: I am indebted to my fantastic team for always being patient with my data requests, for their great suggestions and support in creating this presentation.<br />

×