Ultra-efficient network factory: Network sharing and other means to leapfrog operator efficiencies.
This presentation summarizes the many technology ideas and business models to achieve Ultra-efficient network operation while safeguarding customer quality and expectations. This work was presented at Informa's Broadband MEA conference in Dubai, 26th of Match 2012.
Ultra-efficient network factory: Network sharing and other means to leapfrog operator efficiencies.
The ultra-efficient network factory: network sharing andother means to leapfrog operator efficiencies.Broadband MEA, March 26th 2012, Dubai, UAE.Dr. Kim Kyllesbech Larsen,Technology, Deutsche Telekom AG.
Deutsche Telecom … Mobile Business … 100+m mobile subscribers over 100+ thsd radio nodes. GSMEDGE, UMTSHSPA+ (42), LTE @ 800MHz2.6GHz & WiFi. Network partnerships in UK, Poland, Cz, Austria, … Last 10yrs more than doubled the size of its mobile networks …. Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 2
Transform or Perish Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 3
The profitability challenge…NOT only a problem for mature markets! Aug. 2011 China Unicom, at the moment only Chinese carrier selling Feb. 2011 Tellabs reports iPhone in the country, H1 profit mobile operators profitability down 9% …. has been struggling challenged within 2 - 3 to grow its profitability due to years, and mobile internet is heavy subsidies2. forcing operators to transform their networks and business models 1. Nov. 2011 Bharti Airtel Nov. 2011 South Korea’s KT reports profit dip again, in the reported a 41% slump in Q3 net seventh quarter4. profit , as a result of discounts and other initiatives to lure more smartphone users6. Oct 2011 China Telecom Corp reported third-quarter profit that Oct. 2011 Idea Celluar profit missed analysts estimates, as add down 40.3% QoQ, despite itional 3G users increased the comp revenue increases of 13.2%5. anys costs3 1 Tellabs; 2 Reuters; 3 China Daily; 4 Business Review India; 5 MediaNama; 6 Telecom Asia; Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 4
Mobile growth in perspective.Globally Cost per Customer increased 8×, ARPU remainedconstant (or declined) with a doubling of mobile subscriptions1. Example: Emerging Asia Profitability drop of almost 10%. Opex growth faster than Revenue. Highest ARPU YoY decline. ca. 70% mobile penetration today. Main 3G growth still ahead. Emerging Market Growth on expense of profitability? Long-term outlook could be troublesome. 1 Looking over the period 2005 to 2011. Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 5
When data demand exceeds spectral efficiency.”Houston we have problems”. Illustration 10 20 40 60 85 120 120 120 120 120 120 Total spectrum in use 15 Effective Spectral Efficiency (*) Spectral Demand Spectral Demand Limited Proportional 10 increases HSPA HSPA+ LTE LTE-adv over 2010 5 Not good at all!! 0 2010 2012 2014 2016 2018 2020 An operator can NOT get enough of the (RIGHT) spectrum. (*) realWireless report for Ofcom,: 4G Capacity Gains, Final Report, January 2011. Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 6
Cost-optimized deployment models (1 of 2).Availability of a wide range of frequencies essential for moreprofitable & economical network deployment. Throughput / Capacity 1.8 - 3.6 GHz Typical BWs/Operator > 40 MHz Hot- small cells & smart-antenna systems. Spots 1.8 To 3.6 Rural Fixed-like GHz Typical BWs/Operators < 20 MHz Urban – Suburban: LTE connectivity Up-to 2100 MHz Rural / Nation-wide: Digital dividend up-to 900 MHz Illustration Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 7
Cost-optimized deployment models (2 of 2).Small cells are an essential tool to optimize RAN deploymentand mitigate the mobile data capacity crunch. Small Cell off-loading strategies. Small cell benefits. Illustration Coverage & Capacity optimization. Often only alternative to capacity addition. Favorable Capex & Opex economics. New business models emerging. Small cell macro macro Small cell Small cell Small cell Small cell Small cell Small cell macro What to look out for! Backhaul challenge! Interference issues with macro network. Small cell Radio planning complexity. macro macro Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 8
Backhaul requirements will pressure the Economics.HSPA+ & LTE’s power-full air-interface, i.e., 100+ Mbps, willrequire extensive backhaul fiber deployment. LTE air-interface 30mean to 100+peak Mbps (per sector) 100 Gbps Evolved eNode DWDM Packet Core 100 GbE FTTS1 100+ Mbps eNodes per element 32:1 320:1 3200:1 BH Throughput 3+ 32+ 320+ In Gbps Illustration Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 9
The backhaul challenge … macro vs micro.Distribute mobile broadband traffic differently. Illustration LTE provides up-to 100 Mbps AP (e.g., WiFi / Femto,..) per sector Node FTTS1 100+ Mbps 100+ to 40 Mbps 300 – 7,000 active devices Home Environment per macro-cellular node with ca. 2.3 people per Home 1 (dense-urban / urban) connected to Fiber, Cable or VDSL. 100+ Mbps Up-to 100+ Mbps shared with shared by up to 7,000 devices. 2+ people. 1 Average for Western Europe. Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 10
The mobile profitability & cash crunch. Mobile Profit & Loss - Today Mobile Profit & Loss - Tomorrow Total Revenue ↓ 70% of Total Revenue Today− Usage Cost (Voice dominated < 25%) ↓ Reduce− Market Invest SAC ↔ SRC (< 20%) ↑ Cost− Net Device Cost (>10%) ↓ with New business, operation− Personnel Cost (<15%) → and cooperation models 48%! 2− Technology Cost (15% to 20%) ↑− Other Cost (< 10%) → = Maintain Today’s EBITDA of ca. 37%= EBITDA (WEU ca. 37% 1) ↓ New Business Models− Network depreciation (ca. <20% of Revenue) ↓ Network sharing. Network Factory / Network spin-off.− Spectrum Amortization Increased purchasing power Procurement Industry Alliances.− Capex (ca. 10% to 25% of Revenue) ↑ New partnership models – de-risk mobile. 1 BoA ML Global Wireless Matrix 1Q11, margin data for 4Q 2010, 2 math looks like Ot2 /Ot1 = 1 - R/(1-Margin) with t1 & t2 being initial time and a time after initial time, R is the revenue difference between t2 and t1. Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 11
Technology cost distribution – the helicopter view. Illustration RANCa. 30% Ca. 65% IT & Other Costs Personnel Platforms incl. Energy Costs RAN Services, 10% 15% Backhaul Maintenance & Repair. Cost 1 Core >10% <25%< 15% Data growth 40% Rental & Leasing 1 2 spectral limitations No spectral limitations Note RAN: Radio Access Network includes both 2G and 3G Opex. 1 With increasing leased line based transport this proportion will grow substantially in the future. Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 12
The ugly tail …Should drive sharing in low-traffic areas Illustration Cumulated Revenue (Traffic) 0% Low profitability sites 20% 50% revenue ≈ 10% sites 50% sites takes 40% less than 10% revenue 60% Top 30% sites ≈ 80% revenue. 80% 100% 0% 50% 100% Sites Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 13
Stages of sharing benefits.The best sharing strategy depends on the business cycle andtechnology age. < 5 years 5+ years > 5+ years LTE GSM – UMTS UMTS UMTS - GSM (LTE piggybacking) Rollout Phase Steady State Modernization UK: 3G T-Mobile – 3 UK UK. T-Mobile UK – Orange JV (EE Ltd). Poland: PTC – Orange incl. LTE Passive sharing: Site Lease & Civil Works, Illustration Mast/Tower sharing, Ancillary & Rack sharing, and Backhaul Sharing. Active sharing: e.g., Frequencies, TRXs, PAs, Baseband, CPU, ports, …. High Capex prevention. Little Capex benefits. Capex prevention. Opex prevention. Opex savings. Opex savings. Cash optimized startup. Significant write-off. Minor write-off. Best network. High re-structuring cost. Re-structuring cost. Extended coverage. Instant cell split. Better network. Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 14
Anatomy of network sharing.RAN sharing guaranties competitive differentiation, operatorindependency and vast consumer quality improvements.• Sharing: Costly Radio Access Network infrastructure will be shared,• Not shared: All core network and service infrastructures that provides respective customers with differentiated services, applications, handsets, rate plans, etc.• Result: A network with greater capacity (i.e., instant cell split) and improved coverage. Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 15
Network sharing flavors … Site sharing (*) RAN Sharing (*) National Roaming (*) Capacity limited Coverage limited Rural HSS HLR HSS HSS HLR HSS HSS HLR HSS Core Core Core Core Core Core BSC BSC BSC BSC BSC RNC RNC RNC RNC RNC Shared site and passives Shared Radio, aggregation Wholesale Independent BTS, NB, eNB. & frequencies (optional). arrangement, geographical partnership. Passive sharing. Active sharing (MOCN1) Geographic sharing. shared transport (possible). Shared transport. One frequency sufficient. Independent frequencies. Frequencies sharing. Wholesale/cost-sharing., 1 Multi-Operator Core Network supporting RAN Shairng, (*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B. Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 16
Partnership with an incumbent operator will providethe Greenfield better economics and market timing. Frequency Site Radio Backhaul Backbone Core BSS (MHz) (acq. + build) (electronics) (transport) (transport) (switch & control) (bill & care) plmn 1 plmn 2 MNO 1 Core BSS plmn 1 + plmn 2 (optional) BTS / NODE-B MNO 2 eNodeB Core BSSCapex Efficiency Partly 40%-60% < 35% up-to 50% up-to 50% Less likelyprevention enabler possibleOpex Efficiency scale scale Partly < 35% ca. 35% Less likelyprevention enabler discount discount possibleRegulatory HIGH LOW LOWER LOWER LOWER HIGH HIGHcomplexity Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 17
Network sharing case study – Poland.Improving consumer experience at better operational efficiency. PTC (DTAG) – Orange (FT) Safe for Service by Sharing.Rural areas PTC SHARED Orange PTC1 & Orange2 to share 10 thousand BILL PRICE BRAND SALES BILL PRICE BRAND SALES sites, 2G, 3G & LTE radio infrastructure as well as spectrum for 3G & LTE. SERVICES SERVICES CORE CORE 2G, 3G & LTE RAN incl. BACKHAUL SHARE Improved coverage, capacity and GSM900 UMTS900 LTE800 GSM900 services to the Polish consumer at a quality levelUrban areas PTC SHARED Orange not economical viable standalone. BILL PRICE BRAND SALES BILL PRICE BRAND SALES SERVICES SERVICES Benefits. CORE CORE • Opex savings. • Substantial Capex savings. 2G, 3G & LTE RAN incl. BACKHAUL SHARE • Shared Modernization. GSM 900 & 1800 UMTS 900 & 2100 LTE SHARING 800, 2100 & 2600 MHz GSM 900 & 1800 • Shared LTE deployment. • Much better network. Note: frequency bands not to scale! 1 14mio subscribers (2), 2 14.5mio subscribers (3) Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 18
Other business models …LTE as a Service. Emerging business models – LTE network factory Cash optimized startup via virtualization & OTT based services. Option: Small cell centric startup and Capacity as a Service. Provides. Enablers. Attractive (startup) cost economics. Profitability & cash crunch. Relative low Capex – cash optimized. Incumbent spectrum crunch. Increased spectral efficiency & utilization. MVNO / tier-2&3 MNO appetite. Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 19
Other business models … ultra-efficient transformation. Emerging business models – piggybacking on Virtualization & Cloud 3rd party, media companies, MNO/MVNO CDN & SDNs. 3rd parties 3rd parties (supplier) delivers BSS / delivers core OSS cloud network services to functionality SmartCo (off- (i.e., HSS, PCRF the-shelf) , etc..) Provides. Enablers. Data-only QoS transparent network. Regulatory support. Network services to MNO & MVNO. Spectrum. Dedicated OTT network services. MNO & MVNO appetite. Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 20
Key messages.What we need to be passionate about. Utilize technology to achieve the best operational performance Network sharing provides cost reduction AND increased quality. Think! Cloud, Virtualization, Small Cells, Multi-Mode Single RAN, ….& don’t forget! Sharing models for mobile applies to fixed broadband as well. Even more so! Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 21
The key value proposition of a mobile network is .... Freedom & MobilityAcknowledgement: Dr. Larsen is indebted to Bin Xi, David Haszeldine and Contact: email@example.comDenis Gautheret for their great suggestions and improving this presentation.Last but not least Dr. Larsen acknowledge his wife Eva Varadi for her great Mobile: +31 6 2409 5202support and understanding during the creation of this presentation. http://nl.linkedin.com/in/kimklarsen