ultra-efficient network factory: network sharing and other means to leapfrog operator efficiencies

The ultra-efficient network factory: network sharing and other means to leapfrog operator efficiencies.Broadband MEA, March 26th 2012, Dubai, UAE.

Dr. Kim Kyllesbech Larsen,

Technology, Deutsche Telekom AG.

Deutsche Telecom … Mobile Business …

Network partnerships in UK, Poland, Cz, Austria, … Network partnerships in UK, Poland, Cz, Austria, …

GSMEDGE, UMTSHSPA+ (42), LTE @ 800MHz2.6GHz & WiFi.GSMEDGE, UMTSHSPA+ (42), LTE @ 800MHz2.6GHz & WiFi.

100+m mobile subscribers over 100+ thsd radio nodes.100+m mobile subscribers over 100+ thsd radio nodes.

2Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE.

Last 10yrs more than doubled the size of its mobile networks ….Last 10yrs more than doubled the size of its mobile networks ….

AND reduced or kept Technology Opex stable

AND reduced or kept Technology Opex stable

Revenue Decline

&

Profitability Squeeze

Business model

Breakdown

Data Tsunami

Spectrum

Crunch

Transformor

Perish


The profitability challenge…NOT only a problem for mature markets!

Feb. 2011 Tellabs reports mobile operators profitability challenged within 2 - 3 years, and mobile internet is forcing operators to transform their networks and business models 1.

Oct 2011 China Telecom Corp reported third-quarter profit that missed analysts' estimates, as additional 3G users increased the company's costs3

Aug. 2011 China Unicom, at the moment only Chinese carrier selling iPhone in the country, H1 profit down 9% …. has been struggling to grow its profitability due to heavy subsidies2.

1 Tellabs; 2 Reuters; 3 China Daily; 4 Business Review India; 5 MediaNama; 6 Telecom Asia;

Nov. 2011 Bharti Airtel reports profit dip again, in the seventh quarter4.

Oct. 2011 Idea Celluar profit down 40.3% QoQ, despite revenue increases of 13.2%5.

Nov. 2011 South Korea’s KT reported a 41% slump in Q3 net profit , as a result of discounts and other initiatives to lure more smartphone users6.


Mobile growth in perspective.Globally Cost per Customer increased 8×, ARPU remained constant (or declined) with a doubling of mobile subscriptions1.

Profitability drop of almost 10%.

Opex growth faster than Revenue.

Highest ARPU YoY decline.

ca. 70% mobile penetration today.

Main 3G growth still ahead.

Profitability drop of almost 10%.

Opex growth faster than Revenue.

Highest ARPU YoY decline.

ca. 70% mobile penetration today.

Main 3G growth still ahead.

Example: Emerging Asia

Emerging Market Growth on expense of profitability? Long-term outlook could be troublesome.

Emerging Market Growth on expense of profitability? Long-term outlook could be troublesome.


1 Looking over the period 2005 to 2011.

When data demand exceeds spectral efficiency.”Houston we have problems”.

Illustration10 20 40 60 85 120 120 120 120 120 120

0

5

10

15

2010 2012 2014 2016 2018 2020

Total spectrum in use

Effective Spectral Efficiency (*)

Spectral Demand

Spectral Demand Limited

Proportionalincreasesover 2010

Not good at all!!

(*) realWireless report for Ofcom,: 4G Capacity Gains, Final Report, January 2011.

An operator can NOT get enough of the (RIGHT) spectrum.An operator can NOT get enough of the (RIGHT) spectrum.


HSPA HSPA+ LTE LTE-adv

Rural / Nation-wide: Digital dividend up-to 900 MHz

Cost-optimized deployment models (1 of 2).Availability of a wide range of frequencies essential for more profitable & economical network deployment.

Urban – Suburban:

Up-to 2100 MHz

Hot-Spots

1.8To

3.6 GHz

Throughput / Capacity

1.8 - 3.6 GHz Typical BWs/Operator > 40 MHz

small cells & smart-antenna systems.

Rural Fixed-likeTypical BWs/Operators < 20 MHz

LTE connectivity

Illustration


macro

Cost-optimized deployment models (2 of 2).Small cells are an essential tool to optimize RAN deployment and mitigate the mobile data capacity crunch.


Backhaul challenge!

Interference issues with macro network.

Radio planning complexity.

Backhaul challenge!

Interference issues with macro network.

Radio planning complexity.

Small Cell off-loading strategies.

What to look out for!

Coverage & Capacity optimization.

Often only alternative to capacity addition.

Favorable Capex & Opex economics.

New business models emerging.

Coverage & Capacity optimization.

Often only alternative to capacity addition.

Favorable Capex & Opex economics.

New business models emerging.

Small cell benefits.

macro macro

macromacro

Small cell

Small cell

Small cell

Small cellSmall cell Small cellSmall cellSmall cell

Illustration

DWDM

DWDM

DWDM

DWDM

100 GbpsDWDM

EvolvedPacketCore

Backhaul requirements will pressure the Economics.HSPA+ & LTE’s power-full air-interface, i.e., 100+ Mbps, will require extensive backhaul fiber deployment.

FTTS1 100+ Mbps

LTE air-interface30mean to 100+peak Mbps

(per sector)

eNode

100GbE

Illustration

32:1 320:1eNodes per element 3200:1

BH Throughput 3+ 32+ 320+ In Gbps


The backhaul challenge … macro vs micro.Distribute mobile broadband traffic differently.

10

Node

300 – 7,000 active devicesper macro-cellular node(dense-urban / urban)

100+ Mbpsshared with

up to 7,000 devices.

FTTS1 100+ Mbps

Home Environmentwith ca. 2.3 people per Home 1

connected to Fiber, Cable or VDSL.

Up-to 100+ Mbpsshared by

2+ people.

AP (e.g., WiFi / Femto,..)LTE provides up-to 100 Mbpsper sector

100+ to40 Mbps

1 Average for Western Europe.

Illustration


The mobile profitability & cash crunch.

Total Revenue

Technology Cost (15% to 20%)

Usage Cost (Voice dominated < 25%)−

Market Invest SAC ↔ SRC (< 20%)

−

= EBITDA (WEU ca. 37% 1)

Personnel Cost (<15%)

Other Cost (< 10%)

−

−

−

Network depreciation (ca. <20% of Revenue)−

Spectrum Amortization−

Capex (ca. 10% to 25% of Revenue)−

Mobile Profit & Loss - Today

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.

70% of Total Revenue Today

= Maintain Today’s EBITDA of ca. 37%

Mobile Profit & Loss - Tomorrow

Reduce Cost with

48%! 2

↓

↑→

→

↑

New business, operation and cooperation modelsNew business, operation and cooperation models

Network sharing.

Network Factory / Network spin-off.

Increased purchasing power

Procurement Industry Alliances.

New partnership models – de-risk mobile.

Network sharing.

Network Factory / Network spin-off.

Increased purchasing power

Procurement Industry Alliances.

New partnership models – de-risk mobile.

New Business Models

↓

↓

↑


− Net Device Cost (>10%)

↓

↓

RAN

Core

IT & Platforms

Technology cost distribution – the helicopter view.

RANCa. 65%

< 15%

Ca. 30%Other Costs incl. Energy

Rental &

Leasing

Personnel

CostsServices,Maintenance& Repair.

Illustration

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.

15%>10%

40%

<25%

10%Backhaul

Cost 1


1 2

No spectral limitations

spectral limitations

Data growth

100%50%0%

Sites

0%

20%

40%

60%

80%

100%

Cu

mu

late

d R

ev

enu

e (

Tra

ffic

)

The ugly tail …Should drive sharing in low-traffic areas

50% revenue ≈ 10% sites

Low profitability sites

Top 30% sites ≈ 80% revenue.

50% sites takesless than 10% revenue


Illustration

Rollout PhaseUK: 3G T-Mobile – 3 UK

Steady StateUK. T-Mobile UK – Orange JV (EE Ltd).

Stages of sharing benefits.The best sharing strategy depends on the business cycle and technology age.

High Capex prevention. Opex prevention. Cash optimized startup. Best network.

Little Capex benefits. Opex savings. Significant write-off. High re-structuring cost. Extended coverage.

Capex prevention. Opex savings. Minor write-off. Re-structuring cost. Instant cell split. Better network.

< 5 years 5+ years

UMTS - GSM LTE

> 5+ years

UMTS

Passive sharing: Site Lease & Civil Works,Mast/Tower sharing, Ancillary & Rack sharing, and Backhaul Sharing.

Active sharing: e.g., Frequencies, TRXs, PAs, Baseband, CPU, ports, ….

ModernizationPoland: PTC – Orange incl. LTE

GSM – UMTS(LTE piggybacking)

Illustration

Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 14

Anatomy of network sharing.RAN sharing guaranties competitive differentiation, operator independency 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 …

Capacity limited Coverage limited Rural

Passive sharing. shared transport (possible). Independent frequencies.

Active sharing (MOCN1) Shared transport. Frequencies sharing.

Geographic sharing. One frequency sufficient. Wholesale/cost-sharing.,

HLRHSS

Core Core

HSS

Shared site and passives Independent BTS, NB, eNB.

BSCRNC

BSCRNC

HLRHSS HSS

Shared Radio, aggregation & frequencies (optional).

CoreCore

BSCRNC


1 Multi-Operator Core Network supporting RAN Shairng, (*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B.

Site sharing (*) RAN Sharing (*) National Roaming (*)

HLRHSS HSS

BSCRNC

BSCRNC

Core Core

Wholesale arrangement, geographical partnership.

Frequency(MHz)

Site(acq. + build)

Radio(electronics)

Backhaul(transport)

Backbone(transport)

Core(switch & control)

BSS(bill & care)

Capex prevention

Efficiency enabler 40%-60% < 35% up-to 50% up-to 50% Partly

possible Less likely

Opex prevention

Efficiency enabler < 35% ca. 35% scale

discountscale

discountPartly

possible Less likely

Regulatory complexity HIGH LOW LOWER LOWER LOWER HIGH HIGH

Partnership with an incumbent operator will provide the Greenfield better economics and market timing.

BTS / NODE-B

eNodeBBSS

BSS

MNO 1Core

MNO 2Core


plmn 1

plmn 2

plmn 1 + plmn 2(optional)

PTC (DTAG) – Orange (FT)

Network sharing case study – Poland.Improving consumer experience at better operational efficiency.

PTC1 & Orange2 to share 10 thousand sites, 2G, 3G & LTE radio infrastructure

as well as spectrum for 3G & LTE.

Improved coverage, capacity and services to the Polish consumer at a

quality levelnot economical viable standalone.

PTC1 & Orange2 to share 10 thousand sites, 2G, 3G & LTE radio infrastructure

as well as spectrum for 3G & LTE.

Improved coverage, capacity and services to the Polish consumer at a

quality levelnot economical viable standalone.

Safe for Service by Sharing.


• Opex savings.• Substantial Capex savings.

• Shared Modernization.• Shared LTE deployment.

• Much better network.

• Opex savings.• Substantial Capex savings.

• Shared Modernization.• Shared LTE deployment.

• Much better network.

Benefits.

UMTS900 LTE800GSM900 GSM900

2G, 3G & LTE RAN incl. BACKHAUL SHARE

CORE CORE

SERVICES SERVICES

BILL PRICE BRAND SALES BILL PRICE BRAND SALES

Rural areas

LTE SHARING800, 2100 & 2600 MHz

GSM900 & 1800

GSM900 & 1800

2G, 3G & LTE RAN incl. BACKHAUL SHARE

CORE CORE

SERVICES SERVICES

BILL PRICE BRAND SALES BILL PRICE BRAND SALES

Urban areas

UMTS900 & 2100

Note: frequency bands not to scale!

SHAREDPTC Orange

SHAREDPTC Orange

1 14mio subscribers (2), 2 14.5mio subscribers (3)

Profitability & cash crunch.

Incumbent spectrum crunch.

MVNO / tier-2&3 MNO appetite.

Profitability & cash crunch.

Incumbent spectrum crunch.

MVNO / tier-2&3 MNO appetite.

Other business models …LTE as a Service.

Enablers.

Emerging business models – LTE network factory

Attractive (startup) cost economics.

Relative low Capex – cash optimized.

Increased spectral efficiency & utilization.

Attractive (startup) cost economics.

Relative low Capex – cash optimized.

Increased spectral efficiency & utilization.

Provides.


MMEIMS

SmartCo SharedAll IP EPC

SHARED E-UTRAN (Yota or LightSquare model)

User Equipment (own, MVNO, MNO1, MNO 2 etc...)

Air-interface

Service clouds& Internet

access

MVNOsCableCos


access

MNO1


access

MNO2, etc...

Network Control& Service clouds& Internet access

SmartCo,Optional CDN &SDN

SmartCoe.g., 60+ MHz of

shared/ pooledspectrum

HSS

PCRF

P-GW

S-GW

MNO1 EPC MNO2 EPCetc..

Option:Small cell centric startup and Capacity as a Service.

Cash optimized startup via virtualization & OTT based services.

Regulatory support.

Spectrum.

MNO & MVNO appetite.

Regulatory support.

Spectrum.

MNO & MVNO appetite.

Other business models … ultra-efficient transformation.

Enablers.

Emerging business models – piggybacking on Virtualization & Cloud

PrivateCloud:

ProvidesMobile Core

NetworkFunctionalities

NetworkCorporation

Content & ServicesCloud

BSS & OSSCloud:

ProvidesMobile Core

NetworkFunctionalities Access

off the shelf OSS& BSS-light due

to wholesalebusinessmodel

New business model

Data-only QoS transparent network.

Network services to MNO & MVNO.

Dedicated OTT network services.

Data-only QoS transparent network.

Network services to MNO & MVNO.

Dedicated OTT network services.

Provides.

3rd parties delivers BSS /

OSS cloud services to

SmartCo (off-the-shelf)

3rd party, media companies, MNO/MVNO CDN & SDNs.

3rd parties (supplier) delivers core network functionality (i.e., HSS, PCRF, etc..)


Key messages.What we need to be passionate about.

Cloud, Virtualization, Small Cells, Multi-Mode Single RAN, ….Cloud, Virtualization, Small Cells, Multi-Mode Single RAN, ….

Network sharing provides cost reduction AND increased quality.Network sharing provides cost reduction AND increased quality.

Utilize technology to achieve the best operational performanceUtilize technology to achieve the best operational performance


Sharing models for mobile applies to fixed broadband as well.Sharing models for mobile applies to fixed broadband as well.

& don’t forget!& don’t forget!

Think!Think!

Even more so!Even more so!

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Contact: Issa Nasser Phone +971 2 4434778

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[email protected]

mailto:[email protected]

The key value proposition of a mobile network is ....

Freedom

Contact: [email protected]: +31 6 2409 5202http://nl.linkedin.com/in/kimklarsen

Acknowledgement: Dr. Larsen is indebted to Bin Xi, David Haszeldine and Denis Gautheret for their great suggestions and improving this presentation. Last but not least Dr. Larsen acknowledge his wife Eva Varadi for her great support and understanding during the creation of this presentation.

& Mobility

mailto:[email protected]

ultra-efficient network factory: network sharing and other means to leapfrog operator efficiencies

Technology

kim kyllesbech larsen

mobile growth

mobile networks

mobile subscribers

mobile penetration

g growth

profitability challengenot

expense of profitability