Economics of 4G Introduction in Growth Markets
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1. The document discusses the economics of introducing 4G networks in growth markets. It notes the rapid growth in data usage from smartphones and applications is putting pressure on networks and profitability. 2. Introducing 4G LTE networks can help address this issue through improved capabilities like higher speeds and lower latency. However, it also increases capital demands for mobile operators due to needs like additional spectrum, increased backhaul capacity, and denser radio networks. 3. Spectrum availability and pricing are significant challenges, as higher frequency spectrum requires much denser deployment but is often more expensive. Meeting rising backhaul demands from 4G also requires extensive fiber investment.
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Economics of 4G Introduction in Growth Markets
- 1. Economics of 4G Introduction in Growth Markets.4G World China 2011, Beijing, 20th May 2011.Dr. Kim Kyllesbech Larsen, Technology EconomicsTechnology, Deutsche Telekom.
- 2. Deutsche Telekom. 17 countries covering 300m pop and 130m HH in Europe.
- 3. 2010 Net Revenue EUR 62bn. & EBITDA of EUR 20bn.
- 5. Ca. 100m mobile subscribers.
- 7. 2G: GSM, GPRS, EDGE.
- 8. 3G: UMTS, HSPA & HSPA+.
- 9. LTE:@ 800 and 1800 MHz.
- 10. 2 major network sharing deals (UK & PL), more to follow.
- 11. Spectrum bands covers from 800 MHz up-to 2.6 GHz.
- 12. Ca. 2m IPTV subscriptions.
- 13. Ca. 36m fixed network lines.
- 14. Ca. 17mbroadband lines.Netherlands Netherlands Poland Poland GermanyGermany(mother-ship)Czech Czech Republic Republic SlovakiaSlovakiaHungaryHungaryAustriaAustriaRomaniaRomaniaCroatiaCroatiaBosnia-Bosnia-SerbiaSerbiaHerzegovinaHerzegovinaBulgariaBulgariaMontenegroMontenegroMacedoniMacedoniaaAlbaniaAlbaniaGreeceGreece2Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 15. A bygone time … not so long ago ...When 1 + 1 was close to 2.Blablabla... Bla …Mobile NetworkWe talked (a lot)Rarely did we use the (mobile) web.We SMS’ed (even more)3Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 16. A new paradigm … 1 + 1 is no longer “just” 2 ... Applications have “taken over” the communications.1User1DeviceMany applicationsUser & application initiated bandwidth demand.Device & application (IP addr, keep alive, …) driven signaling resources.Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing4
- 17. Technology progress (LOGARITMIC SCALE in peak Downlink Mbps)Future mobile growth will be media and data centric.Today - 2014Fuelled by:TodayAppealingTerminalsCDMAOFDM 1TDMANew UsagesDevices’ Data Usage (in MB normalized to handset usage (=100%), Dec. 2010)Broadband&Ubiquity1 DL is OFDM, UL is SC-FDMA.5Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 18. The smartphone decade just started.SocializeSmartphone sales 1(Western Europe)500+m Facebook usersof which 250+m mobile.160+m RenRenusers250+m Twitter accountsDigitize5 bn. mobile phone users2.0+ bn. internet users50+ Tbgenerated / day.3+ bnphoto uploads/month.Mobile OS share of sales 1(Western Europe)Individualize10+ bn apps downloads.400+ mdifferentsmartphones.700+ m on social networks.NoteAll statistics provided are estimates of year end 2010 statistics or most recently available.6Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 19. Uncontrolled data growth ... Smartphone traffic tsunami.Smartphone indicators×7Data signalingProblems!May – June 2010 (Netherlands).“iPhone overload T-Mobile (NL) network” (Volkskrant, May 2010).“T-Mobile (NL) gives compensation”. (2 month no data charge & iPhone users gets €30.)“T-Mobile (NL) admits not able to handle data growth in its mobile network“ (Tweakers.net).×6Smartphones×4Throughput×5VolumeDecember 2008 to December 20107Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 20. Uncontrolled data growth ... All you can eat … network indigestion...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. 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).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.June 2009 AT&T announces unlimited data plans for all smartphones for $30 monthly charge.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)September 2009 “Customers Angered as iphonesOverload AT&T.”(The New York Times)8Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 21. Profitability pressure accelerating LTE deployment.Cash pressure by un-controllablemobile data growthAs it looks today Flat price plans and un-controllable mobile data growth will be very challenging to support with HSPA only.Free cash flowTrendsHSPA alone cannot sustain the traffic.
- 22. LTE deployment will be accelerated.
- 23. Home off-loading to WiFi and Femto.HSPA only -No LTEHSPA, with LTE deploymentHSPA+LTE, 50% off-load201020122014201620182020Illustration9Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 24. The smartphone … The “killer” device and its “killer” applications…10Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 25. GGSNMME/SGWSGSNRNCNodeBseNodeBsHSPA(CDMA)LTE(OFDM/SC-FDMA)Transition to LTEOffer improved scale, economy & customer experience.LTE vs HSPA+Flexible bandwidth1 1.4 -> 20+ MHz.
- 26. Freq. span 700 MHz-> 2.6 GHz.
- 27. Higher speeds (×2 – ×3).
- 28. Higher spectral efficiency (>30%).
- 29. Much lower latency (<10ms).
- 30. Lower signalling levels 2 (ca. 60%).
- 31. Flat IP architecture (less nodes).LTE20 MHz1.4 MHzHSPA n x 5 MHzCELL_DCHConnectedHandoverCELL_FACHReselectionCELL_PCHURA_PCHReselectionThe QoS and policy control in LTE are much richer and flexible.IdleIdleReselection5HSPA2LTELTE is much better optimized for short packet transmission.1 Single sided, i.e., UL or DL, 2 For data handling.11Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 32. LTE deployment requires “free” spectrum.900 MHz (2G some 3G)400 MHz700 MHz (LTE)800 MHz (LTE)UL(35MHz)DLULDLULDLUL(30MHz)DL1,800 MHz (2G)1,500 MHz (MSS L-band)UL(75 MHz)DLTDDUL(58 MHz)DLTDD(20 MHz)2,100 MHz (MSS S-band)2,100 MHz (3G)2,300 – 2,400+ MHzDLUL(60 MHz)TDD(100 MHz)DL3GTDDpart TDD(mainly APAC)3GTDDUL(20 MHz)2,600 1 MHz (4G & LTE)3,400 – 3,500+ MHzUL(70 MHz)TDD(50 MHz)DLpart TDDThis band provides interesting backhaul P2P options in some Greenfield scenarios1 The shown structure consistent with European band plan. In USA this band is held by Clearwire and primarily used forTDD WiMax.12Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 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.Average spectrum price in US$/MHz/Pop.UMTS2.1 “hyper-hyped” valueLog-scale10DUKEconomicalcoverageArtificial scarcityNLUS 1CANIndia 3 MaxVery dense, small area coverage, high GDP.1USD 2Very dense, small area coverage (HK).
- 34. Low absolute price compared to GDP.
- 35. Perceived value add (DK, SE).India 3HKNLDKUSSECAN0.1D 2NORCapacityenhancementAT 5D 2Capacity overlay.
- 37. Government push for new entrant.0.01India 3 MinFILarge area, low pop density, very low GDPUS 700 MHz auction 2008,German 800 MHZ – 2.6 GHz auction 2010Indian 3G / BWA 2.3GHz auction 2010.Dutch 2.6 GHz auction 2010.Austrian 2.6 GHz auction 2010.NL40.0010.51.01.52.02.53.0Auctioned spectrum in GHz13Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 38. Spectrum re-farming … a very complex process...Additional spectrum provides control & mitigate risks.Today situationE.g., GSM3GReady forre-farmComplex &Difficult to controlTime2GAdd “new”spectrumMigrateTrafficE.g., LTEIllustration14Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 39. Spectrum benchmarking.2.6 GHz requires least 9×the site density to match 800MHz.800 MHzDL powerUL power (typical limitation for coverage)2.6GHZLargeVery smallCoverage area×9×1×6×4.52.1 GHz2.6 GHz1.8 GHz 900 MHz – 800 MHz (digital dividend)2×35 MHz2×30 MHz2×60 MHz2×75 MHz190 MHzLowHighAvailable bandwidth for LTEIllustration15Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 40. LTE deployment models.Availability of a wide range of frequencies will be essential for economical network deployment.Throughput / CapacityHot-Spots2.3to2.6 GHz2.3 - 2.6 GHzFemto-cellsRural Fixed-likeLTE connectivityUrban – Suburban:Up-to 2100 MHzRural / Nation-wide: up-to 900 MHzIllustration16Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 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.LTE air-interface30mean to 100+peak Mbps(per sector)DWDMDWDMEvolvedPacketCore100 GbpsDWDMeNode100GbEDWDMDWDMFTTS1 100+ Mbps32:1320:1eNodesper element3200:1BH Throughput3+32+320+In GbpsIllustration17Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 42. The backhaul challenge … macro vs micro.Distribute mobile broadband traffic differently.IllustrationLTE provides up-to 100Mbpsper sectorAP (e.g., WiFi / Femto,..)NodeFTTS1 100+ Mbps100+ to40 Mbps300 – 7,000 active devicesper macro-cellular node(dense-urban / urban)100+ Mbpsshared with up to 7,000 devices.Home Environmentwith ca. 2.3 people per Home 1connected to Fiber, Cable or VDSL.Up-to 100+ Mbpsshared by2+ people.1 Average for Western Europe.18Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 43. Today 50+% on 3G/HSPA
- 44. 2011+ Ramp-up LTE deployment.
- 45. 2015 620 mio mobile subs …10% LTE.
- 46. 2020 670 mio mobile subs …60% LTE.LTE later in Growth markets, but will catch up fast.Western Europe 1LTE in EuropeGrowth Markets 1 2LTE in APAC Growth MarketsToday less than 20% on 3G/HSPA
- 47. Before 2015 limited LTE deployment.
- 48. 2017 4.0 bn mobile subs …10%+ LTE.
- 49. 2020 4.5 bn mobile subs … 60%+ LTE.1 Pyramid Research (April 2011) until 2015. After 2015 technology diffusion model applied to technology development favoring LTE as main conversion technology.2 China, India, Indonesia, Malaysia, Pakistan, Philippines, Taiwan, Thailand, Vietnam.19Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 50. Capex … for Western Europe (mature markets).Introducing LTE will increase the capital demand.+5.0%IllustrationCapex toRevenueRatio12+%+3.0%Revenue +3%8.0%LTEIntroNew RAN TechnologyIntroductionIncl. modernization.Capex -30%New Equipment ca. 10%New Site Build ca. 20+%MaintenanceBusiness cycleRollout intensivebusiness cycleExamples of Capital opportunities:Price erosion
- 51. Sync with modernization cycle.
- 53. Efficient multi-mode SDR equipment.Examples of Capital risks elements:Spectrum acquisition (not incl. above).
- 54. Fiber backhaul invest (not incl. above).
- 55. LTE grid mismatch with legacy grid.
- 56. High legacy capacity investments.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 variationsare lot less dramatic as compared to growth markets.20Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 57. Capex … Growth Markets in Asia.Its complicated and with substantial capital uncertainties.Illustration of Asia Growth MarketsCapextoRevenueRatioRevenue +8%30%?+ 1.7+ Bn mobile subs
- 58. +165+ m 3G subs
- 59. + US$100+ Bn revenue.
- 61. >90% prepaid<18%Ca. 10% (lower band)2004(<20%)2010(70%)2015(>100%)MobilepenetrationGrow 1.5+ bn mobile data customersNOTE 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.21Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 62. Key challenges.What we need to be passionate about.Backhaul -> Gbps will be needed -> Think Fiber and off-loading.Radio nodes-> multi-mode SDR capabilities to mitigate uncertainty .Spectrum -> acquisition and re-purposing of legacy bands.Prepare for early LTE deployment -> might be needed sooner than later.22Kim Kyllesbech Larsen, 4G World China 2011, May 20th, 2011, Beijing
- 63. Thank you for your interest!Contact: kim.larsen@t-mobile.nlMobile: +31 6 2409 5202http://nl.linkedin.com/in/kimklarsenAcknowledgement: 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.