3G Wireless Investment Motivations

Transcription

1 Advisory Report 3G Wireless Investment Motivations Why do mobile operators continue to invest in 3G wireless network infrastructure? February, 2015 Peter Jarich Vice President, Consumer and Infrastructure Ashok Kumar Director, Custom Research Contents Abstract Wireless Networks in Transition Network Investment Drivers: 3G and LTE How is the lifecycle of 3G being extended? 3G and LTE: The Way Forward Conclusions Recommendations

2 Abstract Today we are experiencing unprecedented growth of mobility in terms of device usage, mobile broadband traffic and applications in the consumer as well as enterprise markets. To cope with this growth, and to meet the demands that it puts on their wireless network infrastructure, operators worldwide are considering various combinations of technology generations 2G, 3G and 4G Long-Term Evolution (LTE) to deploy and deliver services. To better understand this dynamic, Current Analysis conducted a survey of mobile operators that have 3G networks up and running and are either moving to LTE or have it deployed, as they are better positioned to provide insights into how the relative merits of 2G, 3G and LTE are being perceived. The survey did not include operators with large LTE deployments in service today or those in the middle of major LTE rollouts. The research methodology included a web-based survey with follow-up interviews with select operators. The survey included 18 mobile operators with 12 in Europe, four in Latin America and two in Asia-Pacific. The objective of this study was to understand the investment intentions and motivations behind their wireless network infrastructure plans. This investigative market advisory report summarizes the findings and provides insights with recommendations for wireless operators on the wireless network technology choices. Europe: +33 (0)

3 Wireless Networks in Transition The mobile cellular era started in 1980 with the first generation of analog wireless systems. Since then, the wireless industry has undergone significant transition and paradigm shifts with each generation of mobile network technologies. By the end of the '80s, second generation mobile systems (2G) were introduced with digital multiple access technologies, such as time division multiple access (TDMA) and code division multiple access (CDMA), offering higher spectral efficiency and basic data services. A third generation (3G) came in the late '90s with the IMT-2000 standards defined by the International Telecommunication Union (ITU) and networks getting deployed throughout the early 2000s. As a technology, 3G has evolved significantly over the last decade-and-a-half to address the increasing demands for mobile broadband services and ubiquitous voice services. With the entrenchment of IP networks, fourth generation (4G) mobile network technology started with the standardization of the first wave of LTE in December 2008, with deployments beginning in 2010 and picking up steam in The timeline evolution of the 3GPP family technology can be seen in Figure 1 below. Figure 1: 3GPP Family Technology Evolution Source: 4G Americas 2014 Today there is a mixture of technology generations coexisting in mobile operator networks to support the growing number of subscribers. The number of 3G connections globally has increased dramatically in recent years, growing from just over 600 million in 2009 to over 2 billion by 2013, accounting for almost a third of the total global connections base, as shown in Figure 2 from GSMA s The Mobile Economy Report According to GSMA, 3G will still carry more traffic than LTE by Current Analysis expects to see the coexistence of 3G and 4G mobile network technologies for the next ten to 15 years, at least, due to mobile operators interests to optimize their total wireless network assets. Europe: +33 (0)

4 Figure 2: Global Connections by Technology Europe: +33 (0)

5 Network Investment Drivers: 3G and LTE What are the drivers for LTE deployments? To gain a perspective on network investment drivers and the perceived benefits of 4G (LTE) over 3G, the operators in our survey were asked about their expectations of the peak capacity, peak data rate improvements and cost differentials of LTE vs. 3G. Although there are well-understood performance improvements of LTE compared with 3G, the perceived advantage does not appear significant enough yet to stop many operators from continuing to invest in 3G. In particular, in reviewing the survey results, only 17% of the respondents expected 10 or more improvement in peak network capacity from LTE vs. 3G, with slightly less than half of the respondents expecting to see more than a 5 improvement in peak data rates, as can be seen from Figures 3A & 3B below. On the issue of costs, half of the operators in the survey expressed that the total lifecycle deployment costs of LTE were about the same or less than 3G. Figures 3A & 3B - Expectation of Peak Capacity and Peak Data Rate Improvements of LTE over 3G % Expectation of Peak Capacity Improvement of LTE over 3G 11% 22% 44% 11% 6% 3 1 Expectation of Peak Data Rate Improvement of LTE over 3G 6% 22% 28% 17% 28% 5 10 More than 10 10x Same performance as 3G faster than 3G 21-5 faster than 3G faster than 3G More than 10 faster than 3G Spectrum availability is another key driver for LTE deployments; with more than 40 bands including those re-farmed from 3G there is a wide range of spectrum that can be used to support mobile broadband services. However it is also clear that a certain number of key bands are dominating operator interest. In the survey the more popular spectrum bands for LTE are in the 800 MHz and 1800 MHz bands as can be seen from Figure 4 below. Figure 4: LTE Spectrum Bands in Use or Planned for Use within the Sampled Operators LTE Spectrum Bands in Use or Planned for Use 700 MHz 800 MHz 900 MHz 1700 MHz 1800 MHz 1900 MHz 2100 MHz 2300 MHz 2600 MHz Europe: +33 (0)

6 Inhibitors to LTE deployments As much as operators understand that LTE promises improvements in service performance, network performance and network economies, they also understand that deploying LTE will come with costs and other challenges that may hold back deployment. In surveying operators on the major impediments to wider LTE deployments, two main issues emerged: a perceived immaturity of voice over LTE (VoLTE) and the cost & availability of new siting elements. Specifically, 8 of the operators in the survey that have yet to deploy LTE indicated that they will not launch VoLTE when they launch LTE services. It is clear that where 3G networks are supporting voice today many operators plan to rely on these as they roll out LTE and switch to VoLTE deployment as it becomes more mainstream. Beyond voice support, LTE deployments require new siting elements which can be a challenge. New antenna deployments, for example, can cause public site use review with associated time delays and complexities. Local ordinances can get in the way of availability for LTE cell sites. Following closely on the question of the maturity of VoLTE, 78% of the operators surveyed called this out as a major impediment to wider LTE deployments in the next three years, as shown in Figure 5 below. Figure 5: Major Impediments to Wider LTE Deployments What are the major impediments to wider LTE deployments within their network in the next three years? Insufficient LTE spectrum LTE device costs Limited device availability Costs associated with new RAN investments Cost and availability of new siting elements Immaturity of Voice over LTE (VoLTE) solutions 3G investment plans Given the perceived impediments to broad LTE deployment, it might not be surprising that an overwhelming 83% of the operators in our survey stated that they plan to continue investing in and upgrading their 3G network infrastructure. To be fair, operators in the middle of major LTE rollouts weren t included in the survey. Regardless, the cross-over point for LTE investments to be greater than 3G investments for the operators in our sample is two years from now, as shown in Figure 6. Europe: +33 (0)

7 Figure 6: Cross-over point of LTE and 3G Network Investments in Two Years When will investments in LTE be greater than 3G? 3 27% 27% 25% 15% 13% 13% 1 5% They are already In the next 12 months In the next 24 months In the next months Beyond 36 months Where does it make sense to invest in 3G networks? While the operators Current Analysis surveyed see a value in further 3G investment, the investment case will be different for every operator. In other words, mobile operators need to look at where it makes sense to invest in 3G networks and as to how best they can leverage their existing network infrastructure for growth of subscribers and revenues. Mobile operators see support for growing voice traffic as the top reason to continue investing in 3G networks, according to our survey. Other reasons for continuing to invest in 3G networks include the belief that 3G network infrastructure is more cost-effective, 3G being an important complement to LTE, and the perception that 3G device supply being more cost-effective. The priorities of the operators surveyed for continuing to invest in 3G are shown in Figure 7 below. Europe: +33 (0)

8 Figure 7: Reasons for Continuing Investments in 3G Reasons for continuing to invest in 3G networks % % 3 13% 27% 1 Other* Waiting for 5G Expansion to new market areas Waiting for LTE-Advanced 3G data rates are sufficient for solid user experiences 3G device supply is more cost-effective 3G will be an important complement to LTE * Other reasons include: Traffic will increase in 3G networks within a year; Optimization in 3G networks; Terminals 3G network infrastructure is more costeffective Support growing voice traffic From a long-term perspective, however, almost half (47%) of the survey respondents stated that 3G will be an important complement to LTE in their networks in the future. Wideband CDMA(WCDMA)/High Speed Packet Access (HSPA) has evolved into a highly effective mobile broadband (MBB) technology that will continue to serve both new and traditional markets for years to some, either as the main MBB technology or as an important complement to LTE. The message is that operators expect to derive continuing value of their 3G networks even as LTE launches accelerate. While voice support may speak to part of this logic, support for new data demands does as well. The expectation is that 3G networks will carry a greater percentage of the mobile data traffic three years from now, even as LTE network launches ramp up; this is signaled by the expected increase in mobile data traffic over 3G networks in Figure 8A. Today 39% of the survey respondents carry over 3 of their mobile data traffic on 3G. This is expected to rise to 66% carrying more than 3 of their mobile data traffic on 3G in three years. This implies a shift of the mobile data traffic from 2G and 2.5G to 3G. The contrast is even more vivid with voice traffic over 3G networks as shown in Figure 8B; three years from now two-thirds of the respondents (67%) expect to see more than 4 of their voice traffic going over 3G networks. Ultimately, this thinking points to 3G networks as a very integral and revenue-impacting part of an operator s wireless network infrastructure, supporting existing and new subscribers for mobile data and voice services. Europe: +33 (0)

9 Figure 8A & 8B: Percentage of Mobile Data Traffic and Voice Traffic over 3G Networks Traffic aside, there s another way to assess the relative value of 3G and LTE networks going forward tying those technologies directly to service lifecycle costs. Considering expected lifecycle cost differences between 3G and LTE, more than half of the operators surveyed called out a 21-3 margin differential, giving the edge to 3G, as shown in Figure 9 below. The lifecycle costs include the initial deployment costs in the short-term for new cell sites and equipment, as well as the maintenance, support and upgrade costs in the long-term. It should be noted that the perception of lifecycle costs might not relate to the cost/performance that newer technology provides. Europe: +33 (0)

10 Figure 9: Lifecycle Cost Differentials of 3G and LTE By What Margin are 3G Lifecycle Costs Cheaper than LTE % 4 33% % Less than Over 5 How is the lifecycle of 3G being extended? Against the backdrop of LTE promotion and deployments from across the globe, it might seem puzzling for operators to see a long-term future in 3G deployment. In part, however, this is a function of standards evolutions and new capabilities that are being introduced by network equipment vendors aimed at evolving and enhancing 3G, extending its lifecycle and the operator s vested 3G network assets. Detailed in Table 1 below, these enhancements can be grouped into two broad categories: Network-driven capabilities Smartphone/handset technology options Europe: +33 (0)

11 Table 1: 3G Upgrade Feature-Functionality Category Feature-Functionality Definition Benefits Network-driven capabilities 900 MHz band UMTS deployment in the 900 MHz band Improved indoor and cell edge performance over 2100 MHz deployments Dual Cell HSDPA (DC- HSDPA+) Dual carrier HSPA, supporting two adjacent carriers in the downlink Doubles peak downlink data speeds vs. single carrier Feature upgrade capabilities Dual band DC HSDPA+ Dual Cell HSUPA Three Cell HSDPA (3C HSDPA) Signaling Radio Bearer over High Speed channel (SRBoHS) Continuous Packet Connectivity (CPC) Enhanced FACH (efach) w/hs-fach efach w/hs-rach/eul- FACH Enhanced Discontinuous Reception (edrx) Dual carrier HSPA supporting two carriers in two different frequency bands in the downlink Dual carrier HSPA supporting two adjacent carriers in the uplink Three-carrier HSPA supporting three carriers in the downlink With SRBoHS nodes coordinate resources over faster channels CPC consists of Uplink DTX (Discontinuous Transmission) and Downlink DRX (Discontinuous Reception) Devices receive data on faster and more efficient HS-DSCH channel, instead of legacy R99 dedicated channel Devices transmit data on faster and more efficient common E-DCH channel and devices can also feedback ACK/NACK and CQI information to improve DL data transmission Device can be configured to periodically, instead of continuously monitor downlink HS-DSCH channels Improved downlink speed with improved cell edge and indoor performance Doubles peak uplink speeds; balances across two carriers to improve uplink performance Further improved downlink speeds and ensures continuity of user experience across networks Improved downlink capacity Reduced uplink interference and improved device battery life Improved user experience in the downlink with reduced latency, and improved network utilization Improved user experience in the uplink with reduced latency, lower uplink interference and improved network utilization Periodic monitoring of downlink HS-DSCH channels to conserve network resources To assess the value of these features, the operators in the survey were asked as what their priorities were relative to the above 3G enhancements. On the network side, 73% of the operators stated that dual carrier HSDPA, for improved downlink speeds, was their top enhancement priority. When it comes to smartphone feature upgrade priorities, a total of 87% of the respondents see value in CPC to reduce uplink interference and improve device battery life a major concern for most mobile network operators. Europe: +33 (0)

12 Ultimately, the responses from the survey argue that many of the features for enhancing 3G networks are currently deployed and more investments are planned for deeper implementation in mobile operator networks. The investments made by way of the enhancements and newer features can be expected to provide value throughout the lifespan of their 3G networks. Figure 10: 3G Network Infrastructure Upgrade Priorities 10 3G Network Infrastructure Priorities 8 73% 6 47% 53% 53% 4 33% 3C-HSDPA+ 900 MHz band DB DC-HSDPA+ DC HSUPA DC-HSDPA+ Figure 11: 3G Feature Upgrade Priorities Smartphone Feature Upgrade Priorities with 3G 10 87% 8 73% 73% 6 54% 6 4 edrx efach with HS- FACH SRBoHS efach with HS- RACH/EUL-FACH CPC Europe: +33 (0)

13 3G and LTE: The Way Forward LTE brings value to service providers with performance improvements in terms of network capacity and higher data rates to support robust mobile data and video services. At the same time, the costs of LTE devices and infrastructure have been steadily coming down over time as well. And yet, 3G benefits from a maturity which yields its own cost efficiencies, well-understood voice support and evolutions promising enhancements that allow 3G to remain cost effective for years to come. Against this backdrop, mobile operators need to evaluate the best combination of technologies for their own needs considering network, deployment, service and device implications, but including support for multimode devices to ensure migration options going forward. Building on our operator survey and our own insights into mobile broadband networks and services, a handful of conclusions and recommendations are worth noting. Conclusions Mobile operators have deployed, and continue to deploy, a combination of 3G and 4G (LTE) networks to cope with the mobile data services growth. In the Current Analysis survey of mobile operators, 83% stated that they are continuing to invest and upgrade their 3G network infrastructure. It will be another two years before LTE investments will be greater than 3G network investments, according to the survey. 3G plays an important role where the mobile data growth outpaces the roll-out of LTE deployments and also where there is growth in voice traffic. From a consumer perspective, 3G device availability and costs are more attractive than LTE devices at the moment, driving operators to enhance and support their 3G network infrastructure. From a performance enhancement standpoint, the benefits of LTE compared with 3G are expected to be significant but not a near-term game changer for many operators: only 17% of respondents to our survey expected 10 or more improvement in peak network capacity with LTE over 3G. What s more, fewer than half of the respondents expect to see more than a 5 improvement in peak data rates with LTE over 3G. Expectations of the lifecycle cost differential between 3G and LTE are in the 11-3 range, based on the operators responses in our survey. Current Analysis expects that the cost dynamics will continue to change over time as the price performance of LTE networks improve in the next few years. To extend the lifecycle of the 3G networks, mobile operators are implementing new network capabilities as well as smartphone features. The top 3G upgrade priorities are dual carrier HSDPA for improved downlink speeds and smartphone features with CPC. These enhancements allow the operators to better optimize and derive greater efficiencies of their total mobile network assets. Europe: +33 (0)

14 Recommendations 3G can serve as an excellent complement to LTE to optimize the total wireless network assets. Mobile operators need to leverage their 3G networks in markets with rapid data growth to capture market share quickly, if LTE deployments cannot occur in timely manner and shifts in the customer base develop slowly. Mobile operators with a mix of 3G and LTE in their network need to determine the traffic patterns and forecasts in terms of voice and data services and make the relevant investment decisions. Operators experiencing high voice traffic growth might want to consider upgrades to their 3G networks versus LTE deployment, as VoLTE might not be mature for their needs. From a cost and performance improvement standpoint, operators need to evaluate LTE in light of the upgrades available for their 3G networks. The cost of new siting elements and the additional costs of new LTE RAN components can be a major cost compared to software upgrades and enhancements of existing 3G networks. Mobile operators need to formulate a graceful transition between 3G and LTE. Over-reliance on any one of these technologies in the short term can be detrimental to the long-term market success. A careful balance between upgrade investments and implementation hurdles of newer network technologies needs to be taken into consideration. Mobile operators need to recognize that 3G will be an important part of their network strategy in the near and medium-term, as LTE and LTE-Advanced continue to mature and deliver more efficiencies going forward in the longer term future. Europe: +33 (0)