Outsourcing and network sharing: key considerations to solve the backhaul challenge

Transcription

1 Outsourcing and network sharing: key considerations to solve the backhaul challenge Franck Chevalier Head of Broadband Sector, Operations Consulting September 2008

2 Contents 2 About Analysys Mason Market context and outsourcing models Backhaul strategies and cost Conclusion

3 About Analysys Mason Overview About Analysys Mason 3 We are the world s leading specialist adviser in telecoms, media and technology We provide strategy advice, operations support and market intelligence to leading players in the industry Clients include operators, media companies, regulators, financial institutions, Governments, vendors and end users Analysys Mason has a global presence, with over 300 staff in 11 offices in Europe, Asia and the USA Washington DC Cambridge Dublin Edinburgh London Madrid Manchester Milan Paris Dubai Singapore Key Assignments completed Analysys Mason office Analysys Mason has extensive experience of supporting opex reduction strategies for network operators

4 About Analysys Mason Overview There are four main pillars to the Analysys Mason Service Portfolio 4 Planning Preparing to excel Technical architecture and design Market planning Network planning Strategy Establishing direction Strategy development and business planning Market strategy Tariffing and profitability analysis Economic modelling and cost analysis Regulation and policy development Wholesale service strategy Due diligence and financial transaction support Network procurement and outsourcing strategy Operations design and planning Business continuity planning/disaster recovery Market Intelligence Research reports and industry intelligence services Implementation Delivering success Wireless network roll-out management New services/products launch BSS/OSS implementation Project and programme management Operations change management Review Measuring up Operational performance review Network optimisation Industry benchmarking End user behaviour

5 Contents 5 About Analysys Mason Market context and outsourcing models Backhaul strategies and cost Conclusion

6 Market context and outsourcing models Overview Mobile operators have an increasing requirement to lower their opex to maintain margins 6 Issues Decrease In Voice Revenues Maintaining Profits Solutions New Revenues Creation Opex Reduction Outsourcing Wireless broadband Mobile TV SDP* (itunes, OVI ) Operators need to ensure they innovate in both streams to remain competitive in developed countries Full UTRAN outsourcing Outsourcing network O&M Sharing of site and infra. Advertising Optimisation of infrastructure Other new services Optimising internal resources *SDP = Service delivery platforms Ownership

7 Market context and outsourcing models Overview Mobile operators have many options to reduce their opex 7 Outsourcing Full UTRAN outsourcing Outsourcing network O&M Full UTRAN outsourcing describes the scenario whereby the operator outsources rollout, I&C and O&M. There are many options available in this scenario, as the third party may be the owner of the active equipment, as well as the owner of the backhaul network Outsourcing network O&M is the operational model whereby the operator outsources all of its O&M services to an equipment vendor Sharing of site and infrastructure Sharing of sites involves two or more operators using the same site to install their active equipment using a single tower. There are many sub-options available in this scenario, depending on whether the operators share antennas, Node B and backhaul networks Optimising of infrastructure By using new technologies and architectures, some networks can be optimised to save opex. This scenario is not considered in this presentation Optimising internal resources The optimisation of internal resources and process is not specific to a telecom operator, but is often used to try to optimise the opex. This scenario is not considered in this presentation Ownership

8 Market context and outsourcing models Full UTRAN outsourcing Full outsourcing often involves a tower operator, able to host many operators on a single site 8 One example of full outsourcing strategy is T-Mobile and NGW (Macquarie) in Northern Ireland NGW was awarded a contract in 1999 with T-Mobile for the roll-out and the full maintenance of T-Mobile GSM Radio Access Network (RAN) in Northern Ireland NGW owns their own transmission network, covering the whole of Northern Ireland Where practical, NGW has acquired large enough sites to host several operators, each with their own cabin Currently, each operator uses their own transport Network or a BT leased line to backhaul their traffic Source: National Grid Wireless

9 Market context and outsourcing models Outsourcing network O&M Outsourcing network O&M fits both operator and equipment vendors strategies 9 Traditional equipment vendors are trying to move up the value chain to maintain profits Outsourcing O&M also provides the opportunity to refocus on more core business activities, such as marketing and customer retention strategy Outsourcing network O&M Selling of telecoms equipment is not highly profitable due to fierce competition Outsourcing O&M provides some scope to reducing opex Vendors drivers Operators drivers O&M outsourcing contracts include Ericsson and 3UK, Base-Alcatel, TNZ-Alcatel and One-Alcatel and many others

10 Market context and outsourcing models Sharing of site and infrastructure Site/RAN sharing is increasingly popular, but difficult to implement in brownfield deployments 10 Operators Country Announcement Launch Comments Telstra and Hutchison 3G Optus and Vodafone Vodafone and Orange Vodafone and Orange Australia Australia Spain UK August 2004 November 2004 November 2006 February 2007 September 2005 Q October 2007 Looking at site sharing only Capital and operational expenses were shared equally between the two operators for extending the network. In return for 50% ownership of the asset, Telstra paid A$450M to Hutchison Reduction in Optus capex of AU$100 million in the first three years. Reduction in opex for maintenance, operations and site leases of approximately AU$10 million per year Improve the 3G network coverage provided by both operators by approximately 25%. Reduce the number of base stations needed to deploy both the Orange Spain and Vodafone Spain networks by around 40% 20%-30% savings on RAN opex and capex in long-term, one-third reduction in combined sites, faster 3G roll-out and improved coverage T-Mobile and 3 UK December 2007 Expect to take two years to consolidate the networks Cost savings of GBP2 billion (USD4 billion) over ten years, by decommissioning over 5000 duplicate base station sites Source: Analysys Mason

11 Market context and outsourcing models Other business models There are also other business models that include a combination of site sharing and set-up of a tower company 11 In India, Bharti Infratel and Vodafone Essar have announced in February 2007 the sharing of their remoter sites Subsequent to this announcement, Bharti Infratel, Idea Cellular and Vodafone Essar announced in a joint statement that they are forming an independent tower company, Indus Towers Limited, to provide passive infrastructure services in India to all operators on a non-discriminatory basis These three companies will merge their existing telecom towers in 16 telecom circles in India. Bharti and Vodafone Essar will own approximately 42 per cent each, and Idea will own the remaining 16 per cent stake in Indus Towers Indus Towers will be an independently managed and operated company, offering services to all telecom operators and other wireless services providers The company will have approximately 70k towers at inception, and will undertake a significant roll out of telecom infrastructure to propel the mobile sector towards achieving India s teledensity and rural coverage goals Source:

12 Contents 12 About Analysys Mason Market context and outsourcing models Backhaul strategies and cost Conclusion

13 Backhaul strategies and cost Overview Up to 70% of transmission opex is associated with the backhaul 13 Typical breakdown of opex for a Western Mobile Operator 2G/3G Up to 70% of transmission opex is associated with backhaul of 2G/3G The rest of the opex is spread between core network, interconnect and other links 36% Distribution of transmission opex 5% 10% 8% Other links Inter-MSC Interconnect links IP network 15% 6% 7% 13% Dark fibre and SDH Microwave licences 3G links 2G BTS leased lines Real opportunity to save significantly on opex by optimising backhaul network Source: Analysys Mason

14 Backhaul strategies and cost Overview Today, 2G and 3G backhaul can be accommodated using TDM transport network 14 2G MS (voice only) BSS TDM CN Nb CS-MGW Abis A Mc CS-MGW B Nc Mc PSTN PSTN BTS BSC Gb IuCS MSC Server Gs VLR D H C SS7 GMSC server Iub RNS IuPS ATM Gr HLR Gn AuC Gc IP/ATM Gi PSDN Node B RNC SGSN GGSN 3G UE (voice & data) BSS Base Station System CN Core Network SGSN Serving GPRS Support Node BTS Base Transceiver Station MSC Mobile-service Switching Controller GGSN Gateway GPRS Support Node BSC Base Station Controller VLR Visitor Location Register HLR Home Location Register RNS Radio Network System AuC Authentication Server RNC Radio Network Controller GMSC Gateway MSC

15 Backhaul strategies and cost Introduction of IP With R5 of the 3GPP standard, the 3G network now has the option to use IP for both IuCS and IuPS interfaces 15 IP Nb CN CS-MGW UTRAN IuCS Mc CS-MGW B Nc Mc PSTN PSTN Iub RNC MSC Server Gs VLR D H C SS7 GMSC server Node B IuPS Gr HLR AuC Gc IP Gn Gi PSDN SGSN GGSN 3G UE (voice & data) BSS Base Station System BTS Base Transceiver Station BSC Base Station Controller RNS Radio Network System RNC Radio Network Controller CN Core Network MSC Mobile-service Switching Controller VLR Visitor Location Register HLR Home Location Register AuC Authentication Server GMSC Gateway MSC SGSN Serving GPRS Support Node GGSN Gateway GPRS Support Node

16 Backhaul strategies and cost Introduction of IP The migration from TDM to IP will enable operators to decouple bandwidth from costs 16 The incremental bandwidth required by new applications, such as mobile broadband, is not proportional to additional revenues TDM backhaul does not allow to decouple bandwidth from CAPEX investment: Cost of E1 leased lines is proportional to bandwidth: nxe1 = n x cost(1 E1) Cost of higher TDM capacities (SDH) is in discrete steps, and does not allow operators to shape and control the cost of the backhaul Illustrative Cost of TDM Vs Ethernet leased lines STM-16 STM-4 STM-1 E3 "TDM" "Ethernet" Ethernet backhaul breaks away from this model by: Following a logarithmic cost profile Having a finer granularity for bandwidth upgrade Bandwidth (Mbps) Providing a pay as you go capacity increase model to enable the operators to better shape up their cost structure Technology Increase in capacity (x) Corresponding increase in cost Ethernet times TDM times Ethernet vs. TDM leased lines cost comparison: [source Analysys Mason]

17 Backhaul strategies and cost Introduction of IP But without an efficient aggregation network infrastructure, the cost benefits of IP will be limited 17 Increased packet multiplexing gain No Grooming in Access loop No Grooming in Backhaul Network Multi-service Switch (Concentrator) No Grooming in Access loop Grooming in Backhaul Network Multi-service Switch (Concentrator) Multi-service Switch (Concentrator) Grooming in access loop Grooming in Backhaul Network Multi-service Switch (Concentrator) Multi-service Switch (Concentrator) RNC Multi-service Switch (Concentrator) RNC Multi-service Switch (Concentrator) RNC Point to Point Star Aggregation Daisy Chain Aggregation The key will be to aggregate the traffic as close as possible to the Node B / BTS

18 Backhaul strategies and cost Introduction of IP In the case of full outsourcing models, tower operators could provide backhaul services at a very competitive rate 18 BTS Operator A TDM IP Node B BTS Ethernet Operator B TDM PBT Edge Mux With Pseudowire Ethernet Operator A Operator B IP Node B Ethernet VLAN 1 VLAN 2 PBT Multiservice Operator C BTS Operator C TDM VLAN 3 VLAN 4 VLAN 5 Platform VLAN 6 IP Node B Ethernet Tower site

19 Contents 19 About Analysys Mason Market context and outsourcing models Backhaul strategies and cost Conclusion

20 Outsourcing and network sharing Conclusions Conclusions 20 Driven by market requirements, outsourcing strategies are increasingly popular There are many outsourcing models, ranging from full RAN outsourcing to outsourcing just O&M Site/RAN share can be considered as an outsourcing model, especially if JV is created The principal actors are equipment vendors, tower operators and MNOs themselves Levering on traffic density achieved by multi-operator collocation makes it very attractive to offer backhaul services PBT is one of the technologies that will enable multi-operator traffic to be backhauled to their respective aggregation networks

21 21 Franck Chevalier Tel +44 (0) Fax +44 (0) Copyright The information contained herein is the property of Analysys Mason Limited and is provided on condition that it will not be reproduced, copied, lent or disclosed, directly or indirectly, nor used for any purpose other than that for which it was specifically furnished. This was first presented at the Informa European Backhaul Conference, Madrid, in September 2008