Crowd-Sourcing - Making small cells business profitable Business & Network Consulting A Huawei White Paper by Deepak Rao, Per Yhland, Yan Bian November, 2014
CONTENTS... 1 Executive Summary...1 2 The challenge in small cells business case...2 2.1 Typical business case in a High ARPU market...2 2.2 Business case deterioration in medium and low ARPU markets...2 3 Targeted improvements in small cells business case...3 4 Coactive ecosystem to reduce operator s small cells costs...4 4.1 Demand led small cells deployment...4 4.2 Cost-effective deployment and maintenance option...5 4.3 Huawei s Crowd-sourcing example...7 5 Service Anchor solution to aid operators to explore new revenue...9 6 Conclusion...12 7 References...13 8 About the Authors...13
1 Executive Summary... Huawei uses the Crowd-Sourcing term to loosely refer to a multi-sourcing arrangement. Huawei believes that to deliver a ubiquitous small cells service operators need to multi-source sites, tools and services. For instance to acquire new sites, operators should not only rely on municipalities who own traditional street infrastructure such as lampposts, but also broaden the reach to include private landlords and owners of other street furniture such as billboards and bus shelters. Worldwide, many operators are considering small cells in their overall network strategy to provide capacity boost and coverage infill for existing macro networks; however key small cells challenges still remain [1] : Site acquisition including planning / zoning regulations and power requirements Lack of appropriate backhaul solutions and ability to integrate different backhaul technologies Integration and monetization of existing WiFi assets Lack of innovative services to create new revenue streams As operators begin rolling out small cells they face a number of logistical issues that are very different from planning and rolling out a macro network. In addition to limited availability of backhaul, site and power, according to the Small Cells Forum, Tier 1 and Tier 2 operators identified three specific barriers [2] : 58% of them thought Securing optimal site location especially in outdoor locations was among top issues, i.e. not the availability of any lamppost, but an optimally located lamppost 40% identified the need for new tools to provision and manage the network ; and 32% were unsure of monetization, i.e. to make small cells business case commercially viable This paper introduces the Huawei s Crowd-sourcing concept (see sidebar for definition), which addresses the above barriers by making site acquisition process simpler, provisioning & maintenance operations easier and new service monetisation richer. Huawei s Crowd-sourcing for small cells concept helps operators to transition from planning a small cells network to rolling out the network and from planning tactical logistical issues to planning for commercial success. 1
2 The challenge in small cells business case According to the Small Cells Forum, data usage in indoor premises contribute to over 80% of overall cellular data traffic; thus making small cells a relevant option to serve customers in enterprises and public hotspots. To analyse the business case for indoor deployments, it is assumed that many venue owners would offer site for free in order to secure better indoor cellular coverage. Additionally, to make the business cases viable it is further assumed that operators can enter into national roaming agreements while providing small cells services; such roaming agreements will secure economies of scale and reduce the overall cost to serve. 2.1 Typical business case in a High ARPU market In high ARPU markets, if backhaul and sites are provided for free, then with growth in data consumption, small cells solutions can be more cost-effective than the macro only alternatives. Small cells business cases can exploit this reduced cost to serve (i.e. cost per unit traffic) in medium and large premises such as medium/large enterprises, shopping malls and outdoor hotspots. Irrespective of who provides backhaul and sites, in a high ARPU market, the business case is stacked in favour of small cells solution for large premises. However, when backhaul, site and power costs are added back, the cost to serve a medium enterprise with small cells is only just comparable to similar costs with the macro network. On the other hand, for small enterprises the cost to serve is only competitive when backhaul and site are provided for free. 2.2 Business case deterioration in medium and low ARPU markets Due to lower cellular data consumption, low and medium ARPU markets exhibit higher cost to serve (i.e. cost per unit traffic) than those observed in high ARPU markets. With increased data traffic, small cells solutions can continue to be cost effective for large premises such as large enterprises, shopping malls and outdoor hotspots. 2
However the cost to serve a medium enterprise, with backhaul, site and power costs included, is barely comparable to the costs in macro network. This means the cost-effectiveness of small cells solution for medium enterprises varies on a case-by-case basis. As in the case of high ARPU market, small cells solutions for small enterprises elicit a closer look even when backhaul and site are provided for free. 3 Targeted improvements in small cells business case As discussed in the previous section, the availability and the cost of backhaul connection at a site can make or break a small cells business case. In addition to optimising the type of backhaul solutions to use at a site, operators can reduce costs through judicious site selection strategies. Furthermore, to make small cells business case attractive, operators need to explore a number of options to increase revenue. This means operators need to Reduce costs by optimizing deployment (i.e. in-source critical activities such as site selection and planning), by sharing resources (i.e. sites, backhaul and power), and by simplifying installation and maintenance processes (i.e. out-source to site owners and utility companies). Find new ways to monetise small cells deployment by not only aligning with improved outdoor connectivity trends such as smart city initiatives, but also focusing on integrated IT solutions such as cloud based services for indoor enterprise scenarios and public hotspots. In addition to traditional cost reduction methods, such as National Roaming and RAN sharing between small cells operators, Huawei s crowd-sourcing approach augments the operating profit in the small cells business case. It addresses both the need to rapidly deploy & cost-effectively maintain a small cells infrastructure, and the demand for increased small cells monetisation through new revenues; see below. New Operating Profit = (Revenue+new value capture) (TCO reduced costs) 3
This improved operating profit is the essence of Huawei s Crowdsourcing for small cells conceptual model, which builds a coactive ecosystem comprising of operators, site owners, and third party application developers. A coactive ecosystem is one that encourages joint action and interaction among different players within the community. Huawei further strengthens this ecosystem with a wide range of network planning tools and easy to deploy & manage small cells products and solutions. Huawei s crowd-sourcing approach allows operators to Plan demand led cost-effective deployment through a coactive ecosystem of tools and partners Increase new applications revenue through innovative third party applications hosted on a cloud platform, i.e. on Service Anchor solution 4 Coactive ecosystem to reduce operator s small cells costs Huawei s network planning suite of tools enables operator to determine when and where to deploy small cells. Furthermore, pre-selected alliance of global partners helps an operator to secure optimal sites and reduce deployment costs. 4.1 Demand led small cells deployment In order to determine where and when to deploy small cells, operators need to measure data traffic in various locations, and classify each geographical location into clusters of high and low traffic. Locations in each cluster should periodically be analysed as to whether they would benefit from small cells, i.e. ease congestion or improve coverage/capacity. Upon successfully identifying the locations needing small cells deployment, the next challenge for an operator is to secure an outdoor site, for instance in downtown areas. Exclusive site acquisition agreements with local municipalities limit the number of operators who can use traditional street furniture such as lamp posts and telephone posts. Often suitability of such lamp posts in the hotspot areas may be 4
less than ideal to deploy small cells; hence new sites such as walls, bus shelters and billing boards have to be considered. Newer sites drive changes in equipment form factor and style, while having to simplify installation techniques to suite the local environment and regulations. Operators are expected to use the right camouflage for small cells equipments on streets. Huawei has been actively working with partners around the world to camouflage small cells installations in a number of different scenarios [see Figure 1]. (a) Bus shelter (b) Smart LED lamppost (c) Advertising billboard Figure 1: Operators can acquire new sites for small cells from site aggregators 4.2 Cost-effective deployment and maintenance option Operators need to expand their expertise to secure access to various sites and backhaul resources. An ecosystem of crowd-sourced partners enables operators to transfer logistical risks while reducing overall costs for small cells installation, operations and maintenance. For instance, multi-national operators with footprint in diverse city environments can enter alliances with Huawei s Crowd-sourced partners 5
such as global advertising companies with access to local site assets and local site aggregators & system integrators who can install and maintain the small cells access points (see Figure 2). Such vendorled alliances lead to economies of scale, which in turn give operators better negotiating power over local partners to further reduce the cost of bespoke installations. Figure 2: Huawei s crowd-sourcing approach allows easy deployment of small cells and increase monetization options through new applications Huawei is partnering with operators, site owners and local installation and maintenance companies to build a coactive ecosystem. Huawei's Crowd-sourcing approach provides operators with access to pre-selected and approved set of global partners with local assets. Each operator can negotiate with global partners to reduce costs for site rental, power and OPEX. Analysing the business case for large premises and outdoor small cells deployment in a High ARPU market, Huawei s crowd-sourcing approach can reduce total cost by 15-25% due to optimal access to site and power, and in cases where backhaul is provided by the site owner, total cost savings to the tune of 30-40% can be realised (see Figure 3). 6
Figure 3: TCO savings with optimal site, power and free backhaul in a High ARPU market Additionally, cloud based maintenance delivered through NFV (Network Functionality Virtualisation) assets reduces maintenance costs and improves the business case for outdoor small cells. Huawei s crowd-sourcing approach gives operators a plug-n-play flexibility to rapidly deploy small cells, thus allowing operators to focus more on commercial success. 4.3 Huawei s Crowd-sourcing example China Mobile Communications Corporation (CMCC) is the #1 operator in China both in terms of subscriber market share (62.5% in Q2 2014) and revenue market share (65% in Q3 2014) [3]. CMCC observed degraded service experience in downtown areas of Shanghai due to rapid growth in cellular data traffic. CMCC decided to deploy outdoor small cells in downtown areas to improve service quality for its data 7
users, thereby increasing customer loyalty and alleviating congestion in the macro network. Huawei is working with CMCC to formulate a win-win strategy to deploy outdoor small cells in Shanghai. Figure 4: Cooperation model among Huawei's Crowdsourced partners As an example of how Huawei s Crowd-sourcing for small cells concept works (see Figure 4): Shanghai Municipality had reserved funds for its Smart City strategy, as part of this initiative the Municipality funded smart LED lampposts (see Figure 2). CMCC negotiated with the electricity provider for outdoor sites, i.e. in exchange for free site and power, CMCC not only equipped the new smart LED lampposts with small cells, but also zero-rated the advertisement traffic for the LED boards. Free site and power supply improved the business case for outdoor small cells, which in turn will increase end-user cellular data usage, decrease congestion in macro network (delaying cell splits) and improve subscriber loyalty (i.e. reduce churn of High ARPU users). It is forecast that as Shanghai Municipality continues to fund more LED lampposts, with increased volume the overall cost of individual lamppost will reduce by half. Huawei has worked with partners such as MOMA and Yaming Lighting to design four types of LED lampposts, each equipped with bespoke small cells equipment to suite local streetscape. In addition to LED lamps and advertisement billboards, each LED lamppost is equipped with CityPAD. CityPADs are multimedia terminals offering a range of citizen support services, such as 8
Facility for residents and businesses to lookup local city information Internet search services, including finding new market promotions Check and pay utility bills such as electricity, telephone, water Advanced services such as hospital appointments reservation, congestion charges and others The above crowd-sourcing example demonstrates a win-win strategy for all the stakeholders, including CMCC subscribers and citizens of Shanghai. A win-win strategy allows CMCC to focus on increasing service revenues from small cells. 5 Service Anchor solution to aid operators to explore new revenue Operators using small cells as in-building solutions are well placed to exploit new trends such as growing adoption of BYOD (Bring Your Own Device) and increased use of mobile devices in the workplace. Such operators can further bolster their Small cells business case by offering Enterprise IT based services. To enter the Enterprise IT market, operators need to develop key assets and capabilities, such as becoming An integrated provider for all communication needs of an enterprise including fixed voice and fixed data services A converged service provider offering data offload / onload between WiFi and cellular so as to reduce cost to serve an enterprise's data demand One stop shop for communication and IT needs of small / medium enterprise, with services such as hosted applications and enterprise gateways to the Internet In short, operators need an intelligent platform that acts as an Enterprise Gateway for data and fixed traffic. 9
The Service Anchor solution is based on an open platform and designed to be a part of the operator s assets (see Figure 5). It plays an important role within the crowd-sourcing ecosystem, as it enables the operator s network to connect to enterprise application platforms, which support 3rd party interfaces. Such enterprise application platforms can be hosted either in Private, Public or Hybrid cloud environments. Huawei s crowd-sourcing partners include third-party IT applications companies producing enterprise applications. The Service Anchor platform enables operators to monetise access to Service Anchor APIs and features. For instance, operators can Charge a third party analytics company to use Locationbased APIs to gain detailed insights into where and when to advertise a product. Offer sponsored data for end users in certain locations such as museums and retail environments. Service Anchor aggregates multiple Pico and Lampsite access points with good connectivity. Such aggregation points in the network become gateways for operators to offer a range services to diverse user segments. For instance, Small and Medium Enterprises can be offered services such as payroll, HR management, cloud storage, etc. On a similar note, Service Anchor can serve non-enterprise consumers with locally cached content and video services from the operator s own CDN such as advertisements in a retail store. Large enterprises often have multiple geographically dispersed offices; Service Anchor enables the operators to either connect to large enterprise's private cloud or hybrid/public cloud of IT infrastructure provider. Global infrastructure companies such as IBM not only reduce cloud access and storage costs due to economies of scale, but also offer a wide range of enterprise applications. Irrespective of whether an operator owns cloud infrastructure or collaborates with IT infrastructure companies, Service Anchor allows secure access to cloud. 10
Figure 5: Service Anchor supports Open Network API and provides secure access to enterprise cloud Finally, Service Anchor with a number of innovative services can be an attractive tool for operators to secure access to in-building sites. Enterprises will be more willing to offer in-building access in exchange for some IT service such as secure access to public / hybrid cloud. 11
6 Conclusion As operators gain experience in deploying small cells solutions, the challenges they face become more specific: access to optimal sites, employing the right set of tools to help deployment & maintenance, and the search for new revenues to monetise small cells deployments. Although backhaul is the most important component of the business case, other parameters such as site and power can potentially determine the small cell solution to deploy. For instance, choice of small cell solutions for Small and Medium Enterprises in High ARPU markets is sensitive to who pays for site and power (i.e. operator vs. venue owner). Our analysis shows that Lampsite solution is preferable when the operator pays for power, while Pico solution is preferable when a third-party pays for power. To help operators overcome these challenges, Huawei is building a coactive ecosystem of tools and partnerships: Huawei s crowd-sourcing for small cells concept. It consists of Tools to help operators to identify the locations that benefit from small cells deployment An ecosystem of global partners with local site assets to improve availability of optimal sites Small cells products and solutions that suite varied site requirements, including the right camouflage required by many site owners and planning authorities An ecosystem of site aggregators and system integrators to help with quick deployment and easy maintenance / operations of small cells sites An ecosystem of content providers and third party IT companies with access to cloud services and applications Service Anchor solution that not only provides small cells end-users with secure access to cloud services, but also provides operators with Open Network APIs and an associated charging model for API access from IT application vendors Huawei s crowd-sourcing for small cells concept is innovative in bringing together a diverse set of players to improve both the revenue and the cost sides of small cells business case, and more crucially to reduce the time-to-market in small cells deployment. 12
7 References [1] Small Cells, Big Opportunities Huawei whitepaper, 2013 [2] Maravedis-Rethink survey of tier one and two mobile operators worldwide, January 2014 [3] GSMA Intelligence Market Data for China [www.gsmaintelligence.com] November 2014 8 About the Authors Principal Consultant, Global Business Consulting Deepak is an experienced consultant in the MBB Consulting practice in the UK. He is involved in projects for operators in America, Europe, Middle East and Asia, focusing on MBB data traffic monetisation, Small cells business case and LTE go-to-market design. He holds an MBA from London Business School, UK and an MS from Virginia Tech, USA. Deepak Rao Prior to joining Huawei, Deepak worked for Nokia in the handset business, Motorola in the Core network technologies and HP in the Cloud Computing area. Principal Consultant, Global Business Consulting Per Yhland Per has a long-term international management experience with more than 20 years from the telecom industry including both leading suppliers and mobile operators in Europe, America, Middle East, Africa and Asia with projects as cost and revenue analysis for cellular network migration scenarios, SmallCell and WiFi business cases, management for hire. He holds both an MBA and a MS from Sweden. Prior to joining Huawei, Per has held several senior positions in companies as Ericsson, ABB, Stockholm Energi, plus a range management assignments as partner in a consulting firm. Dr. Yan Q Bian Marketing expert, Global Business Consulting Dr. Bian has 28 years experience in telecom across industry, academy and government. Since joining Huawei in 2011, she is leading research program within the UK competence centre. Yan has been involved in a number of consulting projects covering MBB, SmallCell and LTE. Prior to joining Huawei, Yan worked for Alcatel-Lucent and managed a large LTE/ WCDMA organization. She holds several International granted patents, authored many IEEE/IET journals and books in areas of network and wireless communications. Yan received her PhD from University of Bristol, UK. Dr. Bian has been recognised as a national distinguished expert by Chinese 1000 high-level overseas talents program. She is a visiting professor at UESTC, China. 13
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