Solutions for Expanding Data Usage

February 26, 2009 at 3:58 am | Posted in Uncategorized | 1 Comment
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Q: What would you do if your business costs were forecast to increase 100X?

A: Find ways to cut costs!

Operators In Search of Solutions

Having established the long-term trend of exploding data growth (see previous analysis “Problem: Data Traffic Growing Faster than Revenues“) and the consequent threat to profitability (see previous analysis “100X Data Growth vs. 2X Revenue Growth“), Operators are already looking for ways to offload or eliminate cost, and multiple solutions will be required. The problem represents a severe threat to mobile network operators (MNOs): perhaps 100X growth of aggregate data vs. 2X growth of revenue (in the next 5 years). This unrestrained growth in cost is not just a threat to the nascent mobile internet business, but to the entire industry, since the MNOs rely on mobile Internet services for revenue growth. If your Cost Of Goods Sold (COGS) increased 100X, what would you do? Find ways to cut out fat!

This problem is so severe that it must be addressed systemically, with multiple solutions. Since the growth in cost is 100X, no single fix can deliver that reduction in total cost of data delivery. LTE is not a silver bullet that can magically solve this problem: LTE offers, perhaps a 6X cost reduction against a tide of 100X growth in use (and therefore marginal cost). Analysys recently examined the business case for LTE and found that LTE could cut the cost of delivering a MB of data to 1/6 of its current level: from € 0.60 to € 0.10 pr MB. Since the delivery of data service is composed of many components, each component will have to be scrutinized and cost-reduced for the system to reach the necessary cost reduction.

Where is the greatest amount of CAPEX and OPEX in the value chain, and what are the greatest opportunities for cost reductions? Here is a list of promising candidates for reducing the cost of a segment of the data value chain, listed from high-level applications to low-level bit transport (not in order to total, potential cost reduction):

  • Elimination of Handset Subsidy
    Operators seek to eliminate handset subsidy since it represents a large, initial, per-subscriber cost. Some markets already have migrated to this model. In the U.S., for example, Clearwire is pioneering this model by focusing on the End User benefit of using any compatible device to their network.
  • Handset OS standardization
    The current handset market is filled with many competitors-too many competitors-that split the effort in developing an delivering handsets and applications. Competition will cull the field to a smaller number. Operators have made this concern known and have already started to implement this, within their own domain. Unfortunately, when each carrier reduces the number of handset OSs used, it does not effectively reduce the total number of OSs in the industry, as each operator may have a favorite. This reduction will, therefore, take time to play out, as the industry slowly reaches a consensus and pares down the list of providers.
  • Prioritization & Content-specific Billing, Policy-Based Control & Enforcement, Subscriber-awareness, and Fair Use Enforcement
    Operators can be more efficient in delivering traffic by smoothing out demand (reducing peaks demand) by prioritizing usage into classes (e.g., conversational VoIP traffic has stringent delivery requirements, whereas email can be delivered using whatever remaining capacity is available, as “best effort” delivery). Overall data traffic can be intelligently managed, so that congestion is reduced. In particular, fair use enforcement is likely to be invoked to avoid a few users hogging the available bandwidth. In some fixed broadband networks, 5% of users consume 80% of the bandwidth. By significantly reducing peak demand, less network capacity is required, reducing network cost.
  • Flat, Enhanced Packet Core (EPC), Architecture
    In LTE, the IP access architecture is flattened and simplified, allowing the architecture to be delivered in fewer components and connections to be achieved with fewer hops. This significantly reduces the cost and increases the scalability.
  • IP Backhaul (e.g., via Metro Ethernet)
    This is the single, greatest opportunity for reducing Operating Expenses (OPEX), since transport costs represent as much as 45% of OPEX. High-speed IP backhaul is becoming available in metro areas, and can replace the use of costly and cumbersome dedicated circuits (e.g., E1/T1) and point-to-point microwave when connecting hundreds of cell sites back to the mobile network.
  • RAN Sharing
    Where allowed by regulation, multiple MNOs can share a single, common RAN, avoid duplication of capital and operational resources. This can save perhaps 30% of RAN costs for each operator.
  • Monitor Resource Usage
    Available bandwidth can be efficiently shared by use of active monitoring and policy control.
  • Femtocell and UMA
    These techniques promise to radically reduce the capital and operating expense of delivering mobile broadband, by (a) offloading traffic from the existing, macrocellular network to small cell sites installed in the Home and Workplace of End Users. MNOs not only offload traffic, but they also obtain significant cost reduction by obtaining free use of End User resources. Femtocells obtain free backhaul from the End User; UMA obtains free backhaul, radio (Wi-Fi) and spectrum (Wi-Fi).
  • Increase RAN Capacity (e.g., Spectral Efficiency via LTE)
    By delivering more bits to more users over the same spectrum, the cost of radio spectrum (a large, initial investment that can be $1 Billion or more) is reduced. Ongoing improvements in radio techniques continue to provide greater and greater efficiencies, delivering 10X capacity improvements from current to planned systems (i.e., recent advances included in HSPA+ and LTE, such as OFDMA and MIMO).

Only by relentlessly and systemically reducing the cost of each of the components can we hope to maintain profitability as traffic (and cost) continues to increase dramatically. Femtocells, especially, hold a great deal of promise as they can simultaneously cut away the major CAPEX and OPEX costs-as described separately in “Femtocells: A Key Cost Reduction, via Offload.”

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1 Comment »

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  1. Great job pointing out the points in the value chain that could be addressed to relieve the pressure.

    Additional offload solutions are coming to market that siphon Internet bound traffic right out of the 3G data stream, using standard protocols, and redirects it to Internet interconnects, avoiding a portion of expensive 3G backhaul and the core network elements altogether. However, mobile operators won’t hear about these tactical, money saving solutions from their typical suppliers because the capacity upgrade gravy train is difficult for them to resist. Offering something that will cannibalize their own revenue stream? Unthinkable.

    Look outside the box.


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