In spite of years of speculation that mobile operators may switch to alternative technologies such as WiMAX or adopt network sharing to mitigate the large cost of 3G licences, mobile operators have proved to be relatively risk averse. Almost all MNOs have opted to build and operate their own dedicated 3G networks, with the expectation that they would continue to invest in 3G enhancements, such as LTE – much to the joy of network infrastructure vendors. This is now set to change, bringing profound implications for mobile operators and network infrastructure vendors.
Mobile networks have evolved continually since the transition from analogue first-generation mobile systems in the early 1990s. The 3G UMTS standard introduced W-CDMA radio transmission and HSPA is now being deployed in order to improve the data rate, capacity and latency (time delay) of the UMTS downlink (HSDPA) and uplink (HSUPA). The 3GPP (the standards body responsible for UMTS) has continued to develop major improvements to UMTS, which include LTE, and within the mobile industry there has been an expectation that mobile operators would continue to deploy such enhancements.
Despite the considerable effort invested in the development of 3G enhancements such as LTE, three factors now challenge long-standing assumptions for mobile network evolution and could radically change future investment plans:
- the competitive strength of fixed broadband technologies
- indoor base stations (commonly referred to as picocells and femtocells)
- dedicated broadcasting technologies.
One of the drivers of the enhancements to 3G networks has been long-running speculation that wireless technologies could ultimately remove the need for fixed broadband services. In reality, high-performance fixed network broadband services are easily available and have been widely adopted, severely limiting the opportunities for mobile networks to fulfil this role. In most developed countries, low-cost DSL (and cable) services are available. Furthermore, fixed broadband penetration is high in many markets and is continuing to grow, as shown in Figure 1.
Figure 1: Forecast of household penetration of fixed broadband services for selected countries, 2007–2012 (Source: Analysys Research, 2008)
In five years’ time, indoor traffic could represent a much greater proportion of mobile traffic than it does today, increasing from 35% in 2007 to 70% or more.1 Providing high-quality, high-performance indoor coverage using traditional outdoor macrocell base stations is a major challenge, and is a driver of enhancements to macrocell networks. However, recent technological developments make it economical to use indoor base stations, instead of macrocells, to improve indoor coverage. If indoor base stations are deployed widely in homes and workplaces, it could mean that more than half of all mobile service traffic will not need to be carried by conventional macrocell base stations. This would have a profound impact on the need for 3G enhancements.
The delivery of mobile TV and radio services is a major driver of improvements to network capacity and throughput in mobile networks, but if most of the traffic is broadcast content, it may be more cost effective to deliver it using dedicated broadcasting networks, such as DVB-H. In June 2006, 3 Italia was the first MNO in the world to launch DVB-H services, offering 12 television channels with coverage of 60% of the Italian population. By June 2007, 3 Italia had 719 000 DVB-H customers. TIM and Vodafone launched DVB-H services in Italy during 2006. Launches of DVB-H are expected in Austria, Germany, France, the Netherlands, Spain and Switzerland in 2008.
Just as the future of LTE is looking increasingly uncertain, there has been a significant recent development in network infrastructure sharing, which could not have come at a worse time for network infrastructure vendors.
In order to develop their businesses, MNOs may have to invest in areas other than 3G networks, including:
- dedicated broadcasting networks
- indoor base stations
- fixed broadband networks, such as unbundled DSL
- multimedia content.
As a result, investment in traditional 3G macrocell networks will come under increased pressure, and MNOs must find ways to minimise network costs, particularly if their networks have ample capacity to support services in the foreseeable future. The mobile industry was simply not ready to embrace extensive network sharing several years ago, but circumstances may have changed. Network sharing will become a financial necessity for many MNOs, allowing them to operate existing networks more cheaply, for example through sharing operational costs and removing unnecessary base stations (where there is duplication of coverage and capacity by existing base stations).
In light of these changes, MNOs need to review their strategies for network evolution, while infrastructure vendors need to prepare for the consolidation of 3G networks and the intense competition for market share.
1 Analysys Research estimate.