The transition to long term evolution or LTE is expected to fundamentally change the mobility ecosystem, from the joint perspectives of architecture and business potential, writes Jonathan Kendall. Co-sponsored feature: Juniper Networks
SP business relationships evolving from linear model to value-web model
Jonathan Kendall: the core issues for LTE have to be
addressed about the business model that operators
want to pursue
Development of LTE is essentially on track, attracting global industry support and infrastructure vendors are now shipping LTE-compatible solutions to customers in Europe, Asia and North America.
As many as 26 service providers have publicly committed to LTE deployments already, with the first commercial LTE networks expected to enter service in 2010. As the adoption gains momentum, all members of the ecosystem — service providers in particular — are taking a closer look at the LTE business case.
Back when the 3G network was introduced, the business case analysis often gave way to discussions centred on the technology choice and it is now widely recognised that the wireless industry failed to launch 3G in a commercially sound way.
This time it is likely to be different and there will be no “big bang”. LTE will be deployed in response to market demand, not in a wide area, ”build and they will come” manner like 3G.
This is not a big blow to LTE for the longer term: it is a reality check. Many operators won’t make any significant roll-outs even as early as 2012, but that is only three years away and a reasonable timescale for those investing in getting the technology to market.
Some carriers are moving more aggressively — notably Verizon Wireless, China Mobile and, in Japan, NTT DoCoMo and Softbank. The CDMA community will make the shift to 4G, in general, more quickly than its W-CDMA counterpart, whether the carriers choose WiMax, such as Sprint Nextel, LTE, such as Verizon Wireless, or a combination of the two, such as KDDI in Japan.
Operators will leverage all the flexibility they can find in deployment — squeezing more performance out of HSPA and using LTE only in “hot zones”; using femtocells, software defined base stations and shared radio access networks to maximise use of spectrum and return on investment, and balance cost with usage.
Many operators are adopting a watch-and-wait policy, looking to exploit second-mover advantages. They will be scrutinising cutting-edge carriers during their evaluation period — to see how an IP-based, open access, web-oriented service provider really functions, and how the network supports its model.
Operators want to know whether the applications are in place and the user experience can be supported effectively — and that turns everyone’s attention to the core network.
Getting RAN standards right is important and the focus of most public scrutiny. However, the new-style core will be largely responsible for delivering the web services, user interfaces, security and customisation — all at consistently high speed — that consumers will require, and supporting thousands of rapidly changing apps rather than just voice, SMS and some basic data.
Dilemma for legacy operators
The core side of the current LTE standards release are only just finalised and some issues have been deferred as they could not be settled in time for Release 8. The broader dilemma that faces legacy operators is how quickly to move to a fully IP core — IP Multimedia Subsystem or IMS — with the huge cost and risk involved. A fast-track approach to IMS is favoured by most CDMA players, but is far harder for GSM/W-CDMA operators. In moving to all-IP, it is far easier to start from scratch.
There is also the option to follow what the industry is calling a “Telco 2.0” approach with tight control of IP web services, via IMS, or follow a “Web 2.0” approach with full open access, browser-based apps and a shrunken core — and risk becoming a bitpipe as major content providers might like.
Existing operators need one eye on the evolving state of the mobile market and one eye on their existing revenue streams.
In today’s challenging economic climate there is simply no choice but to analyse the business case for LTE beforehand. The most frequently asked questions by service providers today are: “What is it going to cost?” and: “What kind of profits can it deliver?”
Most service providers are now trying to find an answer to these questions and are trying to reveal the true business potential of LTE by undertaking sophisticated trials.
Justifying the investment
Is this the right time to invest in LTE? How can service providers generate enough profits from LTE to justify the investment?
LTE’s economic benefits are grounded in the new capabilities it has to offer. Higher bandwidth and lower latency will significantly improve the user experience for bandwidth-hungry content and applications. LTE’s all-IP architecture, spectral efficiency, and bandwidth flexibility promise to improve overall network economics.
To understand how these capabilities will impact the LTE business case, it is useful to consider their potential impact on subscriber economics. Mobile ARPU has been trending down in recent years — for Western Europe from $36 in 2007 to $32 today, according to Ovum. LTE is supposed to reverse this decline by accelerating adoption of broadband data services and enable innovative new content and applications.
However, moving to an all-IP platform such as LTE is likely to drive end-users to use ”over-the-top” internet applications such as Skype, making it difficult for service providers to generate income.
LTE’s all-IP architecture will create a more open environment for OTT applications, which threaten to further commoditise the network. To overcome this threat and realise revenue gains from LTE, service providers will need to partner with content and application providers, develop application storefronts — witness recent appstore launches from Google, Nokia and Samsung — and perhaps deploy application programming interfaces that open up LTE’s value-added network capabilities to third-party application and content developers for a fee.
On the cost side, one major advantage of LTE is the re-use of the 3G radio network infrastructure. Much can be retained — including sites, masts and cabling — and most modern base station units from the RAN vendors are LTE-ready with a software upgrade.
Another major cost-saving measure in LTE is frequency re-farming, limiting the number of new licences required and so reduce site count for both urban and rural coverage.
LTE’s IP architecture and greater use of ethernet backhaul could significantly reduce transport costs per megabit, a key component of the cash cost per user.
Bandwidth-intensive services
Furthermore, LTE’s greater spectral efficiency, bandwidth flexibility, and use of 700 megahertz spectrum should reduce the number of cell sites and related costs required to serve subscribers. Yet over time these benefits are likely to diminish as demand for bandwidth-intensive services grows, and carriers are compelled to boost cell density and backhaul capacity to maintain network coverage and performance.
LTE’s new capabilities promise to essentially change how we think about mobility, from core voice and data services to high-value-added content and applications. But for the LTE business case to prove out, all segments of the ecosystem must enable the capabilities necessary for end users to reap the full benefits of LTE.
LTE will provide an opportunity for innovation that 3G has only begun to realise. But will service providers be able to transform their current vertical business model to a more web-based value model? The jury is still out on this.
Operators are taking a careful, indeed sensible, approach to LTE deployment: the core issues have to be addressed, and those are not just about standards and equipment, but about the whole business model that the operator wants to pursue in all-IP for the long term.
As and when service providers upgrade to LTE, it will be incumbent upon them to innovate and find new business models, new partners and new sources of revenue.
Otherwise they are likely to suffer the fate that all creations suffer if they fail to evolve with the times. For those that enjoy watching the mobile industry in rapid evolution, now is the time to switch on. GTB
Jonathan Kendall is director of EMEA mobile business development at Juniper Networks