Femtocell Opinion, comment and reviews

Network operators should invest in small cells to get out of debt

Tight BudgetSome of the major network operators are losing money and heavily in debt. How can they keep up with the demands of their customers, delivering more capacity, faster speeds and lower costs.

Where and how should they focus their investments?



Network operators in debt

Two weeks ago KPN, burdened with falling margins in its Belgian, Dutch and German markets, announced a €4bn rights issue. KPN justified it on the grounds of rising debt and commercial investments, such as the higher than expected €1.35bn paid in December at an auction for fourth-generation wireless frequencies.

Telecom Italia, whose debt is twice market capitalisation, is expected to issue €3 Billion of bonds over the next two years. With a credit rating marginally above junk bond status, it will be a test of financial market appetite

Verizon Wireless, while reporting revenue growth of 13% to $18.3 billion, posted a 6% drop in profits. That's partly due to heavy investment in their new LTE network, but also due to heavy subsidies on the iPhone – Verizon sold 4.2 million iPhones in the last 3 months of 2012 alone. on that theme, Sprint last year signed a $15.5 Billion deal with Apple, guaranteeing to pay the smartphone vendor at least that amount over 4 years in return for the iPhone.

With heavy capital expenses in spectrum, new basestations and handset subsidies, operators are no longer making such large profits as they used to or issuing large dividends to shareholders.

Even government subsidies aren't as plentiful as before, with the EU cutting their broadband enablement budget from €9 Billion to €1 Billion as Euro VP Neilie Kroes outlined in her blog.

While €1 Billion euros sounds a lot, when spread across Europe's 350 million people it works out at only about $4 each. That's little more than 50cents for each of the next 7 years.

Increased pressure for mobile data capacity

Much of the action at next week's Mobile World Congress is around Apps – everything from tools to build and test them more quickly, to a wide range of innovative and esoteric applications. Most, if not all, of the revenue associated with these apps will bypass operators – being bought directly by end users from the big app stores. While Apple is paying out around $1 billion a month to their Appstore vendors, that's still a tiny fraction of the over $80 billion/month worldwide mobile telecom revenues.

Instead, operators pay for spectrum and network equipment to carry the traffic combined with heavy subsidies for the smartphones themselves. The more successful apps, tablets and "the connected world" become, the greater the demands on limited network resources.

Focussing on core business

It seems to me that operators have been playing with and slowly evaluating many new and diverse market opportunities since before the advent of 3G. Few have met with much success, partly due to their very conservative approach (i.e slow moving pace), demandingly high margins (i.e. looking to match the historic 35+% returns of network operation) and limited co-operation (e.g. every operator had to have their own App store, few agreements for operator independent payment system for non-telecom purchases etc.).

Meanwhile, the perception of service received by customers has gone down.

A recent objective survey by YouGov in the UK found:

- 39% of managers with IT decision-making responsibility from large businesses say that their businesses have experienced issues with poor in-building mobile coverage and/or capacity
- 35% of IT managers whose businesses have a mobile operator say that they would be prepared to move to a wireless carrier that could guarantee a better indoor solution
- A quarter (25%) of IT managers whose businesses have had a problem say that they have spoken to their mobile operator for assistance but they were unable to help

Somewhat subjectively, I've heard more and more people comment on the noticeable differences in quality of service (for mobile data on their smartphones) between operators, reflecting the level of investment and technology over recent years. While it's a subjective measure at the moment, I believe this will become an even more significant issue in the near future. If you can't upload photos to Facebook these days, how can you expect to keep up with your friends?

I know myself that when making a business call and finding the voice quality poor due to a "bad connection" at the far end, it surprises me to hear that the caller is in their office rather than out on some remote unconnected area. Why haven't they done something to fix it? It's also more disruptive if you can't easily check email or search for information when out and about than before, because there is an expectation that you are always connected.

Surely it's even more important that network investment delivers tangible results to the end consumer. This is what operators really need to focus on before they lose out to their competition.

Making the best investment choice

Operators spend vast sums of money in four broad areas

a) Spectrum. Small cells re-use the same spectrum, delivering much higher capacity than simply expanding existing sites. While the economic tradeoff will depend on local conditions (spectrum pricing, small cell deployment costs), greater investment in small cells than spectrum might reap better rewards.

b) Handset subsidies. Huge amounts are spent by operators subsidising the latest smartphones, with profits deferred for years. While difficult to break out of the cycle (which T-Mobile USA is trying to do), the industry seems to have become unbalanced in favour of smartphone financing than network improvements.

c) Network infrastructure. The move to LTE has slightly increased the approximately $50 billion of new investment in radio access networks annually worldwide. This investment will shift strongly towards small cells over the next few years, but I'd argue that to meet capacity forecasts even greater investments are needed.

d) Operations: From back office billing, planning through to the retail stores, the operational side of the business also needs ongoing investment and streamlining.

As you might expect, I believe that small cells represent one of the most effective investments because they deliver substantially noticeable quality of service (both in terms of capacity and speed) to the end user. From a technical viewpoint, the short range between the smartphone and the small cell provides a much better quality channel (i.e. higher signal/noise ratio), which in turn enables the higher peak data rates available using higher modulation techniques and longer battery life. The longer lifetime of small cell equipment provides a more durable return on investment than a short term handset subsidy.

Finding adjacent markets

Of the several markets that network operators could expand into, those which are closest to their current business model and operational capability would seem to me to be most appealing.

Two areas that attract my interest include:

1) Machine to Machine (M2M). Many more electronic gadgets and equipment will want to be connected and on-grid in the future – from cars to cameras, from utility meters to bus stops. Several of the global telecoms players are well positioned to enable connectivity in vast quantities at low cost, provided they have adequate network coverage and capacity to match demand.

2) Enterprise/business services. Providing excellent coverage and capacity is only the first stage in exploiting the full potential of enterprise customers. The high cost of running internal telecoms services securely while allowing end users to bring their own device (BYOD) creates a market opportunity where network operators can run them more cost effectively (because of their scale), saving money for the business and extending their own revenues.

As we enter the melee of Mobile World Congress next week, it remains to be seen how closely those operators attending and event reporting will share this same focus.

Hits : 7190
  • 4




    A significant number of users continue to report poor mobile coverage in their homes. There will always be areas which are uneconomic for mobile operator to reach. They range from rural areas

  • 4




    The term Enterprise addresses any non-residential in-building including hotels, convention centres, transport hubs, offices, hospitals and retail outlets. It's not just intended for businesses to

  • 4




    Urban small cells (sometimes also named metrocells) are compact and discrete mobile phone basestations, unobstrusively located in urban areas. They can be mounted on lampposts, positioned on the

  • 4




    A rural small cell is a low power mobile phone base station designed to bring mobile phone service to small pockets of population in remote rural areas. These could be hamlets, small villages or

Backhaul Timing and Sync Chipsets Wi-Fi LTE TDD Regional

Popular Categories

Follow us on...