Reality Check: LTE and the Butterfly Effect

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
High in the Himalayas, if a butterfly beats its wings twice, rather than once, it could spark a chain reaction that could ultimately result in a hurricane in the Americas. This is the mathematical theory that minute differences in the initial conditions of an interconnected system can result in major differences in the ultimate outcome.
Building on the theme of my last column, this same concept can help shed some light on why mobile operators around the world appear to be adopting such different strategies when it comes to the deployment of Long-Term Evolution network technology. LTE promises to bring about a step-change in the performance of mobile networks, enabling mobile operators to offer even faster multimedia services to many more people. It is not surprising then that 50 mobile operators worldwide have already committed to LTE plans, trials or deployments.
But their launch plans vary considerably. Some operators, such as NTT DoCoMo, Telenor and Verizon Wireless, are planning to launch LTE services as early as next year, while others, such as KDDI, SK Telecom and Telecom New Zealand, have said they don’t expect commercial launches until 2012 or even later.
This disparity is intriguing given that demand for mobile broadband services is growing rapidly across the world. Right now, the global mobile industry is adding 8 million new HSPA connections every month, with Europe accounting for 3 million of these, Asia-Pacific 2.8 million and North America 1.3 million. Mobile operators as diverse as T-Mobile and Hong Kong-based CSL have said that mobile data traffic on their networks has risen fourfold between 2008 and 2009.
Differences add up
But each mobile operator is in a slightly different position today and it is these seemingly small differences that explain the apparently wide variations in their strategies.
The most significant of these differences is the age of the equipment deployed in operators’ radio access networks. Operators that bought new base stations in the past 18 to 24 months are likely to have purchased ‘flexible base stations’. These base stations have been designed to be upgraded either via minor hardware changes or even via remote software upgrades, enabling the operator to choose to move either through the HSPA evolutionary steps to HSPA+ or on to LTE or both. Having purchased this flexibility, these operators can make their decision about when to deploy LTE entirely on the basis of other factors such as spectrum availability, network capacity and demand.
An operator with very old base stations can put themselves in a similar position by replacing their end-of-life equipment, which will have been written off financially, with these new flexible base stations.
Stuck in the middle
However, there is a third category of operators that purchased HSPA-capable equipment between two and four years ago. For this generation of base stations, the initial HSPA evolutionary steps are fairly easy to carry out as low-cost upgrades, but the step to LTE (or, in some cases, to HSPA+) will require additional investment in hardware. Replacing three or four-year-old base stations at this point in time would imply writing off a significant investment. Operators in this group could consider building an LTE overlay network, but this would still amount to a further major radio network investment in a relatively short period of time.
For these operators, the obvious choice is to stay on the evolution path through HSPA or CDMA until these base stations have achieved the return on investment envisioned in the original business plan. This doesn’t necessarily mean these operators will be at a competitive disadvantage – HSPA will deliver high enough bandwidth to address demand in many markets in the short to medium term.
Spectrum concerns
Even if mobile operators do have flexible base stations in their network, their decision about when to move to LTE will also depend on whether they have access to the right spectrum to fulfill their mobile broadband strategy. Deploying LTE in the 700 MHz to 800 MHz frequency band, for example, would be ideal for providing mobile broadband coverage over a wide geographic area with relatively few base stations, as well as providing in-building coverage, but may not provide sufficient capacity to meet demand in urban hotspots.
By contrast, deploying LTE in the 2600 MHz band, perhaps using both conventional base stations and femtocells, makes sense if an operator wants to boost capacity in areas where its HSPA network or EV-DO network is highly congested. But using the 2600 MHz band to provide LTE services across a large geographic area would probably require the installation of entirely new base stations and could be prohibitively expensive.
Preparing for the storm
Prototype LTE chipsets are available now and commercial devices are likely to be available in mid-to-late 2010, but operators still need to consider how soon equipment vendors will roll out LTE equipment compatible with the frequency bands they have available for deployment. There is little point in moving fast to deploy an LTE network at 900 MHz, for example, if handset and dongle makers aren’t planning to support that band anytime soon.
Another important factor is the pricing model that holds sway in the operator’s market – the revenue generated by mobile broadband services follows a distinctly different pattern depending on whether postpaid or prepaid is the predominant tariff model. Finally, some operators tend to be ‘early adopters’ of new technology, while others prefer to wait.
So, there are several key questions operators need to address when building a business case for the move to LTE. The answers to these questions will determine exactly when they will deploy this potent new technology and helps explain the many different strategies being pursued by the world’s leading operators.
But one thing is certain: Nearly every operator will ultimately need to move to LTE to meet the fast rising demand for mobile broadband services. The LTE hurricane is coming. It is just a question of “when” rather than “if”.