Editor’s Note: With 2013 now upon us, RCR Wireless News has gathered predictions from leading industry analysts and executives on what they expect to see in the new year.
Instead of the usual lists of predictions for the year ahead, the team at Maravedis-Rethink’s MOSA service thought they would try to project the key elements that will make up a successful business model for carriers deploying LTE networks in 2013 – driving them to new profits, or in some cases, just enabling them to survive in an over-the-top world.
There is a great deal of discussion about the risks for the early LTE operator. Will they end up spending $34.7 billion on LTE infrastructure – Maravedis-Rethink’s projected sum for the years 2012 to 2017 – and see no return, amid falling consumer data revenues and rising competition from over-the-top providers?
That is a very real possibility, but there is an elite group of operators that will not only survive the LTE transition, but will add significantly to their average revenues per user and profits. We forecast that LTE operators will add an average of $150 per year in entirely incremental ARPU from services enabled by LTE – but the most successful will add up to $600, which would double current figures in some cases.
The MOSA service tracks the top 100 “4G” operators round the world and analyzes in detail which carriers will be the greatest commercial success, and the factors that will drive that. In the course of that research, we have identified several trends which are critical drivers of 4G success, alone or, more often, in combination.
The recipe for success includes new ways to think about the network itself, and new ways to deliver profitable services.
Small cells/heterogenous networks:
Building the 4G network around dense zones of small base stations, often creating a dedicated layer beneath the macro network, has become almost received wisdom. However, throwing hundreds of thousands of miniaturized base stations at lamp posts will cost huge sums and deliver more interference than profit. Successful operators will form partnerships to secure the best sites and spectrum, and will invest in the best tools to plan and manage their networks in an agile way.
Small cell sales will reach 15.9 million by 2017, excluding Wi-Fi access points, which will also increasingly be integrated into the hetnet to provide additional capacity. Among the vendors, winners will be those companies providing intelligent network management, operations support and SON tools, to make sense of the huge meshes of base stations.
Clever spectrum usage
Many operators have already been left without the “beachfront” bands they wanted for LTE, such as digital dividend spectrum. Success now rests on “make do and mend,” squeezing more capacity out of existing frequencies, tying disparate bands together and tapping into spectrum previously considered unusable for wireless (as AT&T is doing with the WCS band).
There will be rapid acceleration in the use of TDD spectrum to augment FDD networks using techniques like supplemental downlink (as trialled at AT&T and Orange already). Another key trend will be use of mobile satellite spectrum to add to LTE capacity, as seen in the United States and western Europe.
The capacity crunch in backhaul is much discussed, and an important element of the survival guide is to use backhaul technologies and spectrum in a flexible way to maximize capacity and bandwidth, without over-provisioning each site. Solutions must also be found for backhauling large networks of small cells effectively.
Millimeter-wave spectrum has been the focus of small cell backhaul interest, and 2013 will see more mainstream commercial deployments of these technologies. Despite the increasing investment in fiber in many areas, microwave will continue to take a key role and because of the increase in small sites and rural 4G coverage, its share of the total base will grow.
Services and business models
Even more important than designing the network in a new way will be the services and tariffs operators apply. To survive, they must generate incremental revenue and value from LTE, not just add bigger pipes to support the same old business models. The big three, MOSA believes, will be:
Mobile cloud – Mobile cloud services will evolve from simple online storage and media offerings to enable carriers to serve complex mobile enterprise strategies with far higher profit potential. By 2017, mobile cloud data will account for three-quarters of the total on 4G networks. Operators who succeed in mobile cloud will also be those which best understand how to create or partner for apps and user experiences which outdo those of over-the-top players – or work with them.
Predictions: Mobile cloud services will add an average of $60 to ARPU levels by 2017. Particularly important will be enterprise services and content. 35% of operators have cloud content partnerships with recognized brands and this will rise to 75%. On the vendor side, there will be key opportunities for “back end as a service” (BaaS) providers like Appcelerator.
VoLTE/RCS – As operators move to all-IP, they will migrate from circuit switched voice and text to IP-based services. It is vital to differentiate these from over-the-top offerings and arrest the sharp decline in voice/text ARPU. Successful carriers will pursue a mixture of rich communications services that add enhanced functionality to network-based options, and their own OTT services like those from Telefonica Digital and T-Mobile Bobsled.
Predictions: One-third of LTE operators will create separate web services which can run on third party networks by 2015. The BRIC economies are the only ones which will continue to see growth in cellular voice/text ARPU throughout 2013.
M2M – Machine-to-machine services, which will eventually support billions of connections to embedded devices in the “Internet of things,” are the main generator of entirely new ARPU for MOSA operators by 2017, and 22% believe it will be the number one such generator. Although there are many challenges in terms of business model and provisioning vast numbers of devices, most M2M services are relatively kind in terms of network strain, the operator retains control because of the SIM card, and they provide carriers with long term, strategic contracts rather than fickle consumer users.
Predictions: The most important M2M sectors for carrier revenue by 2017 will be smart grid, followed by smart home services. Successful operators will provide a full platform to support a range of applications as well as device management, rather than focusing just on connectivity.
The MOSA Leaderboard:
Even more important than designing the network in a new way will be the services and tariffs operators apply. To survive, they must generate incremental revenue and value from LTE, not just add bigger pipes to support the same old business models. The big three, MOSA believes, will be: (Survival weapon/Lead operator)
Advanced backhaul/China Mobile
Mobile cloud/SK Telecom