2 Jan 2007

Getting the next billion subscribers - enabling low cost infrastructure

At the end of 2005, the number of global subscribers exceeded the 2 billion mark. Vendors were preparing themselves for the challenge of adding the next billion subscribers. The most optimistic forecasts estimated that the next billion subscribers will be added by the end of 2010.

What happened in fact is that more than 500 million subscribers have already been added by the end of 2006, 41% of which are in AsiaPac area alone. The estimates have changed now, adding the next 500million is expected in the coming 18 months!

In the long term, there is no doubt that developing economies will drive growth in the wireless industry over the next 10 years (should rather use the politically correct term: "emerging markets" instead of "developing countries". The term "developing countries" itself is a milder way of saying "under-developed countries"). Although the telecomm vendors have been talking for a while about the huge opportunities in these emerging markets, they have done very little in the way of efficiently enabling it.

The wireless/mobile business in the merging markets typically exhibit low ARPU, therefore the focus should be on coming with ways to enable a low ARPU business models. There are so many things that can be done by both vendors and operators to reduce cost of deployment and running costs of mobile networks. The emphasis has to shift towards building "no frills", low cost networks that copy the Ryan Air business model of cost competitiveness in every respect with an integrated and holistic approach to cost competitiveness.

Instead, both vendors and operators alike continue to invest huge sums to develop advancements that will offer increasing speeds and better performance, which suggests they learnt very little from the Personal Computer story.

When PCs were first introduced, the driver was providing more technology and better performance, and this was the motivation for Moore's law. With time, the technology matured, and consumers demanded cheaper products, and they were less concerned with the technology content of their PCs. In his book the Invisible Computer Donald Norman argues that as technology develops it reaches a transition point where it offers excess quality that customers tend to be uninterested in. The transition point what differentiates technology-rich, high-performance products from commoditized products that offer just the right level of technology and reliability. (This paradigm perhaps explains why processor makers made the shift to multi-core processors). For today's telecomm vendors to succeed, they need to come up with commoditized, stable, and standard products that can achieve economies of scale, not feature rich ones.









(Graph from Donald Norman's article: the life cycle of technology)


Most handset makers have certainly worked hard to bring about low-cost handsets that can sell below the $30 mark. Qualcomm is already talking about a 3G handset to sell below $120 and prices are in decline. Infrastructure cost reduction however is not on everybody's agenda. The only exceptions to this that I could find are Nokia's announcement in 3GSM last year that they intend to build an inexpensive and “robust” 3G base station, as well as Motorola's “Reach” GSM product line that enables low cost infrastructure.

But low cost infrastructure is not the only part of the puzzle. As I mentioned above, there should be a holistic approach that encompasses virtually everything: planning, deployment, operation, and servicing.

Cheap infrastructure: By providing the very basic features and capabilities, and commoditizing the product to achieve economies of scale. Vendors can leverage some of the commonalities between platforms for example or rely on pure ASIC instead of DSP.

Cost reductions in supply chain: Horizontal integration in the industry will help vendors get cheaper parts if they have large enough economies of scale. Using commoditized products with low variation, operators can source fairly standard ancillaries such as antennas and cables at low prices.

Network Design and deployment: A slight relaxation of network design parameters can save the operator millions in infrastructure equipment. There are various concepts that operators can also benefit from, such as Network Pre-optimisation (this is a concept I invented three years ago) . Operators can also save money by forcing vendors to simplify their products for testing and deployment purposes.

Low cost transmission networks: by using low cost technologies (e.g. over microwave) and Infra structure sharing

Both vendors and operators alike have to think how to reduce network running costs and how to reduce subscriber churn in the network.

I barely touched the surface here. There are hundreds of things that can be done to make mobile telephony as cheap as air.

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