21 Feb 2007

The drive for cost reduction in mobile networks

A while back I wrote about getting the next billion subscribers and discussed the importance of mobile networks that are cheap to build and run in low ARPU markets.

I take another look here at some of the activities involved in building and maintaining a network and identify ways to make those activities more efficient.

CapEx:
- Network architecture: Choosing the right architecture can make a big difference in terms of expenditure. For example, choosing an architecture that requires a lot of infrastructure or which restricts the options for choosing backhaul and interconnect suppliers can be costly.
- Network design: out of experience, network dimensioning and design activities tend to make pessimistic assumptions about the network layout, so most of the time networks tend to be over-dimensioned for the purpose they were built for.
- Hardware/Software features: Vendors tend to promote bundles of features with their products. Low ARPU operations rely on very few and basic features such as voice and text. Low ARPU operators can demand an almost "bare bones" system from their suppliers, without the bells and whistles.

- Installation/Integration/Commissioning: Having been involved in II&C of various trial networks, these activities can be very costly, typically because of lack of proper project management. Putting processes to eliminate multiple site visits can reduce cost of deployment. In a recent project I was involved in, due to an arrangement the operator had with the company that owns various site locations, accessing sites to install /upgrade /maintenance equipment cost the operator a standard £300 per site per day. Experienced II&C engineers can make a big difference here, getting sites (or nodes) up and running in few hours.

- Spectrum: in low ARPU markets, the business model is very sensitive to the assumptions you make about the business. Try to reflect the spectrum cost accurately and, depending on your business case, decide what is the absolute maximum you are willing to pay to get a license.

OpEx:
- Interconnect: Cost of interconnect is typically around 15% of the network OpEx. There is a huge opportunity to reduce cost of interconnect. There are many providers these days, so managing relationships with interconnect providers and exploiting competition between them can get you good deals. Unfortunately, this is less possible in low ARPU economies where market liberalisation has not been fully achieved yet.
- Site Rental: Site sharing and network sharing is definitely the next area to explore in network operations. Even big players like Vodafone and Orange have decided that network sharing is the way to go. In a small country like UK, there are five network infrastructure layers to essentially cover the same population. Imagine the savings if operators share sites on a larger scale, or even better: share infrastructure.
- Personnel: Personnel charges in labour, training, ..etc is typically around 20% of CapEx. Vendors who aim to build products for low ARPU markets have to design them with simplicity in mind. Some of the equipment I worked on has a ridiculous list of counter intuitive parameters that need to be set. the result is wasted time and effort. When it comes to network infrastructure, usability tend to be at the end of the list. If the effort wasted on fairly mundane activities were to be properly cost-ed, i am sure network operators will force vendors to change their approach.
- Asset Depreciation: This can be as high as 30% of network Opex!. Think of the product life and what you are going to do with it at the end of its life cycle. This is clearly linked to your business model. Financial consultants can often suggest ways to retrieve some of the depreciation charges in tax relief or other ways.

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