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.
Showing posts with label pre-optimization. Show all posts
Showing posts with label pre-optimization. Show all posts
21 Feb 2007
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.
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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