Despite all of the LTE hype and pilot announcements there are plenty of good commercial reasons for mobile operators to delay rollout of LTE networks for some considerable time, and only one good reason for rolling out as soon as possible. A delay would put a serious dent in the UK government’s commitment to provide broadband to everyone.
The main reasons for delaying are:
1. The UK operators stumped up an estimated £50Bn to build their 3G networks, including £22Bn for 3G licences. Most mobile operators have therefore yet to recoup their investments in 3G, so replacing it would mean writing down that investment – which would severely damage their share price. There is still considerable room for low-cost in-life upgrades to higher bandwidths using technologies like HSDPA – unless the platform technology is too old to be upgraded, in which case the network cannot be upgraded and must be replaced.
For example, in February 2008 Vodafone UK announced HSPA+ trials “to ascertain whether HSPA+ voice and data capacity enhancements will be able to leverage existing UMTS assets, including radio spectrum, to prolong the lifespan of current UMTS networks still further", according to the Global CTO. These trials have been successful and prove that HSPA+ is a sensible route to increasing data capacity in the network.
2. Unless the mobile operator’s current network technology is the very latest there is no upgrade path for the operator to support LTE. LTE and 3G are not compatible, and there are currently no handsets that support LTE, let alone 2G, 3G and LTE. 2G, 3G and LTE use different frequencies – this means that the current base-stations, spaced for 2G and 3G networks, will not be close enough for the higher LTE frequency and so more base-stations will be required.
3. The cost of supporting broadband scales with traffic, which is growing exponentially, but the revenues scale linearly with the number of users, so a completely new commercial approach is required. There is no evidence that the mobile operators have solved that problem yet.
4. As LTE is a faster and more complex system it will require much more complex processors in handsets, which will significantly reduce battery life. 3G handsets didn’t come down in price significantly until both 2G and 3G could be supported on a single chip. It will be several years before handsets become available that can support both 3G and LTE on a single chip. So until these handsets become available the LTE network will be used primarily for laptops in a similar way to the 3G datacards available today. This will merely cannibalise the 3G datacard business. 3G networks must be run in parallel with LTE until the great majority of the user-base have dual-mode handsets, just as the 2G and 3G networks are running in parallel today.
5. There is little advantage in LTE for the operators at present, but significant downsides. The existing 3G network is perfectly good enough to support the main revenue-generating services that the operators offer, voice and messaging. Although the operators hope for significant revenues from mobile broadband there is no evidence that they will come quickly. Mobile video has been slow to take off.
6. Most importantly, operators cannot ignore the threat of Skype and other VoIP services. LTE should be good enough to allow VoIP to work well enough for most users. This could crash voice revenues where LTE is available, particularly for off-net and international calls where the mobile operator makes excess profits from roaming and interconnection, well before broadband services revenues start to replace them.
For all of these reasons I do not expect to see any LTE services available in the UK for at least three years, and probably five.
And the one good reason for rolling out a network as soon as the technology and spectrum becomes available? It’s to protect themselves against a WiMAX market entrant. However, if they can accomplish that by making enough noise about their intentions to scare off potential investors in WiMAX, why would they bother with a rollout any time soon?
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You provide a very worthwhile perspective on this subject.
ReplyDeleteA agree with much of your analysis but here are some points where I disagree or wish to comment.
Operators find themselves in various situations;
- Varying amounts and frequency of spectrum bands. WiMAX and LTE are much better able to exploit higher frequencies, particularly for densely populated areas serving broadband intensive services including video and file sharing. These are areas of usage that are driving demand on AT&T, DoCoMo and other 3.5G networks.
- Multiple mode LTE+3G+2G chip sets are expected to come out into production quantity shipments 2010. Qualcomm had earlier said they would be in production by the end of 2009 with sample by mid-year. Many have learned to take the early announcements as a bit of wishful marketing department thinking. Of course, nobody ever fabricates delivery dates (lol).
- Full mobility and head-to-head competition with 3G service takes several factors in addition to technology. The arduous work of harnessing the complex wireless link technology to work as signal conditions of moving devices change and do hand offs takes time. WiMAX 'mobile networks' have only more recently become fully mobile because it has taken time for vendors to achieve mobile performance. Mobility also takes range and building penetration: the ease and expense of achieving that is dependent on the frequency of the spectrum and density of deployments including in-building and shadow area deployments.
- However, as broadband demand moves higher, networks grow denser so that the huge advantage of lower frequencies seen in voice and low bandwidth or low density applications is diminished. Lower frequencies continue to be a significant advantage in low density deployment areas and during initial stages of network subscriber growth when network saturation is low.
- Many of the suppliers of LTE have used experience gained from WiMAX R&D, manufacture using common SDR infrastructure platforms, and deployment experience. The same goes for chip vendors including acquisitions made by Qualcomm of WiMAX chip developers. While each standard has unique requirements, much of the core technologies are common. That has allowed a few WiMAX chip suppliers to start offering LTE versions, however, not the multiple mode 3G+LTE variety needed for mass market transitions.
Some operators are being pressed by demand to make an early shift to LTE. So far this is using unused or newly licensed spectrum, not as evolving any existing network. Verizon, DoCoMo, AT&T, T-Mobile and others that have started development or announced plans for near-term deployments will use LTE as an overlay multi-mode network, not as an full evolution of 2G-3G RAN that requires re-farming of spectra.
-Robert Syputa
Partner, Maravedis