Network economics

It’s generally accepted that existing wireless technologies still have a decent lifespan ahead of them. Most of the people spoke to at the LTE World Summit in Amsterdam expect 4G, 3G and even 2G to co-exist for some time yet. Here we talk to Kim Kyllesbech Larsen, director of technology services and international network economics at T-Mobile and get his thoughts on sweating existing operator assets and for how long that can be done.

In terms of 3G, Larsen believes that HSPA+ will be deployed “massively” by operators that have two carriers, or two times 15MHz of spectrum. “3G is here today and this is where most of the ecosystem on broadband data is,” says Larsen. “So with HSPA+ with two carriers you can continue providing a user experience for at least two years down the road but then what you will see is areas of your network that will face congestion, and in some areas the quality will get so poor that you need a replacement.”

Larsen acknowledges that HSPA+ will help an operator provide service longer than conventional 3G would have, so he does not believe that 3G is “going to die” in the next couple of years, because as every operator will try to do as much as possible with the spectrum they have. But he does see the potential for LTE.

“Operators will use 2.6GHz or 850MHz to add capacity in the LTE sphere, and as traffic migrates from 1800MHz in GSM to 3G you can release spectrum and use that for LTE, for creating more capacity and a better customer experience,” Larsen says.

“LTE gives you more performance on spectrum you either have or will be able to get with 3G. Typically today with UMTS you actually have less spectrum than you might have had with GSM. So you have the problem that a lot of operators have experienced or will be experiencing shortly is that you run out of capacity, you run out of steam, so the quality on offer today will be significantly worse tomorrow. So operators need to look for something else that will provide the quality that will meet customer expectations as well as looking at new spectrum like 2.5GHz or 2.6GHz,”he adds.

While Larsen sees the opening up of the digital dividend spectrum at 800MHz or 700MHz in the US as “very exciting”, and providing an opportunity for more efficient coverage in rural areas, he doesn’t appear sold on TDD.

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“TDD offers interesting opportunities, particularly in wireless DSL and offering capacity offload for mobile, but TDD in itself has propagation characteristics that are worse than FDD so it’s less economical to deploy compared to conventional FDD spectrum. However, it does allow you to optimise the internet model by having an asymmetric carrier, with more bandwidth on the downlink than the uplink which is something you cannot do in FDD.”

Commenting on the TDD situation in the Netherlands, where Larsen in based, he says that although the Dutch regulator maintains its recent 2.6GHz licensing plan was a great success, there were no bids for the TDD part of the spectrum, even though it was sizeable. “So the money paid for the Dutch spectrum was silly low (€2.6m), a record so far for what operators have paid for 2.6GHz spectrum. They could have been smarter in what they allowed players to get,” Larsen said. spoke to Larsen shortly after we spoke to Stephen Bye, wireless chief at US cable carrier Cox, who sees LTE as a way of expanding the firm’s existing triple play offering. So it was interesting to gauge the response of an existing wireless carrier on the subject of new entrants.

“I don’t think LTE opens up much opportunity for Greenfield players,” he says. “Say you were a cableco looking at selling wireless services so you could offer quadruple play to your customers, I think the cost of setting up a network, in particular at 2.6GHz, would be so expensive to do that the economics are hard to see.

“A Greenfield operator might need to partner with an existing player, especially in mature markets,” Larsen said. Although he does acknowledge that some new entrants make it. “In Malaysia you have P1, which is a very good example of a start up that has taken quite a big share of the fixed as well as mobile  broadband market. It’s a good example of a player that has entered a market and been disruptive,” he said.

And what about femtocells? Another hot topic at the LTE event? “Femtoells works very well with an existing fixed connection and take away a lot of the backhaul cost that an operator would have so you could let the customer pay for the backhaul. But most people who have a fixed line already have wifi to cover indoors, so, it’s hard to see a great future for femtocells and how to get the femtocell business model to work,” Larsen said.

“It might be beneficial in the beginning for improving coverage, so you could build out a macrocell network to allow the user some mobility. But it won’t fundamentally change the business model of an operator. It’s just something that you add on to provide a better service, at least temporarily for your customers,” he said.

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