LTE in Africa
Africa-focused telecom companies are betting that next generation long-term evolution (LTE) technology will drive broadband penetration in the world’s least developed and fastest growing internet market. LTE is a cost-effective solution for broadband, whether that is rural broadband access or fixed-line access alternative.
Using average sector throughput as the measure, LTE can provide four times the throughput of 3G given the same amount of spectrum, but can scale to 10 to 15 times the throughput using a full 20 MHz of spectrum (given the most advanced antenna techniques for LTE are used).
Business Case Challenge
As the migration to LTE gains momentum Carriers are hard pressed to evaluate the LTE business case. Most investors are wary of wireless broadband business plans because they don’t trust top line projections after the 3G Spectrum licensing debacles. The lack of a clear commercial strategy to monetise broadband data usually wrecks the Carrier’s hope of attracting sufficient funding.
LTE deployments require massive upfront investments : spectrum acquisition costs , network planning and deployment, service development, customer migration, marketing, and other transformation expenses. The potential to optimise overall network economics is inherent in LTE’s all-IP architecture, spectral efficiency, and bandwidth flexibility.
However the business case for LTE is impacted by several hundred variables that influence the Operator’s financial metrics. These metrics often include ROI , NPV , IRR , free cash flows and valuation metrics. In addition we must consider the potential impact of LTE’s technical capabilities on subscriber economics : Average Revenue per User (ARPU), Cash Cost per User (CCPU), Cost per Gross Addition (CPGA), churn, and adoption.
Backhaul, real estate, and service delivery expenditure are also three major cost components that should be carefully planned. LTE’s greater spectral efficiency, bandwidth flexibility, and use of 800 MHz spectrum, should reduce the number of cell sites and related costs required to serve subscribers. Over time these benefits are likely to diminish as demand for bandwidth-intensive services grows, and carriers are compelled to boost cell density and backhaul capacity to maintain network coverage and performance.
Even with the high-performance capabilities of large-scale (macro) LTE base stations, providing good coverage in some locations may be easier with the aid of smaller (micro, pico and femto) base stations By using the smaller stations to provide as-needed coverage in hard to-reach areas, service providers can ensure high data rates to end users without overbuilding the main base station network.
The Revenue Challenge
The greatest revenue opportunity presents itself in niche markets and verticals of less than 100 K subscribers. If an Operator can reduce the cost of serving the first subscriber ie : surmount the engineering challenge of low end scalability then the break even point can be reached much faster.
The dilemma for carriers, however, is that in a typical LTE deployment the first years of operation require a balancing act between minimizing the cost of access coverage while maximizing subscriber capture. As such the key questions for network operators are :
• How to effectively plan for and reengineer the broadband business model so as to reduce costs , manage data traffic , and develop a more sophisticated approach for pricing broadband access ?
• How to unlock new revenue streams to justify the enormous network investments over time in the context of key customer drivers and applications that generate fast ROI based on understanding the needs of target markets ?
• How to work with OTT players since LTE’s all-IP architecture will create a more open environment for Over The Top (OTT) applications, including third-party VoIP services, which threaten to further commoditize the network ?
Success could be attained based on how well vertical applications are engineered to satisfy key industry verticals. Large Enterprises like healthcare and banking, which must be always-on are likely to be the early adopters of LTE, provided applications are developed around them. In case this happens, it might be possible to expect a much higher ARPU from LTE.
In addition to the traditional mode of charging endusers (forward charging), chargeback for service providers (including ecommerce transaction, advertisement, and rental fees) has become an important business model.
The Commercial Challenge
Understanding per subscriber content traversing the wireless network is the critical first step to identifying problem areas as well as potential revenue opportunities. Smart content management provides the answer to the dilemma of lowering ARPU’s and explosive bandwidth consumption : content management , DPI and Policy control can help monetize the open Internet content while optimising the network OPEX.
The significant CapEx and OpEx involved in running a LTE network necessitates operators to think in radically innovative ways. Network sharing, partnering, and collocated cell sites are becoming important in many parts of the world. Managed content with revenue sharing models is becoming the norm. Network optimisation techniques such as compression can help to lower OPEX , prevent “ traffic jams “ and enhance the customer experience. CDN’s are critical in the world of video streaming.
Despite the initial success in field trials, a key question facing the operators is the financial viability and the unclear business models surrounding this emerging technology. Vendor financing and cash are critical to early deployments. The availability of Digital Dividend spectrum will facilitiate faster cost effective rollouts especially rural areas.
Sadiq Malik ( Telco Strategist )