Saturday, October 1, 2011

Making Profits from Mobile Broadband

 By Keith Mallinson

Broadband is the means for profitable growth in mobile communications. It is expanding the market with web access, applications downloads and streaming. It offsets terminal decline in the voice services cash cow. Mobile broadband will soon connect most of the population and a large proportion of things worldwide.

Vision for Video
The last 15 years have brought cellular voice and SMS communications to the masses with five billion connections worldwide.

Today, we are now at another tipping point with Smartphone, laptops and a variety of other connected mobile devices set to become the primary- or for many people worldwide- the only means of Internet access to rich content. In addition to personal devices, a wide variety of appliances including vending machines, smart grid meters and cars are getting connected; and it is now just a matter of time before personal connections are outnumbered.

Mobile broadband development presents significant new challenges with its exponential traffic growth that drives the need to transform networks with HSPA (High Speed Packet Access) Evolution and LTE (Long Term Evolution) technologies, additional spectrum and back haul capacity. End-to-end IP including evolved packed core and a migration to voice over IP is mirroring the dramatic changes initiated on fixed networks more than a decade ago. Innovative services, pricing and payment models will, as they did with voice and SMS, fuel profitable adoption and usage.

Transforming Networks Pricing
The old problem with 3G until the mid 2000s was that nobody was using it much for anything other than voice and text. This changed with widespread adoption of mobile broadband dongles, the advance of Smartphone, and most recently the rise of tablets. All of a sudden, network architectures and pricing plans became obsolete in the face of the mobile data escalation.

The surge in traffic growth is the major opportunity for continuing revenue and profit growth in the mobile sector. However, with traffic volumes forecast by WiseHarbor to increase 1,000- fold by 2025, mobile operators have to make significant changes if they are to remain competitive, profitable and exploit opportunities to the full.

Mobile broadband is a game changer. Legacy cost structures are out of line with traffic growth. Backhaul clearly illustrates this phenomenon. It is typical to connect base stations with T1 or E1 leased lines delivering 1.5 and 2mbps respectively.

Scaling up from one to two or three circuits, as is required with increasing voice demand on a heavily-used base station is justifiable, but a very different solution is needed when peak traffic demands have grown from a few megabits per second to exceed 100mbps. Operators must re-engineer their networks with new technologies such as fiber-based metro Ethernet to provide orders of magnitude more capacity for modest incremental cost. This may require significant up-front investments to achieve the required economies. This principle also applies in the radio access network with improved spectral efficiency from HSPA Evolved or LTE and with end-to-end IP including voice on a new and evolved packet core.

As with fixed networks, cost per GB can be dramatically reduced with capital investments in the latest and most cost efficient technologies. Under these circumstances, data can be carried at incremental costs of less than Euro 0.1 per GB on mobile networks.

Pricing and charging also need to change. Whereas the prevailing flat rate, all-you-can-eat pricing of the mid-2000s was easy to understand, simple and cheap to administer, it impeded market development and revenue potential in two ways. A single flat rate limits revenues by restricting pricing opportunities with those people who are willing to pay less.

Mobile operators worldwide are still in market experimentation with a variety of new post-paid and pay-as-you-go pricing models including time- and usage-based options with cut offs, throttling and overage charging. These and plans based on service quality all seek to expand revenue generation by tiering offering among users with differing demand levels, price sensitivities, payment preferences and service quality requirements. With incremental charges in excess of marginal costs for the additional traffic, operators can now encourage usage in the knowledge this will generate additional contributions to profits.

Profitability With or Without Legacy Services
Operators worldwide are committing to put mobile broadband at the center of their growth strategies. For example, T-Mobile USA boasts “America’s largest 4G network” with HSPA+, “affordable Smartphone and tablets, aggressive plans and pricing, rich and compelling services” to promote growth and improve its competitive position. Telstra recognizes that to deliver a ten-fold increase in traffic over three years it requires a technology roadmap that lowers unit network costs; scales across core, backhaul and RAN; provides lower latencies; and can deliver differentiated services through QoS and policy control.

With the right cost structure and pricing plans, even standalone mobile broadband can be profitable. New operators, such as Yota with its LTE network in Russia and Mobilkom with EV-DO in the Czech Republic, are successfully pursuing mobile broadband data-only strategies.

With no legacy voice business to defend, these operators are optimizing for cost-effective mobile broadband data services. As a result, these two companies attracted partnerships with incumbents. Yota is building in 180 cities to cover 70 million in the next three years- equivalent to around half the country’s population. The network will also be used by the nation’s leading mobile operators including Mobile TeleSystems, MegaFon and Vimpelcom- along with Rostelcom, the fixed line operator. Similarly, Mobilkom is already providing mobile broadband, with 75 percent national coverage, on a wholesale basis to Vodafone with only half that level of 3G coverage.

Mobile broadband is not optional; it is indispensable and inevitable. As with fixed networks, convergence with IP for all services including declining voice, expanding video and other services is changing the basis of competition. Network economics and business models are changing. Profitability is achievable, but bold moves including network transformations and new services propositions are prerequisite for sustainable competitive positions.

Keith Mallinson is the founder of WiseHarbor