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Will LTE Break the Bank?

Michelle Donegan
LR Mobile News Analysis
Michelle Donegan
9/30/2009

New figures released today from mobile network consultancy Aircom International Ltd. reveal just how much it would cost to roll out Long Term Evolution (LTE) networks in different regions around the globe. (See Aircom Charts Cost of LTE.)

The large sums required in the current economic climate could be a challenge for operators when it comes to securing funds to cover the LTE capex costs.

For a U.S. Tier 1 operator, the capital expenditure required in the first year of an LTE deployment is $1.78 billion; in Europe, the capex requirement in the first year is $880 million; in the Middle East, the capex would be $337 million; and in the Asia/Pacific, the capex would be $232 million, Aircom says.

While asking how much an LTE network will cost is a bit like asking how long is a piece of string, Aircom's figures are based on a set of assumptions about spectrum availability, cell site location, cell site density, and backhaul capacity requirements.

In the U.S. region, for example, Aircom assumed that newly licensed 700 MHz spectrum would be used, all LTE radio equipment would be collocated on existing sites, 60 percent of the backhaul transport capacity would need to be upgraded, and at least 6,000 cell sites would need to be deployed across eight to ten markets to have a marketable service in place. That's the basis for how Aircom arrived at the $1.78 billion figure.

The cost to deploy LTE in the U.S. is so much higher than other regions because of the cost of the spectrum, the amount of extra backhaul capacity that's required, and the sheer number of sites needed to deploy a service in a place the size of the U.S., according to Margaret Rice-Jones, Aircom CEO.

For an operator like Verizon Wireless , which has an aggressive LTE launch plan set for next year, $1.78 billion may not sound like a lot to spend, considering that Verizon Communications Inc. (NYSE: VZ)'s total capital expenditure in 2008 was $17.2 billion, according to the carrier's annual report. (See Verizon Wants LTE All at Once and Verizon: This Is How We'll Do It.)

But Rice-Jones says that, while the estimates themselves don’t necessarily look like a lot of capex for the first year of deployment, it "requires quite a lot of borrowing in a borrowing-constrained world." So in the current economic slump, operators could feel the pinch when it comes to finding credit to fund the LTE investment.

"This is the first time we've faced a major rollout at a time when banks aren't being so cooperative with lending," she says.

To meet the LTE deployment costs in tough economic conditions, operators will be forced to rethink their business cases and consider new ways to cut costs, such as network sharing, according to Aircom.

The first LTE network sharing deal was announced in April between Tele2 AB (Nasdaq: TLTO) and Telenor Group (Nasdaq: TELN) in Sweden. The operators have formed a joint venture company to share LTE spectrum and jointly build out the LTE network. (See Swedish Operators Join Forces in LTE Race and Operators Face LTE Deployment Dilemma.)

Operators will also look to automating certain network processes through self-organizing networks (SONs) and offloading wide area network capacity onto tiny femtocells as other ways to save on operating and deployment costs. (See Thinking LTE? Think Distributed.)

Could the amount of capex required for an initial LTE rollout force operators to delay the deployment plans? Rice-Jones says rollout decisions will depend on an operator's competitive situation in its own market. "The challenge for operators is to find a business model that allows them to go quickly rather than waiting."

— Michelle Donegan, European Editor, Unstrung

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