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4G/3G/WiFi

LTE: The Vendor's Worst Friend?

1:35 PM -- Alarm bells should be ringing in the headquarters of all the major mobile network infrastructure vendors today following the news that two of the world's biggest operators, Vodafone Group plc (NYSE: VOD) and Telefónica SA (NYSE: TEF), are to form a mobile access network sharing joint venture in the U.K. (See Vodafone, Telefónica Merge UK Networks.)

Why? Because soon there will be one national mobile network in the U.K., where there are currently two, and that means a dip in the operator duo's aggregate capital expenditure. That's bad news for the sales teams at companies such as Alcatel-Lucent (NYSE: ALU), Ericsson AB (Nasdaq: ERIC), Huawei Technologies Co. Ltd. , Nokia Networks (NSN) and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), and suggests a trend that could wipe out billions of dollars of potential network infrastructure rollout business in the coming years.

And it seems the introduction of Long Term Evolution (LTE) could be a key catalyst in this potential trend. Only two weeks ago, Eduardo Duato, the CTO of Orange Spain, noted that the only way to make the business case work for Long Term Evolution (LTE) is for operators to share radio access networks (RANs). (See Orange: Operators Must Share LTE Networks .)

Ovum analyst Emeka Obiodu is on the same wavelength. In an emailed media alert earlier today, he noted that he expects that "at least 50 percent of all LTE network rollouts in the world in the next five years will involve some form of active network sharing."

And Obiodu believes that in the U.K. alone, Vodafone and Telefónica could save up to 25 percent of their network costs during the next three years through their new network sharing deal, with the pair potentially saving more than £1 billion (US$1.56 billion) between them in that time.

Now, those are back-of-the-envelope style calculations and don't appear to take into consideration the cost of setting up the joint venture and the significant changes the two operators will need to make in order to be able to share active radio access network (RAN) equipment while retaining separate services over different spectrum.

But even if Obiodu is 50 percent out in his calculations and if LTE does prove to be the catalyst for mass mobile network sharing arrangements that reduce the number of physical networks to just two in each country, the news is all bad for the equipment vendors.

But it has to be good for someone, right? Well, consider this. If operators are sharing networks, how do they differentiate themselves in the market? Through better, innovative services, greatly improved customer experience and intelligent marketing, is how. All of which requires the operators to invest their money elsewhere -- mainly in Service Provider Information Technology (SPIT) systems such as advanced analytics, converged billing and real-time charging platforms, service delivery platforms and so on. (See The SPIT Manifesto 2.0 and SPIT Infographic.)

Clearly there is a recognition amongst the major mobile equipment vendors that SPIT is growing in importance: It's not by chance that Ericsson spent $1.15 billion on SPIT giant Telcordia or that NSN has been investing time, money and human resources on the development of customer experience management (CEM) systems, which form part of its new three-pronged strategy. (See Ericsson + Telcordia: What the Analysts Say, NSN's Rajeev Suri: Carrier Capex & Customer Experience and Analysts: NSN Focus Makes Sense.)

But of course the competition in the SPIT sector is just as intense as it is in the radio networks market, with big hitters such as Amdocs Ltd. (NYSE: DOX), Comverse Inc. (Nasdaq: CNSI), IBM Corp. (NYSE: IBM), Netcracker Technology Corp. , Oracle Corp. (Nasdaq: ORCL) and many more looking to help the service providers become smarter telcos.

Investments in mobile access networks aren't going to disappear totally, of course, but it looks likely that the market is going to decline in the medium-to-long term. (Does LTE = long term erosion? That would be ironic, given how hard the vendors have pushed the technology....)

So, in the same way that the service providers need to find new sources of income to make up for their flagging voice revenues, so the mobile network vendors might need to find ways to compensate for declining radio access network revenues. And it could be those that have the best SPIT assets, and the best SPIT pitch, that could prove to be the long-term survivors.

— Ray Le Maistre, International Managing Editor, Light Reading

digits 12/5/2012 | 5:30:53 PM
re: LTE: The Vendor's Worst Friend?

This could be the start of greater consolidation among the major vendors, but maybe the situation isn't as dire as it might look. Who knows, for example, just how much capex might be spent on small cells?


Either way, I still think there are too many vendors trying to make money in this business and that there is some considerable pain in the supplier community yet to play out.

joanengebretson 12/5/2012 | 5:30:52 PM
re: LTE: The Vendor's Worst Friend?

Ray


It was really interesting to read this post just a few days after Alaska's 2 biggest service providers -- Alaska Communications & GCI -- announced plans to do exactly the same thing.


They plan to operate just one network, with both of them marketing LTE & other services -- and they cited cost concerns as their reason for making the move.


So your observations seem to be right on target.


But I wonder if LTE is really that much more costly to deploy than other wireless technologies or if this is just a symptom of other changes in the wireless market in general -- exploding data trafrfic, higher cost per bit, etc.


 


 


 

digits 12/5/2012 | 5:30:51 PM
re: LTE: The Vendor's Worst Friend?

I don't think LTE is more costly to deploy -- I think this is the moment, with the services market in flux, increasing pressures on voice revenues, etc and with LTE being an all IP network that requires other changes in the network too (packet backhaul and the packet core), that operators are seeing the sharing model as more attractive and more possible from a technical standpoint.


 


But that's interesting that is happening in Alaska too -- I had missed that one... I must have been sleeping...:-) 


 


Thanks for the post!!

scfm 12/5/2012 | 5:30:47 PM
re: LTE: The Vendor's Worst Friend?

I don't think it is specifically the cost of LTE that drives this either.  What strikes me most is the speed with which LTE deployment followed on the heels of 3G deployment.


I don't have the timelines avialable to hand, but so called 1G and 2G networks were deployed for a long time before their successors.  This actually allowed the operators to generate revenue and pay back their investments before moving on to the next best thing since sliced bread.


The paint is barely dry on large 3G deployments and 4G is all that is being touted in any wireless operator's marketing campaigns.  Some may be able to successfully roll out generations of equipment fairly quickly, but I don't think this is a sustainable model on a broad scale.

digits 12/5/2012 | 5:30:46 PM
re: LTE: The Vendor's Worst Friend?

I agree, the gap between effective 3G and LTE sems quite short but let's not forget that early 3G was being deployed 10 years ago by NTT Docomo.


And keep in mind that advanced 3G -- HSPA+ -- is not going away. It has reached a decent level of maturity and with various technologies such as "dual carrier" can deliver decent broadband connections (up to 10 Mbit/s in real world use), so it will be used for may years to come.


LTE is arriving quickly but I'm not sure it will make 3G redundant any time soon.

scfm 12/5/2012 | 5:30:43 PM
re: LTE: The Vendor's Worst Friend?

I wasn't trying to imply that LTE will make 3G redundant.  I was merely pointing out that most operators have not had 3G deployed long enough to pay back the investment.  That makes it hard to scare up the money required for another sizeable investment on LTE.

Soupafly 12/5/2012 | 5:30:41 PM
re: LTE: The Vendor's Worst Friend?

Am not sure where this small scale comments apply except in landmass. Or are we really saying the alaska net carries more traffic, revenue & profit than the UK networks? Not to mention base station density.


Ray, you have completely missed the point. The cost of deploying the base stations is only 1 component of a complicated matrix.


The big LTE deployment costs today, at least, principally lie in backhaul. (Leaving aside spectrum.)


I am not aware of any country who has a complete fibre to the base station strategy, thats in place today. There are many at various stages of evolution towards said utopian objective and some who have the luxury of greenfield deployments.


Building that fibre out to the locations requires time & money. From the operators perspective, the major carrot they can dangle at operators is big & increasing pipe orders & scale deals. LTE will require 100Mb & 1Gb connections and possibly 10GbE connections at core node sites.

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