Sunday, February 5, 2012

Some Mobile Networks Must Raise Prices, Cut Costs, Manage Demand or Accept Congestion

With mobile data traffic growing and revenue per gigabyte falling, mobile service providers in Western Europe need to reduce network carriage costs by 50 percent  or they will face an eight-fold increase in the costs of radio access network (RAN) equipment, according to a new report from Analysys Mason.

That analysis suggests that if operators in Western Europe simply try to meet the growing demand for data traffic by deploying more base stations, RAN costs could rise to $40 billion per year by 2016.

This compares with $5 billion per year in 2011, Analysys Mason says.

“Operators can’t afford to spend that sort of money,” says Terry Norman, Analysys Mason lead analyst. “Therefore, operators will either accept network congestion or use pricing to control demand.”

Or, as many now believe, mobile service providers will have to overlay much cheaper infrastructure, such as small cells, as well as greater use of in-building and outdoor Wi-Fi, Norman says.

One potential issue is whether small cell deployment will be a substitute for fourth generation networks in Western Europe.

“The costs of indoor and outdoor Wi-Fi are both significantly lower than those of upgrading to 4G,” Norman says. “In Western Europe, operators need to save $30 billion in mobile access network costs between now and 2016.”

Wi-Fi would go a long way towards making up that deficit because it costs only about 20 percent of an equivalent macro deployment, Norman says. Access network costs too high

“The number one challenge is how to make data profitable,” says Norman. “To do this, operators really only have two choices: they can increase the price of data, or they can decrease the cost of delivery.”

“Increasing the price of data will be extremely difficult for operators because consumers expect data to become ever-cheaper,” Norman says. Reducing the cost of operating the network is one way out of the conundrum.

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