Why Should Telecom Operators Upgrade their Networks to 4G?
Let’s attempt to provide a strategic analysis for why would companies decide to evolve their networks.
Cellular phones companies today evaluate their network's worth by ARPU. They get it by multiplying the voice ARPU (Average Revenue Per User) by amount of subscribers. In developed mature markets the subscribers’ amount barely rises, and the ARPU declines due to aggressive competition. As a result, the voice only revenues decline year by year.
On the other hand, the cellular companies’ operational expenses are rising, and why is that? First because as the technology gets older it costs more to maintain it. Second, old technologies are not that efficient to carry the user voice and data, so as much as the network grows, as more inefficient they get. For instance, in today’s core networks the voice is carried uncompressed, occupying lots of bandwidth. The more users join the network, the more calls run on the network, the more bandwidth is wasted. Another example relates to the use of radio frequencies: GSM for instance is a very inefficient technology in terms of spectrum: It requires different radio frequencies per neighboring antennas. These frequencies belong to the government and using those costs a lot of money. The more users join the network, the more calls run on the network, the more very expensive frequencies are needed.
The gap between revenues and expenses is of course the profit, and profit becomes smaller year by year, and this is where the operators found themselves around Y2000.
Obviously they need to do something to stop this dangerous trend. Let’s move on and see what next.
Starting from the revenues, it became obvious that they need to stop the revenue decline and hopefully turn the graph up again. They began taking care of the revenue line from 2.5G onwards, by adding new services and applications to the end user. Of course not all services are 2.5G … This was only the starting point.
It includes data & content, multimedia; FMC based on IMS (in other words VoIP end to end) and service convergence as explained in the beginning of our session today. The expected outcome is that people will tend to pay more for these services, as they provide them with more value. The services must be dynamic, and the operator must shorten the cycle of introducing a new service. This way the operator will be able to rapidly react to change in demand.
But taking care of the revenues only isn’t enough. Something must be done with the expenses line as well.
From 3G onwards, Telcos tried using more efficient technologies. This includes using CDMA in the air (remember, Qualcomm patents which allow exploiting the frequencies better, also used by their rivals from UMTS). After CDMA will come OFDMA-MIMO, which is better and newer technology and is the basis for 4G. We also reduce the expenses by implementing VoIP in the core network and carrying the voice in a more efficient compressed manner. And we do it also by infrastructure convergence i.e building a single infrastructure that is capable of carrying all types of content in an intelligent manner.
VoIP end to end means that the user has an advanced phone, which is actually a computer with an IP address. He gets convergence services based on IMS, a better user experience and more value add services. This is targeted to increase the cellular company revenues.
On the other end, VoIP in the core means that the user still can use a simple dumb phone with no extra services, however his voice is being converted to VoIP and being carried compressed on IP infrastructure which is cheaper to expand and maintain.
One more comment in this aspect: Please don’t mix between this VoIP mentioned here and the kind of VoIP you see in the Internet. These are completely not the same. The voice in the Internet is based on “Best Efforts” model i.e. if something doesn’t work you can’t blame anyone. Companies such as Skype do not control the infrastructure so they can not guaranty a Quality of Service. You wouldn’t like to rely your business on a phone line that sometimes works and sometimes doesn’t. On the other hand there is the official Carrier VoIP, used by carrier customers – fix or mobile companies – over their own controlled infra, not internet, so they can guaranty a similar QoS and user experience as you have today and with improved interface.
So, this was the global strategic picture that explains why companies consider upgrading their networks.
Check this out:
What is NGN? Is it a real revolution? Is it simply IMS (IP Multimedia Subsystem) implementation over wire line networks? Is it just Voice and Multimedia over IP?
NGN is a new architecture and a bunch of new services whom we introduce during a Logtel-designed seminar.Please visit www.logtel.com for more details.