3.3 Technology Comparison .1 Data Throughputs
3.3.3 Cost of Deployment
Bhargava (2002), demonstrated that operators deploying EDGE alongside WCDMA, to provide high-speed services from the first day of operation, can expect to spend 50% less on capital expenditure (CAPEX) by adopting this combined strategy, rather than building one nationwide WCDMA network. By using EDGE as a WCDMA complement, rapid introduction of 3G services can be achieved, covering more of the population. In short, using EDGE along-side WCDMA, time-to-market and time-to-revenue will be decreased. CAPEX savings can also be achieved for a GPRS operator upgrading to EDGE. By deploying EDGE, additional data capacity will be created with less Transceiver Units (TRU) within the RAN, eventually leading to less cell sites.
The following components, according to Bhargava (2002), must be considered when determining the cost of upgrading a network to offer the new mobile data services:
• Licence Fees
Licence fees, especially in the case of an auction can be the largest CAPEX item for the operator. The amount paid for the licence depends on the specific licensing method and the licence fee required by the regulator. The fees can be amortised over the licence period.
• UMTS Radio Access Network (UTRAN)
A significant part of the total expenditure goes into building the radio access network. The investments in the radio access network can be split into network equipment and civil works.
The UTRAN is divided into two network elements, namely the node B and the radio network controller (RNC). Within the radio access network, investment in node Bs is the single largest investment item. The main drivers of this expenditure are required coverage and required capacity. Several node Bs are connected to one RNC, typically 100 to 300. The main drivers for the investment in RNCs are the number of node Bs and the volume of traffic generated by the node Bs.
Most of the expenditure for civil works is incurred in developing physical sites in rural areas.
It is not to say that urban sites do not require civil works, it is simply a lower proportion of the total expenditure on civil works. The main driver is the number of sites.
• UMTS Core Network
For the purpose of analysing and estimating the CAPEX required for the core network, it is split into two parts, namely the circuit switched and packet switched nodes and the databases.
In a UMTS network, the traffic flow comprises a packet switched component and a circuit switched component. The main driver for dimensioning the capacity and number of circuit switched nodes is the busy hour call (including circuit switched data) minutes. The main drivers for dimensioning the packet switched nodes are the volume of packet data and the number of simultaneous connections.
Databases are used for managing and storing subscriber information. Typical databases include the Home Location Register (HLR), Visitor Location Register (VLR) and Authentication (AUC). These databases need to be dimensioned based mainly on the total number of subscribers.
• Transmission Network
These costs refer to the transmission of voice and data between the node Bs and the radio network controller (RNC), the transmission of voice and data from the RNCs to the core network nodes (MSC and SGSNs) and the transmission of voice and data between core network nodes. Fibre and microwave are commonly used for transmission. Parts of the transmission network that are not owned by the network operator are usually rented on a monthly basis. MTN currently leases all its transmission from Telkom.
The transmission network comprises access network transmission and core network transmission. An operator may or may not own the transmission network. However, many operators prefer to own the access network part of the transmission because of the control it provides them over network rollout. Microwave links are most often used for the access network transmission. One of the reasons for this is that it is often the fastest means of network rollout and capacity expansion. The main driver for the CAPEX in access network transmission is the number of radio network sites, traffic volume and the topology of the access network.
Compared with the access network transmission, core network transmission links are characterised by higher capacity demands and longer distances. Often fibre is used as a medium for core network transmission. Like the access network transmission, the operator has the choice of owning or leasing capacity. The main drivers for the CAPEX in this part of the transmission network are traffic volume and the distance between the core network nodes.
• Service infrastructure
The main items included in this category are the short message service centre (SMS-C), multimedia messaging server (MMS), WAP gateway, intelligent networks (IN), unified messaging platform (UM), mobile portal and voice mail system (VMS). The drivers for the service infrastructure are the number of subscribers and the choice of services offered.
• Operation and Maintenance Systems (O & M)
O & M systems are used to control and operate the network. Needless to say, the better the O
& M system, the higher the flexibility for operating the network efficiently. To some extent,
investing in a state of the art O&M system can help reduce operational expenditure on O&M.
The main drivers for CAP EX are the size and complexity of the network.
• Operating expenditure
Like the capital expenditure, the operational expenditure for an entity holding a licence to operate a 3G network depends on where the entity wishes to be in the value chain. If the operator will operate the network, be the service provider and host a mobile portal then the operating expenditure can be split into the following categories: cost of service, sales and marketing and general and administrative.
The major components of cost of service are interconnection costs, which relate to what a 3G network operator has to pay to another network operator to complete a call on that network.
The absolute value of this cost depends primarily on regulation and the level of competition in the market. Interconnection cost is charged on a per minute basis. Since interconnect can also be a source of revenues one often talks about net interconnect. Interconnect is a variable cost and its major drivers are call profile, that is, number of calls terminating in other networks, voice usage per subscriber and the number of subscribers.
Cost of providing long distance service relates to what a 3G network operator has to pay to a long distance operator. It is a variable cost and charged on a per minute basis. The absolute level of this cost depends on the volume the 3G operator can provide to the long distance carrier. Its major drivers are the volume of long distance calls, voice usage per subscriber and the number of subscribers.
Roaming costs occur when subscribers are roaming on another operator's network. There will be a cost for voice and for data services. Just like in the case of interconnect, roaming is also a source of revenues. It is a variable cost and its major drivers are user profile, that is, time spent roaming and usage while roaming, voice and data usage per subscriber and the number of subscribers.
The 3G technology is expected to bring new services and applications to the subscriber's mobile terminal through the operator's mobile portal. While some operators will attempt to develop some of the services and applications, most operators may opt to license these from
the developers/providers. Licence fee is one of the many ways in which the developers may wish to charge the network operator/mobile portal provider for their services/products (revenue sharing is another approach that might be employed). The main drivers of this cost are the number and type of services and applications provided, bargaining power of the operator/mobile portal, the number of subscribers and in some cases the usage of the service (many licence fees are based on number of simultaneous users).
The absolute level of transmission cost depends upon the availability of transmission capacity, regulatory environment, competitive environment and topography of the coverage area. Its major driver is the number of sites and the area covered by the network operator, which in turn depends on the coverage required, the number of subscribers, the usage and usage profile per subscriber and the topology of the licensed area (distances, environment, etc).
The sites on which the equipment (radio access and switching) resides are often rented. The absolute value of these costs is determined by the availability of space and the macro economic conditions of the country. As the number of operators in each market increases, causing an increase in demand for cell sites, rental costs can be expected to increase.
However, if the operators can agree to co-locate sites, these costs can be shared. The main driver of these costs are the number of cell sites which in turn depends on the coverage required, number of subscribers, usage and usage profile per subscriber.
The operation and maintenance costs relate to the expenses incurred in operating and maintaining not only the cell sites and network equipment but also the services and applications provided by a 3G operator. The main driver of these costs is the size and complexity of the network and services (or size of the CAPEX investment as a good approximation).