Helping operators boost profitability from mobile services

Date: Tue, 09/18/2012 - 17:41

Today's Mobile Operators face a formidable challenge. As customer demand moves from voice to data services, the volume of data traffic crossing the Mobile Operator's network continues to grow exponentially, driving up the cost of the network. At the same time, however, the average revenue per user is generally remaining flat, severely impacting the profitability of their business

Helping operators boost profitability from mobile services Rosalind Craven. Senior Research Analyst, EMEA, IDC

All wireless operators agree that delivering the bandwidth required for 4G-LTE wireless backhaul is the single biggest challenge and operating cost in the industry. The need for a robust and future-proof infrastructure is now critical. No two networks are alike, so what are the pain points impairing growth and profitability?
Increasingly, as bandwidth demands have grown, Carrier Ethernet has become the target solution for mobile backhaul. Instead of leasing DS1s/E1s, the Mobile Operator leases Single CoS Ethernet Virtual Connections (EVCs) from an Access Provider.
This arrangement has come about primarily in the name of simplicity, trying to make the EVC behave in a way that is equivalent to a high-bandwidth TDM circuit (DS1/E1). But, do these “high bandwidth” pipes alone enable Mobile Operators to engineer the network in the context of varying traffic priorities and significantly reduce costs?

Panellists: Craig Easley, Vice President of Marketing and Product Management, Accedian; Roland Klemann, Director, Service Provider Practice, Western Europe, Internet Business Solutions Group, Cisco Systems; Alan Solheim, VP of Corporate Development, DragonWave Inc.; Kevin Vachon, COO, MEF; Greg Gum, Chief Marketing Officer, TelcoSystems

Chair: Rosalind Craven. Senior Research Analyst, EMEA, IDC, at NetEvents EMEA Press Summit, Garmisch, Germany
First of all, I have to say I don't make any money as a mobile operator, because I'm not a mobile operator. But the question here is how we can help mobile operators to make more money or to continue to make money. There are lots of ways that that can be done, but I think today we're going to focus on mobile backhaul and its role in that.
But first of all, I'm going to outline the challenges that are facing mobile operators and the challenges that need to be met. And then I'll invite my panel to come up and discuss between themselves just how we're going to sort these problems out.
So as it says in your program in the little blurb, outlining this session, mobile operators today do face a formidable challenge. Demands on their networks are changing. They're not only changing but growing. It's often said that customer demands are switching from voice to data. This is somewhat, if you ask me, somewhat misleading, because the demand for voice isn't going away. Voice usage remains high and is not diminishing. However, of course we all know that data use is growing very rapidly and we expect for it to continue to do so.
Looking at current growth rates, I've borrowed some data from Cisco's Virtual Networking Index and we can see in 2011 that global mobile data traffic was double what it was in 2010. That was the fourth year in a row that happened. But if we look at ARPUs the average revenue per user that mobile operators get and this is actually data specifically for Western Europe, we can see that it's basically completely flat.
There's actually a slight decrease from 2010 to 2011.
If we then look forward into the future, the VNI has enormous growth from 2011 to 2016. Global mobile data traffic is expanding very rapidly and we expect it to continue to do so. Over the same period, we're expecting basically flat ARPUs, certainly in developed areas like Western Europe. It's quite possible that flat is actually a bit optimistic. So with traffic volumes growing like this and the cost implied in servicing that growth taken into account and your average revenue per user remaining flat, it would appear that profits are going to be very seriously under threat.
So what do mobile operators do about this? Leaving aside what mobile operators may be able to do to increase their revenue streams and create new revenue streams from providing services, there obviously needs to be a reduction in their accountable costs.
There are many challenges inherent in meeting this demand and planning for the future and creating this bandwidth. But delivering the necessary backhaul bandwidth in a manner that meets all of the needs of the mobile operators may perhaps be the biggest of these challenges.
Some mobile operators are already experiencing serious or have been experiencing serious backhaul bottlenecks. They need a solution that's going to help them soon.
However, mobile operators also don't want to be investing now and then finding two years down the line they need to invest more because of the incredible growth that we're expecting. They need as much as they can to future-proof their networks, their backhaul facilities, against this continuing growth.
They also need to be able to maintain of course and not to forget voice. They need to maintain or even improve the control they have over the actual experience of the customer which is a very key factor. We also know data usage is quite unpredictable.
We never know how people are actually going to behave, how they're going to use their devices. Data usage is inherently quite surgey and so mobile operators also need networks that are going to be flexible enough for them to meet those needs and control and manage the bandwidth. And as we've mentioned they need the cost of it to come down otherwise they're in serious trouble.
Is there a perfect solution to this? How should mobile operators be investing in backhaul? I'm not going to attempt to answer this question for you. I'm going to leave it to the experts on my panel and I'd like them to come up on stage and join me.
So I'm going to be addressing some of these questions specifically but I want to make clear to the panel that if they have anything to add or they want to disagree please feel free to jump in. I'm going to start at a high level and just say how big a challenge is this really for operators and what have they been doing so far to meet it. And I'm going to start by putting that question to you, Roland.

Roland Klemann
Thank you. You've cited the VNI from Cisco. We've seen tremendous traffic growth over the last years. In this year we estimate that the total size of mobile data traffic is eight times what the whole Internet was in the year 2000. So it's really an amazing challenge. And we've been talking with the CTOs of mobile operators worldwide and they tell us, that's something we're going to do because we're seeing more and more investment requirements put towards us, but we can't recuperate that through the proceeds that we get. So there's something we'll need to do around it, probably something on the operating side; the operating side will not fix the problem fully. So tier pricing and things like that will not do that. The advances in spectrum efficiency and technologies will also not do that. And as you said the question now comes, what can we do on the mobile backhaul.
What we see is that the mobile backhaul is gradually moving more and more towards IP based solutions, so we deploy more and more packet friendly technologies. But as always a like for like technical replacement is probably not going to do the whole job.
So in the long term, in allusion t[o what] LTE, we see that backhauling will move much closer to the network edge that the call gets distributed across the network and that this is a journey, so you won't suddenly see one replacement of technology with another set of technologies. There's the legacy networks, the GSM networks that will keep to be supported with more efficient technologies. But while we upgrade to LTE, which is the biggest investment priority for the operators, what we deploy is more packet friendly technologies and more distributed across the network. So that's a bit of what we are seeing in our discussions with operators.

Rosalind Craven
I'd just like to further open to the rest of the panel and see if what Roland has indicated there also reflects what they've seen from their customers, in terms of what their customers are doing and what they're asking them to do.

Craig Easley
I'll jump in. Certainly we're seeing huge growth. Anecdotally the customers that two years ago weren't interested in our highest capacity offering now are saying why aren't you delivering more capacity than your highest capacity offering. So clearly the demand is at least keeping up with if not outstripping the capability of the technology vendors to provide that.
And so what we're seeing is we're being forced to look at -- our customers, our customers are being forced to look at new architectures, new ways of doing business, because the linear progression just doesn't cut it.

Unidentified Speaker
And there's no end in sight. If data usage continues to double everywhere, we'll need 32 times the capacity by 2015. So continuing to build, I think that's the main driver behind all this. The Ethernet boom in mobile backhaul was purely about capacity at the beginning. Now it's about taking that capacity and offering differentiated services so that you can carry the low priority data in the same pipe but still provide the video and voice traffic in high quality. So now it's not just about adding more bandwidth as the problem but it's about using that bandwidth more efficiently to support all the different applications that are running on the mobile network.

Kevin Vachon
A couple of points. The people I deal with in India for example, are saying that they haven't really experienced the actual data growth yet. It's just more an economic issue there with the ARPU that they have is low and the handsets, the phones that they're using maybe aren't really capable of doing all that much because they're using very cheap phones. But it's still a matter of when and not if there, like every other market.
So just to build on what Craig said, we obviously, at MEF we focus probably more on the cost reduction side in the backhaul and that happens in two different ways. One is encouraging the operators to migrate from expensive TDM services to Carrier Ethernet, number one. That to a large extent has happened in a pretty big way already in many markets, not all, certainly in the US, driven by LTE. But the second part of it is what you heard yesterday with the Carrier Ethernet 2.0 story, where there is this emphasis on multi-suited CLS, which is just a better management of the different traffic types and better allocation of bandwidth and prioritisation to make these big pipes much more efficient than they've been in the past.

Rosalind Craven
When we say much more efficient, how much more efficient?

Keith Vachon
Some of the operators that we quoted in our materials were saying you can save 25% easily. It's not that hard if you really took a look at how a typical Ethernet is set up to look at how you could drive 20% or 30% or 40% more efficiency out of it just with a different configuration.

Unidentified Speaker
I think the operators that deploy Ethernet in their backhaul networks at the beginning wanted the highest, the most premium service and they ran all of the traffic over high priority real time voice quality of service. Even the best effort data traffic was carried there just because they didn't have any confidence or experience working with Ethernet. Now that they have some experience, it's proven that the technology is reliable and so now they feel more comfortable buying a lower cost service and that's where this 20% to 25% savings come in.
If I'm running half of my traffic on my network is not real time requirement and I can buffer it; I can drop a few packets here and there; I can do it with a lower cost service and still not compromise the quality of experience of the end user.

Unidentified Speaker
And that's not the end of the efficiency improvement. In general what we're seeing is a trend to more intelligence being distributed throughout the network exactly what our friend from Cisco was saying. The same sort of things that happen in the data centre to make the data centres work in the WAN optimisation technologies, those similar technologies can be applied to mobile backhaul networks. And so you can get more efficiencies simply by making the network more intelligent.
As technologists we've actually done in some respects too good a job at driving the cost per bit down, such that the cost of the equipment is probably only 10% of the ten year total cost of ownership. And so it's other things making the network more efficient, making the network easier to use, making the network faster to deploy, more reliable. All of those things have got a bigger lever in terms of the business case for the mobile operators than the actual box cost.

Unidentified Speaker
I would just add a couple of things. Maybe take a look at a different perspective and that is we did a recent survey of about 100 of the top major mobile operators worldwide and to the benefit of the other folks, 88% of those have a mobile backhaul strategy or are implementing it today. However, when you dive a little bit deeper, only 42% of those were actually upgrading to [addressable] backhaul for separating the data and the voice or trying to looking at convergence.
So while we certainly want to espouse and try to develop Carrier Ethernet solutions, we're still seeing a lot of countries as Kevin mentioned, India, parts in Southeast Asia, many other countries, Africa, other areas where -- Eastern Europe, where they still have TDM technologies and they've got to look at migrating from 2.5G to 3G or they just try to now do 3G to 4G.
So when you really look at that 42% interestingly enough a lot of the current packet based and some of the ability to use some of the [smarts] as my DragonWave friend was mentioning has not really taken hold yet. And there's a lot of reasons why.
So if you dive deeper into why the 42% are not fully embracing it, it's more than just efficiency -- because it comes down to pure CapEx and OpEx savings. Because many of these countries, many of these operators are really constrained and they cannot deploy new radio technologies, billing systems. They can't even get the ability to manage and build the systems -- we were talking about this at lunch. Great you can get charged for roaming as you were saying and they're very good at charging you for the roaming when you travel, but now I'm offering a class of service for example, which we now have the ability to do, with the technology at the MEF standards, they can't bill for it.
So thus they're not highly motivated to change operational systems and I think one gentlemen was saying they don't -- when you have a legacy system they don't just throw it out. You build on top of that. It's a very big task having been a carrier myself to move out that operational system.
So there are a lot of other reasons other than just efficiency I think to answer your question that are driving it. It is growing considerably, but I think where you see the most impact is where we're starting to have the CapEx to deploy the 4G technologies and then that's caused them to be able to offer more bandwidth, thus they're able to take advantage of some of these new technologies.

Rosalind Craven
You do represent the MEF standards. I could maybe invite you, Kevin to outline in a bit more depth what the significance of the new MEF standards may be to -- the impact they may have on the profitability of mobile backhaul networks.

Kevin Vachon
Building on what I was saying earlier, MEF has these sort of foundational specifications defining various service types and they apply to business services, to backhaul services, to the use of Carrier Ethernet as a technology within metro, national areas whatever. So really what we've done is we've created a new higher level specification document which shows how these service types can be applied in a very efficient way in backhaul environments specifically for 3G and 4G, how these service providers who have substantial Carrier Ethernet infrastructures already in place, so how do you configure those for backhaul traffic.
And the focus is on -- is just really meeting all of the requirements to transport the various traffic types, synchronisation traffic and so on and so forth, how to differentiate the traffics, how to prioritise the traffics, use standardised class of service levels and so on and so forth.
Craig, actually as a MEF Board member I'll ask him to jump in -- he's more technical than I am, to build on that.

Craig Easley
MEF 22 was really the stake in the ground for using Ethernet in the mobile backhaul network, but it left a lot of questions unanswered. So the biggest one is how do you take Ethernet technology and apply it to LTE and 4G networks, which are fundamentally and topologically different than the 2G, 3G use cases that we took in 22.
So the 22.1 which is a recently completed work -- it's a mobile backhaul implementation agreement phase 2 -- addresses how do you apply Ethernet for LTE, how do you take advantage of some of the other synchronisation techniques, like synchronous Ethernet for example and then how do you apply multi class of protection and management. So all of the other -- the things that weren't done in the first round are addressed in Phase 2 the new implementation agreement.
So now the operators have a richer tool set and an understanding about how Ethernet can be applied efficiently to reduce the cost of mobile backhaul and meet the capacity demands of the other mobile operators.

Rosalind Craven
I have a couple of other questions, but I want to take this opportunity to ask the audience if there are any burning questions that they have that they'd like to address to the panel. Silent as the grave.
Okay, I'm going to ask you about small cells. There's a lot of expectation that small cells are going to feature heavily in future networks to increase spectral efficiency. So
I'd maybe like to ask what impact that's going to have on backhaul and backhaul planning.

Roland Klemann
Maybe let's start with the demand side. The VNI study has also looked at the offloading piece. Here in Western Europe, we currently see 11% of the total mobile data traffic being offloaded and that will grow over the next five years we expect that to grow to about 25%. If you look at just the handset and tablet traffic it's even more.
Here globally 33% of the handset and tablet traffic is currently being offloaded. So in terms of the traffic management, that's quite something and that will yield a lot of operational challenges for the service providers.
Small cells are essentially easier to manage than [large cells] because you have self healing capabilities; you'll have more redundancy in the networks etc but you'll have a lot more access points to see that need to be linked up with backhauls. So new people will come into the marketplace for example, cable operators and with their measure of the network, they may be ideally placed to offer the backhaul and to host small cells for the traditional micro cell operators. So the whole small cells, we see that a big wave going forward, but with new players in the game.

Unidentified Speaker
So I guess my first statement would be that it's clear that the capacity crunch from a technology perspective is the radio access network. What's deployed in the network, to your point is the network -- there's huge inertia in any telecom network and you've got a bunch of old stuff out there and so there is backhaul bottlenecks in some of the operators in some of the regions.
But in general as we look forward and we try to do the 10x, 20x or 30x, all of these spectral efficiency [answers in] LTE, in new spectrum being offered by the governments, only make up about 10% of the capacity gain that we need. So it's clear that we need to get to something different, architecturally different, spatial reuse, which is what offloading is all about or small cells is all about in order to meet the capacity demands.
What that means for backhaul is that you've got data sources at a bunch of places where you've got no infrastructure on lamp posts, on the sides of buildings, outside, inside, coffee shops whatever, you've got huge operational challenges but fundamentally from a physical architectural perspective you've got, you can think about building small cells, but how do you connect them. And the answer is not going to be a wired infrastructure, because you're not going to dig up the downtown core of the major European cities to put fibre up lamp posts inside the buildings and under the streetlights and that kind of things. It's just not going to happen. The people won't put up with that kind of disruption.
And so it's going to have to be a wireless backhaul technology of some description and there's a bunch of technology options that do work, that can meet the cost perspectives.
The other significant thing about mobile, about small cells and mobile backhaul is that it becomes -- the aesthetics of the solution become equally important to the performance because it's down where people can see it. So the Arts Council of city X, Y or Z is not going to put up with some ugly thing on the street light. It's got to look good and so what we're seeing is we're seeing city councils that are being very specific about what can and can't be deployed down where the people can see them.
And so there are different challenges, certainly huge new challenges that come in mobile backhaul that small cells drive. But they have solutions.

Unidentified Speaker
I'll just answer a couple of things to add for pico cells. Another interesting statistic is that 33% of the carriers are doing some data offload. Just for I guess in the audience, what do you think the number one method is that they're using. I can cite two large North American carriers what they're doing. What do you think that 33% is doing?
How do you think they're doing mobile data offload. Any guess?
I'm sure a lot of you have it on your phone today and you're probably using it as you speak, which is [inaudible] Wi-Fi. So talking about the two largest American carriers, when it really gets down to where the rubber meets the road, what they're doing to offload their data and where they're getting some efficiency other than the spectral efficiencies which I think you've rightly pointed out, which is only about 10% of the problem, is you're seeing that the Wi-Fi is able to succeed in driving an awful lot of the data traffic, particularly when you're doing a streaming video, a lot of web intensive applications, Facebook.
So the thing about pico cells to add to that point is a lot of different options. The hybrid pico cells are going to be very prevalent at Mobile World Congress. If you're going to go there next week you'll see big announcements from several big carrier Wi- Fi companies in the Valley as well as worldwide. Ericsson just bought BelAir.
And there's a reason for that and it's because they're seeing that there needs to be as the DragonWave gentleman pointed out you need to have wireless infrastructure to go to these pico cells. Whether you necessarily do more cells and spread out cells everywhere, I think when we talk to carriers, a lot of that is still unknown yet, because there are operational issues, plus you have spectrum to manage and just proliferating a lot of these cells everywhere may not necessarily be advantageous from a spectral efficiency perspective, nor as mentioned for an operational perspective.
But now you're seeing hybrid cells, where they've added LTE with Wi-Fi and even 3D on single chipsets that can go onto the little cells that can go pretty much anywhere.
So you'll see two or three of them, [inaudible] has one, they're announcing; BelAir has one; there is Meru, a couple of other folks, IP Access [supports it]. So that will help alleviate some of the cell bottlenecks using Wi-Fi and a combination of wired Carrier Ethernet infrastructure. I mean carrier doesn't necessarily have to all over wires. It certainly can be over wireless. So I think that it is a promising technology and you'll see more. But it'll probably take the carriers a couple of years before they get that figured out because they're just getting into the first throes o LTE deployment.

Rosalind Craven
Just want to check again if there's any questions from the audience. There's one down in the front here.

From the floor
Do you think the LTE, the long term evolution could succeed next year, because everything shows that it's going to be a nightmare for telcos. So what is your feeling?
Will this succeed because everything is on the data -- I think we can't do better with the voice. So why is the interest of telcos to invest so much in the LTE.

Unidentified Speaker
I think a couple of things. It's all about the network these days. That's how the wireless operators are differentiating themselves. If you look at ads on TV it's not about dialling plans; it's not about accessing the content. It's I have the fastest network; my network is the most reliable; I have the most capacity. So the only way to get -- to one up the competition is to move to the faster radios and support LTE.
In the States, all of the major, the four major wireless operators, they are way past trial.
They have commercial offerings available in all of the 32 NFL cities which are the largest cities in the US. So it's coming. And there are LTE trials and deployments in every country in the Western world. So it's absolutely going to come.
It does bring with it operational challenges for the operators. When you put a radio out there that's twice as fast, when you put base stations out there that require more precise synchronisation than they've ever had before, there's a lot of moving parts to deal with. So that belies the necessity for better management tools baked into those cell sites, so you can monitor and guarantee the performance of the backhaul network as well as the radio part.

Rosalind Craven
I don't know if we have time for one more question down the front.

From the floor
My apologies but could we get back to the previous question because you mentioned small cells and you mentioned pico cells and we're hearing about micro cells, femto cells, pico cells. Probably we'll be on the level of the quark etc next. But the number of cells involved probably impact this whole matter as well. So you talked about small, you talked about pico. To what extent indeed are these -- probably humongous huge numbers of very, very small cells probably impacting the whole infrastructure.

Unidentified Speaker
To answer your question there are different types of technologies. So we had the femto cells, now I guess the Femto forum has taken off the word femto in their language. But absolutely there is going to be more cells because if you use either offload with Wi-Fi or if you're just using LTE or 3G offload, whether it be in a femto cell or pico cell environment to distribute from your macro cells that will bring on more points to manage.
The problem, a part of it is being addressed because they're now creating these hybrid cells. So in the new what they call pico cells as you see they're not necessarily at the home -- they can be but they're not necessarily at the home. They can be deployed outdoors; they can be hung on a wire; they can be put on a building and they distribute both Wi-Fi. So they have Wi-Fi for offload where you can use Wi-Fi and distribute that now in public areas for example like in the hotel, but at the same time provide LTE or 3G within the same pico cell unit.
So that helps drive down the raw number of cells because what you don't want to have is having every home having a femto cell, every corner having a pico and then having a macro base station. That's why most of the carriers are still not sold totally on pico or femto cell strategy because it's operationally a big headache to manage and then you have to build that in into your billing system because this is one of the discussions we had. How do they bill for that? Do they bill for that offload do they start charging you for Wi-Fi. Do they not? Do they bundle it? Do they tier it? There's a lot of issues from the carriers business perspective whether or not they're going to operationalise that because they can't really monetise it. If they can't monetise it then obviously nothing is for free.

From the floor
Which means to an extent you could almost use the land lines that are still there indeed as a kind of extra backhaul carrier. If I'm at home, I have the telephone I still have the landline and if I could add a femto cell at my house, you could almost use my land line as backhaul.

Unidentified Speaker
Sure, so like the femto cells, those that are used typically at the home and they have a Wi-Fi and your landline connected, so you have the benefits of a wired connection.
Sometimes they run your ADSL over it; they could be running cable structure. So absolutely that is a way. And I think the key point you're bringing up is that there will be hybrid technologies, because there's already infrastructure laid at the home.
There's a lot of copper; there's a lot of fibre out there. So where you're in those situations you will use a combination of wireless technology with wireline to optimise your network.

Roland Klemann
Building on that and that's already happening. What you see is that a lot of operators deploy multiple SSID enabled Wi-FI hot spots and when you are home you can use it.
One of the largest cable operators, Liberty Global has announced that they will do that European wide. Every box they enable in their networks will be multiple SSID enabled and you can easily envision that being used as a cable operator owned Wi-Fi roaming network. Things like that, we will see a lot of that over the next years.

Rosalind Craven
I'm afraid we are out of time now. I was hoping to try and start a fight about MPLS but sadly, there's no signs of that. I'd like to take this opportunity to thank the panellists and thank you for listening.



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