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Mobile Data Explosion Drives Massive Increase in Network Cost

May 18th 2012

Mobile devce users

The tremendous growth in mobile data traffic—Solon Management Consulting expects a more than 15-fold increase between 2011 and 2016 for Germany alone—will put strong pressure on operators. Mobile operators face significantly higher cost for providing additional network capacity. According to the Solon white paper "Mobile Data Growth: How operators can handle the traffic explosion," which is being released today, the cost for access and backhaul network could almost double within five years. Solon recommends a set of measures that will enable operators to provide bandwidth in a more cost-efficient way.

"Mobile operators need to act now to meet the mobile cost challenge," warns Stephan Kalleder, Principal at Solon and author of the white paper. Without adequate countermeasures, network expenditures will increase from 12 per cent of revenues in 2011 to 23 per cent of revenues in 2016 according to Solon estimates. "Since voice revenues are expected to grow moderately at best, the future profitability of mobile operators is strongly determined by how quickly they can improve the network cost base," says Kalleder.

Mobile operators can take two major approaches to significantly reduce the risk of cost outstripping data revenues: optimization of the existing infrastructure and network sharing. Network optimization concentrates on expanding network capacity through the migration to LTE and on actively managing data traffic. If mobile operators accelerate the LTE deployment, they will benefit from additional spectrum allocation and higher spectral efficiency. In addition, Solon proposes to more actively manage data traffic through implementing different tariff and policy models or by offloading mobile traffic to fixed lines. Another focus is on optimizing video delivery since mobile video consumption is likely to drive around 70 percent of the anticipated traffic growth over the next five years.

Entering into network sharing agreements has proven to be a highly successful strategy especially for smaller to mid-size operators. "By sharing the same infrastructure—from base stations to backhaul, mobile operators can save up to 35 per cent of the cost of the shared site," says Kalleder.

If operators adopt the proposed infrastructure and network measures, Solon expects operator's EBITDA margins to remain fairly stable. "At the same time, mobile operators need to develop new revenue and tariff models," adds Marc Sier, Managing Director at Solon Management Consulting. "Monetizing data is a big challenge but finding the right pricing models and opening up new revenues streams such as M2M or partnership models will enable operators to close the revenue gap and even increase profitability."

Jean-Pierre Joosting writes for EE Times, from which this article is adapted.

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