Future of the mobile industry: network operators must increase capacity without irritating customers with higher prices and data caps

At the end of October, Real Wireless hosted a breakfast meeting with Bloomberg to discuss what the future holds for the mobile industry.

Around 40 Bloomberg subscribers from across a number of sectors, including financial institutions, telecom vendors, analysts and operators attended the event. The morning’s talk featured a presentation from Real Wireless’s director of technology, Professor Simon Saunders, who provided a compelling overview of what the future shape of the mobile industry will be — and what the implications of this are for operators.

The challenge at hand
In particular, the presentation highlighted how MNOs now face the dual challenge of delivering major capacity increases and improving their earnings while avoiding customer churn through price increases and data caps. This challenge is set against a backdrop of increased competitive pressures from disruptive new-style players — like Uber and Netflix — that are adopting completely new technology and business models to attract customers away from established competitors.

Growth in mobile demand over the next 15 years is a given, even if the exact rate of growth varies widely between forecasts. Ambitious predictions state that mobile demand will grow to 30 times present levels by 2030, while conservative estimates place growth at 23 times. Whatever the exact rise, meeting demand will depend on many factors — particularly how efficiently mobile operators can supply capacity.

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But as growth continues to increase exponentially, revenues remain largely static, squeezing operator margins and in turn impacting capital available for investment.

Facing up to the task
To address these challenges, Simon outlined several potential options available to operators who wish to maintain current standards of mobile connectivity while keeping pace with demand.

One option available is for operators to try and reduce demand themselves by increasing prices and capping data volumes, which would almost certainly prove unpopular with consumers. Operators could also charge differentially according to need through daily or hourly ‘pay-as-you-use’ fees, or attempt to compress data to ease capacity strains.

The ideal option though would be to reduce the cost of delivery while increasing quality. This approach would involve operators combining different spectrum bands, technology (for example enhanced modulation and coding, carrier aggregation and antennae techniques) and topology (for example small and macro cells) in certain ways and to varying degrees to meet the varying levels and patterns of demand.

The importance of small cells
Small cells in particular could play a vital role in the future of the mobile industry. By offloading subscribers from macro cells in busy areas, they can offer a better throughput and quality of experience at a significantly lower cost than macro cells. Operators will find they are able to keep their tariff prices low, whilst touting the benefits of their enhanced service to subscribers.

Past Real Wireless projects have demonstrated how the benefits of small cells align with market drivers and, when rolled out intelligently by operators, can deliver a positive return on investment. Capacity-driven projects in urban areas can yield benefits of up to $48.6m, with a total cost of ownership of $29.8m and a return on investment of 136%. Coverage-driven projects, meanwhile, can save operators who lack low-frequency spectrum between $2.8m–$7.2m while achieving equivalent coverage as expensive macro cells.

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Automated Wi-Fi systems for better QoE
Operators can also save money and reduce mobile capacity strains by taking advantage of automated Wi-Fi. Our calculations across 10 global cities show that operators could be $17.9 billion better off in a mixture of cost savings and additional revenues by using automated systems to enhance Wi-Fi quality of experience. This approach enables operators to offer seamless hand off to Wi-Fi and back on to the network given certain signal strength, capacity and optimisation metrics. However, the operation support system (OSS) and the business support system (BSS) must be set up to manage the traffic across the different networks.

For example, a mobile operator in New York that has 25% mobile market share could save $71m. Using those savings, the operator can reinvest in expanding capacity without having to increase prices for consumers. It’s a win-win situation.

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There’s no doubt that MNOs have some stern challenges ahead — and it’s all being driven by insatiable consumer demand. Operators need to act now if they’re to make life easier for themselves in the next few years and avoid a public backlash on price increases.

Are UK mobile phone users paying too little?

17470913285_bbda8cf99a_kDuring the launch of its new iD MVNO service, Dixons Carphone suggested that UK customers overall overpay on their mobile bills by more than £5bn each year. If you look at Ofcom’s figures, which state that the UK has around than 83.1m mobile subscriptions, then you can assume that this £5bn figure equates to an additional £60 per year for each person who owns a phone.

While that news will undoubtedly raise the collective eyebrows of mobile phone users, we would argument that if users paid more, the mobile industry would be able to offer substantially more benefits in return.

Users will undoubtedly object to paying more for what they already consider to be pricy smartphone contracts. But when considering the fact that UK mobile operators receive four times less average revenue per user than Japan, two and half times less than the US and one and a third less than the rest of Western Europe, maybe UK users are still paying less than they really should?

The lower average revenue per person generated by UK consumers translates almost directly into a lower spend on networks by mobile operators in the UK compared with other countries. A 2013 report in to Europe’s telecoms infrastructure found a 34% difference in investment per head between Europe (£111,000) and the US (£167,000). What’s more, the report found that European investment is declining at a rate of 4% per annum. The lower spend shouldn’t be surprising — the money to invest has to come from somewhere, after all.

Without the money to invest, operators cannot roll out their networks to deliver the coverage and capacity we need. Since poor coverage costs UK businesses over £30m a week as employees waste time hunting for mobile phone reception, the need to eradicate black spots has never been more pressing.

Without the money to invest, mobile operators are cutting costs by sharing networks, resulting in little differentiation between competing operators — something that could reduce competition out of the market in the long term. We used to have unrivalled levels of competition with five operators, but that number is soon likely to reduce to three.

The challenge for mobile operators is to persuade customers to use their voice and data services more to generate additional revenue for investment. The benefit to users of mobile is around 8–10 times that to the operators — a great investment in anyone’s money.

Will we really have Wi-Fi on trains by 2017?

Prime Minister David Cameron announced today that all trains in the UK should have free WiFi from 2017, partly helped by £50M of government funding.

At Prime Minister’s Questions he said the plans would cover services operated by TSGN, Southeastern, Chiltern and Arriva Trains Wales. (It isn’t clear if it is only those will get the funding, or if it is only those that have the expectation of free service?)

1Di8seNRo6bK8c9xq5Cw_Italia FerrisBut another facet is that is likely this will be a prerequisite of tender submissions: TOCs will have to offer Wi-Fi as part of the criteria for in the next round of franchise submissions – and will need to compete on the level of service they offer.

It is clear the operators see the benefits: Wi-Fi is a great way to make train travel more productive and hence more attractive than driving.

A spokesman for the Rail Delivery Group, which represents Network Rail and train operators, said: “It is good news that even more rail passengers will be able to benefit from Wi-Fi on their train. Rail plays a crucial role in keeping people connected to friends, family and jobs and the wider rollout of Wi-Fi on the rail network will mean people can make even better use of their time on the train.”

But saying people should do it is the easy bit: actually making this work is extremely challenging, and this is an area where Real Wireless has done a lot of work.

Trains are an extremely challenging environment for on-board connectivity, whether via Wi-Fi or small cells. For a start, there are very strict safety standards, which complicates installations. But most challenging is the issue of backhaul: trains move fast, though difficult terrain (tunnels, cuttings) and often through remote areas. To get that connection to work reliably is not trivial, and might need specialist links or dedicated spectrum.

That makes it critical that there is appropriately designed trackside network, on-train equipment and spectrum.

We have worked on these issues for a number of clients, and have some in-depth expertise in this area.

An example, which is in public domain, was done with Mott MacDonald for the Rail Safety and Standards Board (RSSB), that considered both Spectrum and Technology: “Supporting the Rail Industry’s Wireless Communications”.

We analysed spectrum (the characteristics of different frequency bands, the status of regulatory policy) and technology (capabilities that would be suitable to both operational and passenger services, and both Wi-Fi and LTE).

We have done a number of other projects on train communications and how to make them work, reliably and cost-effectively.

A few things to consider:

  • It may seem surprising, but one of our findings was that it is not actually as expensive as often thought to install mobile equipment on all the carriages of all the trains in the country – if it’s done in a coordinated fashion.
  • What’s more, that the cost is massively outweighed by savings in necessary trackside infrastructure, given the right use of technology and spectrum. But too many people are not doing that right.
  • There are significant benefits from operational use: looking only at passenger use omits many of the opportunities for telemetry, maintenance and other in-house savings.
  • If you are looking at WiF-i, you should consider cellular service at the same time. Including a small cell to improve cellular connectivity is a small incremental cost but has a major benefit for passengers in serving all devices with both voice and data services.
  • People need to anticipate the future and plan ahead. These solutions need to be robust with the right technology, capacity and QoS to support the number of travellers using the service – especially as passenger numbers rise by 2017.

For some more details please contact us, or see our white paper “The business opportunities for wireless in transport” explains how network operators can invest in infrastructure to support better connectivity and new business opportunities on trains and other modes.