Outsourcing and Network Sharing: Key considerations to solve the Backhaul Challenge

Franck Chevalier Head of Broadband Sector Consulting - Operations

Contents

About Analysys Mason Market Context and Outsourcing Models Backhaul Strategies and Cost Conclusion

About Analysys Mason

The worlds leading specialist advisor in telecoms, media and technology Full service offering covering Strategy, Planning, Implementation and Optimisation Clients include operators, media companies, regulators, financial institutions, Governments, vendors and end users A global presence with over 300 staff in 11 offices in Europe, Asia and the USA

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Assignments completed Analysys Mason office

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Measuring up

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Contents

About Analysys Mason Market Context and Outsourcing Models Backhaul Strategies and Cost Conclusion

Mobile Operators have an increasing requirement to lower their OPEX to maintain Margins

Issues

Decrease In Voice Revenues

Maintaining Profits

Solutions

New Revenues Creation

OPEX Reduction
Outsourcing

Wireless Broadband Mobile TV SDP* (iTunes, OVI ) Advertising Other new services
*SDP = Service Delivery platforms

Full UTRAN Outsourcing

Operators need to ensure they innovate in both streams to remain competitive in developed countries

Outsourcing Network O&M Sharing of Site and Infra. Optimisation of Infrastructure Optimising Internal resources
Ownership

Mobile Operators have many options to reduce their OPEX

Outsourcing

Full UTRAN Outsourcing

Full UTRAN outsourcing describes the scenario whereby the operator outsources rollout, I&C and O&M. There are many options available in this scenario, as the third party may be the owner of the active equipment as well as the owner of the backhaul network.

Outsourcing Network O&M

Outsourcing Network O&M is the operational model whereby the operator outsources all of its O&M services to an equipment vendor.

Sharing of Site and Infra.

Sharing of sites involves two or more operators using the same site to install their active equipment using a single tower. There are many sub-options available in this scenario depending on whether the operators share antennas, Node B and backhaul networks.

Optimising of Infrastructure

By using new technologies and architectures, some networks can be optimised to save OPEX. This scenario is not considered in this presentation

Optimising Internal resources

Ownership

The optimisation of internal resources and process is not specific to a telecom operator but is often use to try to optimise the OPEX. This scenario is not considered in this presentation

Full UTRAN Outsourcing

Full outsourcing often involves a tower operator, able to host many operators on a single site
One example of full outsourcing strategy is T-Mobile and NGW (Macquarie) in Northern Ireland NGW were awarded a contract in 1999 with T-Mobile for the rollout and the full maintenance of T-Mobile GSM Radio Access Network (RAN) in Northern Ireland NGW owns their own transmission network, covering the whole of Northern Ireland Where practical, NGW has acquired large enough sites to host several operators, each with their own cabin. Currently, each operator uses their own transport Network or a BT leased line to backhaul their traffic.

Outsourcing Network O&M Sharing of Site and Infra. Optimisation of Infrastructure Optimising Internal resources

Source: http://www.uk.nationalgridwireless.com/downloads/Casestudy _T-Mobile_NI.pdf

Full UTRAN Outsourcing

Outsourcing Network O&M fits both operator and equipment vendors strategies

Outsourcing Network O&M Sharing of Site and Infra. Optimisation of Infrastructure Optimising Internal resources

Traditional Equipment vendors are trying to move up the value chain to maintain profits.

Outsourcing Network O&M

Selling of Telecoms equipment is not highly profitable due to fierce competition

Outsourcing O&M also provides the opportunity to refocus on more core business activities such as marketing and customer retention strategy

Outsourcing O&M provides some scope to reducing OPEX

Vendors drivers

Operators drivers

O&M outsourcing contracts include Ericsson and 3UK, Base-Alcatel, TNZ-Alcatel and One Alcatel and many others

Full UTRAN Outsourcing

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Site / RAN sharing is increasingly popular but difficult to implement in brownfield deployments
Operators Telstra and Hutchinson 3G Optus and Vodafone Country Australia Australia Date of Announcement August 2004 November 2004 Date Of Launch September 2005 Q3 2005 Comments

Outsourcing Network O&M Sharing of Site and Infra. Optimisation of Infrastructure Optimising Internal resources

Reduction in Optus capex of AU$100 million in the first three years. Reduction in opex for maintenance, operations and site leases of approximately AU$10 million per year.

Vodafone and Orange

Spain

November 2006

October 2007

Improve the 3G network coverage provided by both operators by approximately 25%. Reduce the number of base stations needed to deploy both the Orange Spain and Vodafone Spain networks by around 40%. 20%-30% savings on RAN opex and capex in long-term, onethird reduction in combined sites, faster 3G roll-out and improved coverage

Vodafone and Orange

UK

February 2007

Looking at site sharing only

T-Mobile and 3

UK

December 2007

Expect to take 2 Cost savings of GBP2 billion (USD4 billion) over ten years, by years to consolidate decommissioning over 5000 duplicate base station sites the networks

Source: Analysys Mason Group

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There are also other business model that includes a combination of site sharing and setup of a Tower company
In India, Bharti Infratel and Vodafone Essar have announced in February 2007 the sharing of their remoter sites Subsequent to this announcement, Bharti Infratel, Idea Cellular and Vodafone Essar, announced in a joint statement that they are forming an independent tower company, Indus Towers Limited, to provide passive infrastructure services in India to all operators on a non-discriminatory basis. These 3 companies will merge their existing telecom towers in 16 telecom circles in India. Bharti and Vodafone Essar will own approximately 42 per cent each and Idea will own the remaining 16 per cent stake in Indus Towers. Indus Towers will be an independently managed and operated company, offering services to all telecom operators and other wireless services providers.

The company will have approximately 70k towers at inception, and will undertake a significant roll out of telecom infrastructure to propel the mobile sector towards achieving Indias teledensity and rural coverage goals,

Source: http://www.deccanherald.com/Content/Dec92007/business2007120840233.asp

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Contents

About Analysys Mason Market Context and Outsourcing Models Backhaul Strategies and Cost Conclusion

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Up to 70% of transmission OPEX is associated with the backhaul

Distribution of Transmission OPEX

Typical Break down of OPEX for a Western Mobile Operator 2G/3G

8.0%

4.7% 9.8% 2G BTS Leased Lines 3G Links Microwave licenses Dark Fibre and SDH IP Network Interconnect Links Inter-MSC Other Links

37.0%

Up to 70% of transmission OPEX is associated with backhaul of 2G/3G

7.3%

The rest of the OPEX is spread between core network, interconnect and other Links

12.7% 6.0% 14.5%

Source: Analysys Mason Group

Real opportunity to save significantly on OPEX by optimising Backhaul network

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Today, 2G and 3G backhaul can be accommodated using TDM transport Network

2G MS (voice only) BSS Abis A Mc BSC BTS Gb IuCS RNS ATM Iub IuPS RNC Node B 3G UE (voice & data)
BSS Base Station System BTS Base Transceiver Station BSC Base Station Controller CN Core Network MSC Mobile-service Switching Controller VLR Visitor Location Register HLR Home Location Register RNS Radio Network System RNC Radio Network Controller AuC Authentication Server GMSC Gateway MSC SGSN Serving GPRS Support Node GGSN Gateway GPRS Support Node

TDM
CS-MGW

CN Nb Nc Mc B C VLR D H Gr HLR Gn SGSN GGSN GMSC server CS-MGW

PSTN

PSTN

MSC Server Gs

SS7 IP/ATM
Gc Gi

AuC

PSDN

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With R5 of the 3GPP standard, 3G network now has the option to use IP for both IuCS and IuPS Interfaces
IP
CS-MGW Nc UTRAN Iub IuCS Mc B MSC Server Gs RNC Node B IuPS Gr HLR Gn SGSN 3G UE (voice & data)
BSS Base Station System BTS Base Transceiver Station BSC Base Station Controller CN Core Network MSC Mobile-service Switching Controller VLR Visitor Location Register HLR Home Location Register RNS Radio Network System RNC Radio Network Controller AuC Authentication Server GMSC Gateway MSC SGSN Serving GPRS Support Node GGSN Gateway GPRS Support Node

CN Nb CS-MGW

Mc C

PSTN

PSTN

VLR

D H

GMSC server

SS7 IP
Gc Gi GGSN

AuC

PSDN

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The migration from TDM to IP will enable operators to decouple bandwidth from costs
The incremental bandwidth required by new application such as mobile broadband is not proportional to additional revenues. TDM backhaul does not allow to decouple bandwidth from CAPEX investment
Q

Cost of TDM Vs Ethernet leased lines

250 STM-16 200

Cost of E1 leased lines is proportional to bandwidth : nxE1 = n x cost(1 E1) Cost of higher TDM capacities (SDH) is in discrete steps and does not allow operator to shape and control the cost of the backhaul

150

ti tra s Il l u

ve
"TDM" STM-4 "Ethernet"

100 STM-1 50 E3

0 1 10 100 Bandwidth (M bps) 1000 10000

Ethernet Backhaul breaks away from this model by: Following a logarithmic cost profile Having a finer granularity for bandwidth upgrade Providing a pay as you go capacity increase model to enable the operators to better shape up their cost structure.
Technology Ethernet TDM

Increase in capacity (x) 10 4

Corresponding increase in cost 2-3 times 2-3 times

Ethernet Vs TDM leased lines Cost comparison: [source Analysys Mason]

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But without an efficient aggregation network infrastructure, the cost benefits of IP will be limited
Increased Packet Multiplexing Gain

in ing om loop Gro s No cces A in ng mi l o Gro hau No Back ork tw Ne

Multi-service Switch (Concentrator) RNC

in ng m i op roo lo o G ces s N c A
Multi-service Switch (Concentrator)

in ng m i loop o Gro ess a cc

Multi-service Switch (Concentrator)
Multi-service Switch (Concentrator) Multi-service Switch

in ng m i aul o Gro ackh rk B t wo Ne

Multi-service Switch (Concentrator) RNC

in ing om ha ul Gro ack rk B t wo Ne

Multi-service Switch (Concentrator)

(Concentrator)

RNC

Point to Point

Star Aggregation

Daisy Chain Aggregation

The key will be to aggregate the traffic as close as possible to the Node B / BTS

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In the case of full outsourcing models, tower operators could provide backhaul services at a very competitive rate
BTS Operator A

TDM

Ethernet
IP Node B BTS

PBT
Operator B
Edge Mux With Pseudowire

Ethernet

Operator A Operator B

TDM

VLAN 1
Ethernet
IP Node B BTS Operator C

PBT Multiservice Platform

Operator C

VLAN 2 VLAN 3 VLAN 4 VLAN 5

Ethernet TDM

VLAN 6 Tower Site

IP Node B

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Contents

About Analysys Mason Market Context and Outsourcing Models Backhaul Strategies and Cost New Transmission technology Impact of new technology in Outsourced Networks Conclusion

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Conclusions

Driven by market requirements, outsourcing strategies are increasingly popular There are many outsourcing models, ranging from Full RAN outsourcing to Outsourcing just O&M Site / RAN share can be considered as an outsourcing model especially if JV is created The principal actors are Equipment vendors, Tower operators and MNO themselves Levering on traffic density achieved by multi-operator collocation makes it very attractive to offer backhaul services PBT is one of the technology that will enable Multi-operator traffic to be backhauled to their respective aggregation networks.

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Franck Chevalier franck.chevalier@analysysmason.com

Analysys Mason Limited Canal Court, 40 Craiglockhart Avenue Edinburgh EH14 1LT, Scotland Tel +44 (0)131 442 6327 Fax +44 (0)131 443 9944 www.analysysmason.com