Is Network Sharing and Joint Ventures the Best Model for LTE Deployment?

With the joint venture announced between Telenor and Tele2 in Sweden, is it just too expensive for operators to be building their own LTE networks?

Operators such as Orange and T-Mobile in the UK are already looking to merge their 3G networks, at great cost. £600m-£800m is the estimated cost that will be taken up by decommissioning redundant duplicate radio network infrastructure, as well as reducing the number of retail outlets and combining the customer service centres and general administration functions. T-Mobile will contribute the 50% share of their joint radio network with Hutchinson 3G to the pot, (who incidentally already use Orange’s 2G network for fill-in coverage). Assuming T-Mobile and 3 put both their radio networks into the joint venture, you’ll end up with the interesting situation of 3 using a joint 3G network shared with Orange and T-Mobile, and a GSM network operated by Orange and T-Mobile.

So what does a joint venture between two operators look like? The Telenor and Tele2 merger seems a lot more simple. They have created Net4Mobility, a company that is a product of the joint venture that will build and manage the joint network for the two operators, have a competely new infrastructure (radio, backhaul, core, OSS etc). The joint venture will be 50/50 between the two operators. Net4Mobilty will be using its own 2.6GHz spectrum and will also use both Telenor's and Tele2's 900MHz spectrum.

Sharing spectrum and network infrastructure massively reduces the CAPEX and OPEX when compared to the investment that would need to made if the two operators deployed LTE seperately. But is this also a move to compete on customer experience and product differentiation? The Swedish market is one of the most competitive for mobile broadband and perhaps the operators have decided that they simply cannot continue to compete on who has the cheapest flat rate plan for data.

Calculating the Cost of LTE, Can Operators Afford LTE in the Economic Downturn?

We have seen in the last 6 months or so that some tier 1 operators have been quietly delaying their plans for LTE, some by a few years. T-Mobile is a good example, having stated their plans to roll out LTE in 2010 and replace 3G, they are now looking to stick with HSPA for a little longer.

Aircom launched their LTE cost calculator and published estimated capex investments facing a tier one mobile operator in the first year of rollout in each of four regions. The figures will of course vary by region, the legacy equipment operators have in place and the spectrum they have available. The estimated cost in the US came to $1.78bn, Europe $880m the Middle East $337m and Asia Pacific lowest with $232m.

The economic crisis is the main reason for operators seeking to limit CAPEX committments, but this is also leading to operators taking a differnent approach to LTE network roll out, with network sharing cited as an example alongside the automation of key optimisation processes through the roll out of self-organising networks (SON) and the deployment of femtocells to cost effectively provide macro network offload capabilities as well as indoor coverage. Operators don't want to deploy LTE unless it can be shown that it will save them money in the long term and selling LTE to shareholders can't be easy right now. HSPA is becoming an increaslingly attractive interim solution.

LTE has the potential to become the first radio access technology that is used by all the world's major mobile operators, which means that it could eventually gain massive economies of scale. Some operators may be thinking that it might be worth waiting for the costs to go down before deploying LTE. If the operator's current base stations were deployed fairly recently, they may also be able to move to HSPA+ with just a software upgrade. Operators with a relatively new HSPA network are likely to upgrade it to HSPA+ to ensure they maximise their ROI on HSPA and again this makes it difficult to justify the cost of LTE.