Operators need to look to the bigger picture as they migrate their core networks to IP – but face short term technical and business challenges
When it comes to their networks, mobile operators in Europe are beginning to suffer from the law of unintended consequences. While the long-promised mobile data revolution is finally here, it has arrived wrapped in the expectations set by users of the fixed Internet – the availability of seemingly limitless content at minimal cost to the consumer.
To meet mobile consumer service demands, operators have to upgrade their networks to create the bandwidth and capability necessary to deliver massive choice and access on demand – yet they will not receive the level of revenue from data that was initially expected. In addition, because operators are behind the curve in terms of both mobile broadband pricing and provision, Wi-fi has stolen the consumer market.
ABI Research predicts a 40 per cent growth over 2007 in Wi-fi hotspots. Growth is fastest, and availability most widespread, in Europe – where the mobile market is largely saturated. With Wi-fi hotspot owners increasingly adopting a loyalty-based business model, mobile operators must invest in marketing and network upgrades just to draw level – with no assurance of increased revenue for delivering the service.
At the same time that Wi-Fi, WiMAX and new business models are threatening the status quo, operators are struggling to reduce their costs to maintain profitability as their margins are eroded. They also face new technical challenges such as the introduction of 3GPP R4 architectures, IP capabilities and potential new revenue opportunities from the FMC market.
On top of that, the traditional 'walled garden' approach to services is breaking down. The industry is starting to see new data services between handset clients and the Internet emerge, such as those offered by the iPhone. Operators must therefore find ways in which to consolidate voice and data traffic, platforms and services, while remaining conscious of the need to reduce operational and maintenance costs.
These financial pressures, together with an inherently risk-adverse mindset and a reluctance to consider new technologies from other vendors, means operators are in danger of sacrificing vision and planning for the long term for short term savings.
The next phase of evolution in the mobile network – from R99 to R4 and beyond – can deliver new opportunities to exploit certain cost-reducing features of the next wave of architecture evolution. For many, IP is considered the most promising media on which to build the new, integrated services. IP provides an effective way to transport user data and enable operators to expand the capability of their networks to meet the demands of the data-hungry generation.
However, operators are still grappling with the arrival of IP into their networks – not only to facilitate HSPA in the next year or two, but also to pave the way for LTE in the medium / long-term future. If they lag behind in the IP upgrade race, they are missing out on opportunities to put in place the necessary components into their network to deliver on the promise of IP, and are also missing out on the potentially lucrative cost-savings that changes in core network architecture and migration plans can achieve.
While IP gives operators the means to introduce new services and features – and therefore competitive differentiation – into the saturated and ultra-competitive European market, it also brings new and challenging demands. Admittedly, operators will get to benefit from cost-reducing opportunities. But radical changes to the core also have the capability to disrupt the entire network.
IP migration must therefore be carefully planned and managed; if done so correctly, it can deliver substantial OPEX cost reductions. But operators must not be myopic in their approach, which is no easy task. Faced with ongoing pressure to reduce costs in the here-and-now, and provide an immediate ROI on any and all network projects, they feel that they can't afford to look more than a few years ahead.
But look ahead they must. R99 architecture is being 'end of lifed' by infrastructure vendors – they may continue to support it but new features are not being developed. Operators must move to R4 and beyond, with IP at the core reflecting the concept of NGN architecture.
Here's the major junction where the risk aversion causes unnecessary cost. While over the past few years, European operators have been leading the marketing charge to promote the "holy grail" of the mobile Internet, when it comes to delivering on their promises they are their own worst enemy. Rather than take advantage of equipment from newer vendors who are designing and building for the IP generation, an operator is instead selecting the R4 solution from its existing R99 provider due to perceived risk. It can end up paying several times the going rate for R4 switching which could be supplied more cost-effectively from new entrant switching vendors.
While there are many examples of operators swapping out the RAN, there is only one instance worldwide of an operator (US-based) replacing its core network. In Africa, demonstrating a willingness to innovate in a classic example of leapfrog technology, ZTE is developing a nationwide optical transmission network in Ethiopia.
Of course there is a risk with any change to technology – and the closer that change is made to the core, the greater the risk of network disruption. It has already happened – a major operator knocked out its entire network for a short period when a new software release was uploaded to the HLR before sufficient interoperability tests had been conducted.
Episodes such as this make operators understandably nervous of introducing new vendors into their core network plans, even though traditional vendors could be significantly more expensive for switching than the new wave of IP specialists. Furthermore, in addition to greater capital expenditure, maintaining the legacy network and all the associated replanning and provisioning leads to higher operational expenditure too. All against the backdrop of decreasing revenues and increasing competition.
The developed European market has reached saturation. Number portability makes it all too easy for customers to move between networks. The operator faces a choice; to use innovative new entrant vendors and make savings early, or to wait for its existing vendor to make the technology available, but lose the chance for early cost benefits at lower risk.
Usage patterns have also changed, and operators need to ensure their networks are optimized to manage the new activity. The R4 core network must now process voice traffic with a radically different call model to that carried by the macro RAN. Call holding times are significantly higher, as people use the mobile at home on a reduced or free tariff. Traditional MSC server products rely on low call holding times and traffic generation to be cost effective. Their proprietary hardware design is inflexible, meaning that additional processing power cannot be easily applied without purchasing a larger number of MSC servers.
New entrant R4 switching providers build their solutions on open industry processing platforms such as ATCA/Blade server technologies, which allow processing power to be applied more easily and in a more scalable way. However, to use these new entrant vendor products to save money more rapidly, operators have to manage risk and successfully port services from the old switching platforms to the new. Cross-domain, cross-layer scenario planning is key to rapidly understanding the impacts in order to make the right choices.
Operators must look at the core network evolution holistically and consider the overall effects of deploying IP/MPLS transmission, R4 switching, and the evolution of the data core with new HSPA-enabled traffic volumes.
IP technology has the ability to permeate all aspects of the network, enabling the operator to reduce cost significantly in the key areas of access transmission and the core network, as well as opening the door to fixed mobile convergence. The problem is, these new technology possibilities pose ROI issues. Cost reduction in mobile networks is now at a point where for Europe-based projects to be approved, short RoI times are required. To significantly change the RAN transmission architecture requires careful planning and migration over a period of time, with investment in new IP transmission systems whilst writing off the under-depreciated capital held in the legacy TDM and ATM systems.
Significant cost reduction can be made by adopting an IP 'ring & tail' architecture in the RAN transmission network. This allows aggregation of data traffic and is essential for the cost effective roll-out of HSPA with volume traffic. The architecture is equally applicable to RAN sharing or single operator networks but requires careful cross domain, multi-layer planning. One issue is that although these new architectures can save significant OPEX, (up to 40%), the payback times can approach four years, due to the roll out of new technology and migrating from one architecture to the next.
New technologies and architectures can also save the operator significant costs. The advent of the femtocell changes the rules and cost curve of RAN deployment, offering a solution where the customer houses, cools and powers the RAN, and pays for all or some of it. Additionally, since a DSL broadband connection is used, the backhaul is also paid for by the customer. Nearly all the major operator groups are looking at femtocell technology and trials are either underway or planned in most European market regions. The commercial deployment of femtocells has taken another step forward following the adoption by the Femto Forum of a worldwide standard that defines the real-time management of femtocells within households.
However, new technology comes with risk and often necessitates a change in supplier, architecture and process for the full benefits to be achieved. A risk averse nature, combined with the high inertia of the technology departments within the incumbent European operators often means that significant cost reducing and revenue generating programmes fail whilst simpler, lower potential programmes move ahead, often only to fail to deliver the financial requirements of the business.
Operators in Europe need to make greater use of scenario planning to consider the range of opportunities facing them. By considering network designs and evolution plans that are able to track the complex inter-dependencies between network layers and technologies, operators can gain a full assessment of their financial potential. Clearly there is a balance to be struck between risk, innovation and cost, both in the short term and long term. What is needed is a better understanding of risk management and mitigation for new technology introduction. Gone are the days when the mobile operators called the tune. Customers now have the power of choice – a power that they're ready, willing and able to exert in the new world order of mobile services.
Ian Goetz is Director of Core Network Solutions, AIRCOM International