Outsourcing and network sharing:
key considerations to solve the backhaul challenge
Franck Chevalier
Head of Broadband Sector, Operations Consulting
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Contents
About Analysys Mason
Market context and outsourcing models
Backhaul strategies and cost
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About Analysys Mason
We are the world’s leading specialist adviser in telecoms, media and technology
We provide strategy advice, operations support and market intelligence to leading players in the industry
Clients include operators, media companies, regulators, financial institutions, Governments, vendors and
end users
Analysys Mason has a global presence, with over 300 staff in 11 offices in Europe, Asia and the USA
Analysys Mason office Assignments completed
Key
Dubai
Singapore Washington DC
Cambridge Dublin Edinburgh London Madrid Manchester Milan Paris
Analysys Mason office Assignments completed
Key
Dubai
Singapore Washington DC
Cambridge Dublin Edinburgh London Madrid Manchester Milan Paris
Analysys Mason has extensive experience of supporting opex reduction
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There are four main pillars to the Analysys Mason Service
Portfolio
Planning
Preparing to excel
• Technical architecture and design
• Market planning
• Network planning
• Network procurement and outsourcing strategy
• Operations design and planning
• Business continuity planning/Disaster recovery
Implementation
Delivering success
•Wireless network roll-out management
•New services/products launch
•BSS/OSS implementation
•Project and programme management
•Operations change management Strategy
Establishing direction
•Strategy development and business planning
•Market strategy
•Tariffing and profitability analysis
•Economic modelling and cost analysis
•Regulation and policy development
•Wholesale service strategy
•Due diligence and financial transaction support
Review
Measuring up
• Operational performance review
• Network optimisation
• Industry benchmarking
• End user behaviour Market
Intelligence • Research reports and
industry intelligence services
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Contents
About Analysys Mason
Market context and outsourcing models
Backhaul strategies and cost
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Mobile operators have an increasing requirement to lower
their opex to maintain margins
Decrease In Voice RevenuesOpex Reduction Maintaining Profits
New Revenues Creation Issues
Solutions
Wireless broadband Mobile TV SDP* (iTunes, OVI )
Advertising
*SDP = Service delivery platforms Operators need to ensure they innovate in both streams to remain competitive in developed countries
Full UTRAN outsourcing
Sharing of site and infra. Optimisation of infrastructure Optimising internal resources Outsourcing network O&M
Other new services
Ownership Outsourcing
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Mobile operators have many options to reduce their
opex…
Full UTRAN outsourcing
Sharing of site and infrastructure
Optimising of infrastructure
Optimising internal resources Outsourcing network O&M
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 is the operational model whereby the operator outsources all of its O&M services to an equipment vendor
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
By using new technologies and architectures, some networks can be optimised to save opex. This scenario is not considered in this presentation
The optimisation of internal resources and process is not specific to a telecom
operator, but is often used to try to optimise the opex. This scenario is not considered in this presentation
Outsourcing
Ownership
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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 was awarded a contract in 1999 with T-Mobile for the roll-out 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
Market context and outsourcing models • Full UTRAN outsourcing
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Outsourcing network O&M fits both operator and
equipment vendors strategies
Selling of telecoms equipment is not highly profitable due to fierce competition
Traditional equipment vendors are trying to move up the value chain to maintain profits
Vendors’ drivers
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
Operators’ drivers Outsourcing
network O&M
O&M outsourcing contracts include Ericsson and 3UK, Base-Alcatel, TNZ-Alcatel and One-Alcatel and many others… Market context and outsourcing models • Outsourcing network O&M
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Site/RAN sharing is increasingly popular, but difficult to
implement in brownfield deployments
Cost savings of GBP2 billion (USD4 billion) over ten years, by decommissioning over 5000
duplicate base station sites Expect to take two
years to consolidate the networks
December 2007 UK
T-Mobile and 3
20%-30% savings on RAN opex and capex in long-term, one-third reduction in combined sites, faster 3G roll-out and improved coverage
Looking at site sharing only February 2007 UK Vodafone and Orange October 2007 Q3 2005 September 2005 Launch
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%
November 2006 Spain
Vodafone and Orange
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 November 2004
Australia Optus
and Vodafone
Capital and operational expenses were shared equally between the two operators for extending the network. In return for 50% ownership of the asset, Telstra paid A$450M to Hutchison
August 2004 Australia Telstra and Hutchison 3G Comments Announcement Country Operators
Market context and outsourcing models • Sharing of site and infrastructure
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There are also other business models that include a
combination of site sharing and set-up 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 three 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 India’s teledensity and rural coverage
goals
”
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Contents
About Analysys Mason
Market context and outsourcing models
Backhaul strategies and cost
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Up to 70% of transmission opex is associated with the
backhaul
Typical breakdown of opex for a Western Mobile Operator 2G/3G
Up to 70% of transmission opex is associated with backhaul of 2G/3G
The rest of the opex is spread between core network, interconnect and other links
Real opportunity to save significantly on opex by optimising backhaul network
Backhaul strategies and cost • Overview
Distribution of transmission opex
5%
10% 8%
7% 13% 6%
15% 36%
Other links Inter-MSC Interconnect links
IP network Dark fibre and SDH
Microwave licences 3G links
2G BTS leased lines
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Today, 2G and 3G backhaul can be accommodated using
TDM transport network
SS7
IP/ATM
BTS
BSC MSC Server
VLR HLR AuC GMSC server BSS SGSN GGSN
PSTN
PSDN
CN C D Gc Gr Gn Gi Gb Abis Gs B HBSS — Base Station System
BTS — Base Transceiver Station BSC — Base Station Controller
RNS — Radio Network System
RNC — Radio Network Controller
CN — Core Network
MSC — Mobile-service Switching Controller VLR — Visitor Location Register
HLR — Home Location Register AuC — Authentication Server GMSC — Gateway MSC
SGSN — Serving GPRS Support Node GGSN — Gateway GPRS Support Node
A Nc
2G MS (voice only)
Node B RNC RNS Iub IuCS IuPS
3G UE (voice & data)
Mc CS-MGW CS-MGW Nb PSTN Mc ATM
TDM
Backhaul strategies and cost • Overview15
With R5 of the 3GPP standard, the 3G network now has
the option to use IP for both IuCS and IuPS interfaces…
SS7
IP
MSC Server VLR HLR AuC GMSC server SGSN GGSNPSTN
PSDN
CN C D Gc Gr Gn Gi Gs B HBSS — Base Station System
BTS — Base Transceiver Station BSC — Base Station Controller
RNS — Radio Network System
RNC — Radio Network Controller
CN — Core Network
MSC — Mobile-service Switching Controller VLR — Visitor Location Register
HLR — Home Location Register AuC — Authentication Server GMSC — Gateway MSC
SGSN — Serving GPRS Support Node GGSN — Gateway GPRS Support Node
Nc Node B RNC UTRAN Iub IuCS
3G UE (voice & data)
Mc CS-MGW CS-MGW Nb PSTN Mc IuPS
IP
Backhaul strategies and cost • Introduction of IP16
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The migration from TDM to IP will enable operators to
de-couple bandwidth from costs…
The incremental bandwidth required by new applications, such as mobile broadband, is not proportional toadditional revenues
TDM backhaul does not allow to decouple bandwidth from CAPEX investment:
◗ 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 operators to shape and control the cost of the backhaul
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
Cost of TDM Vs Ethernet leased lines
0 50 100 150 200 250
1 10 100 1000 10000
Bandwidth (Mbps) "TDM" "Ethernet" E3 STM-1 STM-4 STM-16 2-3 times 4 TDM 2-3 times 10 Ethernet Corresponding increase in cost Increase in
capacity (x) Technology
Ethernet vs. TDM leased lines cost comparison: [source Analysys Mason]
Illu
stra
tive
Backhaul strategies and cost • Introduction of IP17
But without an efficient aggregation network
infrastructure, the cost benefits of IP will be limited
Multi-service Switch (Concentrator)
RNC
No Gro oming
in Access
loop
No Gro oming in Backha ul Networ k Multi-service Switch (Concentrator) RNC
No Gro oming
in Access
loop
No Gro oming in Backha ul Networ k
Point to Point
Multi-service Switch (Concentrator) Multi-service Switch (Concentrator) Multi-service Switch (Concentrator) RNC
No Gro oming
in Access
loop
Groom ing in Backha ul Networ k Multi-service Switch (Concentrator) Multi-service Switch (Concentrator) Multi-service Switch (Concentrator) RNC
No Gro oming
in Access
loop
Groom ing in Backha
ul Networ
k
Star Aggregation Daisy Chain Aggregation
Multi-service Switch (Concentrator) Multi-service Switch (Concentrator) Multi-service Switch (Concentrator) RNC Groom ing in access
loop
Groom ing in Backha ul Networ k Multi-service Switch (Concentrator) Multi-service Switch (Concentrator) Multi-service Switch (Concentrator) RNC Groom ing in access
loop
Groom ing in Backha
ul Networ
k
Increased packet multiplexing gain
The key will be to aggregate the traffic as close as possible to the Node B / BTS
Backhaul strategies and cost • Introduction of IP18
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In the case of full outsourcing models, tower operators
could provide backhaul services at a very competitive rate
Ethernet BTS
IP Node B
TDM
Ethernet
PBT Edge Mux With Pseudowire
PBT Multiservice
Platform BTS
IP Node B
TDM
Ethernet
BTS
IP Node B
TDM
Ethernet
Operator A
Operator B Operator C
Operator A
Operator B
Operator C
Tower site
VLAN 1 VLAN 2 VLAN 3 VLAN 4
VLAN 5
VLAN 6
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Contents
About Analysys Mason
Market context and outsourcing models
Backhaul strategies and cost
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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 MNOs themselves
Levering on traffic density achieved by multi-operator collocation makes it very attractive to offer backhaul
services
PBT is one of the technologies that will enable multi-operator traffic to be backhauled to their respective
aggregation networks
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