How small cell infracos are empowering mobile telecom operators in a data-driven world
In this article, Francesc Casademunt, Consultant and Joao Sousa, Partner at Delta Partners, explore the benefits that “small cell infracos” offer mobile network operators, and how the evolution of such technology is set to cater to the needs of a data-driven population in the future.
Managing the growth of data in the telecoms industry
Data traffic growth is undoubtedly having a huge impact across the telecoms industry. This growth is expected to be driven by music and video streaming, as well as by mobile cloud B2B services, augmented reality and artificial intelligence (AI). In fact, mobile data traffic is growing twice as fast as fixed IP traffic, with this accounting for 20% of global fixed and mobile data traffic by 2021 (up to 8% now). And indeed, the world reached 1.5 billion LTE subscriptions last year, and it is forecasted to grow 20% yearly for the next five years.
With this increased volume of data being driven by consumer demand, it is vital that telecom operators increase their mobile network capacity to cope with such needs.
Coping with the increase in data demand
Operators have three ways to increase the network capacity to cope with this surging data demand. They can either use more spectrum, modernise technology, or “densify” their networks (by adding more cell sites).
Nevertheless, the solution is not always as simple as first thought. Nowadays, spectrums in many markets are becoming saturated, with the auction prices of the remaining coverage spectrums (if any) becoming increasingly expensive, which poses a problem.
Operators are also continuously upgrading their equipment to benefit from efficiency gains. One example of that is Massive MIMO and 5G deployment. However, this is not enough to provide quality coverage in high-traffic locations, especially considering that 5G deployment will only happen by 2020 and that Massive MIMO will require special enabled devices (e.g. not all devices as of today are capable of receiving Massive MIMO signal).
To overcome this, telecom operators in developed markets in particular are focusing on densifying their networks through “small-cells”. To explain, small cells are fully featured, short range mobile phone based stations used to complement mobile phone service from larger macrocell towers. Small Cells are currently deployed for 3G and 4G/LTE. They offer excellent data coverage and speeds within a low range.
As such, with the benefits they provide, we can predict that in years to come, operators will increasingly deploy small cells, reducing cell size to benefit from spectrum reuse. Indeed, small cell demand is already expected to reach its peak with 5G fixed wireless deployments.
Small cell technology: A viable solution?
The consensus is that operators will require an enormous amount of small cells to densify their networks in the next few years. This represents a significant cost in terms of site acquisition, site rent, installation and backhaul provisioning. The installation of small cells encompasses dealing with different types of landlords, including municipalities and owners of commercial venues. As such, the small cell technology evolution may impact the business model in the mid-term.
So, suddenly the complete benefits do not seem so apparent. What this does do, however, is create an opportunity in the coming years for infra players to offer multi-operator small cells as a service.
The emergence of small cell infracos
Small cell neutral host infrastructure providers (“small cell infracos”) offer mobile network operators a compelling value proposition. They offer shared wireless infrastructure in areas where operators struggle with coverage or have capacity issues. As infracos are responsible for investing in and operating the infrastructure, they typically charge a recurrent fee to operators for their use of it.
Instead of self-provisioning, mobile network operators are able to outsource such work to these companies. This provides some compelling benefits, including shortening the time to air in prioritised deployment areas where the infraco may have already invested up-front. It also fundamentally lowers maintenance and upgrade costs as the infrastructure provider benefits from economies of scale through serving multiple mobile network operators. Finally, it avoids the additional operational burden of the mobile network operators having to manage the logistics of negotiating with landlords, obtaining permissions and other technical issues.
As a result of these benefits, over the last few years, we have witnessed these companies getting more traction, first in the US, and today in Europe and developed Asian countries. In the main, small cell infracos have focused on providing indoor connectivity in large commercial venues. This is because data consumption in these venues has increased exponentially during recent years – in developed markets 80% of data consumption is indoor – whereas thick walls often hinder the electromagnetic signals from nearby mobile cell towers. The most targeted venues for small cell infracos today are airports, commercial centres, metro stations, university campuses, large office buildings and hospitals. In the mid-term, we also expect infracos to expand their portfolio to high-traffic outdoor venues as well, such as squares and retail streets.
A promising business model
In the mid-term, infracos may even replace WiFi for carrier-grade small cells in the future in high-traffic public or commercial venues. As of today, many companies around the world deploy and manage WiFi infrastructure in large venues under different models, including marketing and user data monetisation. However, with 5G, one can expect that mobile network operators will want to deploy fixed-wireless solutions using unlicensed spectrum in many of these locations, making WiFi infrastructure redundant. Unlike WiFi, the fixed-wireless solution will allow operators to maintain operator control of the traffic, in order to ensure quality and predictability of deployment, and to avoid capacity degradation.
With this in mind, it is expected that small cell infracos will thrive in the coming years. Rising data needs and pressure from mobile network operators to execute roll outs as efficiently as possible should certainly provide a platform for them to flourish. Despite this, it’s vital that there is no complacency here. Rapid technology advances and changes to consumers behaviour, will force infracos to stay relevant and be nimble to evolve their business model to cater to the fluid needs of a data-driven world.