The document discusses network sharing and other means for mobile operators to improve efficiencies and address profitability challenges. It summarizes that mobile operators have seen costs per customer increase by 8x while average revenue per user has remained constant or declined. Network sharing is presented as a way to optimize infrastructure spending and maximize coverage while maintaining competitive differentiation between operators. The document provides examples of network sharing agreements in countries like Poland and the UK. It also explores alternative business models like an "LTE network factory" to establish a more capital efficient startup.

1. The ultra-efficient network factory: network sharing and
other means to leapfrog operator efficiencies.
Broadband MEA, March 26th 2012, Dubai, UAE.
Dr. Kim Kyllesbech Larsen,
Technology, Deutsche Telekom AG.

2. Deutsche Telecom … Mobile Business …
100+m mobile subscribers over 100+ thsd radio nodes.
GSMEDGE, UMTSHSPA+ (42), LTE @ 800MHz2.6GHz & WiFi.
Network partnerships in UK, Poland, Cz, Austria, …
Last 10yrs more than doubled the size of its mobile networks ….
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 2

3. Transform
or
Perish
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 3

4. The profitability challenge…
NOT only a problem for mature markets!
Aug. 2011 China Unicom, at the
moment only Chinese carrier selling
Feb. 2011 Tellabs reports iPhone in the country, H1 profit
mobile operators profitability down 9% …. has been struggling
challenged within 2 - 3 to grow its profitability due to
years, and mobile internet is heavy subsidies2.
forcing operators to transform
their networks and business
models 1. Nov. 2011 Bharti Airtel
Nov. 2011 South Korea’s KT reports profit dip again, in the
reported a 41% slump in Q3 net seventh quarter4.
profit , as a result of discounts
and other initiatives to lure more
smartphone users6.
Oct 2011 China Telecom Corp
reported third-quarter profit that Oct. 2011 Idea Celluar profit
missed analysts' estimates, as add down 40.3% QoQ, despite
itional 3G users increased the comp revenue increases of 13.2%5.
any's costs3
1 Tellabs; 2 Reuters; 3 China Daily; 4 Business Review India; 5 MediaNama; 6 Telecom Asia;
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 4

5. Mobile growth in perspective.
Globally Cost per Customer increased 8×, ARPU remained
constant (or declined) with a doubling of mobile subscriptions1.
Example: Emerging Asia
Profitability drop of almost 10%.
Opex growth faster than Revenue.
Highest ARPU YoY decline.
ca. 70% mobile penetration today.
Main 3G growth still ahead.
Emerging Market Growth on expense of profitability?
 Long-term outlook could be troublesome.
1 Looking over the period 2005 to 2011.
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 5

6. When data demand exceeds spectral efficiency.
”Houston we have problems”.
Illustration
10 20 40 60 85 120 120 120 120 120 120 Total spectrum in use
15
Effective Spectral Efficiency (*)
Spectral Demand
Spectral Demand Limited
Proportional 10
increases HSPA  HSPA+  LTE  LTE-adv
over 2010
5
Not good
at all!!
0
2010 2012 2014 2016 2018 2020
An operator can NOT get enough of the (RIGHT) spectrum.
(*) realWireless report for Ofcom,: 4G Capacity Gains, Final Report, January 2011.
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 6

7. Cost-optimized deployment models (1 of 2).
Availability of a wide range of frequencies essential for more
profitable & economical network deployment.
Throughput / Capacity
1.8 - 3.6 GHz
Typical BWs/Operator > 40 MHz
Hot- small cells & smart-antenna systems.
Spots
1.8
To
3.6 Rural Fixed-like
GHz Typical BWs/Operators < 20 MHz
Urban – Suburban: LTE connectivity
Up-to 2100 MHz
Rural / Nation-wide: Digital dividend up-to 900 MHz
Illustration
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 7

8. Cost-optimized deployment models (2 of 2).
Small cells are an essential tool to optimize RAN deployment
and mitigate the mobile data capacity crunch.
Small Cell off-loading strategies. Small cell benefits.
Illustration Coverage & Capacity optimization.
Often only alternative to capacity addition.
Favorable Capex & Opex economics.
New business models emerging.
Small cell
macro macro
Small cell Small cell Small cell Small cell Small cell
Small cell
macro
What to look out for!
Backhaul challenge!
Interference issues with macro network.
Small cell Radio planning complexity.
macro macro
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 8

9. Backhaul requirements will pressure the Economics.
HSPA+ & LTE’s power-full air-interface, i.e., 100+ Mbps, will
require extensive backhaul fiber deployment.
LTE air-interface
30mean to 100+peak Mbps
(per sector)
100 Gbps Evolved
eNode DWDM Packet
Core
100
GbE
FTTS1 100+ Mbps
eNodes per element 32:1 320:1 3200:1
BH Throughput 3+ 32+ 320+ In Gbps
Illustration
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 9

10. The backhaul challenge … macro vs micro.
Distribute mobile broadband traffic differently.
Illustration
LTE provides up-to 100 Mbps AP (e.g., WiFi / Femto,..)
per sector
Node
FTTS1 100+ Mbps
100+ to
40 Mbps
300 – 7,000 active devices Home Environment
per macro-cellular node with ca. 2.3 people per Home 1
(dense-urban / urban) connected to Fiber, Cable or VDSL.
100+ Mbps Up-to 100+ Mbps
shared with shared by
up to 7,000 devices. 2+ people.
1 Average for Western Europe.
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 10

11. The mobile profitability & cash crunch.
Mobile Profit & Loss - Today Mobile Profit & Loss - Tomorrow
Total Revenue ↓ 70% of Total Revenue Today
− Usage Cost (Voice dominated < 25%) ↓ Reduce
− Market Invest SAC ↔ SRC (< 20%) ↑ Cost
− Net Device Cost (>10%)
↓ with
New business, operation
− Personnel Cost (<15%) → and cooperation models 48%! 2
− Technology Cost (15% to 20%) ↑
− Other Cost (< 10%) → = Maintain Today’s EBITDA of ca. 37%
= EBITDA (WEU ca. 37% 1) ↓ New Business Models
− Network depreciation (ca. <20% of Revenue) ↓ Network sharing.
Network Factory / Network spin-off.
− Spectrum Amortization Increased purchasing power
Procurement Industry Alliances.
− Capex (ca. 10% to 25% of Revenue) ↑ New partnership models – de-risk mobile.
1 BoA ML Global Wireless Matrix 1Q11, margin data for 4Q 2010, 2 math looks like Ot2 /Ot1 = 1 - R/(1-Margin) with t1 & t2 being initial time and a time after
initial time, R is the revenue difference between t2 and t1.
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 11

12. Technology cost distribution – the helicopter view.
Illustration
RAN
Ca. 30% Ca. 65%
IT & Other Costs Personnel
Platforms incl. Energy Costs
RAN Services,
10% 15% Backhaul
Maintenance
& Repair. Cost 1
Core >10%
<25%
< 15% Data growth
40%
Rental &
Leasing 1 2
spectral limitations
No spectral limitations
Note RAN: Radio Access Network includes both 2G and 3G Opex. 1 With increasing leased line based transport this proportion will grow substantially in the future.
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 12

13. The ugly tail …
Should drive sharing in low-traffic areas
Illustration
Cumulated Revenue (Traffic)
0%
Low profitability
sites
20%
50% revenue ≈ 10% sites
50% sites takes
40% less than 10% revenue
60%
Top 30% sites ≈ 80% revenue.
80%
100%
0% 50% 100%
Sites
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 13

14. Stages of sharing benefits.
The best sharing strategy depends on the business cycle and
technology age.
< 5 years 5+ years > 5+ years
LTE GSM – UMTS
UMTS UMTS - GSM
(LTE piggybacking)
Rollout Phase Steady State Modernization
UK: 3G T-Mobile – 3 UK UK. T-Mobile UK – Orange JV (EE Ltd). Poland: PTC – Orange incl. LTE
Passive sharing: Site Lease & Civil Works, Illustration
Mast/Tower sharing, Ancillary & Rack sharing, and Backhaul Sharing.
Active sharing: e.g., Frequencies, TRXs, PAs, Baseband, CPU, ports, ….
 High Capex prevention.  Little Capex benefits.  Capex prevention.
 Opex prevention.  Opex savings.  Opex savings.
 Cash optimized startup.  Significant write-off.  Minor write-off.
 Best network.  High re-structuring cost.  Re-structuring cost.
 Extended coverage.  Instant cell split.
 Better network.
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 14

15. Anatomy of network sharing.
RAN sharing guaranties competitive differentiation, operator
independency and vast consumer quality improvements.
• Sharing: Costly Radio Access Network infrastructure will be shared,
• Not shared: All core network and service infrastructures that provides respective
customers with differentiated services, applications, handsets, rate plans, etc.
• Result: A network with greater capacity (i.e., instant cell split) and improved coverage.
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 15

16. Network sharing flavors …
Site sharing (*) RAN Sharing (*) National Roaming (*)
Capacity limited Coverage limited Rural
HSS
HLR HSS HSS
HLR HSS HSS
HLR HSS
Core Core Core Core Core Core
BSC BSC BSC BSC BSC
RNC RNC RNC RNC RNC
Shared site and passives Shared Radio, aggregation Wholesale
Independent BTS, NB, eNB. & frequencies (optional). arrangement, geographical
partnership.
 Passive sharing.  Active sharing (MOCN1)  Geographic sharing.
 shared transport (possible).  Shared transport.  One frequency sufficient.
 Independent frequencies.  Frequencies sharing.  Wholesale/cost-sharing.,
1 Multi-Operator Core Network supporting RAN Shairng, (*) For LTE there is no BSC/RNC, core networks connected directly to the eNode-B.
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 16

17. Partnership with an incumbent operator will provide
the Greenfield better economics and market timing.
Frequency Site Radio Backhaul Backbone Core BSS
(MHz) (acq. + build) (electronics) (transport) (transport) (switch & control) (bill & care)
plmn 1
plmn 2
MNO 1
Core BSS
plmn 1 + plmn 2
(optional) BTS /
NODE-B
MNO 2
eNodeB Core
BSS
Capex Efficiency Partly
40%-60% < 35% up-to 50% up-to 50% Less likely
prevention enabler possible
Opex Efficiency scale scale Partly
< 35% ca. 35% Less likely
prevention enabler discount discount possible
Regulatory
HIGH LOW LOWER LOWER LOWER HIGH HIGH
complexity
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 17

18. Network sharing case study – Poland.
Improving consumer experience at better operational efficiency.
PTC (DTAG) – Orange (FT) Safe for Service by Sharing.
Rural areas PTC SHARED Orange
PTC1 & Orange2 to share 10 thousand
BILL PRICE BRAND SALES BILL PRICE BRAND SALES sites, 2G, 3G & LTE radio infrastructure
as well as spectrum for 3G & LTE.
SERVICES SERVICES
CORE CORE
2G, 3G & LTE RAN incl. BACKHAUL SHARE Improved coverage, capacity and
GSM900 UMTS900 LTE800 GSM900 services to the Polish consumer at a
quality level
Urban areas PTC SHARED Orange not economical viable standalone.
BILL PRICE BRAND SALES BILL PRICE BRAND SALES
SERVICES SERVICES
Benefits.
CORE CORE • Opex savings.
• Substantial Capex savings.
2G, 3G & LTE RAN incl. BACKHAUL SHARE • Shared Modernization.
GSM
900 & 1800
UMTS
900 & 2100
LTE SHARING
800, 2100 & 2600 MHz
GSM
900 & 1800
• Shared LTE deployment.
• Much better network.
Note: frequency bands not to scale!
1 14mio subscribers (2), 2 14.5mio subscribers (3)
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 18

19. Other business models …LTE as a Service.
Emerging business models – LTE network factory
Cash
optimized
startup via
virtualization
& OTT
based
services.
Option:
Small cell centric
startup and
Capacity as a
Service.
Provides. Enablers.
Attractive (startup) cost economics. Profitability & cash crunch.
Relative low Capex – cash optimized. Incumbent spectrum crunch.
Increased spectral efficiency & utilization. MVNO / tier-2&3 MNO appetite.
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 19

20. Other business models … ultra-efficient transformation.
Emerging business models – piggybacking on Virtualization & Cloud
3rd party, media
companies, MNO/MVNO CDN
& SDNs.
3rd parties 3rd parties
(supplier)
delivers BSS /
delivers core
OSS cloud network
services to functionality
SmartCo (off- (i.e., HSS, PCRF
the-shelf) , etc..)
Provides. Enablers.
Data-only QoS transparent network. Regulatory support.
Network services to MNO & MVNO. Spectrum.
Dedicated OTT network services. MNO & MVNO appetite.
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 20

21. Key messages.
What we need to be passionate about.
Utilize technology to achieve the best operational performance
Network sharing provides cost reduction AND increased quality.
Think!
Cloud, Virtualization, Small Cells, Multi-Mode Single RAN, ….
& don’t forget!
Sharing models for mobile applies to fixed broadband as well.
Even more so!
Dr. Kim Kyllesbech Larsen, Broadband MEA, March 26th 2012, Dubai, UAE. 21

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© Detecon – 22 –

23. The key value proposition of a mobile network
is ....
Freedom
& Mobility
Acknowledgement: Dr. Larsen is indebted to Bin Xi, David Haszeldine and Contact: kim.larsen@telekom.de
Denis Gautheret for their great suggestions and improving this presentation.
Last but not least Dr. Larsen acknowledge his wife Eva Varadi for her great
Mobile: +31 6 2409 5202
support and understanding during the creation of this presentation. http://nl.linkedin.com/in/kimklarsen