Ovum: Capacity and network deployment in emerging markets

Kostas Koulinas at Ovum has an interesting post resulting from a recent Total Telecom roundtable debate "about the capacity and network deployment issues faced by mobile operators around the world, focusing on emerging markets. The participants were representatives from operators, vendors and network planning companies."

Koulinas notes that in developed markets, "the deployment of 3G networks is justified by the offering of high-volume voice bundling at relatively low prices. The expected take off of multimedia services, which would increase overall ARPU, has yet to be experienced. In emerging markets, in terms of services, it is clearly all about voice and the operators' dilemma is how to secure return on their investments as soon as possible."

He then outlines some of the factors and challenges to enter into an emerging market and notes:

where low teledensity figures are experienced, wireless technologies can be the solution for offering voice in the vast majority of the county; hence there is a high degree of fixed-to-mobile substitution. According to one of the participants, the cost of adding a new fixed line is almost prohibitive ($400-500) compared to the cost of adding a new mobile line (approximately $100). This implies that other than traditional mobile networks, wireless technologies (especially WiMAX) can come into play when operators are planning the rollout of their networks. It all comes down to financials and return on investments: what is the best possible way to obtain maximum geographic and population coverage with the lowest up-front capex investments, and what are the services that should be introduced in order to generate high'per Erlang' or 'per bit' revenues in the network?

Koulinas writes "in emerging markets there is a long way to go before operators fully deploy 3G networks to be able to offer true wireless broadband data services," and in larger countries "it is not economically feasible to deploy 3G everywhere because it is simply not justified by the demand for data services by end users. In these cases, operators will initially deploy the most updated, in terms of data capabilities, 2G networks with the gradual introduction of 3G elements, operating always on hybrid (2G/3G) networks."

He also writes that andset pricing and regulators play a key role and concludes that:

In general, regulators are trying to push spectrum upwards, something not very desirable for operators and, in particular, new entrants. The higher the operating frequency for an operator, the more up-front capex investment required. In many developed countries, regulators are examining the aspect of freeing up traditional TV-dedicated spectrum like 700MHz for new entrant mobile operators. We have witnessed how new entrants in developed markets have had to come up with differentiated, low up-front cost propositions in order to capture market share, and this is likely to be experienced in emerging markets as well.