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Figure 1
Free-hand drawing of the future?
Traffic volume
Costs
Revenues
50 EBR #2 2010
Figure 2
The scissor effect a picture that is rarely challenged
Traffic
Revenue and
traffic de-coupled
Revenues
Voice dominant
Time
EBR #2 2010 51
Figure 5
The revised scissor-graph
Subscribers/
revenue
Traffic
Cost/gigabyte
Time
Source: Ericsson
52 EBR #2 2010
dio network controllers, RNCs, and the service nodes for data traffic, GGSNs, are handled
differently. They are typically dimensioned
according to the expected capacity need and
will always be utilized to a very high degree.
They will also always be able to cater to the
required capacity, provided that nothing unusual happens. Signalling from smartphones
is sometimes discussed as a problem. But
since it is only a matter of dimensioning the
respective nodes towards the right balance
of signalling and user data, this is easily handled. And as the cost calculation showed, the
high utilization level we can maintain on such
nodes makes the cost per GB marginal.
The key conclusion is that capacity is not
a general problem, at least not for the majority of the networks. If we combine this
with the real marginal cost, it is possible to
easily double capacity at a cost per GB of
EUR0.1 to 0.2.
B usiness models for growth
One conclusion often drawn from the scissor effect is that the most common user business model, the flat fee, does not work.
Completely unlimited usage at a fixed price
forever is unsustainable, and so is having a
flat fee at one price for an entire market. After all, no one sells vanilla to everyone who
asks for ice cream.
It is from these two models that we derive
the flattening out of the revenue curve. And
this, in turn, leads to the negative conclusions we draw from the model.
We have already shown that with strong
subscriber growth, we do not necessarily see
a gap between subscriber and traffic growth.
We also see that if ARPU is stabilizing, traffic and revenue grow at an equal pace, and
the cost per GB goes down. This means that
at least for Phase 1 and Phase 2 (see sidebar
to the left) of mobile broadband, where subscribers are still added, we can easily survive
or rather profit from the current traffic
growth. Our revised scissor graph has now
changed quite dramatically to look more like
this: figure 5.
Since the problem is not this gap, the
question instead becomes: How do we cater to strong subscriber growth without
putting long-term business at risk? Using
Figure 3
Traffic per user over time
Average monthly
Traffic/subscribers
Market S-curve
618 months
To market maturity
New users consume
less than average
Time
Figure 4
Traffic growth compared to subscriber growth for PC mobile broadband connections
Relative growth
%
400
300
200
North America
Northern Europe
Southern Europe
Eastern Europe
Dashed lines = subscriber growth
Solid lines = Traffic growth
100
EBR #2 2010 53
Calculating
broadband cost
the distribution cost per GB is calculated
by dividing monthly, quarterly or yearly depreciated capital expenditure plus operational expenditure with the number of GBs distributed over the time period.
The value is dependent on how many GBs
are produced in the time period and does
not say much. In the first year, the cost may
be EUR 60; if growth is strong it may reach
EUR 1020 in the second year. But looking
54 EBR #2 2010
forward to the point where average utilization is, say, 15 percent, it is easy to get to
EUR1.0 and even below. (See figure6)
Looking only at the sites and nodes that
need upgrading, we can use a very different
utilization level in our calculations. For a radio node that needs a second, or a third carrier, we can use 50 percent utilization. For
backhaul, RNC and GGSN we can use even
higher numbers due to a higher degree of
aggregation. The rise in operational cost
when upgrading is generally quite marginal
even in this context, owing mainly to power
consumption. As a result, we end up with a
marginal cost per GB at or below EUR 0.10.2. (See figure7)
The choice of 50 percent utilization stems
from a traffic peak to average ratio of roughly 1.4. The assumption of 70 percent peak utilization is a reasonable and safe number to
use in order to maintain wanted service quality. A higher number will yield even lower cost
per GB. Regardless, it is important to understand the difference between total and marginal cost and how to use them correctly when
making calculations. (See figure8)
Author
Greger Blennerud, Director of Business Development at Ericsson Networks, is
responsible for mobile
broadband for operators and
consumers. He has more than 20 years of telecom
experience in software development, business intelligence, sales and marketing. He holds a Master of
Business Administration and Economics from Uppsala University, Sweden.
(greger.blennerud@ericsson.com)
Figure 6
Broadband cost low utilization
21 Mbps 3x1
15% utilization
Dep.
capex
Opex
RNC/BSC
80% utilization
80% utilization
GGSN
Radio
0,45 /GB
Backhaul
0,01 /GB
Controller
0,04 /GB
Transport
< 0,01 /GB
Packet
0,01 /GB
Radio
~ 0,55 /GB
0,34 /GB
0,01 /GB
0,04 /GB
0,01 /GB
~ 0,40 /GB
Sum
< 1 /GB
Source: Ericsson
Figure 7
Broadband cost ramping up utilization
21 Mbps
3x1 > 3x2
50% utilization
80% utilization
50% utilization
RNC/BSC
80% utilization
80% utilization
GGSN
Dep.
capex
Radio
Backhaul
Controller
Transport
Packet
Total
0,05 /GB
<0,001 /GB
~ 0,08 /GB
Opex
0,001 /GB
0,001 /GB
0,001 /GB
0,001 /GB
Sum
Figure 8
Total versus marginal cost
Pbytes
300
250
200
150
Yearly exabytes
100
50
0
Backhaul
Radio network
controller
Data traffic
node
Source: Ericsson
50
45
40
35
30
25
20
15
10
5
0
2008 2009
2010
2011 2012
2013
2014 2015
Source: Ericsson
EBR #2 2010 55