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Mobile operators risk losing customers, face capacity crunch by 2017: Strategy Analytics

AvantiKumar | July 30, 2013
A new global study commissioned by Malaysia-based Tellabs shows that a backhaul investment shortfall of US$9.2bn, which shows operators are ready to meet anticipated data demand over the next five years.

Srini Thukkaram_Country Manager for Tellabs Malaysia modified 

Photo - Srini Thukkaram, Country Manager for Tellabs Malaysia.


A  new Strategy Analytics study, commissioned by Malaysia-based telecom equipment firm Tellabs, points to a mobile operators' global backhaul investment shortfall of US$9.2 billion, which means they are not ready to meet anticipated data traffic demands over the next five years

During the unveiling of the study in Kuala Lumpur, Tellabs Malaysia country manager Srini Thukkaram said data traffic has increased 13 times in the last 5 years and the Strategy Analytics forecasts that this will grow by 5 to 6 times more by 2017.

Thukkaram confirmed the study predicted a US$ 9.2 billion global backhaul funding gap with a 16 petabyte shortfall in backhaul capacity by 2017.

He said the investment and capacity shortfalls varied by region [calculated as necessary backhaul expenditure minus current planned operator investment]:-

- Asia Pacific - US$5.3 billion; 9.4 Petabytes
- Middle East Africa - US$1 billion; 1.8 Petabytes
- Western Europe - US$1 billion; 1.8 Petabytes
- North America - US$650 million; 1.2 Petabytes
- Caribbean/Latin America - US$600 million; 1.1 Petabytes
- Central & Eastern Europe - US$580 million; 1 Petabyte.

Customer confidence, bottom line impact

Thukkaram warned that inadequate backhaul would cost operators losses in both customers and confidence. "When mobile data usage first surged in the late 2000s, backhaul investment was an afterthought. But as smartphones took off, the unexpected traffic produced network congestion and outages that created major customer dissatisfaction. As much as 50 percent of the problems were attributable to inadequate backhaul."

In the next 5 years, mobile backhaul will become increasingly complex, he said. "Operators will struggle to support multi-frequency heterogeneous networks and new 'bursty' usage patterns. Current operator forecasts allocate an average of 17.5 percent of total cost of operations to backhaul investment, but investment at that level simply cannot meet user demand."

"As many as 40 percent of mobile users list poor network performance as a reason for leaving an operator," said Strategy Analytics director, service provider analysis, Sue Rudd. "At today's backhaul investment levels, operators could create a significant backhaul capacity shortage. This shortfall could diminish quality of service and, in turn, increase customer churn. Operators need to rethink their backhaul investments as they deploy small cells and LTE capacity."

Tellabs's Thukkaram said the study confirmed that the cost of poor backhaul performance was greater than the investment needed to provide adequate backhaul.

The study's key findings are:
- Revenue lost to customer churn is forecast to be 4 times higher than the backhaul investment required to meet customer demand.
- Sufficient investment in backhaul could reduce the churn rate by between 4 and 7 percent.
- Worldwide, for each US$1 spent on backhaul above 17.5 percent of total cost of operations, operators could protect US$4 in revenues.
- Operators in different regions risk missing out on between 2.8 percent and 5.1 percent of revenue that would be retained by addressing issues that result in poor network performance.
- Operators could save 1.7 percent of revenue by 2017 by minimising new customer acquisition costs.
- Operating margins could improve by up to 5 percent if backhaul investment increases to meet traffic growth.

"Addressing the new capacity crunch requires a highly strategic approach to backhaul," said he said, Thukkaram. "Operators who treat backhaul planning as a long-term, strategic investment opportunity to enhance customers' Quality of Experience will produce higher revenue and profits.

"In order to maximise overall returns, operators need to seriously consider issues beyond backhaul capacity and scalability," he said. "The watchwords for operators who take a smarter approach to future backhaul planning are flexibility, synchronization and end-to-end management - and that's why Tellabs is enabling 'Self Organising Network' capabilities and software defined networks [SDN] in our mobile solution."


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