optimal lte deployment strategies for market success

S T R A T E G I C W H I T E P A P E R

Optimal LTE deployment strategies for market success Benefits of overlay for speed to market

In response to growing mobile broadband demand, mobile network operators face a major

technology investment decision: Go all in with the new generation, 4G/Long Term Evolution

(LTE), or spend more to densify the older generation 3G/High Speed Packet Access (HSPA).

While some trepidation is understandable given over investment in the past, clear market

evidence shows that end-user demand, network economics, and device availability have

created a successful 4G business proposition. Now the question is how to get there quickly.

Based on the success of many operators globally, the answer is with an LTE overlay. This

paper examines some of the major considerations in an LTE migration and the role played

by an overlay approach.

Table of contents

Introduction / 1

What is overlay? / 2

LTE migration in real life / 3

Overlay for speed to market / 4

Better performance with overlay / 5

Global acceptance of overlay / 7

Overlay economic impact / 8

Acronyms / 11

Optimal LTE deployment strategies for market success 1

Alcatel-Lucent Strategic White Paper

IntroductionMobile network operators (MNOs) are at a critical decision point: Deploy LTE widely now, deploy slowly, or not at all. The evidence from the field is that fortune has favored the bold. In the U.S. market, JD Power and Associates found that the wireless bill among 4G LTE customers is six dollars more than the average for smartphone customers.1 In South Korea, according to Strategy Analytics, LG U+ has seen a striking improvement in performance since it began its transition to 4G LTE, both in terms of growth in ARPU and market share gains (Figure 1).

Figure 1. Mobile ARPU at LG U+ - Source: Strategy Analytics, July 2013

It appears that fast and decisive LTE deployments are proving to be the right medicine for curing the declining revenues that mobile operators in many markets have been experiencing.

Deploying LTE quickly and widely also saves operators from the trap of escalating investment in legacy technologies. Studies have shown that slow migration to LTE results in having to invest in both 3G and LTE, leading to higher overall capital expenditures (CapEx). By contrast, fast migration to LTE focuses investments toward the future and on CapEx having “long life” depreciation (Figure 2).

The question then is not “when?”, but “how?”

Figure 2. Impact of escalating commitment to legacy

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1 http://www.jdpower.com/content/press-release/6ucNMG2/2012-u-s-wireless-network-quality-performance-study-volume-2.htm



In many cases, the answer to “how” is with an overlay approach. To date, many of the large and successful deployments have been LTE overlays. This paper explores some of the reasons why overlay option is proving to be the optimal LTE migration strategy.

What is overlay?An overlay introduces new technology independent of the existing infrastructure. It is particularly effective when the new technology is significantly ahead of the current generation. This is the case with LTE. Not only is the air interface very different from 3G technologies, the entire end-to-end network is also different.

The network is based on a flat, all-IP architecture. Using an overlay gives an operator more flexibility to architect a next-generation network. Overlays have also been proven to be an effective network evolution strategy for gaining market advantage by getting to market quickly with a broad LTE deployment.

No single overlay scenario exists. In practice, operators reuse some components from the legacy network. Generally, these components have been passive elements in the radio access network (RAN) or systems, such as backhaul — outside the RAN and the core. In the case of backhaul, operators have been using LTE migration as an excuse to upgrade backhaul to IP/Ethernet rather than squeeze LTE capacity into existing legacy backhaul.

As Figure 3 shows, the overlay strategy allows operators to focus on the more strategic asset — 4G/LTE. From the point of view of the network, the operator can optimize the LTE RAN, core, as well as transport to the demand expected from smartphone and tablet users without being constrained by limitations in the 3G network. After LTE deployment, the operator can return to the 3G network and re-evaluate the need to upgrade the legacy network. This is in alignment with the optimal market strategy — to deploy LTE to access while retaining high-value customer segments that need and are willing to pay for larger bundles of data.

Figure 3. LTE migration options

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LTE migration in real lifeIt would be ideal if existing infrastructure could be software upgraded to support 3G and LTE without having to make major changes. In reality, however, the full benefits of LTE cannot be achieved without significant change. Consumers are spending money on increasingly powerful phones and computers so that they can benefit from the upgrade of the entire system, including processors, screen, and software. This also applies to LTE.

In existing converged RAN solutions, significant changes are required to ensure that the full benefits of LTE can be realized. This is so much the case that the difference in new hardware required between a converged RAN and an overlay network becomes negligible.

As Figure 4 illustrates, upgrades are needed across the network to support LTE. In the radio access network additional antennas and radio frequency (RF) units are required to support Multiple Input Multiple Output (MIMO). In some cases, where spectrum is being refarmed, existing antennas and RF can be reused. However, in most cases new spectrum will be used for LTE, such that new RF equipment will be required.

Figure 4. LTE migration equipment requirements

In the core network, LTE introduces a new control element — the mobility management entity (MME) — and new gateways — the serving gateway (SGW) and packet data node gateway (PGW). Vendors take three approaches:

• Repurpose legacy hardware, such as the Serving GPRS Support Node (SGSN) and Gateway GPRS Support Node (GGSN), to support LTE functions

• Develop dedicated core (Evolved Packet Core [EPC]) hardware and software optimized for LTE

• Develop new core hardware optimized for LTE that is backward compatible with 3G

The recommendation is to select a vendor with core hardware and software that is optimized for LTE.

Devices Access Backhaul EPC Transport

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LTE Overlay

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IMS (VoLTE,video,RCS)

Motivecustomerexperience / smart plan

• New RF (new bands)• New RF (existing bands)*

• New BBU ro LTE**

• Upgrade backhaul for LTE (All-IP BH)

• Add LTE EPC for LTE capacity

• New LTE SW (separate from legacy)

• Upgrade legacy SW to introduce LTE

• Add IMS for multimedia services & VoLTE

* Better RF coverage with overlay due to dedicated resources

** Better evolution path to virtualized RAN

*** Majority of LTE deployments are using new LTE bands

• Add IMS for multimedia services & VoLTE

• Add LTE EPC for LTE capacity

• Upgrade backhaul for LTE (All-IP BH)

• New RF (new bands)**• New RF (existing bands -if upgrading to 4x4 MIMO)

• New BBU board for LTE



An overlay has minimal impact on typical operations systems and actual day-to-day network operations. Generally, LTE and legacy operations, administration and management (OA&M) are kept separate for simplicity even if they use the same hardware elements. Also, because the two technologies are sufficiently different, it often makes sense to keep the element and network management systems separate to a degree.

Figure 5. OA&M in LTE systems

Thus, it is clear that, in reality, the differences between the new hardware requirements for overlay versus a converged RAN are minimal.

Overlay for speed to marketAs noted, a fast and decisive LTE rollout is required to maximize the market impact of an LTE deployment. One of the most ambitious (and most successful) LTE deployments in the world was conducted by Verizon Wireless in the United States. In an interview in 2009, then CTO Tony Melone said that their rollout “will be as close to all-at-once as possible.2 To accomplish this goal, Verizon Wireless decided to take an overlay approach.

An overlay accelerates rollout throughout the deployment lifecycle. With an independent approach, the network can be designed based on requirements to satisfy the target LTE market rather than introducing the added complication of finding sites that optimize both LTE and 3G requirements.

Deployment itself is simplified considerably and not constrained by windows of time where legacy network downtime is to be avoided. Physical installation is generally simpler because engineers need not determine how to retrofit existing generations of base station cabinets.

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2http://www.informationweek.com/mobility/business/verizon-wireless-plans-mass-lte-deploym/220200106



Integration is also simplified because the only equipment impacted is the new LTE infrastructure. In a converged RAN, LTE and legacy equipment have to be reprovisioned and integrated. This complicates the process, making it more prone to error.

Figure 6. LTE Deployment Strategies Survey - Source: Informa

Interestingly, an Informa survey found that one of the biggest issues that operators face when migrating to LTE is integration with the legacy network.

Finally, optimization and software upgrades are much faster if they are completed independently on the LTE network. If the LTE and 3G systems are tightly coupled, any minor change on the LTE network requires a slew of regression tests on the LTE, 3G and even 2G networks. This can make the process very cumbersome.

Better performance with overlay The experience of operators who have deployed LTE widely is that the LTE networks have not simply absorbed mobile data demand; they have actually increased per-user data consumption resulting in accelerated demand for capacity. Shared resources make good business sense because of the potential for lower cost. However, they can also result in constrained capacity, which can impact the end-user experience and operator revenue.



Figure 7. Uncompromised performance with LTE overlay

Sharing RF resources, such as power amplifiers for legacy technologies and LTE, could result in sub-optimal coverage for both. Further, LTE users will be unable to take advantage of some of the RF enhancement from self-organizing network features. For example, the feature coverage and capacity optimization (CCO) improves the coverage in a cell by automatically adjusting antenna tilt in response to device feedback. If the antenna is shared with 3G or 2G, this would not be possible,

Research in different markets shows pent-up demand for the quality of experience that LTE offers. This has been validated in markets worldwide by the rapid adoption of LTE. Using the same baseband for 2G, 3G and LTE could result in constraining that demand and limiting the operator’s revenue gain. In higher density environments, such as cities and public areas, even dedicated LTE baseband is under strain, leading operators to consider small cells for additional capacity.

A converged approach will impact not only LTE revenue; it could also impact existing 2G and 3G revenue streams. A large proportion of the operators in the Informa survey cited above stated that minimizing 3G disruption was a driver in selecting the overlay approach.

Figure 8. LTE deployment strategies survey - Source: Informa

Better RFcoverage

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Baseband capacity dedicated to LTE where it matters the most

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Superior eNBBBU capacity



Global acceptance of overlayThe pace of LTE network deployment is accelerating, as mobile operators are investing to keep pace with competition and the dramatic growth in mobile data traffic. A May 2015 GSA report indicated that almost 400 LTE networks were commercially launched in 138 countries and GSA forecasts that number will grow to more than 460 LTE networks by the end of 2015.

The Heavy Reading white paper, LTE Deployment Strategy: Overlay vs. SRAN, (February 2013) examined the trade-offs mobile operators must consider in choosing between LTE deployment strategies. The assessment is based on an objective analysis of actual scenarios faced by operators.

Some major operators have opted for a Single RAN deployment strategy. This approach entails the deployment of new multi-standard base stations. Some of these base stations have multi-mode radio, which is used as a common platform to add LTE, while converging multiple generations of wireless networks. Single RAN advantages include lower power consumption and a smaller cell-site size footprint. Even so, complete modernization while introducing a new technology can be slow, costly, and potentially disruptive to subscribers.

For this reason, many operators have adopted an alternative network overlay strategy — the deployment of LTE base stations without a simultaneous 2G/3G upgrade. Among these operators are some of the most successful operators in terms of LTE subscribers: Verizon Wireless in the U.S., NTT Docomo in Japan and SK Telekom in South Korea. For these operators, an LTE overlay has enabled faster time to market and lower capital investment, while minimizing the disruption of their commercial 2G and 3G networks.

As shown in the tables below, most leading operators who moved quickly to LTE adopted a network overlay strategy.



Overlay economic impactTo investigate the winning strategy for an operator given a choice between Single RAN, LTE overlay, and small cell approaches to wireless network growth, we have employed the Stackelberg model. The model offers a game-based theoretical framework for exploring the competition between a small number of competing players in a market − in this case the wireless market.

In this model, the first mover, also known as the leader, leverages an inherent advantage (technology, geography, regulation, incumbency, etc.) to set the quantity it can profitably supply to the market. The competitors, also known as followers, then optimize their quantities based on the quantity set by the leader. The followers have two clear choices: either adopt the same approach as the leader, or maintain their current approach with the attendant economics based on this choice.



From Figure 9, it is clear that the maximum cumulative profit is achieved by deploying LTE, as early as possible (2015 in this example). In subsequent years, the cost advantage of LTE overlay allows the first mover to steadily accumulate profits at the expense of the players deploying Single RAN. Furthermore, if the leader reinvests these profits in additional network expansion, the advantage is perpetually increased, with the followers increasingly unable to compete.

Figure 9. Game theory analysis of competing operators deploying different approaches to providing wireless network capacity.

Another way to view the gain of the leader compared to the followers is to plot the differential profit between the two. Figure 9 illustrates 2 scenarios: the leader deploys LTE or LTE small cells, and the follower deploys a Single RAN strategy. A third scenario is also included in which the leader deploys a Single RAN strategy but uses a unique advantage (e.g., in regulation or business arrangements) to offer more capacity. This, in turn, modifies overall market pricing, forcing the (Single RAN) competition to compete at a new price point. This is called a disruptive Single RAN strategy.

From Figure 10, it is immediately apparent that by deploying LTE or LTE small cells an operator can gain sustainable market advantage and increase profitability exponentially. Furthermore, the gain realized by this strategy is larger than any gain resulting from simply maintaining a Single RAN deployment.

Figure 10. Differential profit analysis of leader compared to followers

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KEY FINDING OF MODEL

Moving swiftly to LTE and deploying it as quickly as possible is a winning strategy compared to

single RAN-based players.

www.alcatel-lucent.com Alcatel, Lucent, Alcatel-Lucent and the Alcatel-Lucent logo are trademarks of Alcatel-Lucent. All other trademarks are the property of their respective owners. The information presented is subject to change without notice. Alcatel-Lucent assumes no responsibility for inaccuracies contained herein. Copyright © 2015 Alcatel-Lucent. All rights reserved. PR1506011836EN (June)

It is instructive to map these scenarios to real-world examples, as follows:

• LTE overlay: This is the strategy employed by Verizon Wireless to gain market advantage from a position of disadvantage in 3G. Notably, AT&T was forced to respond with a similar LTE Overlay strategy to reduce the competitive disadvantage.

• LTE small cells: AT&T and Verizon Wireless have deployed small cells to provide cost-effective capacity.

From the examples above, it is fair to conclude that the game-based theoretical analysis is being confirmed in the marketplace.

We now examine another case of interest – a competitive Single RAN market where all players defer investment in LTE for a prolonged period, and then one changes strategy by deploying LTE in order to gain a sustainable competitive advantage. As shown in Figure 11, the leader initially tries to gain market advantage by deploying more Single RAN capacity than the competition but at the same cost. Therefore, no sustainable advantage is achievable and the decision is made to move to an LTE overlay strategy after two years. Once again a market advantage appears for the leader that drives a sustainable profitability difference.

Figure 11. Achievable market advantage even with delayed LTE overlay strategy

Acronyms3G Third Generation

CapEx Capital Expenditure

CCO Coverage and Capacity Optimization

EPC Evolved Packet Core

GGSN Gateway GPRS Support Node

HSPA High Speed Packet Access

LTE Long Term Evolution

MIMO Multiple Input Multiple Output

MME Mobility Management Entity

MNO Mobile Network Operator

OA&M Operations, Administration and Management

PGW Packet Data Node Gateway

RAN Radio Access Network

RF Radio Frequency

SGSN Serving GPRS Support No de

SGW Serving Gateway

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optimal lte deployment strategies for market success

Technology

lte overlay

lte migration

lte results

g lte customers

decisive lte deployments

glong term evolution

overlay approach

mobile operators