Rethinking the road to 4G

Alan Lau/McKinsey & Company
20 Apr 2012

Mobile data demand in Asia Pacific is about to reach a tipping point that will generate an explosion in data traffic. McKinsey analysis shows that operators could become unprofitable if their average user consumes more than 400MB of data a month on a 3G network. This is driving many operators to focus on upgrading to LTE, which could lower network cost by up to eight times.

Globally, a few mobile operators have started deploying LTE and a host of others are planning their rollout in the coming months.

Asian telcos like NTT DoCoMo and China Mobile have either already started or have definitive plans for LTE deployment.

According to GSMA, more than 200 operators in 80 countries are now participating in the race to LTE deployment.

But telcos face a critical issue. Data explosion cannot be solved by upgrading to LTE alone; indeed, mass deployment is a few years away for most countries. So what are the other options for telcos? Many operators are looking at buying more spectrum or refarming existing bandwidth, which could help to expand network capacity through successive network technology upgrades.

Indeed, many Asian regulators are already looking into how to reallocate limited spectrum resources, facilitate upgrades and better service, and encourage competition at the same time. This is a "must win" battle for telcos looking to build long-term network competitiveness.

In addition, operators need to realize that offloading is a must, not a "nice to have". While network operators previously feared that offloading would cannibalize data revenue, now they realize that this is key to survival, especially in "heavy data" economies, where 100x data growth is predicated in next four to five years in some markets.

Realistically no networks, even if on LTE, can sustain such a traffic explosion with their current infrastructure - they must explore Wi-Fi/hybrid networks. There are some strong examples in Asia that show how this strategy can work well - such as Softbank, which has given away routers to flat-rate users. SK Telecom has also been aggressively adding public access points in the past few years, while Hong Kong's PCCW has also established over 9,000 Wi-Fi hotspots within the city to feed users' voracious appetite for data on-the-go.

Yet the technical aspects of managing mobile data demand are only one side of the coin. Telcos also need to take strategic and regulatory considerations into account if they are to win in this new era. Just consider that last year's mobile data traffic was eight times the size of the entire global internet in 2000.

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