Friday, February 26, 2010

How 4G will lower costs by spending more

Can you save money by spending more ?

Yes you can if you are talking about the newest cellular technology called 4G.

You might have heard of 2G and 3G, those are standards for mobile internet data speeds.
4G will be at least 2-3x faster then 3G and will usher in a new world of very fast mobile broadband speeds.

There are two kinds of expenses that tellcos have to face:
1. Capital Expenditures (CAPEX) - one-time costs for hardware, software, installations
2. Operational Expenditures (OPEX) - on-going costs for electricity, labor and renting land

To move to 4G, service providers will have to spend CAPEX to upgrade their networks, but they can actually reduce their OPEX by going to 4G, see below:

Normally, to move data from the user to the service provider, you need to connect the cellular antenna towers to service provider`s equipments. Usually this link is done with sophisticated telephone lines called T1`s that are leased at a high cost.

I will throw some numbers to get an idea of the costs involved: An operator can have thousands of cell sites, each cell site can have 6-12 T1 lines. Each T1 line cost 500-1000$ US a month. Leasing these lines tends to be the single most expensive OPEX item, sometimes it account for as much as 30% of total operational expenses.

The move the 4G will no longer require these leased links since the architecture is completely IP. It costs a whole lot less to operate an IP network then to rent T1 lines.

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