Part 1 – Cutting the cost of 5G urban mobile coverage by 20%…without a sweat.

Part 1 – Cutting the cost of 5G urban mobile coverage by 20%…without a sweat.

There is no doubting the enthusiasm of the Government, Ofcom and the Mobile Network Operators (MNO’s) in wanting to see 5G to benefit the maximum number of people. But 5G cannot benefit what it does not cover. From this point on comes divergent interests. The government has the greatest ambition for 5G. It wants to see significant benefits to the economy and provide the connectivity needed to modernise industries. But very little of these enormous benefits will flow to the MNO’s but they are still expected to pick up the entire cost of coverage. The mobile network operators would like to maximise “profitable coverage”. There is a huge investment gap between these two ambitions.

One way to bridge the investment gap is for the MNO’s to see a boost in their incomes coming from some combination of consumers, Internet enterprises or Government funding. Ofcom is likely to take a dim view of price rises for consumers and small businesses and the government will not look kindly on a large bill for the taxpayers. What is the way out of this dilemma?  It is to find ways to significantly reduce the cost of coverage. Both Government policies and Ofcom regulatory innovation have a part to play.

Finding ways to reduce costs is a part of the way of life for all organisations. Almost like clockwork in every organisation the order comes down from the big boss – we have to take 10 or 15 or 20% out of next year’s budget. There follows a well drilled routine of looking at every line item of expenditure for savings no matter how small. Every organisation I have been in or know usually manages to find 10-20% cost savings without having to make fundamental changes to how the business is conducted. The same methodology can be applied by the various agencies having policies and regulations affecting the unit cost of a small cell. A systematic look in consultation with MNO’s and industry could yield significant cost savings.

With the likely investment cost of dense small networks covering entire cities and towns running into billions of pounds a 20% cost saving is a very useful thing to achieve. The cost equation of dense small cell networks comes down to the cost of a single cell multiplied by a very large number of cells. It is useful to dwell on this point. It would be easy to look at some cost item of a single cell where the saving from a policy change may only result in a £10 saving but when multiplied by a million small cells delivers a £10m saving. That saving would be enough to provide the 5G coverage for a town that would otherwise not be covered. This illustrates the right mindset for all those involved.

What does the unit cost of a 5G small cell comprise? The main cost drivers are:

  • Equipment cost
  • Backhaul cost
  • Installation cost
  • Site Rent
  • Business rates
  • Energy Cost
  • Maintenance cost
  • Spectrum cost

The complexity of this exercise comes from the fragmentation of responsibilities and powers. Ofcom can address some issues, DCMS others, the Treasury, Local Government and others. Someone has to pull this together and officials in the DCMS are best placed to do it.

The table below provides a good point of departure and the final column with comments is labelled in brackets as opinion as the list is almost certainly not complete and some may dispute a few of the comments…to which the right response in the spirit of this blog  is…so come up with a better list.

Small cell table

Table of policy/regulatory changes to reduce unit cell cost

Quantifying the savings with any precision requires a lot of work but is would be surprising if a saving of up to 20% was not achievable on the basis that this methodology. The next question is 20% of what? A study done for the National Infrastructure Commission took the unit cost of a small cell as £13,500. There will never be “a right number” for the total number of small cells but in the order of 1m would deliver sufficient coverage to have the desired transformational impact. The current competition model requires four competing networks leading to a total of 4m small cells at an investment cost of £54billion. Our 20% cost saving therefore delivers a £10.8 billion saving…a figure demonstrating a significant reward for the effort needed to achieve it.

A net of £43.2 billion still remains a truly alarming level of investment for an industry struggling to maintain profit margins. Deeper cuts are needed. This  will only be achievable by doing things a different way. It challenges the mobile network operators and regulator to innovate their respective business and regulatory models. It will be shown in a later blogs that this can  deliver a saving of up to 90%. The size of this potential saving is an important message as Regulatory innovation will not be easy or without controversy…but a saving of £48.6 Billion makes a compelling case for the Government, Ofcom and the Mobile Network Operators to take up the challenge.

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