Mobile Industry Trends and Challenges

Market Trends: The total number of mobile subscribers worldwide has already passed
the 1 billion mark, and many experts predict that number will double before 2010. In
other words, mobile penetration will exceed 32% on a global basis in this first decade of
the new millennium(1).

The Universal Mobile Telecommunications System (UMTS) Forum, the industry

consortium striving for common standards for 3G networks, predicts that over the long
term, services enabled by 3G technologies will represent a substantial market opportunity
of $320 billion in 2010. Of that amount, $233 billion will be generated by new 3G
services (Figure 1).

In related research, Allied Business Intelligence (ABI) predicts that – following a ramp-
up of 3G launches in 2003 – the industry will see more than 60 3G network launches
worldwide in 2004 and beyond. ABI further predicts that worldwide spending on 3G
equipment will show a compound annual growth rate of 49% between 2002 and 2007.

Figure 1. Worldwide Demand for 3G Services by Revenue

Increased Traffic and the Need for More Capacity: To accommodate the tremendous
growth in subscribers and traffic, mobile wireless operators worldwide have invested
billions of dollars into improving network coverage, quality of service, and the delivery
of new wireless data services. Despite this increased spending, these operators are rapidly
exhausting the capacity on their existing networks. Not only must they offer new
services, increase average revenue per unit (ARPU), and increase the capacity of their
networks in order to remain competitive, but they must upgrade to 3G networks from
their existing second generation and, in some cases, even first generation mobile
networks. To accomplish this, operators have a choice of strategies. They can either
upgrade and adapt their networks utilizing existing infrastructure and radio frequencies,
or deploy new technology and add to their current network infrastructure.
Moving to 3G – A Multi-Stage Process: Where 3G networks are relatively late to
arrive, as in the United States, many GSM and TDMA operators are in various stages of
deploying General Packet Radio Service (GPRS) and Enhanced Data for Global
Evolution (EDGE). These technologies, often classified as 2.5G, act as stepping-stones
towards 3G network standards such as UMTS/WCDMA and offer higher data speed for
wireless Internet and enterprise applications over existing networks with a few
modifications.

Similarly, CDMA operators have deployed CDMA 1xRTT(2) along the way to CDMA
2000 (3G standard). A case in point is Verizon Wireless in the US, which has widespread
1xRTT capability, but is on an aggressive path to deploy CDMA2000 1X EV-DO
("Evolution-Data Optimized") to enable much higher data rates. When compared to the
costly investment required for full 3G network deployment, 2.5G network upgrading
requires only a minimal investment and allows reuse of the 2.5G equipment when
migration to 3G occurs.

Multiple Standards and Mixed Networks: Today, most carriers around the world
manage increasingly complex network architectures consisting of a variety of standards
and multi-vendor equipment. For many carriers, overlay networks or a collage of diverse
networks that have been inherited through past mergers or acquisitions are common. To
realize operational efficiencies and revenue savings, these carriers must aggregate or
combine their networks and optimize their operations.

More Base Stations to Cover Existing Footprint: 3G technologies use higher

frequencies than 2G networks to transmit and receive information. Consequently, each
base station has a much shorter range and smaller associated coverage area. It is generally
agreed that 3G networks require four to five times as many base stations to get the same
coverage as 2G networks. Also, for greater numbers of subscribers and higher average
data rates, even more base stations are needed to cover the same geographical area.

Lack of Remote Management and Monitoring: With network expansion and overlay
networks, the presence of many more new network elements increases the complexity of
monitoring and managing them. There are also many non-network elements, such as
access doors, air-conditioning equipment, temperature and humidity control, and lighting
at the tower/base station, that typically lack central alarm reporting and remote
management capabilities. In most cases, problem identification would require technicians
to be physically present at the base station/tower.

Network Optimization: Since network expansion and its accompanying upgrades are
very capital intensive, operators are compelled to find new cost-saving measures to
reduce both capital and operational expenses. Most of these measures are focused on
leveraging existing equipment and optimizing the frequency spectrum to increase
capacity and coverage.

However, backhaul transmission costs are usually the most expensive component in radio
access networks. These costs are recurring in nature and are charged on a monthly basis.
More backhaul facilities are added to accommodate increasing traffic at the existing cell
locations and at the new base station locations. In seeking cost-saving solutions, the radio
access network portion traditionally has been ignored.

1 Cahners In-Stat Group

2 Broadband term for the initial phase of 3G for CDMA; uses existing CDMA protocols,
but incorporates faster signal processing to get more bits over the air; this results in
speeds of 144 Kbps using the same 1.25 MHz channel.