Have you considered the impact of the Internet of Things on 2G and 3G network decommissioning?

This post was written by Stephen Wilson & Morgan Mullooly, analysts for Analysys Mason’s Network Technologies and Digital Economy research practices, respectively.

The volume of mobile data traffic is growing and many operators are looking to refarm spectrum for 4G and are thereby moving towards decommissioning legacy 2G and 3G networks. However, the need to preserve GSM-based M2M connections, which account for most of the total number of M2M connections worldwide, is a significant constraint on fully decommissioning 2G networks and suggests that many CSPs will decommission 3G networks before 2G.

This Comment summarises the indicators supporting this finding that can be found in our recently published strategic report “The future of 3G: the case for decommissioning versus continued investment”, which explores the factors that influence 2G and 3G network decommissioning decisions. These factors include the composition of operators’ handset bases by technology generation and potential inbound roaming revenue loss.

Figure: Challenges in decommissioning 2G and 3G networks

Decommissioning legacy networks that support M2M connections has a high cost associated with it

When operators move to decommissioning their 2G and 3G networks, they will face several challenges in the M2M area from both cost and revenue perspectives.

The costs involved for operators in decommissioning legacy M2M connections stem from a number of areas.

• Large number of connections: M2M can represent a significant proportion of an operator’s total active SIM base and this increases the costs associated with decommissioning.
• Application-specific complexities: It may be costly and logistically challenging for operators to ensure that modules can be swapped in use cases such as fleet management. M2M applications such as smart metering may require access to a customer’s premises, which increases the likelihood that appointments will need to be rescheduled. With connected cars, it may be physically impossible to swap out the legacy M2M modules and SIM cards. For M2M services of all types, operators may not be aware where the modules are.
• Module-related costs: In most cases, operators will not face the equipment cost for new modules when a swap out occurs because this is generally the responsibility of the customer. However, in some cases operators have offered M2M customers a completely opex-based model in which the enterprise leases M2M modules from the operator. AT&T is using this model digital signage on trains, for instance. The implication is that the operator, rather than the customer, could be exposed to high replacement costs.

The desire to preserve M2M revenue may delay the decommissioning of legacy networks

The risk of lost revenue for operators in decommissioning legacy M2M connections must also be considered. The potential consequences of a negative impact on M2M revenue from network decommissioning are not insignificant because it generally represents around 1–2% of total mobile service revenue, and this figure is growing.

• Risk of opening a new tender: End customers who are contacted by their operator as part of the decommissioning process might take the opportunity to open a new tender for M2M services, which could lead to churn or reduced contract value. The risk of opening a new tender is increased because customers may have been expecting a much longer lifetime for their M2M devices. For example, the typical lifetime of M2M modules designed for commercial vehicle management is around 8 years. If customers need to swap out devices before this point there is a significant chance of dissatisfaction.
• Risk of damaging an end customer’s M2M business case: The cost of a new module could be significant for end customers and could negatively affect the desire to use M2M services. Customers may be particularly dissatisfied if they have deployed single-mode GSM M2M modules because these devices are relatively inexpensive. Customers may even stop using M2M services or look for alternative solutions, such as low-power, wide-area (LPWA) technology.

M2M connections are dominated by 2G, which may delay full 2G network decommissioning

The challenges of legacy network decommissioning are likely to be greatest when decommissioning 2G networks because 2G is much more important than 3G in terms of M2M.

According to data from Cisco, 2G represented 67% of total M2M connections at the end of 2014 compared to the 32% of connections using 3G. In some countries, decommissioning 3G networks is likely to have a minimal impact on the M2M business. For example, Telenor Norway has a negligible number of 3G M2M connections. This suggests that it is possible that operators will decommission 3G networks before 2G networks.

Figure: M2M connections by technology, 2014 and 2017

Legacy 2G M2M connections hinder, but do not destroy, the business case for decommissioning 2G networks

The cost and revenue implications in decommissioning 2G M2M networks are significant, but some operators may still be prepared to decommission their 2G networks before their 3G networks. For example, AT&T in the USA and Telstra in Australia intend to decommission their 2G networks by the end of 2016. Other operators may decide to follow this approach, despite having many legacy 2G M2M connections, if they:

• have a low number of 2G handset customers
• see the risk of lost roaming revenue from decommissioning 3G networks as significant
• value the spectrum used for 2G that can be refarmed for 4G particularly highly.

Operators’ desires not to incur costs and risk losing revenue from 2G M2M connections when decommissioning 2G networks mean it is likely that many operators will refarm some 2G spectrum for 4G while retaining a small portion of spectrum for 2G that can be used for purposes such as M2M. This offers a lower capacity benefit compared to full network decommissioning and incurs lower cost savings, although cost savings from full 2G network decommissioning are unlikely to be a significant consideration in operators’ business cases.

However, gradual refarming of 2G spectrum offers the benefits of minimising disruption to the existing M2M business. It also means subscribers can gradually be migrated to newer 4G technologies. Further development of LTE standards is underway to optimise the technology for M2M applications where terminals need to be cheap and have low power requirements.

*******************************************************************

This article was originally published on the website of Analysys Mason.