There’s no such thing as a simple answer
We are frequently asked by other analysts, media and friends whether we believe mobile broadband is profitable. As with most questions asked to a consultant, a simple question will rarely get a simple answer…. Seriously though, we believe that there is no general answer. It depends on how you dress the case and most definitely on the operator situation. The most difficult part is allocating the relevant opex and capex. We have seen many approaches of cost allocation, of which two basic ones are quite common:
– The ‘cost plus’ approach. Means treating the investments made before mobile broadband as a given (sites, active infrastructure etc.) and then summing all additional costs related to mobile broadband, such as new licenses, additional capacity, device subsidies, etc. This means that site infrastructure, the base level for network O&M related opex etc. are all excluded from the mobile broadband case.
– The ‘capacity distribution’ approach. Infrastructure and equipment cost + opex are distributed based on traffic load. This means that the total cost of network capex and opex will be distributed according to capacity utilization. This would be a good way to do it if only that distribution was easy to pin down. If capacity is simply counted in MB, mobile broadband will most probably get an unjustifiably too big share of the allocation (see for example Ericsson’s white papers on mobile broadband business case for further explanation on that)
In other words, both cases provide a picture that is not completely accurate. In addition, taking a P&L approach requires defining the lifetime of your equipment in a market landscape that is ever changing. Is the lifespan of a NodeB really five years nowadays? (a trick question…)
So how do we believe that it should be done? According to us there is need for a deep consequential analysis of what mobile broadband really does to the network and the operation of it. As an example; how many of the site visits last year were a direct consequence of the mobile broadband offering? How much time of the radio and transmission network departments is currently consumed on planning and engineering for capacity increase and topology shifts to cater for mobile broadband data traffic? How much of capacity and upgrade capex is related to mobile broadband traffic load and shaping? …and so on.
Not until the real drivers are understood for that particular operator, mapped out and applied on its specific cost structure will we have the real answer to the question. Needless to say, we feel strongly that this is a key thing for any operator going forward, and especially in times like now when strategic decisions of when (not if..) to start dipping the toes in the LTE lake while keeping a steady traction on the HSPA island. Making mobile broadband profitable is likely a key priority for anyone trying to leverage this growth area. Understanding where you are now is of course only the first step, but with that in hand the rest will come out easier and with more confidence.
So next time we are asked this “simple question” – we will most likely have a set of tricky questions in return, paving the way towards the good answer.