Economics of 3G Long-Term Evolution: the Business Case for the Mobile Operator

Many mobile operators are currently seeking significant improvements to their 2G and 3G based cellular systems. With significant improvements in the radio interface, enabling a lower data access cost per megabyte, as well as several potentially important new services, 3G long-term evolution (LTE) can bring substantial technological and economic benefits to operators, and therefore provide a decisive advantage over alternative wireless technologies. This paper analyzes the economics of 3G LTE for a system architecture evolution (SAE) network. The analysis starts by describing the drivers for the further evolution of 3G networks and the business case for the 3G LTE technology. This is followed by a discussion of the general principles in techno-economic modeling. Concluding the paper is a techno-economic analysis for a 3G LTE operator with its own 3G network. The analysis is carried out by the constraction of a techno-economic simulation model, which looks at a large Southeast Asian type country from 2010 to 2019. Two different cases are analyzed: a fixed use case, similar to that of wireless DSL, and a mobile use case, similar to that of 3G cellular data. The respective addressable markets are one million and ten million users. For these two cases, the total costs of building and operating the SAE network are 80 million and 2 billion euros. For the fixed case, an ARPU of 15 euros per month is sufficient for break-even; for the mobile case, an ARPU of 10 euros.