Kaiser Associates Telecom Practice’s latest white paper explores the factors and business trends that support small cell investment globally, by highlighting three unique country case studies – Indonesia, Chile, and Nigeria. In this article you will find selected highlights from the white paper, or you can click here for your free copy of the full text.
Introduction
While the benefits of small cell are clear, several prerequisites must be in place for deployment of the technology in a new market. Kaiser Associates has identified the five key factors shown in figure one which determine the viability of small cell in a given market.
These five critical factors provide a framework in which to think about small cell investment in emerging markets. This paper explores how differently these questions play out in Chile, Indonesia, and Nigeria, and aims to determine the viability of the technology in each market.
Country case studies
Indonesia: Given the rapid development of, and new capacity demands in the Indonesian mobile broadband market, operators are turning increasingly to the use of small cell antennas – they are expected to invest roughly US$20 billion in this technology over the next five years. Indonesian operators Telkom, Telkomsel, and 3 Hutchison recently announced a significant agreement with small cell manufacturer Huawei, which launched Lampsite 2.0, its latest small cell innovation. There is tremendous demand for indoor mobile coverage across the country, and deploying indoor small cell networks will provide a boost to all operators’ network coverage and capacity.
However, a major challenge when servicing these new small cells in Indonesia will be obtaining a dependable, qualified, and flexible backhaul service provider that can supply the required services to meet requirements at a reasonable cost. Fixed-line backhaul options, such as copper or fiber, are likely to prove inflexible or too costly to use in conjunction with small cells outside of highly developed areas, and the alternatives — such as microwave or satellite networks — are under consideration.
Chile: As mobile data consumption rates continue to grow rapidly in Chile, operators are being forced to think about the classic “capacity versus coverage” issue more than ever before. On the whole, the major Chilean operators (Entel, Claro / América Móvil, and Movistar / Telefónica) are currently working with limited construction budgets. Small cell, however, represents a viable economic alternative to meet this challenge. While some portions of small cell hardware are more expensive than those found on macro base stations, this technology often yields cost advantages in allowing operators to target their customer bases more strategically. In this case, it can help operators satisfy the data and voice demands of large consumer groups living in dense urban areas, where macro sites are notoriously difficult to deploy. There is little doubt that within the foreseeable future towercos and operators operating in Chile will begin taking a more serious look at small cell technologies (Entel, for example, has already begun deploying some small cell technology in Santiago), alongside their associated intricacies and unique deployment strategies.
Nigeria: Tower construction is already a key pillar of enhancing the Nigerian network, with build-to-suits averaging 2,000 - 2,500 new towers per year – the highest rate of expansion in Sub-Saharan Africa. Small cell technologies, however, offer an attractive alternative or complement to towers in areas where cell site densification is a high priority issue.
Given the extremely high population density in urban areas such as Lagos, and the anticipated rise in country-wide data penetration (from below 10% today to over 40% in the next four years), small cell technologies will likely come to represent a critically important element of Nigeria’s network development.
The market trends in Nigeria point to a favorable juncture of consistently increasing data demand and localised markets of unique subscribers who depend upon cellular devices for access to an array of online amenities (e.g. banking). Against the backdrop of significant efforts to upgrade Nigeria’s network with the launch of 4G technology toward the end of 2014, and ongoing 3G network augmentation in Nigeria’s major metropolises, another major driver of small cell adoption will likely stem from the quality of service problems currently associated with all major operators.
Despite the clear opportunity for small cell technologies to support the rise of capacity “hotzones”, the inherent unpredictability of Nigeria’s regulatory environment, tax regime, and limited availability of fibre represent formidable barriers to implementation.
Conclusion
We know that the demand for mobile data will continue to necessitate a concerted increase in coverage and capacity. We know that this upward trajectory is a truly global phenomenon. We also know that telecommunications companies who leverage small cell technologies in building out networks will be the primary leaders of this growth, and will stand to gain the most from their smart, early investments.
The ambiguity, then, lies not as much in choosing the weapons as in choosing the battlefields. In an industry replete with global opportunity, which markets and countries could benefit most from small cells? Of these, which are ready today for investment in the technology? Which factors go into evaluating this?
The aim of this paper is, at one level, to provide examples of how differently these questions play out in specific emerging markets (e.g. Indonesia, Chile, and Nigeria). At another level, it is to provide a framework for how to think about small cell investment in emerging markets more broadly by identifying the critical factors involved.
Kaiser Associates, through its own experience in the small cell space, has determine these factors to be:
- Growth in mobile subscribership and data usage
- Network reliability and capacity
- Fiber availability and quality
- Quality of regulatory environment
- Population density
Using the U.S. as a reference point for a highly developed market with proven small cell viability, it is necessary to take a holistic view of the feasible emerging markets opportunities and place them on a relative scale for easy comparison. The scorecard of markets in figure two summarises this concept using Kaiser’s methodology.
Thorough consideration of these key external factors is critical to determine where opportunity exists, for it is only after an informed and fact-based assessment of where to play that we can begin to think about how to win. In partnering with investors and telecommunications providers over the past two decades, we have learned that in-depth research into these factors is a crucial foundation for success. This knowledge enables companies to tailor their approach and grow dramatically within their selected target markets.
Once it is clear that a market is ready for small cell, a second wave of strategic decisions and operation knowledge comes into play. Each company must develop its key differentiators, and it is this foresight and investment in relevant capabilities that have set many of today’s leading infrastructure providers apart. These differentiators can range from implementing a strong real estate group that engages and develops relationships with municipalities; to the acquisition of existing fibre infrastructure in strategic areas; to the development of advanced radio-frequency data that enables a company to proactively identify carrier needs and secure access to these areas. Extensive experience in the wireless infrastructure industry has shown that each company must carefully inform and plan its own evolution. Knowledge of these structures and strategies, in combination with the factors that drive small cell viability, enable each player to position themselves for success in this space.
Download the full white paper “Viability of Small Cell in Emerging Markets” here
About the authors
Seavron Banus
Seavron Banus is a Vice President at Kaiser Associates and co-leads the firm’s Telecommunications Practice. During his five years at the firm he has led significant value creation initiatives for clients across the telecommunications industry globally with a focus on independent tower and small cell companies, carriers, data centers, and communications providers. His experience includes extensive work with CEO, CFO, and COO clients worldwide, at established and emerging companies, in developed and developing markets. Seavron’s work has spanned a full range of critical issues, including operational strategy definition, organisational restructuring, customer segmentation, process redesign, roles and responsibilities realignment, activity-based staffing, commercial due diligence, post-acquisition integration, and market opportunity analysis.
Seavron Banus hold a joint BA/BS degree from Middlebury College in Geography and Spanish, with a minor in Economics. He is also Six Sigma certified and has be formally trained as a Co-active Coach. Additionally, Seavron is fluent in both English and Spanish.
Timothy Dee
Timothy Dee is a Principal in Kaiser Associates’ Telecommunications Practice, based in Washington, DC.
Timothy brings deep experience leading global engagements with senior leaders of telecommunications companies. As his work focuses on organisations operating in emerging economies, he offers a unique understanding of the challenges these companies face across their stages of development. Timothy has partnered with clients on a number of strategic initiatives, including: organisational structuring, process improvement and cycle time reduction, key performance indicator (KPI) definition, operational / financial systems selection and implementation, and cross-company indicator benchmarking.
Prior to joining Kaiser Associates, Timothy worked at Deloitte Consulting, where he led initiatives focused on strategic organisational change and process optimisation within the U.S. Federal Government. He is fluent in Spanish, and holds a M.A. degree from the School of Foreign Service at Georgetown University, as well as a B.A. in Spanish Literature and Latin American Studies from Colby College.
