Aircom: U.S. operators could save $1.2B by moving to HSPA+ rather than LTE

Long-term evolution might be the shiny, new technology, but operators could offer what amounts to the same mobile broadband service using 3G technologies — for a fraction of the cost — according to wireless telecom consulting firm Aircom International.

High-speed packet access plus (HSPA+) may support half to a quarter of the capacity of the first iterations of LTE, but with its 21 Mb/s of theoretical capacity, operators could deliver smartphone and laptop download speeds comparable to 4G, said Fabricio Martinez, services director for Aircom. LTE operators ultimately would have more overall capacity at their disposal, and they could deliver broadband services more cheaply due to LTE’s great spectral efficiency, but they’d have to spend billions more in capital expenditures to get the same coverage than if they were simply to upgrade their HSPA networks to HSPA+, Martinez said.

Aircom estimates that the cost of U.S. UMTS operators — meaning AT&T (NYSE:T) and T-Mobile (NYSE:DT) and a handful of smaller providers — migrating to HSPA+ would run $594 million. Meanwhile if those same operators were to build nationwide LTE networks today, their capex costs could exceed $1.78 billion. That’s $1.19 billion in potential savings operators would have to justify to their investors, Martinez said. While there is huge demand for faster data services and more network capacity, Martinez said that HSPA+ would meet those needs.

Most HSPA operators globally today are supporting 3.6 Mb/s HSPA on their networks, either limited by the technology in their radio access networks or constrained by backhaul. Upgrading to HSPA+ and implementing the necessary fiber backhaul would more than quintuple their current network capacity and allow them to deliver average speeds of up 2 Mb/s to their customers.

“By deploying 21 Mb/s HSPA+ they resolve most of their capacity issues,” Martinez said. “Once you get to 1 Mb/s per second to the customer it doesn’t really matter. There will be some subtle differences between the HSPA+ and LTE services, but at the end of the day the weakness in coverage in a new LTE network will outweigh in gains in performance. Customers will say ‘I get better service [with LTE], when I get service.’”

Both T-Mobile and AT&T have LTE plans, though AT&T’s are more concrete. It plans to launch a commercial 4G network in 2011, while T-Mobile has said it will use its GSM PCS spectrum for LTE after more of its customers migrate to its new 3G network. But both operators have come to the same conclusion as Aircom. T-Mobile began its nationwide rollout of HSPA+ this week, launching a 21 Mb/s service throughout the Northeast (and even started using the term "4G speeds" in its marketing). AT&T last week reserved itself on HSPA+ (or at least further iterations of HSPA), committing to upgrading its network to support 14 Mb/s speeds by the end of the year. 

Given that Verizon Wireless (NYSE:VZ, NYSE:VOD) plans to launch LTE by the end of the year and Sprint (NYSE:S) is already selling its 4G WiMax service in parts of the country, AT&T and T-Mobile will be offering competitive data services, even if they can’t match their operational efficiencies. Given the billions of dollars VZW and Sprint — through its ownership stake in Clearwire (NASDAQ:CLWR) — will have to invest in those 4G networks, though, AT&T and T-Mobile will likely come out ahead in their returns on investment, Martinez said.

Aircom, however, said it wasn’t advocating that operators give up on LTE entirely. Martinez said that as traffic ramps up and more spectrum is cleared for 4G, the deployment of LTE will become necessary and inevitable. Operators just have much more wiggle room than 4G proponents would have them believe, Martinez said. Meanwhile many of the investments they make in HSPA+, such as backhaul upgrades and enhancement to the mobile packet core, will carry over to LTE, cutting down on their future capital investment. And operators that don’t have dedicated 4G spectrum, like T-Mobile, will have more time to clear out sizable chunks of spectrum for their LTE networks. LTE can be deployed in various carrier widths, Martinez explained: the wider the channel the more operationally efficient the network.

“If you want to benefit the most from LTE, you need to think about 10 MHz to 20 MHz carriers, not the 5 MHz available to HSPA,” Martinez said. Deploying LTE incrementally carrier by carrier would only lead to greater network costs in the future. The ideal scenario is to deploy a wideband network from the beginning, he said.

Also, as operators reach the limits of their HSPA+ capacity, Aircom would advise them to move to LTE, rather than look at the later iterations of HSPA+, which through multiple input/multiple output (MIMO) smart antenna technologies could support theoretical speeds as high as 48 Mb/s. The capital investment required by those upgrades is much higher than that of upgrading from HSPA to HSPA+. Operators would have to redesign their cell sites, adding antennas and offering separate MIMO and single antenna carriers, making the returns on investment much smaller, Martinez said.