Lessons from AT&T's 2G shutdown

AT&T is planning to shut down its 2G network by early 2017. The main objective is to refarm the spectrum for LTE and eventually save network opex.
The move affects high band spectrum, for example PCS (Band 2, 1900-MHz), and low band 850-MHz spectrum (Band 5). The process of refarming started some time ago and the announcement of the 2G network shutdown has been anticipated.
Most of the spectrum will have been refarmed well before January 2017. Over the years the residual 2G (GSM) traffic will be transported over an ever smaller sliver of spectrum. Operators like AT&T, who are not well endowed with spectrum, make an enormous effort to refarm for HSPA and LTE to meet the challenges of the surge in mobile broadband traffic. However, legacy customers are an issue. Usually customers who make the least usage and have the lowest bills hang on to their old phones the longest. Although this is not the case with AT&T, some operators are still selling 2G only phones, particularly to prepaid customers, because of the lower cost of handsets.
One might think that leaving a few MHz of spectrum for GSM would make good business sense since it cannot be refarmed because it is not enough for the minimum 5-MHz block size required for HSPA and LTE. However, at some point the cost of operating the legacy 2G network outweighs the revenue made from these customers. The term “customer” includes M2M devices, and it is here where another problem might arise.
Forward looking operators have long realized that there is a direct relationship between the devices sold, and network opex and capex. Working closely with the network department, some marketing departments took the decision to remove 2G only handsets from their line-up. While this might mean slightly higher handsets subsidies, this is offset by earlier network cost savings.
Operators who manage this process well will reap the benefits. Of course, in markets where operators do not control distribution - as is the case in markets dominated by prepaid - the lack of control over what devices customers use is a problem that is hard to overcome.
The process of refarming presents operators with other dilemmas. For example, operators run already two technologies (GSM and HSPA) in the lower bands, 850-MHz in North America and 900-MHz in Europe. While today the device eco-system does not support LTE in those frequencies, it is only a matter of time before such devices become available. For operators who chose the right vendor and agree good terms, a two-step technology migration can be relatively painless.
Despite the refarming of 2G spectrum to HSPA or LTE, operators will still require significantly more spectrum to serve the exponential increase in mobile broadband traffic in urban areas. Governments and the WARC need to work hard to free up spectrum in a harmonized manner around the globe so that consumers and businesses can benefit from mobile broadband services.
Harmonization is key, because this would deliver the greatest economies of scale and ensure seamless regional device interoperability.
Stefan Zehle is chief executive of Coleago Consulting