Operators across the world will face a mobile capacity crunch in 2017 due to insufficient backhaul investments, a new study said.
The Strategy Analytics study, commissioned by Tellabs, said operators are investing in radio network upgrades and migrating to LTE to meet surging user demand for mobile data.
However, these operators will still face a new mobile capacity crunch by 2017 because the operators may not be planning sufficient investment in backhaul to meet anticipated demand over the next five years, the study said.
The study predicted that the total “funding gap” will reach $9.2 billion (€7 billion) or a shortage of about 16 petabytes in backhaul capacity. Strategy Analytics said global mobile data traffic has increased 13 times in the last five years. The research firm predicted that this figure is set to grow by five to six times by 2017.
Investment and capacity shortfalls vary by region. The investment is calculated as necessary backhaul expenditure minus current planned operator investment.
According to the study, the Asia Pacific region will have a shortfall of $5.3 billion and 9.4 petabytes of capacity, followed by the Middle East Africa at $1 billion and 1.8 petabytes of capacity. Western Europe is also predicted to have a shortage of $1 billion and 1.8 petabytes of capacity while North America is expecting a shortage of $650 million and 1.2 petabytes of capacity. The Caribbean and Latin America region will have a shortage of $600 million and 1.1 petabytes of capacity, while Central and Eastern Europe will have a shortage of $580 million and 1 petabyte in capacity.
The study said inadequate backhaul will inevitably impact customer confidence. Current operator forecasts allocate an average of 17.5% of total cost of operations to backhaul investment, but investment at that level simply cannot meet user demand.
“As many as 40% of mobile users list poor network performance as a reason for leaving an operator,” said Sue Rudd, Director, service provider analysis at Strategy Analytics. “At today’s backhaul investment levels, operators could create a significant backhaul capacity shortage. This shortfall could diminish quality of service and, in turn, increase customer churn. Operators need to rethink their backhaul investments as they deploy small cells and LTE capacity.”
The study said that the cost of poor backhaul performance is greater than the investment to provide adequate backhaul as revenue lost to customer churn is forecast to be four times higher than the backhaul investment required to meet customer demand.
Worldwide, for each $1 spent on backhaul above 17.5% of total cost of operations, operators could protect $4 in revenues, the study said. It added that operators in different regions risk missing out on between 2.8% and 5.1% of revenue that would be retained by addressing issues that result in poor network performance.
Operators could save 1.7% of revenue by 2017 by minimizing new customer acquisition costs and operating margins could improve by up to 5% if backhaul investment increases to meet traffic growth, the study further said.