Madden: Yes, LTE small cells are cheaper than macro

Joe Madden mobile experts

     Joe Madden

Recently I saw a comment from one of the major base station OEMs, saying that "Small cells are not cheaper than macro base stations." Hogwash.

Look into the true costs of adding capacity to the network. Comparing LTE macro and indoor small cells, significant cost differences emerge:

Radio Hardware: The radio hardware can cost roughly 10 times more for a macro base station, compared to a small cell. The macro base station theoretically handles four times as much capacity as a small cell, so clearly the SoC and low-power radio implementation can eliminate most of the cost of radio hardware.

RAN software: This is a major difference. Top base station OEMs charge a hefty premium for the software to make soft handovers and other mobility features work. These features are important in the 3GPP environment! Very few mobile operators choose to run a multi-vendor network with significant handovers from one vendor to another, because proprietary algorithms are a critical part of achieving high mobile QoS. For an indoor small cell, the expensive proprietary features are not as critical, and most of the software cost can be eliminated.  More importantly, without these proprietary features, multi-vendor competition becomes real.

Site Acquisition: Every tower site is a difficult legal challenge. Indoor sites may also be difficult, but we expect multiple small cells to be enabled with each legal agreement, spreading the cost of a lawyer over several radio nodes. In some cases, pioneering Asian operators have proven that local businesses will accommodate an indoor small cell. Overall, moving from macro to small cell can slash site cost significantly.

Backhaul: In some cases, a local business will provide backhaul to ensure better service in their shop. In other cases, an indoor small cell can take advantage of fiber or cable resources that are already in the building, reducing the cost of installation and operation. The average cost of a large deployment is low for initial deployments in Korea and Japan, because fiber is usually close by. In other countries, this factor is still uncertain.

Spectral Efficiency: LTE gives us the potential to reach 16 b/s/Hz with 4x4 MIMO and perfect conditions. But in the real world we don't get close to that. Macro base stations achieve an average of 0.9 to 1.2 b/s/Hz for LTE, because the signal generally has to penetrate the walls of each building. The higher order modulation of LTE doesn't help much when your signal-to-noise ratio is low from penetrating a brick wall. Indoor small cells run at about 2.2 b/s/Hz average, in initial LTE deployments. As a result, small cells get twice as much bang for each buck.

Wi-Fi. Small cells can integrate Wi-Fi and boost their nominal capacity virtually free, but macrocells cannot. The Wi-Fi ecosystem does not operate in the 3GPP world of proprietary algorithms and expensive software. Software and chipset are highly integrated and mature. Adding another chipset and radio to the small cell costs a few dollars, but can quickly add 100-200 Mbps of capacity. Mobile operators will soon reach a point where they can effectively steer traffic between Wi-Fi and LTE, and use this low-cost approach more effectively.

In the end, we expect indoor small cells to be sold by independent third party companies.  Spidercloud, Cisco, ip.access, and Alcatel-Lucent are typical contenders in the market for high-capacity indoor small cells, including integrated Wi-Fi. The stranglehold of the top-tier OEMs may continue in the outdoor small cell market, but indoors we anticipate more effective competition to squeeze cost out of everything.

There are cases where macro base stations are the least expensive solution. These cases always center on wide deployment, where coverage outweighs the need for concentrated capacity. For a high-density mobile network today, the primary challenge lies in adding more traffic in crowded spectrum. As we noted in last month's blog, above a density level of 0.02 GkM (Gbps/km2/MHz), mobile operators find small cells and Wi-Fi solutions to be more economical than macro sites.   

It's simple: for big coverage, macro base stations are cheaper. For big capacity, small cells are cheaper.

Joe Madden is Principal Analyst at Mobile Experts LLC. Mobile Experts is a network of market and technology experts that provide market analysis on the mobile infrastructure and mobile handset markets. He provides market forecasts for handset, DAS, small cell, and base station markets, with in-depth research down to the nitty gritty details of frequency bands and power levels. Mr. Madden graduated, cum laude, from UCLA in 1989 and is a Silicon Valley veteran. He has survived IPOs, LBOs, divestitures, acquistions, and mergers during his 24 years in mobile communications.

Suggested Articles

Verizon, AT&T and T-Mobile are each telling the FCC to ignore a call from Charter to change rules for the C-band in order to protect CBRS users.

Ericsson can thank Kathrein for some of its innovations in the mid-band 5G antenna space, including the Hybrid AIR and Interleaved AIR solutions.

Asked if SK Telecom has now completed its 5G Standalone core network, the South Korean carrier was vague in an email reply to FierceWireless.