24 January 2009

What Stuff Costs, Part 2: CAPEX

There are no "list prices" in the global telecom industry. Every purchase is a negotiated deal with the details covered by NDAs. Prices are arbitrary.  How do the equipment providers get away with that? Let's take a look...

Consider the cost of installing a BTS in rural site.  Something like this:

That costs $200k-$250k, depending on what part of the world you're in.  Most of that money is for "civil installation": site prep, concrete pads, backup power, the mast, that little shack, etc.  There's well over $150k worth of stuff there just to support the BTS.  So what should the actual BTS cost?  As long as it's a lot less than the infrastructure cost, the buyer doesn't care because it won't be a significant part of the total site cost. The baseband processors, transceivers, power supplies and amplifiers for a 3-sector 3-TRX ("1/1/1") kit typically run $20k-$50k, depending on the vendor, the buyer, the specific product and whatever side deals the vendor can offer.  That will give 21 Bm channels at full rate.  There's no point in going below $20k because the savings to the carrier are insignificant below that point.  And the price can't go much above $50k before the BTS becomes significant in the total.  Notice that this price range has nothing to do with the actual cost of producing a BTS, as long as that cost is well below $20k.  The total installed cost is around $75k per fielded TRX, or around $11k per Bm channel.

That's the equipment in the field.  You also need a core network.  The core network gets installed carrier-grade data centers.  As long as the equipment costs less than the data centers, prices just don't matter much.  Together, the BSCs, MSCs and location registers in the core network can easily cost over $5k per fielded TRX, or about $700 per Bm channel.  The civil part probably costs twice that, bringing to total to around $15k/TRX or $2,100 per Bm channel.  The core network also creates a floor for a viable network size, since even a "small" MSC is built to support hundreds of cell sites and priced accordingly.

So the rollout cost is around $15k/TRX for electronics and totals around $90k/TRX for a low-density network when you include all of the civil infrastructure.  One TRX can serve about 1,000 subscribers in the developing world so your rollout capital is least $90 per subscriber, not counting counting other costs ignored here.  Note, though, that the dominant cost is civil infrastructure.  Even if the electronics were free, the total capital would not change by more than about 25%.

The only way to dramatically change the cost of a cellular network is to simplify the infrastructure, something that the existing equipment providers have little motivation to do.  For example, if the whole BTS package can be mounted directly onto the mast and left out in the weather, you can get rid of that air conditioned shack.  If you cut the power requirements, you also cut the cost of the backup power systems.  OpenBTS is radical, though, in its approach to the core network: get rid of it and run BTS units as peers.  Don't just reduce the cost of equipment.  Reduce the amount of equipment.

This is one way that OpenBTS hopes to change the economics of rural cellular service: reducing the capital requirements to build a network. The OpenBTS model can reduce the rollout capital from over $90/sub to around $25/sub, not by offering a "cheap BTS" but by eliminating most of the steel and concrete and generators that a conventional GSM network requires.  OpenBTS can also reduce the minimum size of a viable network to something as small as a single cell site, allowing a carrier to start service with an initial capital investment of less than $30k.  Will carriers go for it, though?  Is there any spectrum available for this new kind of carrier to emerge?  We're working on it...


  1. Excellent info! Two additional sets of expenses that go into BTS in developing countries (from my experience in Nigeria and Liberia) have to do with the security and operation of the remote systems.

    On the security front, anything that isn't physically secured but is worth more than $0 is liable to walk off. Building and maintaining secured BTS towers is non-trivial in these environments.

    On the operations front, take areas that don't have reliable power for example. If these sites require generators to operate, they will require fuel to be stored and transported to the site. Maintaining constant or near constant operation of generators requires personnel to maintain and operate the gear. But the addition of valuable fuel at the site is yet another target that has to be considered wrt security.

    It sounds like several advantages are obtained via an OpenBTS solution:

    1) reducing the price/cost of the equipment makes it less valuable for thievery

    2) reducing power needs reduces the need for stored fuel, generators and personnel for maintenance/operation.

    This combination would seem to lower the barrier for deployment into more places than are currently cost feasible.

  2. 3) Reducing the cost of the tower
    4) Put the towers in the villages so it is always protected - which is where you want coverage too.

    It would work well with the NSN Village Connection business model, where you can only flash (hangs up on pickup) out of the network but return calls are allowed. This way all the money for calls go to this network, yet villagers can still contact their presumably more wealthy relatives in town. Internal calls in the town are free.

    Then the only issue left is to claim the bandwidth as a natural resource, which the villagers have a shared right to according to most constitutions. When operators decline to build them a base station, that right becomes default.

    Looks like the poorest half of the population will be online before we know it. :-)

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  4. what is your e-mail contact. I am interested in all what you do. seeking to build a wireless network as seen above that can do voice, wifi, etc.