Here's what Australia's cellular network scene could look like by 2020

TPG Telecom Ltd has announced it intends to become Australia’s fourth mobile network operator, along with Telstra, Optus and Vodafone.

TPG Telecom Ltd has purchased spectrum licenses for A$1.26 billion and will spend another A$600 million building the network infrastructure. However, it has emphasised it will not be competing across the whole Australian market, just 80% of the population.

So what will the mobile network environment look like in a few years time? It is reasonable to make some informed forecasts.

If the market can indeed support a fourth network, the network scene is likely to be dominated by four carriers whose main offering is 4G mobile communications standard. However, significant inroads by Wi-Fi based services can be expected. Also, “Internet of Things” devices may constitute a revenue stream to the four main operators, but that may well be undermined by emerging linked technologies.

Economic factors

Whether Australia can support a fourth operator is an open question. Consumers are certainly benefiting already, as the major operators find themselves having to cut margins as a result of competition.

In 2016 service revenue dropped 1% in the first six months and a further 3% in the second six months.

The effect of TPG’s announcement on the profitability of the companies is an open question. However, investors responded by selling off shares of all the major mobile operators following the announcement, suggesting they suspect it will have a negative effect on profits throughout the industry.

New and old networks

TPG make the point that one advantage it will have over existing operators is it will have no legacy 3G networks to support. Existing networks tend to be quite difficult to shut down. Typically a substantial number of customers will be happy with their existing service and see no reason to go through the expense and effort of purchasing a new handset and possibly changing plans to connect to a network that provides services they are not interested in.

Telstra only shut down its twenty year old 2G GSM network last year. By only running a 4G network, TPG will have a substantial advantage over other operators through not having to operate unprofitable legacy networks.

However, 4G itself may well become a legacy network in the not too distant future.

There has been a great deal of work on the next generation (5G) of cellular network, which is expected to start being deployed in the next few years.

Will 5G cellular make TPG’s 4G network a “legacy” network? It is unlikely. 5G cellular is still in the early stages of standardisation, and appears to be facing some political challenges that will take time to resolve. Even when standards have been finalised it will be some time before it can be deployed in Australia.

Chinese telecommunications companies and manufacturers have taken a leading role in 5G standardisation, and technology choices are likely to be influenced by Chinese requirements, in particular those related to frequencies used.

One of the goals of 5G is that it uses higher frequencies of radio spectrum than has been accessed in the past. Higher frequencies generally propagate shorter distances than lower frequencies. For densely populated countries this is less of a problem than for countries like Australia with much lower population densities. It may be necessary to use lower frequencies in Australia than in other countries. Resolving this and other issues may delay 5G introduction into Australia.

Consequently we are likely to see 4G as the dominant cellular network technology for some time to come.

Challenges to be met

5G is not the only technology that poses challenges to TPG and the existing carriers.

A very interesting recent development has been the proliferation of Wireless LAN (Wi-Fi) hotspots offered by Telstra. Access points are deployed in sufficient numbers so as to provide significant coverage. Because Wi-Fi operates in the lightly regulated ISM bands and the technology is lower cost than cellular, there are far fewer barriers to entry for Wi-Fi based service operators. Businesses deploying Wi-Fi hotspots may well pose a threat to traditional cellular operators.

One of the areas of considerable growth in 4G is likely to be the “Internet of Things”. However, this area may well be undermined by technologies such as LoRaWAN specifically designed for such applications. LoRaWAN is a low power, low bitrate wireless technology able to transmit over distances of a few kilometres, designed to provide connectivity for Internet of Things devices. Significantly, like Wi-Fi, LoRaWAN operates in lightly regulated spectrum, meaning barriers to entry are low.

City dwellers win again

So will the consumer be better off as a consequence of TPG’s move to become a mobile operator? For consumers in the larger cities, almost certainly.

City dwellers are spoilt for choice when it comes to which mobile operator they do business with, and consequently there is a great deal of competition for subscriber business.

For consumers outside major population areas, perhaps not so much. This does lead to the question as to whether consumers could be served better if mobile infrastructure were treated as a natural monopoly with infrastructure built once, and licenses issued to operators to use it.

It seems wasteful that in the suburbs of the capital cities there are typically three, soon to be four, mobile base stations within a few hundred metres of each other. In rural and remote areas there is typically one or no service.

An interesting development in this area is that competition regulator the ACCC has recently proposed that Telstra might be obliged to share its infrastructure in rural areas with other carriers. We may be seeing a de-facto move towards a utility model of mobile infrastructure. Perhaps consumers overall would be better served if mobile infrastructure were provided by a single, regulated entity.

As ever in telecommunications, we live in interesting times.