2G Network Decommissioning, Ready?

The idea of 2G Network decommissioning is hot right now.  Many operators still operate 2G networks.  They’re wondering when is the right time to turn it off.  I want to use this article to share my experience.  I did a 2G Network Decommissioning analysis for an operator awhile back.  It is a complex topic, with a many moving parts.  This might easily be made into a continuing series of articles. 

Zahid Ghadialy from the 3G4G Blog got me thinking about this with his article 2G / 3G Switch Off: A Tale of Two Worlds.  His write-up focused on differences caused by market demographics.  In this article, I’ve confronted that issue indirectly, through the impact on Churn a forced migration can have.  The magnitude of the impact will be different in every market.

2G Network Decommissioning Issues

There are at least 4 big issues associated with the business case 2G Network decommissioning.

1. Identify all sources of cost. 

You need to be able to quantify all the costs that are presently associated with your 2G network.  This can be more difficult than expected because until now you have not separated your costs by technology generation.  All costs are lumped together as Cost of Sales (COS) or Cost of Goods Sold (COGS, what it’s called might depend upon your Accounting department.)  Disentangling these costs reveals the second issue.

2. Apportion Costs  Among Network Technologies

The question is, how to do this?  Apportion by revenue generated, by the number of subscribers, by recent COGS amount, or some other method entirely?  Some networks apportion costs between voice and data.  (Surely this is a throwback to Telecom’s voice legacy.)  That could be helpful until we consider 4G and VoLTE, where Voice is simply another app on the data network.  How do your accountants handle that? 

To get an accurate read of your 2G Network Decommissioning costs you’ll need to be able to apportion costs between the differing technologies in your network.  Apportioning costs means, for example, figuring out how power costs fall to 2G vs 3G or 4G.  The same for Backhaul, leases, vendor support (this part might already have been done by the vendor).  What about costs which are clearly shared between technologies, for example, SMS, Emergency Calling and Callback Ringtones? 

3. Quantify Opportunity Costs

Mostly this article is about the costs you incur when you shut down your 2G service.  But what about if you postpone 2G Network Decommissioning, what benefits do your forego?  What are thoses costs?  The impacts here can be the potential churn of people who will not migrate and might go to a competing carrier who still offers a 2G service.  How about the device subsidy costs of moving 2G subs into a 3G/4G device on your network?  What happens to your Cost Per Gross Add (CPGA) in this context?

4. The Question of Timing

The foregoing three issues, when run forward over time, produce individual graphs of costs and benefits.  You’ll want to understand all these competing costs and benefits and identify when the “lines cross” representing the ideal time to decommission your 2G network.

Recommendations

In addition to the quantitative costs and benefits, there will also be qualitative benefits.  When to decommission the 2G network will never come down to a single number.  At the end of the day, somebody will have to make a decision.  Having a well-documented and well-vetted quantitative component can make that easier.  But the outcome will always depend heavily on the assumptions made.

Here are my suggestions for embarking on your own analysis.  I believe there is another article or two to fully explore this topic.  But having already done this analysis, I’m comfortable with these recommendations:

  1. Start a business case immediately.  Anticipate that this business case will go through many iterations and refinements as your understanding improves.  The sooner you begin, then the sooner you will have gone through enough iterations to have confidence in the results.  If the decision today is to do nothing, the business case can be revisited and refined in a few months time.  
  2. Create a Tiger Team to build this business case.  I recommend three people on this team.  First, someone from the Technology Team.  Second, someone from Finance and Accounting who can map technology considerations to the Balance Sheet.  Third, a representative from Sales or Marketing to provide numbers around churn and revenue impacts. 
  3. Don’t be in a hurry to achieve a final outcome. This business case has a huge number of moving parts. You need to give the team time to consider them all to incorporate them and to quantify them all.  Be sure to manage expectations in this regard.  This is going to be a lengthy, multi-month process.  Expert tip: after the first draft is produced, try producing a new iteration each week, and present that case at a recurring weekly meeting.  That will shorten the cycle time, and hasten the day when you do get to an actionable result.
  4. Begin now offering policies and pricing plans that gently encourage your existing 2G subscribers to self-migrate.  Forced migration costs are a significant aspect, through increased churn, device subsidies, and incentive discounts.  The more subscribers you can induce to migrate on their own, the smaller will be the impact later, when they will be forced to migrate.

In this article, I haven’t discussed any network specifics in the context of a 2G migration.  Ultimately, you’ll need to model the costs and benefits of all factors to adequately quantify this challenge.  A brief listing of those areas includes:

  • Site Leases
  • Power Consumption
  • Data Center
  • Backhaul and Transport
  • Vendor Support 
  • Staff Support
  • Devices
  • Revenue
  • CapEx

Have I missed anything with that list?  Post a comment if I did. I hope the complexity of this financial model is more clear now.

Thanks for reading!

I’ve put together a list of issues to consider when you model 2G Network Decommissioning.   Click to download the list.

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