jaime lluch telefonica femtocell

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The Role of Femtocells in the LTE Strategy.

Is a early deployment of femtocell likely?

TELEFNICA S.A.

Global CTO Team

May 2010


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2TELEFONICA S.A.Global CTO Team

01 Mobile Broadband evolution

02 LTE Femtocells opportunity

03 Conclusions

Index


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Higher number of available connectivity terminals (dongles,PCMCIA, integrated) with reduction on cost

Smartphones - Disposal of new handset concepts like IPhone orMobile Internet Device (MID)

Pure connectivity (for PC) is becoming the main mobile dataservice

Services more adapted to mobility & continuity on the connectionlike email, social networks, etc.

Video component is taking more part of mobile services.

Mobile broadband is crystallizing as a huge opportunity01

Radio Access

TechnologyEvolution

UMTS evolution towards HSDPA (mainly SW evolution)allows for datarates that are perceived as broadband by thecustomers

Excess of capacity has led to aggressive commercial offering

HandsetEvolution

The launching offlat rates for mobile data traffic has triggered theincrease of data traffic on mobile networks.

ServicesEvolution

Tariffsevolution

Mobile broadband is joining the two main engines of growth for telco of the last years:

Internet and Mobile Some conditions have changed for this expectations to start becoming reality:


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Mobile Broadband # of customers evolution

abr-09 may-09 jun-09 jul-09 ago-09 sep-09 oct-09 nov-09 dic-09 ene-10 feb-10 mar-10

Mobile Broadband Monthly traffic evolution

abr-09 may-09 jun-09 jul-09 ago-09 sep-09 oct-09 nov-09 dic-09 ene-10 feb-10 mar-10

opportunity that is becoming a reality in terms of adoption01

Mobile Data Trafficexplosion is areality

Mobile Data traffic growth ofbetween x2 and x3 YoY in higher

traffic Operations

that reflects not only interms of mobile datagrowth but also in termsof mobile data adoption(number of customers)

Similar multiplying factors in termsnumber of Mobile Broadband

customer evolution

(*)

(*) Customer number for >100MB monthly consumption


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and also in terms of revenue growth perspectives01Decoupling between traffic and revenues is a reality, but there are levers

to match the gap and provide enhanced revenues and profitability onthe medium and long term:

- Technology evolution towards LTE

- New network deployment strategies

- Superior customer segmentation based on perceived QoE

- Differentiation in terms of services.

- Etc.

(1) MBB accesses: Including Big and Small Screen

(2) MBB connectivity revenue: Including Big and Small Screen, mobile email and WAP brownling revenues

Source: Telefnica estimates Oct09 Investors Day


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Mobile Broadband opportunity realization is the core of network evolutionplans, with special emphasis on customer satisfaction being the prime

lever

01

Network evolution do needs to address the following requirements as a key priority:

Ubiquity MBBeverywere

Extension to rural areas based on lower frequency bands Spectrum requirements.

Indoor coverage in terms of user experience enhancement need for novel deploymentarchitectures.

Network CapacityEnhancement

Macro layer network is not able to cope with mobile data traffic and customer experiencedemand on the long term (10 years time), even evolving towards LTE.

It shall be complemented with small-cell topologies to allow for meeting MBB customerneeds and expected QoE.

User Experience Enhanced focus on customer experience and satisfaction, also from network perspective.

Evolution towards services based and segmented experience.

Profitability

Ensure MBB profitability on the long term requires to enhance focus on customersegmentation, that also implies strategic actions within network

Intelligent resource allocation from network perspective provide the end customer theright experience based on customer segmentation, service requirements and subjectivequality perception, terminal based differentiation, etc.

Evolution from flat-tariffs towards customer specific service proposals


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LTE provides the right evolution path towards meeting the evolutionrequirements, but shall be complemented with the right deploymentstrategy

01

Ubiquity MBBeverywere

Lower frequency bands availability for rural extension. LTE variable bandwidth provides theright mechanisms to grow and evolve in new and existing spectrum.

Enhanced indoor coverage requires new roll-out schemes based on LTE small cells.

Network CapacityEnhancement

LTE provides enhanced spectral efficiency and thus capacity on the macro-layer.

Shall be complemented by means ofLTE small-cell capacity layer to achieve the rightcapacity where is strictly required.

User Experience Enhanced datarates and reduced latency.

Profitability

Enhanced QoS mechanisms to allow for customer/service/device segmentation andintelligent/optimal resource allocation.

Lower cost per traffic unit as per flat architecture, higher spectral efficiency and properscalability

+

NovelDeployment

Strategy based

on small-cellcapacity layers


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Telefnica is fully committed to evolution towards LTE. Multiple LTEactivities ongoing to achieve proper readiness for commercial launch

01

LTE trial ongoing

LTE trial extension

Global Approach - Total of six LTE trials in differentOperations, with field trial extension onto further twoOperations.

Intensive and overall LTE view - Both laboratory and fieldtestings, following LSTI procedure. Unified reporting and KPIstructure.

Status - Currently all lab testings finalized, and within fieldtesting phase. In some cases also finalized.


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From flat-tariffs to enhanced customer segmentation02BH MBB traffic forecast

e.o. 2009 e.o. 2010 e.o. 2011 e.o. 2012

x2.0

x1.7

x1.5

x5.0 What is of relevance is not onlythe absolute value of thetraffic forecast, but thedistribution in terms of

customer base and locationwithin access network

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00

%

% of customers

%o

ftraffic

Real dist.

Uniform dist.

Roughly 5% of customers that do generate mobile trafficwithin a month represent almost 70% of total traffic

What are the mechanisms to evolvetowards a more uniformdistribution?

Enhanced customer segmentation(QoS).

Femto-cells

others


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e.o. 2009 e.o. 2010 e.o. 2011 e.o. 2012

MBB traffic forecast

Capacity requirement

over macrocell

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% 100.00

%% of customers

%o

ftraffic

Real dist.

Uniform dist.

w ith femto

From flat-tariffs to enhanced customer segmentation02When looking deeply onto higher traffic

mobility aspects, it is important to see thatalmost 80% of top traffic customers dogenerate high percentage of the total

traffic from only two different cells (eitherfrom home or from public access locations).

Up to 80% of this traffic is subject ofbeing offloaded from the macro through

specific targeted femto deployments.

which translated back to macro network requirementsmeans

Out of the 5x traffic increase required overnext three years, a big percentage may be

subject of being carried through femto layerswith relative small-scale femto rollout

The right combination between LTEadoption, and small-cell femto deployment

shall be seen as one of the key prioritieswithin network evolution over next years


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Femtocells can be rolled out mainly in two ways:

Public femtocell deployments benefit any mobile network customer

Requires mobile operator to provide the femtocell unit plus broadband connection tocarry femtocell traffic back to the mobile network

Private femtocell deployments give customers the ability to improve coverage intheir own premises

Typically customer buys femtocell unit and uses own broadband connection to carryfemtocell traffic back to mobile network

Customer can restrict usage of femtocell to own user groups

Why HowWhere

11

Public AreaCoverage

PrivateAreaCoverage

Enhancedcoverage for

all customers

Connection to core mobile network provided by Network Operator Network Operator pays for femtocell, broadband connection, site rental,

network access gateway

Enhancedcoverage forclosed user

groups

Connection to core mobile network provided by customer Customer purchases or is given femtocell Network Operator pays for network access gateway, possible subsidisation

of femtocell Closed user group may degrade customer experience for adjacent users Third party broadband Quality of Service will affect femtocell QoS

Femtocells can be deployed in a variety of ways02


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Home

Improved coverage at home

Consumer r etent ion/ acquisi t ion t ool

Upse l l on Tele fon ica broadband

Closed user m odel

New Services enabled by Femto. Dif f erent ia l t ar i f fs at home

Home netw orking l inking f ixed & mobi le

Ent erpr ise / Corporate

Initially:-

Potential

Evolution:-

Met ro / Publ ic Space

Short Term Vision

Medium Term Vision

LTE Femto Cell Drivers & Usage Scenarios

Enhancedcoverage forall customers

Enhanced Mobil e Broadband coverageat home f rom day 1.

Superior Qualit y of Experience.

Why? Demand?

Initially:-

PotentialEvolution:-

Why? Key account decision makers home Off ice coverage.

SME/ Corporate ret ent i on/ acquisit ion

Mult i -Femt o si t e opt i on

Closed or open user m odel

New servi ces. Wireless off ice integrat ion

Why? Cost effect ive alternat ive to Pico cells fort argeted indoor coverage.

Indoor hot-spot capacity of f l oad, especial lyimpor t ant as MBB traf f ic grows.

Applicat ions include shopping centres,restaurants, shops, coffee shops.

Open user model.

May suppose a dif f erent iat or in t he

early days.

Demand?

Clear indoor solut ion requirement ,not only because of enhanced MBBindoor exper ience required but alsoas capacity off load from macrocell

Demand?

02

Shortterm

Longerterm


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LTE deployment strategy alternatives & considerations02

Macro layerdensification vs.

hierarchical networks

Difficult to increase densification in most of the Operations. In dense urban environments

macro inter-site distances lower than around 200 meters (1) result in a reduction of thecapacity per sector due to higher interference level (unless aggressive tilt management isperformed).

In terms ofcapacity, the hierarchical network option is clearly advantageous

Main problems with the hierarchical are those related to inter-layer mobility management,and interference handling.

Frequency sharingbetween macro and

micro layers vs.different frequency

bands

A key aspect to be considered is related to the optimum spectrum strategy between macroand capacity layers (micro/pico/femto). There are mainly three approaches:

Complete spectrum sharing allowing for higher peak rates while overimposingsignificant requirements in tems of interference cancellation techniques.

Fractional spectrum sharing Potentially a right balance until technology fully

allows for complete sharing. Orthogonal spectrum allocation Direct capacity enhancement vs. reduction in

peak datarates reduction in max. but important also to see the distribution.

Spectrum sharing between femto and micro layers may be easier. Which role LTE TDD spectrum may play?

Wi-Fi public hotspotsvs. LTE public femto

Capacity of LTE femto solutions would exceed that of Wi-Fi hotspots when considering thesame coverage area. Considering multiuser scenarios would increase LTE advantage, asresources allocation mechanisms are significantly more efficient

The advantage would increase if the transmission power limitations for Wi-Fi are notassumed for LTE sites.

Enhanced customer experience management within LTE

(1) The distance depends on the characteristics of the city (buildings height, streets width, etc.)


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LTE deployment strategy femtocell layer02

Femtocells may provide the highest AreaSpectral Efficiency (ASE) of all the deploymentalternatives

May be 10-20 times higher than macrocell ASEeven with conservative assumptions

Femtocells lower the delivery cost per bit

through reducing investment in cell siteinstallation, maintenance and backhaul costs

Main technical problems are associated withpossible interference with macro layer and otherfemtocells Potentially in better situation compared to WCDMA

femto as per potentials of interference cancellationtechniques based on frequency selective scheduling,fractional frequency reuse, dynamic resourcecoordination, etc.

Although traditional focus is on residential stand-alone femto, multi-femto LTE systems may berequired on earlier stages for public and SMEscenarios. Need for enhanced and automatic coordination

mechanisms between femto.

2.5 2.53.7 3.8 4.3

8.6

28.4

7.2

14 1421

28

42

170

340

23.2

1

10

100

1000

HSDPA7.2 HSDPA14.4 HSPA with

advanced

receivers

+HSPA

64QAM

+HSPA

MIMO

+HSPA

Dual-Cell

LTE 2x2 LTE 4x4

Average cell throughput [Mbit/s]

Peak datarate [Mbit/s]

2.95.6 3.8

5.56.5 4.9

7.312.0

Ratio betweenpeak datarateand average celltroughput

Log.scale


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Conclusions03

Mobile broadband is an opportunity not for the future but right now.

Traffic increase establishing and maturing, representing significant revenue upsidepotential.

but over imposing new challenges to Radio Networks.

LTE technology as a significant step towards meeting network requirements, butnot as a single solution for the long-term

Needs to be complemented via new network rollout strategies based on smaller cells.

LTE small cells and femto cells shall play a significant role from the early days

Enhanced focus on customer experience, driving the need for smaller cells.

Potentially starting from public and SME type of solutions

And evolving towards residential (based on external factors, like FTTx deployments)

Although technology is maturing, still open concerns regarding mobility,interference and spectrum usage that need to be resolved, not only for stand alonefemto but also for multi-femto systems.


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