3G multi-mode embedded mobile devices have a lower total cost of ownership than 2G

The use of embedded mobile technology in machine-to-machine (M2M) and Internet connected devices is forecast to grow rapidly over the coming years. A whole range of consumer devices from e-books to vehicle monitoring systems will be wirelessly connected to the Internet. Currently around 90% of embedded mobile devices use 2G technologies, which are often viewed as being more mature and having lower upfront costs than 3G technologies (which are ‘multi-mode’ and thus can also operate over 2G networks).

Although 2G embedded mobile devices may have lower upfront costs than 3G devices, does this translate into a lower total cost of ownership (TCO)? Also, by deploying 2G modules now, are mobile operators building constraints into how they are able to use their spectrum in the future? These are two questions addressed by a recent report written by Analysys Mason for the GSMA entitled “The total cost of ownership for embedded mobile devices”.

The report, based on input from a wide range of players across the embedded mobile ecosystem as well as detailed modelling of the various costs that contribute to the TCO, found that the embedded communications module contributes less than 15% of the TCO, depending on the application. However, across all applications that can be supported by either 2G or 3G modules, the upfront costs of 3G modules are higher than 2G modules: interviews conducted during the study indicated that the cost of a 2G module for deployment in 2011 is approximately USD20, while a 3G module is around USD47. However, this difference in cost is expected to reduce over time, especially as 3G device volumes grow.

However, the higher upfront costs of 3G modules are offset by lower ongoing network costs and enforced replacement costs. For applications that generate significant traffic (e.g. in-car Internet-enabled entertainment systems) the lower costs of 3G traffic over the lifetime of the device outweigh the higher upfront costs of 3G modules.

In a scenario where a mobile operator decommissions its 2G network to refarm the spectrum for 3G or 4G, 2G-only devices would need to be replaced. Once these potential enforced replacement costs are taken into account, the TCO for 3G modules is lower than 2G for almost all applications. The applications with the greatest enforced replacement costs are those with the longest lifetimes, and those with embedded communications modules that are costly to replace.

Figure 1 below shows the TCO of various uses of embedded mobile devices in the transport sector: in all cases the TCO is lower for 3G devices than 2G.

Figure 1: Comparison of the TCOs for 2G and 3G embedded mobile devices deployed in 2011 in the transport sector [Source: Analysys Mason, 2010]

The report also investigates the constraints that encouraging the use of 2G modules could impose on the way that mobile operators use their spectrum. The future network strategies of operators are not likely to be driven by the embedded mobile market, but rather by traffic-intensive mobile broadband services. If an operator chooses to decommission its 2G network and refarm the spectrum, it could find that its options are restricted because of today’s tendency to deploy 2G embedded modules in devices with long service lives. Based on the study interviews, the most likely scenario appears to be that most operators will decommission their 2G networks in the next 10 years. In this scenario, the industry could face large costs to replace legacy 2G embedded mobile devices (we estimate costs of over USD150 million for a representative Western European operator with 10 million traditional subscribers). By switching to predominantly deploying 3G devices (which are ‘multi-mode’) now, they could ensure more flexibility in their future network strategies, since the cost of decommissioning their 2G networks would be lower. Moreover, greater use of 3G devices would drive economies of scale and reduce the costs of 3G modules.

It should be noted that mobile operators do have an alternative to replacing legacy 2G devices: they could continue operating their 2G networks and acquire additional spectrum for their 3G or 4G networks. However, we estimate that the cost of acquiring such spectrum – in sub-1GHz bands for coverage – in addition to the cost of continuing to operate the 2G network are higher than the cost of a enforced replacement of legacy 2G modules.

Download the report.