2G / 3G sunset and migration to 4G

By Philip Kendall

We recently introduced the topic of 2G and 3G network sunset trends and 4G migration opportunities, building on the research in our companion report “Low-cost 4G Headsets: Market Dynamics and Opportunities” and expanding on developments. most recent.

4G dominates the wireless market today.
Based on our new wireless market forecast, earlier this year 2G and 3G networks accounted for 46% of subscribers, but only 27% of revenue worldwide. By 2023, that revenue share will have fallen to just 10%, with Africa arguably the only significant outlier here, a region where countries may have ARPU below $ 2, and thus limited space to subsidize. changing user behavior.

However, significant developments are taking place in Africa and other developing regions to accelerate the adoption of 4G services, and some encouraging results from those efforts. For example, the expansion of Airtel Africa’s 4G network and “more for more” data offerings have helped with the migration to 4G, significantly increasing average data usage and data ARPUs, with ¾ of their revenue growth From Data Over the Last Year: In March 2020, 4G accounted for 29% of its data subscribers (up from 18% the year before) and more than 60% of its data revenue.

The 2G or 3G network sunset is really being built now
Boosting 4G migration as in the Airtel approach is motivated by those increased revenue opportunities, as well as the cost benefits in terms of spectral efficiency, OPEX and CAPEX loads of running multiple radio technologies, as well as amplifying issues as operators also begin to add 5G in the mix, such as the need to meet EMF limits or simply physically have enough space in a cell site or tower to place 2G, 3G, 4G and 5G equipment.

The 2G or 3G network sunset is really being built now. This is more advanced in North America and in the developed markets of Asia and the Pacific, although there is a growing list of operators worldwide that schedule the sunset of 2G or 3G or both.

This includes the gradual regional disconnection of 3G from Airtel India as that market shifts rapidly to 4G under the disruptive influence of Jio, VodafoneZiggo shut down 3G in February in the Netherlands, Telia and Telenor’s JV network in Denmark TT-Netvaerket removed 3G from April 2021, and Vodafone CTO talks about shutting down 3G in Europe by 2022 at a recent Vodafone business analyst event.

Arguably, migrating 3G to 4G is a bit easier as you’re convincing someone who at some point bought a 3G smartphone that they need a 4G one, rather than trying to convince someone with an old 2G-enabled phone of what same.

For 2G, there are often longer-term network plans as well, usually tied to legacy IOT operations, with a focus here perhaps on shutting down 2G phone services and reducing spectrum resources used on a 2G IOT network. In Africa, we should also consider the importance of 2G to USSD for mobile money transactions, which represent a significant revenue stream for some operators.

Basic phones are key to speed user migration
Ultimately, any wholesale migration to 4G depends on value propositions that appeal to the lowest-income market segments. These low ARPU segments can be sensitive to small variations of less than $ 5 between a 2G or 4G phone and that may be a gap that is too wide for an operator to subsidize. We share the virtual stage with Joyce Wang, Vice President of KaiOS, who spoke about her success in bringing low-cost 4G smartphones to market, and Strategy Analytics sees this as an important segment in developing markets.

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Reliance Jio’s KaiOS-based JioPhones have been a huge success in India, extending their market reach to gain 2G and 3G customers from their rivals and really setting the agenda for the growing 4G dominance there: the fact that Airtel is shutting down 3G to divert resources to 4G is a clear sign of the impact of the Jio market.

There are also good examples of operators actively engaging with players in the phone value chain to launch low-cost smartphones and smart feature phones. True Move in Thailand has achieved significant market share gains in recent years, in part based on success with its range of True Smart Series smartphones, while in Indonesia XL Axiata has brought in local electronic assemblers to produce smartphones. like the Evercoss Xtream range.

4G dominates XL’s data traffic profiles now and has aggressive plans in 2020 to optimize its spectrum portfolio, “reducing capacity and closing 2G and 3G sites in line with reduced traffic and freeing up 4G-relevant spectrum for serving the always increasing 4G traffic. “

Operators are also looking beyond manufacturing at all the items that affect the cost of phones. Subsidies may be limited, although we are seeing other players willing to subsidize phones, such as the Alfamart retailer that subsidizes the WizPhone WP006 at $ 7 in Indonesia.
Low-cost distribution strategies to extend the reach of the operator to more rural communities have shown some effectiveness, such as MTN Nigeria’s light asset partnership model, leaving partners in the distribution chain to buy and sell devices while MTN focuses on SIM. Phone loans are also a great way to improve affordability, as they sync well with the growing role of mobile money and microcredit in developing markets. This was a message also given by Joyce Wang of KaiOS, who spoke about her plans for device loans.

These are all the initiatives that are used to increase the affordability of 4G phones in some of the lower income segments. They are very necessary as the value of 2G and 3G networks is increasingly at odds with their demands for costs and resources. It is encouraging to see an increasing number of operators in Southeast Asia, Africa, and Latin America identify successful strategies to optimize network resources around 4G and find ways to increasingly drive the technology in low-income segments.

These low-cost 4G device strategies could be improved in developing markets with more government efforts to reduce the tax burden on mobile phones and services (in terms of import tariffs and sales taxes). Beyond pricing, operators should also think carefully about actively managing the flow of new connections in 2G and 3G once a diminishing timeline, including phones and IOT devices, has been established with the launch of VoLTE (and perhaps most important is that VoLTE ‘default’ on phones) an obvious prerequisite there.

Philip Kendall, CEO of Strategy Analytics, an independent and global research and consulting firm.