In-Building Wireless and DAS: Shifting the Costs from a CAPEX to an OPEX

November 4, 2015

With mobile phones rapidly replacing land lines, and with 85% of mobile traffic occurring indoors, having in-building wireless coverage and capacity is more important than ever. When considering an in-building wireless solution, there are a number of evaluation criteria to consider. In some cases, the central challenge is navigating the commercial side of things – who pays? With various parties associated with, and benefiting from, the implementation – building owners, enterprises, and mobile operators – the determination of who will cover the costs becomes a significant issue.

In today’s always-on economy, wireless access is considered the “fourth utility” alongside power, water, and heating/air conditioning. There is motivation for enterprises to provide this wireless utility as a competitive differentiator – be it for increasing their tenancy rate or increasing customers’ satisfaction. In other cases, it can simply be that there’s a dependency among the current workforce or guests on wireless.

Traditionally, mobile operators may choose to deploy and pay for in-building wireless systems for a number of reasons such as capacity offload from the macro network, or to acquire more subscribers and to retain their current users base. The motivation for operator-deployed distributed antenna systems (DAS) is highly based on the return on investment (ROI) of their infrastructure expenses. However, in today’s economy, mobile operators are most likely only going to provide the RF source (i.e. base stations or small cells) and not the distribution system to the enterprises. The exception is probably a major venue such as a stadium, where mobile operators can justify the capital expenditure (CAPEX) based on the generated revenue.

According to ABI Research, the North American and global mobile CAPEX per subscriber are on a downward trajectory. ABI Research forecasts global total mobile CAPEX to reach its peak at US$224 billion in 2017, before it starts to decline, mainly driven by a slowdown in CAPEX deployment in light of declining wireless revenue. This is primarily due to the shift from coverage-centric to capacity-centric networks, and the increased in revenue is not keeping pace with the increased in capital expenditure. Mobile operators are now looking at RAN Virtualization as a model to transfer their hardware-based network to a cloud-like network to remain competitive in the fierce wireless market.

Therefore, there are an increasing number of enterprises implementing in-building wireless systems to deliver the ubiquitous connectivity demanded by their workforce. While most enterprises recognize the need, they are reluctant to make a large capital investment. The cost of an in-building wireless system can range from $100,000 to $3,000,000 depending on the size of the venue.

 

So what other options do enterprises have?

Acknowledging that enterprises might not be of the mindset to make such a huge investment, we’ve seen a rising trend and interest towards a unique financial model – leasing. Similar to leasing a car, the financial company or leasing company purchases the system from an equipment vendor like Dali Wireless and leases the system back to the enterprises. In this paradigm, in-building wireless systems will shift from being considered as a capital expenditure to an annual operational expenditure.

The key difference is that with CAPEX, the enterprise owns the in-building equipment and may need some outside financing. With OPEX, a third party financial company owns and finances the technology and the enterprises “pay-as-you-go”. From an accounting standpoint, CAPEX shows up on the balance sheet and are depreciated over the life of the asset, whereas OPEX shows up on the profit and loss account and relates to expenses incurred on an ongoing basis. Frequently, lease payments are fully tax deductible as well. In addition, with smaller regular payments replacing substantial upfront payments, the cash-flow benefits are enormous.

CAPEX is usually budgeted once per year and enterprises might have to wait for the next cycle to implement a system. Whereas, OPEX is more controllable since it’s a monthly expense. This is important, as any initiatives that promise not to tie up precious capital would usually be attractive to the executive team. In addition, by positioning in-building wireless as an annual OPEX, it becomes financially positioned alongside the other core cost of sales and profit. This is in alignment as having in-building coverage and capacity is directly tied to the increased in tenancy rate or increased in customers’ satisfaction, therefore, in-building wireless/DAS is viewed as an essential cost of doing business.

With that said, no two businesses are alike. We recommend that each organization consider their financial constraints and determine a payment method that best aligns with their capital utilization model and business requirements.

Regardless of the payment structure, there is an underlying cost consideration that all parties should consider– the Total cost of ownership (TCO). is the system future-proofed? Can the system support 2G, 3G, 4G and even 5G? Can it be easily upgraded with new frequency bands? With new technologies or new frequency bands, does the system need to be stripped and replaced with a new system, or can it be upgraded on a modular basis?  ) should be thoroughly looked at, as cost goes beyond the initial equipment CAPEX and includes the ongoing OPEX.  All parties have to consider the OPEX such as the cost of scaling the system if the number of employees increase, or as average data per user grows. They also have to take into account the costs associated with modifying or upgrading their systems as requirements and needs change as well

As wireless applications, devices, and the Internet of Things grow, the always-on connected world expects ubiquitous wireless coverage no matter where they are. Digital DAS has been proven to be a significant method of providing resilient in-building coverage and capacity. The commercial options for establishing in-building wireless all depends on the needs and available funds of the various parties, but leasing has become a very common and feasible solution.

http://www.mobilitytechzone.com/topics/4g-wirelessevolution/articles/2015/11/04/412443-in-building-wireless-das-shifting-costs-from-capex.html
   Don’t miss our next blog post. Subscribe to our monthly e-newsletter