What are telecoms companies' biggest costs? What do telecoms companies do? What limits telecoms companies' ability to offer data?
The telecoms market is huge. It is capital-intensive and constantly changing. Fifth generation mobile network to be rolled out soon. As a customer, we rarely think about how the technology is structured. It just works. But what exactly are the major costs for telecoms companies? What makes the price what it is? We need to start by looking at how a telecoms company works and what its resources are used for.
1. Spectrum costs/licence costs to the authorities
The first thing to consider is rights from the authorities. Every year, the authorities auction off a certain amount of spectrum. This is because the radio frequency spectrum is divided into different frequency bands. But if we want to keep this simple and straightforward, we can say that the spectrum costs of a telecoms company mainly involve the rights to transmit information over the frequency bands. A telecoms company is thus authorised to use a specific part of these frequency bands, which in turn is made available to us as customers.
To cite a specific example, Telenor's spectrum costs in the first half of 2017 accounted for approximately 15-16 per cent of operating revenues.
2. Hardware and software
Not only is telecoms capital intensive, but if you've ever built a telecoms tower or a satellite, you know it's not done overnight. When it comes to physical equipment/infrastructure, this involves a wide area of communications technology. Everything from power lines, telecommunication towers and communication satellites to an answering machine or router. Naturally, building and maintaining this is not cheap.
Much of this infrastructure also requires software to function. As a result, the costs associated with software licensing for a telecoms company are incredibly high.
3. Development and maintenance of data centres and MSC (Mobile Switching Centre)
Furthermore, we will also touch on data. Data is and will remain a major resource for businesses, and somehow this data needs to be physically stored and processed. Cloud services such as Microsoft Azure rely on these data centres to function. There's no doubt that we're talking about huge amounts of data, not to mention the fact that a data centre can have a power consumption on par with a small city.
Among other things, a Mobile Switching Centre stores information about the location of mobile devices. This is essential in order to facilitate efficient routing between devices. Furthermore, an MSC has many more functions. These include call setup, which allows you to call another person via a PC with a headset.
4. Marketing, payroll and training
Finally, it's not surprising that telecoms companies also have to market themselves, pay salaries and provide training. These are more or less self-evident.
Why can't we as customers get unlimited data, and where does the data come from?
Sure, there are providers that offer unlimited data, but in practice there is usually some form of limitation.
A telecoms provider does not hold any data, but charges you for the amount of data transferred to your device (phone, tablet, etc.). This can probably best be explained with an example.
If you want to stream a video on YouTube, the telecoms company will connect you to a server via its network, where the video is located. What happens is that you download the video to your PC or mobile phone. As soon as you've watched the video, the downloaded files will be deleted. In order for your device to be connected to the internet, the telecoms operator must build a telecommunications tower, as mentioned above. It is during the construction and maintenance of these towers that the bottleneck appears, in terms of resources. Not only is it a major development in itself, but it also requires enormous amounts of electricity, which in turn requires very high electricity production.
As more users connect to a tower, the speed per user will decrease and more towers will be needed. As mentioned above, this infrastructure is very resource-intensive, which means that data per user must be limited to some extent.
Curious about 5G and the telecoms industry in 2018? Read our article here
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