Financial analysis of 4G network deployment

Abstract

Major cellular operators are planning to upgrade to high-speed 4G networks, but due to budget constraints, they have to dynamically plan and deploy the 4G networks through multiple stages of time. By considering one-time deployment cost, daily operational cost and 3G network congestion, this paper studies how an operator financially manages the cash flow and plans the 4G deployment in a finite time horizon to maximize his final-stage profit. The operator provides both the traditional 3G service and the new 4G service, and we show that users will start to use the 4G service only when it reaches a sizable coverage. At each time stage, the operator first decides an additional 4G deployment size, by predicting users' responses in choosing between the 3G and 4G services. We formulate this problem as a dynamic programming problem, and propose an optimal threshold-based 4G deployment policy. We show that the operator will not deploy to a full 4G coverage in an area with low user density or high deployment/operational cost. Perhaps surprisingly, during the 4G deployment process, we show that the 4G subscriber number first increases and then decreases, as the 4G service helps mitigate 3G network congestion and increases its QoS.