With mobile data traffic growing and revenue per gigabyte falling, operators need to reduce network carriage costs by 50% or they will face an insurmountable eight-fold increase in the costs of radio access network (RAN) equipment, according to a new report from Analysys Mason.

The report predicts that if operators in Western Europe simply try to meet the growing demand for data traffic by deploying more base stations, RAN costs could rise to USD40 billion per year by 2016. This compares with USD5 billion per year in 2011.

"Operators can't afford to spend that sort of money," says Terry Norman, co-author of the report and Lead Analyst for Analysys Mason's Wireless Networks research programme. "Therefore, operators will either accept network congestion or use pricing to control demand - neither are good business practice. The elegant solution is to make substantial efficiency improvements."

One way to reduce network carriage costs, which is attracting a great deal of interest from mobile network operators, involves carrying a proportion of the traffic on a cost-efficient small cell. "Because Wi-Fi is widely deployed and competitively priced, it is a leading candidate small-cell technology," Norman explains.

The report examines the costs associated with three different approaches to building and operating mobile radio coverage over an urban area of 0.8km2, which is typical of an urban 3G site:

• upgrading the site to LTE and building further LTE sites as necessary
• building indoor Wi-Fi access points to augment existing capacity
• building a mix of outdoor/indoor Wi-Fi access points that will be used to augment existing capacity.