Pump Is Primed for the Broadband Mobile Internet

Nomadic user experiences with WiFi sets the stage for mobile broadband access, but significant CAPEX will be required


The Nomadic Virtual Lifestyle

We have read quite a lot lately about nomadic workers and virtual offices.  Armed with notebook PCs and seeking WiFi hot spots, many employees are leaving their cubicles and using coffee shops, pool decks, and friends’ homes as their new “anywhere” offices. 

An article in today’s Washington Post truly captures this trend – Digital nomads ditch cubicles for diners and pool decks.   Marilyn Moysey, an employee of Ezenia who sells virtual collaboration software, often works at Panera Bread near her home in Alexandria, Va., even though she has an office in the "boondocks." Asked where her co-workers were, Ms. Moysey said, "I don’t know, because it doesn’t matter anymore."  Clearly, nomadic Internet access is becoming a way of life for many people – not only for business use, but for entertainment and education as well. 

The key takeaway from this phenomenon is that more and more people are using WiFi and (when affordable and available) 3G data cards to access the Internet.  AT&T and Verizon have accepted this fact – both are now offering free WiFi hotspots to premium wireline Internet customers along with 3G data cards for laptops (HSPDA and EVDO respectively).   

As a result, mobile broadband is expected to grow much faster than wireline broadband (even with FTTP/ FTTH solutions such as Verizon’s FiOS).

projeected mobile broadband growth

Projected Broadband Growth – courtesy of an AT&T presentation

A recent Cisco study is even more optimistic about mobile Internet traffic growth:

Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update

Here are a few of Cisco’s predictions:

  • Globally, mobile data traffic will double every year through 2013, increasing 66 times between 2008 and 2013. Mobile data traffic will grow at a CAGR of 131 percent between 2008 and 2013, reaching over 2 exabytes per month by 2013.
  • Mobile data traffic will grow from 1 petabyte per month to 1 exabyte per month in half the time it took fixed data traffic to do so. In the 7 years from 2005 to 2012, mobile data traffic will have increased a thousand-fold. The Internet grew from 1 petabyte per month to 1 exabyte per month in 14 years.
  • Almost 64 percent of the world’s mobile traffic will be video by 2013. Mobile video will grow at a CAGR of 150 percent between 2008 and 2013. Mobile video has the highest growth rate of any application category measured within the Cisco VNI Forecast at this time.

However, there are several reasons why the current mobile Internet solutions (WiFi and 3G) won’t scale to higher speeds and larger number of subscribers: 

  • WiFi hot spots are not available everywhere and often are not free, e.g. airports
  • A WiFi network collapses when many users send or receive heavy traffic loads, e.g. ppt presentations, videos, photos, etc.
  • 3G pricing is too high for the small amounts of bandwidth given to each user.
  • Low cost per bit is hard to achieve on a cellular network because its design was based on carrying TDM voice.  3G data is an overlay and a stop-gap solution for mobile carriers.
  • Cellular operators have imposed data caps on 3G data traffic. (Typical 3G data pricing is $60 per month with a data cap of 2G to 5G bytes transferred per month.  Additional data transferred is usually priced in 1G byte increments.)
  • 3G networks are already getting saturated from iPhone traffic, according to the CEO of AT&T.  Cellular network infrastructure (possibly augmented by femtocells) will need to be significantly upgraded to support the coming mobile data bandwidth explosion. 
  • Data rate needs will increase with time.  Many more people are expected to use smart phones and data cards for mobile broadband Internet access. Video will be the primary bandwidth driver, as it has been for the last several years since You Tube became popular.  Neither 3G or WiFi will be able to keep up with this increase in data (non-voice) traffic.

Many experts predict a minimum of 100% per year growth in mobile data, but that won’t be achievable without huge increases in CAPEX – both in the RAN and backhaul networks, including new network management and maintenance software.  What’s the solution for true mobile broadband Internet access-  Mobile WiMAX or LTE? 

We are not going to comment about the seemingly never-ending WiMAX vs LTE comparisons.  This is because WiMAX is available now and LTE is not and might not be for a long time (much longer than most think).

Conclusions

Our main theme here is that mobile traffic continues to grow exponentially and that growth is unsustainable.  There are a lot of variables and feedback loops that will impact the trajectory of mobile broadband traffic and subscriber growth.  Here’s one view:

Projected Traffic Growth

Projected Broadband Growth – courtesy of an AT&T presentation

Unless carriers significantly upgrade their network infrastructure they will have to resort to more data caps and blocking of high throughput traffic (e.g. AT&T currently blocks Sling box video on its 3G network).  That would lead to many dissatisfied users and the promise and potential of mobile broadband will not be realized.   

Pico-cells, more cell towers, self –organizing- networks (SONs), and other network topology tricks have been proposed to alleviate the mobile bandwidth crunch.  We don’t believe any of those will be cost effective (although we do like femto-cells as a way of getting traffic off cellular networks and onto the wireline broadband network at home or a small office).   

The bottom line:  mobile data growth will slow down much more than forecasts indicate, unless 4G- like technologies (Mobile WiMAX and LTE) are deployed in a very significant way.  If and when that happens is anyone’s guess.  So take the forecasts with a grain of salt and don’t bet the ranch on them. 

 

wireless growth image courtesy of AT&T

0 thoughts on “Pump Is Primed for the Broadband Mobile Internet

  1. One of the gems from a panel at today’s OPASTCO conference was from a speaker, David Fritz, of Alcatel Lucent. He suggested that the earliest we will see any sort of LTE deployment will be in the late 2011 to 2012 timeframe.

    The big driver for these deployments is cost-effective handsets. Unfortunately, for the rural carriers, they are dependent upon the creation of an ecosystem in order to get handsets. These ecosystems are only created when the larger carriers commit to a particular band plan. Unfortunately, this means there is a great deal of spectrum that will lay fallow for a long time.

    This isn’t necessarily a critical thing in urban areas where there is lots of choice of fixed and mobile access, but in the rural areas the lack of affordable end devices drives effectively limits consumer choice.

    Another complaint heard at the OPASTCO convention is that the small carriers often don’t get the newest handset models until months after they are released in the urban areas. This has drawn the attention of the FCC and Verizon has taken steps that promise to end this practice with their handsets.

  2. Here is the outline of a telebriefing presented by Prof Andrew Odlyzko that stimulated this discussion post:

    A wide consensus holds that mobile data will lead to the next telecom revolution. The volume of data transmitted over wireless is skyrocketing, growing at rates that are almost surely unsustainable. This is in contrast to wireline data volumes, which are growing vigorously, but at a sufficiently slow rate that capex does not need to grow to accommodate them. However, this growth in mobile data is not accompanied by a similar willingness to pay. The implications for technologies and business models of wireless carriers will be explored.

    Key points to be highlighted:

    · -Wireline traffic growing at about 50% per year, can be accommodated with current capex

    · -Wireless traffic growing at over 100% per year, far faster than technology is progressing

    · -Low willingness to pay for mobile data

    · -Voice is a cash cow and likely to remain so

    · -Wireless service providers have incentives to use kludgy technology solutions to protect the voice cash cow

    · -Seemless mobility between wireline and wireless is not achievable

    · -Strong tension between incentives to build walled gardens and ones to encourage innovation.

    Hopefully, it will provide food for thought so that you might comment on this important topic. I will be interviewing Prof. Odlyzko this Tuesday Aug 4th for a forthcoming article. Any thoughts or comments?

    Thanks

  3. Profit slump coming for US mobile network operators?

    According to the Aug 4th FT:

    “It is increasingly hard to see a future for the mobile phone operators as anything other than low-margin suppliers of dumb piping.”

    “On Friday the FCC requested information from AT&T, Apple and Google over the decision to ban Google Voice from the iPhone App store – a move followed on Monday by Google chief executive Eric Schmidt’s departure from Apple’s board as the two companies increasingly compete. The software would allow iPhone users to make free calls and text messages over the internet, threatening revenues for iPhone carriers. Forcing Apple and its peers to allow such software, or data intensive applications such as remote TV viewing service Slingbox, would swiftly undermine operators’ profitability.”

  4. Where will the needed CAPEX come from, when profits are pinched and money is being spent on 3G build-outs?

    Most operators are either spending a lot of money on 3G build-outs (e.g. China Telecom-see below) and/or paying subsidies to subscribers that purchase smart phones (e.g. ATT for the iPhone). That being the case, where are they going to get the money to invest in LTE? This is one reason, we think mobile LTE- on a large scale – will be delayed for several years.

    Here’s a great example of costly 3G expansion from the world’s largest cellular operator (# subscribers):

    FT: China Telecom profits plunge on 3G expenses

    China Telecom, the country’s biggest fixed-line operator, reported a 27.5 per cent drop in first-half net profit amid heated competition, as the company increased spending to promote its 3G service

    http://link.ft.com/r/J0VG55/0338A/QNG3Y/B66B5/ODV0S/9A/h

    From Wireless Week’s latest print edition:

    • As of December 2008, wireless carriers have deployed more than 240,000 cell sites across the country.
    • To achieve full 3G mobile broadband coverage, about 16,000 new cell sites will need to be constructed and 55,000 existing sites will need to be upgraded.

    http://wirelessweek.com/By-The-Numbers/2009/08/By-The-Numbers-July-August-2009/

  5. WSJ: Cable’s moment in the sun
    By Martin Peers,
    The Wall Street Journal (subscription required)
    Friday 28 August 2009

    Cell phone networks won’t be able to cope with increased data traffic

    Quote from a WSJ article opining that cablecos are in better shape than telcos:

    “The limits of wireless capacity suggest cellphone networks won’t be able to handle smoothly the expanding volume of downloads from the Internet as smart phones and netbook computers proliferate. As Sanford C. Bernstein analyst Craig Moffett has argued, services such as (mobile) video, which use lots of bandwidth, are likely “to remain the province” of wired networks. Wireless carriers already are putting some of their traffic onto them through Wi-Fi networks.”

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