Fixed broadband profits face LTE squeeze
Operators have talked about offering a single wireless connection for both fixed and mobile broadband for years. In reality, except in areas entirely underserved by DSL, cable or fiber, 3G proved a poor tool for turning mobile-only carriers into broadband or quad play providers.
Signal enhancers and mobile hotspots could enhance 3G's data rates and functionality somewhat, but the relatively low speeds – compared to wireline – and the poor indoor penetration of the main global band, 2.1GHz, were obstacles to progress.
With LTE, however, many carriers are actively looking to deploy wireless as a broadband option even in areas where fixed connections are readily available.
Some are doing this because they lack wireline networks of their own and want to compete for more of the customer's total connectivity and media spend – and avoid fees to access an incumbent's infrastructure.
The US carriers are key examples. AT&T plans to use LTE to compete in areas where it does not have fixed lines, and to save on the cost of continued investment in DSL. Its recently announced $14 billion Project VIP (Velocity IP) centered on accelerated roll-out of LTE and fiber-to-the-node, and increasing integration between the two of them to become complementary, not separate, infrastructures.
Project VIP effectively means the end of real investment in DSL and indeed, where users still have copper lines, AT&T increasingly recommends the use of LTE for fixed access if fiber is not available. (It does use DSL for the last mile for its U-verse fiber system in most areas, but is defocusing on standalone copper lines).
It says wireless, fiber-to-the-node and business net-works deliver 81% of its revenue and are collectively growing at 6% a year, so it is clear where the investment priority must lie. AT&T last month petitioned the FCC to update its rules so that wired or wireless IP systems can be considered as a replacement for the traditional copper phone-line system.
But at the start of 2015, one-quarter of AT&T's wireline base will still not have U-verse, which points to another strategic significance for LTE investment, to stop defection of DSL customers. While it may be efficient for AT&T to move to an IP-only system, critics say it will be a blow to rural users and to local CLECs which rely on the larger firm's network – factors which may attract FCC scrutiny or even encourage AT&T to sell off its DSL business as Verizon did.
But the future is in fiber+wireless, and AT&T also aims to start upgrading its networks to LTE-Advanced in the second half of 2013 in a bid to convert more wireline customers to 4G. LTE-A promises theoretical download rates of 3Gbps and upload of 1.5Gbps. The upgrade will under-pin key components of Project VIP, including the Mobile Premise wireline replacement scheme. This offers users a $9.99-a-month service that lets customers port their wireline numbers to a device that forwards calls directly to their cellphones and to in-home wired phones.
In other countries, wireline substitution is being driven by consumers rather than active carrier encouragement. Young Japanese citizens are choosing LTE rather than fiber-to-the-home for cost reasons, forcing wireline incumbent NTT to drop prices for its wireline service, even though this is one of the most advanced FTTH deployments in the world. Such trends will accelerate the shift in the revenue balance between fixed and mobile networks, for carriers like NTT which have both infrastructures.
While AT&T is using 4G to hasten the end of an ageing net-work that has become a cost burden rather than an asset, NTT is seeing LTE robbing its expensive new networks of some of their profit potential. The telco cut its monthly broadband rates by 34% to 3,600 yen ($43.74) in an effort to retain customers who want just one communication bill. NTT is not allowed to bundle its broadband services with those of its DoCoMo mobile unit.
In a related issue, Vodafone CEO Vittorio Colao is to meet European Union officials this week to highlight concerns that Europe‟s former state-run telcos may still have excessive control over new high speed fiber networks, to the disadvantage of mainly wireless players like his own firm. Colao fears that an important Vodafone strategy – to bundle broadband, wireless and TV services in a quad play – will be threatened if the telcos impose high charges for access to their new fiber networks. Vodafone has invested in its own fixed capacity in a few markets, but in most remains reliant on deals with incumbents.
“The European former monopolies still control 60-70% of the fixed market,” Colao told the Financial Times. “They believe that this is the great opportunity to re-monopolize the market.” He added: "It would be a bit disappointing to create competition in the telecoms sector over the past 15 years to then give up to re-monopolization.”
Aside from adding a new word to the dictionary, Colao says that he will inform Neelie Kroes, European Commissioner for Digital Agenda, that Vodafone will take legal action against such “re-monopolization.” A recent proposal from Kroes would allow operators to deploy new fiber networks across Europe with the freedom to set their own charges.
This is designed to stimulate investment in high speed infrastructure by offering carriers a better prospect of a return on that spending, and to encourage a free market rather than the tightly regulated pricing rules applied to current fixed broadband networks. Colao says he supports the principle, but the rules must not be allowed to be interpreted in a way that would restrict competitive access to the fiber systems, and therefore reduce competition and innovation.
If high charging or restrictions do result, Colao said in the interview: "I can tell you that Vodafone is going to make many, many lawyers very rich and the European Commission will be in-credibly busy in coming years."
His comments echo similar debates in the US, where Sprint and T-Mobile lead the battle to reduce the control of AT&T and Verizon over wireline networks for backhaul and access services.