Upbeat forecasts for mobile broadband demand abound. However, these will only be realised with correspondingly large increases in capacity for radio access, backhaul and core networks. This requires major capital investments and rapid allocation of new spectrum. Mobile operator business models including cost structures and revenues are being disrupted by all these changes.
Great expectations
Mobile broadband is growing rapidly with dramatic and wide-ranging effects on operators. In the United States, mobile data traffic at AT&T Mobility was up 8,000 per cent from 2007 through 2010, according to the mobile division's CEO, Ralph de La Vega. In Japan, Softbank Mobile's ARPU for data is now higher than it is for voice. Yoshihiko Nodera, the head of the company's Technology Development Centre, told the audience at a GSM Association event I chaired on the topic of mobile broadband at the Mobile World Congress in Barcelona earlier this year that Softbank Mobile's business model is changing with voice revenues in terminal decline. He said "no operator can expect voice revenues any more in 10 years time."
WiseHarbor forecasts mobile broadband increasing worldwide 1,000-fold between 2010 and 2025. With a shorter-term focus, Cisco forecasts network traffic will grow at a compound annual growth rate of 93 per cent per annum between 2010 and 2015. Given that data traffic already significantly exceeds that for voice on most mobile networks, this 26-fold increase also requires total network capacity to be expanded by a corresponding multiple in this timeframe.
Tapping and creating demand
The proportion of smartphones in use is increasing to exceed 50 per cent within a year or so in most developed nations. Users would like to do more on these and other smart devices including tablets, and increase their data consumption significantly. This capacity increase needs be provided at significantly decreasing costs and prices (i.e., carrier revenue yields) per gigabyte. Operator revenues will grow with the product of volume and price.
We can be very confident about overall demand growth for mobile broadband because of established demand on fixed networks. Fixed broadband forecasts were a leap of faith in the 1990s. Networks were built in the hope that emerging mass-markets such as Internet email, browsing and search would develop significantly. Traffic growth surged with these and other compelling services, and due to increasingly powerful PCs at lower prices, much faster access speeds, decreasing latencies, steeply declining network costs and end-user prices. Not only have those low Internet-based service prices facilitated growth for new services such as search, they have also caused significant arbitrage, for example, with VoIP taking significant circuit-switched voice business and generally driving down prices for telephony.
It is abundantly clear that with the smart devices available since the advent of the iPhone 3G in 2008--including tablets and Android devices--consumers would like to do a lot of what they already do on PCs on their mobiles as well. These devices have the screen sizes and processing power, in conjunction with fast enough network connection speeds and low enough latencies, to deliver user experiences that are at least satisfactory and are in some cases delightful. The numbers of web page views and Internet searches on mobiles are already substantial proportions of those on PCs, exceeding 25 per cent in some cases, depending on device. Twitter and Pandora usage on mobiles already exceeds that on PCs. Mobile usage of Facebook is not far behind.
Which new device types and categories of service or applications use will pop up henceforth is unpredictable. For example, after many years as a very lacklustre device segment, no analyst forecast the stellar growth of the tablet category until Apple announced its iPad in January 2010. As is the case with most new technologies, they are first used as a substitute for what is already used. Then, new technologies become significantly used in entirely new ways. For example, navigation services, including augmented reality with all kinds of street-level metadata, providing information on shops, are a new phenomenon, providing additional value to what can be derived on a PC, by virtue of the fact that one is about and on the move.
Increasing capacity
Fixed network capacity can be increased without limit. In fact, the market became oversupplied with fibre-optic capacity around the turn of the millennium with a major collapse in prices and various bankruptcies, notably including WorldCom and Global Crossing. Large bandwidth increases were possible since the 1990s with rapidly-advancing technologies including fibre-optics, DSL and with cable modems.
The situation is very different in mobile communications. Unlike cellular masts that can be obtrusive and resisted for environmental reasons, fixed infrastructure tends to be buried and unobtrusive. Whereas temporarily bottlenecks exist in mobile backhaul where fibre is not yet available and in core networks that need increased switching throughput, expanding radio access network capacity is the most difficult problem.
There are three ways to expand radio network capacity: increasing spectral efficiency, deploying more spectrum and building additional sites with smaller cells. This large and rapid increase in network traffic requires significant progress on all three fronts. New cell site construction alone is insufficient with limited availability of suitable sites, planning restrictions and capital costs. Whereas incremental improvements to UMTS with HSPA+ at higher and higher speeds to 42Mbps and faster with carrier aggregation are highly desirable, LTE is the essential upgrade to increase speeds and overall network capacity with use of larger spectrum blocks up to 2x20MHz, and considerably more with LTE Advanced. Ofcom, the UK's telecoms regulator, expects spectrum efficiency gains by a factor 5.5 between 2010 and 2020. However, the use of LTE is predicated by availability of new spectrum. Commercial LTE services are already in operation on at least 26 networks in 19 countries including Scandinavia, the U.S. and Japan, Korea and Germany. However, several European nations, including the UK, in particular, are woefully behind with the spectrum licensing required for mobile broadband capacity expansion with LTE. This will be a severe impediment to such laggards with no hope of catching up until at least the second half of this decade. Ofcom has repeatedly delayed the auction of the 2.6GHz and 800MHz spectrum set aside for the next generation of mobile broadband. Already behind its original schedule due to legal challenges from operators, the auction is now being delayed to the end of 2012. The spectrum will not be available for use until 2013. National coverage will not be established before 2017.
Consumer benefits and economic stimulus
The mobile phone has long since passed from being a luxury to a necessity. Mobile broadband is going the same way. Pervasive Internet access for business and personal uses on powerful mobile computing devices including smartphones, tablets and laptops is also indispensible. It is vital that mobile networks are rapidly transformed with major increases in capacity. The rapid introduction of new spectrum for LTE is essential. This will provide market growth for operators in face of terminally declining voices revenues, a vital impetus to the economy with network construction work and through service and productivity benefits to consumers and business users.
Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007. WiseHarbor is publishing an annual update to its Extended Mobile Broadband Forecast in May 2011. The new forecast will include network equipment, devices and carrier services to 2025. Further details are available at:http://www.wiseharbor.com/forecast.html. Find WiseHarbor on Twitter @WiseWarbor.