Despite the strong demand for mobile data worldwide, the mobile infrastructure market has been depressing recently. Last year, there was a drop in the number of radio transceivers shipped compared to 2011, despite some bright spots with LTE deployment in Asia and North America. Prominent companies such as Alcatel-Lucent are bleeding money, and struggling to raise cash. One of the strongest players in the RF subsystem market, Powerwave, declared bankruptcy two weeks ago. Several factors are at play here: Lack of ARPU growth in Europe (resulting in a lack of capital for network expansion), declining 2G shipments, delays in spectrum for LTE, and political delays in China.
Korea, Japan, and the United States have been different. These countries support high ARPU (average revenue per user) and therefore have been able to raise money to build out extensive LTE networks. More than 100 million people use LTE networks today, and in these countries the Internet experience is beginning to look different than the Internet in Europe or Africa or the Middle East. In Korea, Japan, and the USA, the Internet is becoming more mobile. Facebook users are increasingly using mobile devices in these countries, but remain on PCs in the rest of the world. Fifty-six percent of global Facebook users access their accounts via mobile device today, with a large discrepancy between the mobile adoption in the United States and in Europe. In Europe, Facebook's revenue and user base has stagnated, with ad revenue actually dropping. That's a good indication that the user experience is not adequate for photos and videos on mobile devices. How long will this continue, before end users in Germany, China, and Brazil agree to pay more for a better network and drive LTE expansion?
A recent survey of 32 different mobile operators indicates that the tide will turn this year. In fact, since August 2012, the base station market has been gathering strength, and the demand for new LTE base stations will rise steadily in 2013. Large-scale TD-LTE trials will be deployed in China, and many operators will implement LTE in the 1700 or 1800 MHz bands where GSM or HSPA services had been installed previously.
In the Mobile Experts study, we gathered deployment data for radio transceivers in 22 different frequency bands (with plans for up to 10 more bands). The resulting database of transceiver deployment indicates some fundamental changes which will drive an increase in transceiver manufacturing over the next five years:
MIMO: Every LTE enodeB deployed will use 2x2 MIMO at a minimum. We have seen the initial field trials of 4x4 MIMO yielding a successful boost in throughput, in Japan, India, China, and Korea. Look for 4x4 MIMO to be used in specific urban sites in the future. Each MIMO RF path requires a separate DAC, AQM, power amplifier, and filter. Mobile Experts predicts that 60 percent of radio transceivers shipped in 2017 will use MIMO.
AAS: Active Antenna Systems are an even more important multiplier for RF semiconductor suppliers. TD-SCDMA and TD-LTE systems will rely heavily on AAS to avoid network interference, and in many cases these systems will use 8 dipoles per sector...driving 8 individual transceiver chains per sector. As with MIMO, active antenna systems use lower power in each transceiver chain, bringing down the overall dollar value per transceiver. The numbers multiply quickly; by 2017, almost 40 percent of transceivers shipped will be combined in active antennas.
IAR: Integrated Antenna Radios (IAR or AIR) is distinct from active antenna systems. The integration of Remote Radio Heads (RRHs) and antennas has been very successful for Ericsson, and deployment is already well underway. This particular innovation improves efficiency and cost, but otherwise may not have a significant impact on the expansion of radio manufacturing.
CA: Carrier Aggregation will drive new radio shipments, including radio shipments in more than 33 different frequency band combinations. Inter-band Carrier Aggregation will be deployed by many operators in order to achieve a fatter pipe, but there are actually multiple benefits:
- Contributions from two separate constituent carriers will not provide a much wider bandwidth for higher throughput;
- Small slices of spectrum will become useful. Consider the 1.4 MHz slices licensed in the United States, which would not be competitive when compared to the 15 MHz channels used by major operators.
- Differences in propagation can be a positive. If one channel experiences fading, the other channel may be able to provide continuous throughput. The user may not even notice a momentary slowdown since the transition will be from a fat pipe to a thinner pipe, not from a thin pipe to a closed pipe.
It's important to note that the RF power of each path will be lower than the "good old days" of SISO. In fact, as we transition from 40W HSPA radios to 2x20W LTE radios, the total composite power remains about the same. The nearby chart shows the dramatic drop expected in output power from each individual transmitter chain. While some new frequency bands or AAS shipments will drive higher transceiver prices, over the long run the cost of a remote radio head will continue trending down, not up.
Overall, the future is looking brighter for the wireless infrastructure market. Not brilliant, but a bit brighter. The number of radio chains will increase dramatically between 2013 and 2017, to support a geometrically increasing demand for data traffic. The complexity of Carrier Aggregation will drive new upgrades and new fragmentation of the market, increasing margins for hardware sales. MIMO and AAS will add new ways for radio equipment to be differentiable. The overall increase in complexity and content should be enough to offset ongoing price pressures, and should allow for several years of stability. At the end of the day, the RF hardware business is bouncing back for a new era of profitability.
Joe Madden is Principal Analyst at Mobile Experts LLC. Mobile Experts is a network of market and technology experts that provide market analysis on the mobile infrastructure and mobile handset markets. He provides market forecasts for handset, DAS, small cell, and base station markets, with in-depth research down to the nitty gritty details of frequency bands and power levels. Mr. Madden graduated, cum laude, from UCLA in 1989 and is a Silicon Valley veteran. He has survived IPOs, LBOs, divestitures, acquistions, and mergers during his 24 years in mobile communications.