Everyone has seen the famous Cisco VNI curve, which shows mobile data demand doubling every year for the next four years. Mobile video and Web applications are heating up the airwaves, and the geometric growth of the market won't stop anytime soon.
Such strong growth in mobile data demand is great news for operators, but it also poses problems. The primary issue is, in most countries, that mobile operators have allowed consumers to become accustomed to "unlimited" data plans. No problem, if your network is only 20 percent utilized…but with rapid growth in demand, the networks are quickly hitting their limits in capacity. When your customers expect to get more of your product for free, it's time to "re-educate" them. That process will take a long time due to the competitive forces in each regional market.
There are multiple technical problems as well:
New spectrum is the best way to add capacity because the industry can reuse existing towers and increase capacity quickly and easily. In many cases, new spectrum has not been released quickly enough to keep up with data demand. We're counting on government regulators to move quickly! Obviously we need a Plan B because the release of new spectrum will never move quickly enough.
New macro base stations can be added to the network, but setting up a new tower is time-consuming and can take three to five years.
Adding more high-power base stations also would add interference to the network. From a technical point of view, "densification" of the macro network will have limited improvement in capacity before hitting the ceiling.
Wi-Fi offload is an attractive option, but many operators have been waiting to see the outcome of "Hotspot 2.0" before investing heavily in Carrier Wi-Fi networks. We will see the outcome of first-generation 802.11u/Hotspot 2.0 devices in the second half of 2012. Expect Wi-Fi offload to take care of about 25 percent of mobile data growth but not all of it.
Small cells are coming together, with high-capacity chipsets and software solutions in various tests and trials now. Backhaul solutions and some software solutions (such as soft handover) are not yet integrated well enough for operators to "fire and forget". At a conference last week, two operators complained to me that there are no small cell solutions that they can simply buy and deploy immediately.
The bottom line is that mobile operators won't be able to move fast enough to stay ahead of the looming data tsunami. Like a surfer that doesn't paddle fast enough, we won't catch all the power of the wave. This means that, while mobile data capacity has always been higher than demand in the past, an increasing number of sites will not have adequate throughput for all users. There will be more data demand than supply, and operators will not be prepared.
(Note that in the chart above , we are indicating that during 2009 and 2010 the supply and demand are essentially equal. This has been roughly true for the heavily loaded cells in some metro areas, where networks reach 100 percent utilization for about one hour every day. Of course, for the majority of base stations, radio capacity remains far above demand today. This example focuses on the metro areas where data density is a problem.)
There is no law of physics that forces supply to increase to meet demand. Instead, mobile operators could simply raise their prices! In fact, recent moves have been made by Verizon Wireless, Vodafone, and NTT DoCoMo to shift users toward pay-as-you-go data services. This is a step in the right direction, because "unlimited" is an unsustainable model for the industry.
On the other hand, in competitive markets, there are alternative mobile services that remain with unlimited plans. That's the sticky part. Verizon will not be able to simply raise prices because their customers have two or three alternatives. Similarly, NTT DoCoMo, Vodafone, Reliance and many other operators have competitors that will keep them honest.
Mobile Experts predicts that 2015 will be a big year for small cells, not because of technical maturity or because small cells are cheaper than macrocells. The Mobile Experts Small Cell Forecast is based on our expectation that mobile operators will have unhappy customers in 2014, and they will be forced to invest in quick solutions to their urban capacity problems. Bring on the picocells with seamless software and integrated wireless backhaul!
Joe Madden is principal analyst at Mobile Experts LLC. He is a Silicon Valley veteran, with 23 years in mobile communications, navigating through IPOs, LBOs, divestitures, acquisitions and mergers. He leads the analysts at Mobile Experts, focusing on nitty-gritty analysis of mobile communications and semiconductor markets. Madden graduated, cum laude, from UCLA in 1989.