Smartphone capacity crunch to drive infrastructure spending

The wireless industry made it clear over the past year or so that 4G technology is a short-term necessity in mature markets, and the long-term answer to broadband connectivity worldwide. In mature markets, consumers are beginning to find ubiquitous access to medium or higher-rate broadband a necessary part of their communications capabilities. In developing markets, wireless will continue to be the only affordable way to deliver broadband and governments will foster those services to promote economic growth. Thus, it is clear that the experience with voice services over the last two decades--in which it overtook and caused the decline of wireline--will repeat itself with broadband. That is, wireless will become the dominant method to deliver broadband services to users. This process may take awhile, but it will happen.

According to the second issue of the 4Ggear Quarterly Report from Maravedis, we find ourselves on the verge of another upgrade of wireless technology and the potential is tremendous. However, we are in the midst of "interesting times" that are causing fundamental changes throughout the entire wireless industry. The global recession, new technologies and devices, open networks, an explosion of data usage, commoditization and the new competition that it brings: All of these things have made and will continue to make serious waves in the industry. As a result, the top five infrastructure list has been in flux for the past few years and we expect to see continued change.

This quarter's 4Ggear report--focusing on RAN infrastructure--finds that the biggest issue service providers are dealing with today is how to deal with the explosion of data usage in the face of modestly increasing revenues. Carriers expect to see a 10,000 percent increase in per-capita data usage over a five-year period. At the same time, many of their revenue-generating services such as ring-tones and SMS are at risk as smartphones proliferate, so carriers are scrambling to determine how to remain profitable in this new environment.

First, networks will be bigger. Improvements in technology and additional spectrum are not sufficient to provide the additional capacity that will be required in the next five years; carriers will need to install an order of magnitude more base stations in their networks. The bulk of these base stations will be managed picocells, a significant portion of which will need to be installed in non-traditional locations, which we expect to drive innovation in high-efficiency compact base stations and backhaul.

The issue facing service providers is that this increasing bandwidth demand does not arrive with a corresponding increase in revenues. Carriers need to deploy and manage these base stations at significantly lower costs per site. Recognizing this need, vendors are actively promoting Self-Organizing Network (SON) solutions to enable a plug-and-play experience with base stations. SON is still mostly a concept, however, and still far from a solution to these issues.

In other words, it's good news for the industry. Consumer data usage will drive a tremendous surge in infrastructure spending, and there are a number of new aspects around which vendors will be able to differentiate, but what factors will lead to success for infrastructure vendors? How will the "old guard" compete with new leaders? Which companies are best positioned for growth and which kinds of solutions and services are likely to promote that growth? Analyzing products, current customer base, and value proposition, this quarter's 4Ggear report from Maravedis has ranked the top vendors for potential success in each access standard.

Top 5 Vendors by 4G Access Standard

Source: 4Ggear Infrastructure Report

A vendor's success in LTE will certainly depend upon traditional success factors: existing customer base, successful product development, etc. However, the ongoing capacity crunch from smartphones is driving significant changes in the topology and methodology of network deployments. Service providers will have to find ways to translate some of their spending from the operational side to the capital side--that is, to install more base stations in a more efficient way. Vendors who recognize this change and provide the best solutions to manage it have an opportunity to significantly improve their market share.

However, these are still very early days for LTE and a lot will depend upon the performance of trials over the next 12 months. Implementing a new airlink standard is exceptionally tricky and it has been some time since the major vendors have attempted something so fundamentally new and complex.

With regard to WiMAX, it has been a difficult year. When even WiMAX industry stalwart Alvarion joins the LTE camp, the hope that WiMAX will become a worldwide standard for mobile broadband access has mostly evaporated. The situation for WiMAX is anything but dire, however. We fully expect to see continued growth in the WiMAX market. In the short term, there are still many network deployments underway with significant capacity to be filled.  Some of these will continue unimpeded by LTE's impending arrival. In addition, we expect to see tremendous growth in WiMAX vertical markets, driven by low-cost solutions that have been enabled by the significant investment of the WiMAX ecosystem.   

4Ggear is an ongoing research and analysis service focusing on technology and business trends among the leading equipment vendors for LTE, WiMAX and selected proprietary systems. Chad Pralle is a senior consulting analyst for WiMAX and LTE Equipment at Maravedis, and has nearly 20 years of multidisciplinary experience in the 4G infrastructure business, including 15 years of experience with 4G access technologies. Maravedis is a premier global provider of market intelligence and advisory services focusing on 4G and broadband wireless technologies, regulation and markets, including LTE, WiMAX, femtocells, chipsets, radio access network, core network and backhaul. Learn more at http://www.maravedis-bwa.com.