January 20, 2010

3G does not have a coverage problem (….it’s a capacity issue!)

In recent weeks there’s been much publicity surrounding the impact that smartphones are having on operators’ networks, and subscribers’ frustration with coverage (“But, I have 5 bars– why isn’t my phone working?” or “Why can’t I access Facebook?”). The issue is less about coverage and more about network capacity. With the recently announced “unlimited” pricing bundles (US price wars), the issue of network capacity and data “offload” will continue to be hot topics throughout 2010 and beyond.

With the proliferation of 3G enabled smartphones (iPhone, Blackberry, Nokia, Google, HTC, etc.), network capacity and RAN coverage in metropolitan areas is fast becoming an issue. Mobile networks were built to handle the capacity needed for voice “busy hour”, not for “always on” bandwidth-heavy data sessions– anywhere subscribers go. “Busy hour” is no longer about voice. As much as 50% of all voice and data sessions are initiated at the work place– creating constant strain on the RAN and signals trying to penetrate high rises and dense business parks. Constant data consumption, throughout the day, is straining networks to its maximum capacity. “Busy hour” now stretches over many hours at different times of the day, from the early morning commute, through the work day and well into evening when people commute home or go out for a business dinner or a movie. Subscribers are constantly on the network, using applications such as Skype®, Twitter®, uploading photos to Facebook or accessing video on YouTube® or live TV via Slingbox®. There may be coverage but capacity is strained.

Adding to the capacity strain is a brewing price war, and “unlimited data and voice” plans are being discounted 25-30% from last month’s pricing. That’s great for subscribers and smartphone suppliers, but more challenges for operators. A recent Deutsche Bank Securities report (1/19/10) on the issue provides context worth noting:

“First, lower prices mean more phones. That is good for companies with exposure to handset volumes. Qualcomm is at the top of that list, as they supply basebands for all of Verizon’s phones and probably the majority of AT&T’s as well.” And - “All of this should be good for smartphone vendors and their suppliers.”

An increase in subscribers as a result of more smartphones and pricing bundles means that networks must improve to handle even more data. Data usage over cellular networks has increased between 4,000 to 6,700 percent over the last 3 years and the trend continues (AT&T experienced 6,732% growth over the last 13 quarters). The good news is that subscribers love their 3G and 4G capable devices—which is great for short term revenue but may impact year-over-year churn. See a very good blog post by Rory Cellan-Jones from BBC and note the many reader comments (“The 3G Traffic Jam – Where Next?”).

The bad news is that the networks were built for voice “busy hour” where 90 percent network capacity utilization meant effective use of the network. Context for consideration: data traffic over an office LAN rarely confronts ‘max’ capacity because the rule of thumb for Ethernet LANs states that “average bandwidth usage level should not exceed 30 percent for an Ethernet network to be considered running optimally, with peak usage at 50-60 percent.”

Mobile operators want happy subscribers and are working hard to augment the existing macro RAN with software upgrades and other solutions to improve the experience. This is a network capacity problem that can only be solved by adding more effective means of transporting several hundreds of millions of terabytes (soon a zettabyte) of data to and from the cell sites and deploying “hotspot” radio networks where data consumption takes place (indoor, office/campus, dense metro areas, etc.).

The net impact of the success of smartphones means that network operators must find ways to handle data offload with and without licensed spectrum and leverage Ethernet LAN where it’s feasible. Both Wi-Fi and HSPA will play a role as inside-out deployments of networks emerge, finding ways to keep Opex and Capex under control as millions of new subscribers rush to the stores to get the latest smartphone and low-cost “all you can eat” consumer pricing plans.

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Ronny A. Haraldsvik
Vice President of Marketing