Will 4G Adoption Mirror 3G?

Adoption of fourth-generation network services likely will miror adoption of 3G services in Europe, says Decaln Longeran, Yankee Group analyst, and that has to be seen as modestly good news, but not "great" news, as adoption will not be as fast as many will hope.

"Our assessment of the early days of 3G, from spectrum auctions through to the first one or two years of commercial services, tells us a lot about where 4G is today and where it’s heading," Lonergan says. The big danger is massive overpaying for spectrum, which happened with the 3G spectrum auctions.

"Overpaying for licenses will quickly destroy the 4G business case, just as it did for 3G in several countries, including the U.K. and Germany," says Lonergand. On the other hand, if bidders show reasonable restraint, they should be in a better position to the extent that the auctions will be dominated by incumbents, unlike the situation when 3G licenses were awarded.

There will be no new 4G contestants, Lonergan predicts.

Adoption will take longer than expected, he says. "Remember, it was a full five years after commercial launch before 3G handset ownership reached 6.5 percent penetration globally, and 4G will follow a similar path," he says.

The technology won’t sell itself, he says. Faster speeds will only provide so much incentive, and it is applications that could provide the bigger push to adoption.

Handsets matter more than most people think, as well. Early 3G players failed to understand the importance of quality and choice in their handset portfolios, Lonergan says. Prepaid plans might also be essential, as 3G adoption in Europe was severely hindered in the early stages due to limited availability of prepaid plans.

Coverage also matters less than most people think. Consumers don’t obsess about coverage, except in the places where they use their devices most. That might especially prove true where 3G service is available as a backup.

On the other hand, 4G is being deployed in different circumstances, where a reasonable base of mobile broadband customers exists, and new applications that take advantage of higher bandwidth and lower latency already are getting traction, ranging from video and social networking to mobile apps related to navigation and location.

The first commercial European 3G service was launched by Telenor in December 2001, with commercial 3G services launched in 2003 by 3 in the U.K. and Italy.

But it is worth remembering that 3G also promised major performance enhancements to existing mobile services, . new services, including video telephony, multimedia content and enhanced end user experience. Right now, 4G mostly promises "faster" broadband.

The issue is whether the shift from 1 Mbps to 3 Mbps, or 3 Mbps to 6 Mbps, represents so much a change in end user experience. One might argue the Apple iPhone or iPad represents something users find tangible, not the additional bandwidth.

One might argue that mobile Web access, like mobile email before it, and smartphones, are what is driving 3G adoption. Applied to 4G, will there be unique drivers, or will 4G simply be a 3G experience, albeit with more bandwidth?

In August 2005, for example, the Yankee Group predicted, at a time when 3G penetration in Western Europe was in the range of 0.5 to two percent, that by 2009, 3G penetration would reach 52.6 percent of the population. In reality, average 3G penetration in Western Europe was 27 percent as of December 2009.

The key takeaway from this comparison is that even 3G forecasts that were regarded as too conservative five years ago have proved to be too aggressive.

A new wireless technology will not in itself excite most consumers, no matter how amazingly super-fast its proponents claim it performs. Back in May of 2006, when 3G services had been actively promoted for at least two years in several European countries, Yankee Group conducted an end-user survey that suggested 29 percent of end users had no idea whether they had a 3G phone or not. About 27 percent of respondents claimed they owned a 3G phone. Of course, it is not always the case that a 3G phone uses a 3G connection, either.

In the U.S. market, matters are even more complicated, as various 3G platforms will be available nationwide by the end of 2010, and T-Mobile USA's network might actually operate faster than 4G networks, so even speed will not be a clear differentiator.

Handsets, on the other hand, could be more important. In the first 18 months after launch, Japan's DoCoMo failed to build any real momentum behind its 3G service, and 3G users accounted for well under one percent of the company’s total mobile customer base. Then DoCoMo moved aggressively on handsets, and penetration grew.

At least in the European market, prepaid service plans have been important. Prepaid was first introduced to Europe in 1995, and it was a major factor in the rapid growth in mobile services during the past 15 years, Lonergan notes. Mobile services penetration has now reached 130 percent of the population, and prepaid accounts for the majority of these connections, fully 54 percent at the end of 2009.

Back in the early days of 3G, most of the focus (misplaced, as we now understand) was on video telephony because this was one of the few services that 3G could support and 2.5G could not. It should therefore have been a 3G marketing manager’s dream, but it turned into something of a nightmare due to unreliable performance and largely apathetic consumers.

But the single biggest difference between 3G and 4G is the world of demand into which they were born. Smartphone penetration and use of mobile broadband applications clearly is different today than was the case when 3G first was being introduced.

Mobile broadband (the laptop/dongle version) is a good example. This service didn’t exist when 3G was introduced. Neither did the iPhone.

Consumers in 2010 understand the differences between a 2 Mbps, 7 Mbps and 20 Mbps connection. In 2001, most did not.

It took five years for 3G penetration to reach 6.5 percent of global mobile users. Our projections for 4G follow a similar curve: relatively slow adoption in the first three years, with a noticeable pickup in years four to five, says Lonergan.

Some possible areas of upside include handset options, retail pricing plans and indoor coverage. "No matter how lousy the service provider's network or customer service, if they achieve the right balance and choice in their handset portfolio and price plans, just about any provider can build market share," Lonergan says.

Indoor coverage possibly could be a differentiator as well. In the early days of 3G, it was assumed 3G would be used by individuals out and about and as a complement to home land-line broadband service. 4G might be different: onsumers might use it more as a substitute for some home broadband usage, as they already use their 3G mobiles indoors.

Wireless Carriers Need More Spectrum, But Can They Handle the Borrowing?

Though acquisition of more mobile spectrum is a key strategic imperative for leading U.S. mobile operators,  it is not clear how much capacity and flexibility Verizon Communications and AT&T have within their credit ratings to absorb future spectrum purchases, say analysts at Fitch Ratings.

That is a significant opinion. Despite the apparent belief in some quarters that the largest U.S. telecom providers are so well positioned they can handle any shock to their financial models, Fitch Ratings does not believe that is the case.

In fact, a number of factors, including the cost of acquiring new spectrum, ability to monetize broadband services more effectively and competition from application-based wireless services all pose "longer-term threats to telecom operators' balance sheets and cash flows," Fitch Ratings say.

Fitch believes Verizon Wireless and AT&T Wireless, because of their scale, market power, and financial strength, will be in a better position to cope with these challenges than many lower-margin contestants, should the market environment shift. But increased reliance on wireless communications is an issue for many other contestants as well.

A key issue for cable companies is whether their wholesale arrangement with Clearwire can bundle competitive offerings that can successfully offset the significant threat from next generation broadband wireless networks as the telecom industry transitions more and more traffic longer-term to wireless, Fitch analysts say.

The Federal Communication Commission's "National Broadband Plan" aims to release 70 megaHertz of spectrum available for auction in the 2011 time frame.

Depending on the timing of the auction, the final amount of spectrum available, and the aggressiveness of the bidding, it’s not clear how much capacity and flexibility Verizon Communications Inc. and AT&T Inc. have within their credit ratings to absorb future spectrum purchases.

The good news is that, by the end of 2010, leverage is expected to decline for Verizon and AT&T due to strong free cash generation and management commitment to debt reduction. Both companies’ leverage has been at the high end of Fitch’s expectations due to past acquisitions and spectrum purchases.

Other well-capitalized, smaller operators or new entrants with strong balance sheets and good
free cash flow prospects should be in a favorable position to acquire additional spectrum.

New entrants or smaller companies without good operational cash flow characteristics or
strong balance sheets would likely have a difficult time funding any commitments for
spectrum purchases or buildout requirements.

That suggests the coming spectrum auctions will reshape the competitive environment in significant ways, favoring the well-capitalized contestants and weakening the financially weaker firms.

The transition to 4G networks also would seem to provide an opportunity for operators to
implement a new pricing model for data services. But it is not clear the opportunity is all "upside."

Clearwire, for example, already offers unlimited mobile data usage for $40 per month. Clearwire does not currently cap subscribers’ data usage, where most cellular operators limit monthly data
usage at 5 gigabytes. Since AT&T and Verizon offer capped plans costing $60 a month, Clearwire is using its 4G spectrum to disrupt current levels of pricing.

The company’s management has indicated that Clearwire’s mobile WiMAX subscribers already average approximately 7 GBytes of data usage per month.

Given the current indication by operators that Internet video will be a key driver of traffic on 4G networks, operators will need to create larger “data bucket” plans with tiered pricing, as the current 5 GB 3G plans currently offered for aircards and netbooks would not be sufficiently large enough to handle subscriber demands from streaming video.

Verizon's LTE Network Will Improve Gaming, Interactive Video Performance, Battery Life

The Verizon Wireless fourth-generation Long Term Evolution network will boost typical downlink speeds to 5 Mbps to 12 Mbps, and uplink speeds to the 2 Mbps to 5 Mbps range, but latency performance also will improve by a factor of about four, making the LTE network a much-better platform for multiplayer games and interactive multimedia applications.

Video applications such as video sharing, surveillance, conferencing and streaming in higher definition will benefit from the new network's capabilities.

The LTE air interface also reduces signal interference that historically has degraded end user experience and reduces power requirements, leading to longer handset battery life. Because of the 700-MHz frequencies used to support LTE, in-building signal strength will be higher than currently is possible with 3G network signals.

Verizon Wireless will be the first mobile service provider and among the first in the world to launch a fourth-generation Long Term Evolution network, starting with 25 to 30 markets in 2010, covering approximately 100 million people; and extending to cover Verizon's current 3G footprint in 2013.

A Decade After the Bubble, Another Round of Spectrum Auctions

It has been roughly a decade since European mobile operators placed big spectrum bets on "third generation" mobile broadband, and then largely watched as killer apps failed to emerge, customer use of the new networks remained sluggish, and executives ruefully noted they had overpaid for spectrum.

Now European mobile operaters are about to embark on a new round of broadband spectrum investments for fourth-generation mobile networks. You can expect them to try to be more-prudent investors this time around. In the 2000 round the German government, for example, raised 50 billion euros, or about $67 billion, on 3G licenses. Some anticipate the government will raise five billion to 10 billion euros this time around.

We'll see. The difference between the 2000 auctions and the current 2010 round is that Internet access has emerged as the "killer app" for mobile broadband, and the difference between 3G and 4G is that 4G looks to be a potential replacement for fixed-line broadband.

"With LTE, mobile phone networks will become a real alternative to cable or DSL (broadband telephone connections)," says Herbert Merz, head of the German hightech association Bitkom.

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Is Another National LTE Network Needed?

Do businesses and consumers in the United States need one more fourth-generation nationwide wireless network, aside from the existing Clearwire, soon-to-be-built Verizon and AT&T networks, as well as regional networks being created by regional mobile providers and cable companies, not to mention high-speed 3G networks running at top speeds of 22 Mbps?

Though no firm answer can be given to that question, we might find out relatively soon whether investors think there is a need for another facilities-based 4G network of national coverage.

Harbinger Capital, which recently merged with SkyTerra, proposes to build a fully integrated satellite-terrestrial network to serve North American mobile users, with a national 4G terrestrial network covering 260 million people by the end of 2013.

The planned network would launch before the third quarter of 2011 and cover nine million people, with trials set initially for Denver and Phoenix. The next milestone is that 100 million people have to be covered by the end of 2012, 145 million by the end of 2013 and at least 260 million people in the United States by the end of 2015. Harbinger told the FCC that all major markets will be installed by the end of the second quarter of 2013.

The original thinking has been that wireless services within a number of vertical markets that are highly dependent upon the ubiquitous coverage and redundancy to be provided by its satellite network would be the core of the business strategy. But Harbinger might think there is a market broader than that as well.

Harbinger actually is required by the Federal Communications Commission to provide wholesale access to third parties, and also to restrict total Verizon Wireless and AT&T traffic to no more than 25 percent of total, to provide more competition in the market.

The big issue is whether there is substantial need for additional spectrum at this point. One might argue that industry requests, as well as FCC proposals, for allocation of an additional 500 megaHertz of spectrum for mobile broadband are clear evidence of need.

But there are other issues of market structure and competition. Assuming hundreds of new megaHertz of spectrum can eventually be relocated, most observers think the buyers of such spectrum would be the largest mobile providers such as AT&T and Verizon.

The Harbinger network, by definition, would largely be a platform for other providers, as it would operate as a wholesale provider.

The key business issue is whether there actually is sufficient business demand for another national 4G terrestrial network, though. Sprint and Clearwire both have relatively lavish amounts of spectrum already, and both have shown a willingness to sell wholesale capacity.

One might argue the key differentiator would be the satellite roaming features that would be available on handsets that normally default to the terrestrial network. But the bigger test will be of investor sentiment, as Harbinger will have to raise billions to build the new terrestrial network.

The 36,000 base stations that Harbinger plans to use, along with the tower sites, backhaul and other gear associated with a terrestrial network will require billions of dollars worth of investment.

Analyst Chris King at Stifel Nicolaus estimates that Verizon’s LTE network will cost about $5 billion to deploy. Clearwire has also spent billions on its network, with analyst estimates ranging from $3 billion to about $6 billion. There is no particular reason to think the ubiquitous terrestrial network Harbinger expects to build would cost less.

Investors will have to be found first, before there is a chance to test the thesis that another facilities-based 4G network is needed.

U.S. to Lead in 4G Deployment? Does it Matter?

People sometimes are fixated on global rankings that have marginal importance, such as which country has the highest penetration of mobility, broadband, Internet usage or some similar metric. Aside from methodological issues that make such rankings difficult, it isn't clear that such rankings mean much of anything.

Consider the fact that the United States will have around 20 million Long Term Evolution subscriptions by end of 2012, and an additional six million mobile WiMAX subs, which would represent close to 25 percent of the global total of 4G subscriptions, says Strategy Analytics.  That would, by anybody's estimation, make the United States a "leader" in 4G adoption. But it isn't clear that particular distinction means much, by itself.

In times past the United States has been called a "laggard" in mobile phone penetration, "behind" other nations in use of text messaging and now is called by some a middling country in terms of broadband penetration. But the United States appears on track to become "the leading battleground" for 4G mobile services, says Susan Welsh de Grimaldo, Strategy Analytics director.

"With broad commitments to LTE and WiMAX service launches, US operators will speed up the competition and create one of the most influential markets for new mobile broadband services and devices," she says.

The point is that cross-national comparisons are difficult, and often of questionable value. The U.S. market no longer is "behind" in text messaging or mobile adoption in any meaningful way. And while one always can argue average or typical speeds are not the fastest in the world, most countries that are "ahead" on such measures are very-small countries with high population density, which makes construction far easier than is the case for a continent-sized country with lower density.

Nor will it mean quite so much to say the United States will "lead" in 4G, either. Lagging broadband metrics do not seem to have inpaired U.S. leadership in software and Internet development, for example.

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Sprint and Clearwire Might Go LTE for 4G

Sprint Nextel and Clearwire executives have said for some time that WiMAX and Long Term Evolution are similar enough that Clearwire could switch to LTE at some point. But that is more likely to happen when another technology migration to "fifth-generation" technology happens, not in the fourth generation.

In one respect, battles over air interface are simply part of the mobility business. Just as AT&T and T-Mobile opted for the GSM air interface while Sprint and Verizon opted for the rival CDMA air interface, and similar battles were fought over 2G standards, carriers will have to migrate their platforms over time, just as they always have.

The evolution from GSM (3G) to LTE (4G) will still require a new network, with a new air interface, operating on discrete spectrum and requiring new handsets and software. For that reason, each technology generation requires a fork lift upgrade and a refresh of consumer terminals as well. That's just part of the business.

So though Clearwire and Sprint chose WiMAX for 4G, their options for 5G remain open, and both Dan Hesse, Sprint CEO, and Bill Morrow, Clearwire CEO, say they could opt for an LTE derivative for 5G.

Hesse says the choice of WiMAX was based on the fact that Sprint could not wait for LTE standards to jell. It had a business need to move, so it did. "WiMax was tried-and-true tested technology at the time we made the choice," he says. "We couldn't wait."

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Global Spending on Mobile Networks to Grow 4% in 2010

Given dramatic increases in mobile Internet and broadband use, it is perhaps not surprising that mobile service providers will be hiking their network investments about four percent in 2010.

Informa Telecoms & Media estimates that mobile broadband subscribers worldwide  reached more than 225 million subscribers in mid-2009, representing 93 percent year-over-year growth.

Global mobile data bandwidth usage increased by about 30 percent during the second quarter of 2009, says Allot Communications.

The investment growth comes on top of about two years of flat to negative spending where mobile service providers tried to hold down spending in the face of the global recession.

Overall investment was down about three percent in 2009, says ABI Research.

Investments in 3.5G technologies such as HSPA and HSPA+, along with the rollout of 4G LTE networks by large operators such Verizon Wireless and Telia Sonera, are driving much of the activity. The fastest growth in capital expenditures is expected to be in South America, where compound average growth rates will average 10 percent between 2009 and 2015.

”The rapid adoption of smartphones will drive service revenue growth in 2010, as more consumers adopt data plans to take advantage of their handsets’ features,” says ABI Research analyst Bhavya Khanna.

Developed markets such as North America and Western Europe saw more than 17 percent year over year growth in mobile Internet revenues, a trend that is likely to continue into 2010.

ABI Research forecasts mobile Internet service revenues to grow at a CAGR of 9.4 percent between 2009 and 2015.

Wi-Fi Hotspot Market Increasingly Provides "Mobile Offload"

Some proponents once touted Wi-Fi hotspots as an alternative to mobile or out-of-home broadband service. It increasingly look as though the Wi-Fi hotspot is emerging as a way of offloading traffic from the mobile network, as well as a way of supporting mobile devices that do not have data plans.

In-Stat estimates that hotspot usage will increase in 2009 by 47 percent, bringing total worldwide connects to 1.2 billion.

“Mobile operators have become increasingly involved in the hotspot market globally as they assess the potential of hotspots to offload wireless data traffic from overburdened 3G networks," says says Frank Dickson, In-Stat analyst.

Also, mass market adoption of Wi-Fi-enabled smartphones has significantly altered hotspot usage, with these devices accounting for the majority of access sessions in some locations,” he says.

Total worldwide hotspot venues will reach 245,000 locations in 2009, while AT&T is on course to experience 500 percent usage growth, year over year, In-Stat notes.

Mobile Broadband Complementary to Fixed Broadband

Over the next three to five years, mobile broadband will be complementary to fixed broadband, rather than a substitute, says William Lehr, economist and research associate in the Computer Science and Artificial Intelligence Laboratory at Massachusetts Institute of Technology.

"I expect fixed and mobile broadband services to offer distinctly different sets of basic capabilities, and as a consequence, to remain distinct services that will not be perceived as close substitutes in most user and usage contexts for the foreseeable future," Lehr says.

There will be situations where it is reasonable to expect that mobile services will be perceived as substitutes, if imperfect substitutes, for fixed connections, and will therefore result in some cannibalization, he says.

Users who are more budget conscious (the young or others with limited incomes, for example) are more likely to choose one instead of both services, Lehr suggests.

Heavy users may prefer fixed broadband access, while light users (or those who live alone) may find the mobile alternative more appealing.

Also, users who place a high value on mobility are more likely to opt for mobile over fixed services. Conversely, those whose principal mode of usage is at a fixed location and who would have a high need for a large sized display, may strictly prefer fixed broadband services.

As mobile data rates increase, some users may find that for their usage profile, mobile is fast enough to meet their needs even for shared household use. That should especially be true now that MiFi devices can allow sharing of one mobile connection by as many as five devices.

On the other hand, even though mobile bandwidth is increasing, so is fixed bandwidth. So the relative value of mobile over fixed services is greater when the fixed service is less capable. In other words, a fast 4G wireless connection might be perceived as superior to a lower-speed digital subscriber line connection, compared to a fiber-to-home connection or DOCSIS 3.0 cable modem service.

What the situation might be in 10 years is likely unknowable, but it is reasonable enough to assume that if today's smartphones are simply tomorrow's phones, and if new devices continue to be developed, that mobile broadband always will be a distinctly complementary service. If you assume today's 276 million mobile phone users in the future will simply be smartphone users with broadband connections, you get the point.

In fact, it probably makes more sense to say that fixed services are not going to be substitutes for mobile broadband, than to argue that mobile will be a substitute for fixed access. Nearly every mobile device will require broadband, irrespective of what in-home or in-office devices require.

Whatever you think about mobile broadband, it is worth remembering that mobile broadband services were not available in the U.S. market until 2005. So we are at this point just five years into the product's lifecycle.

By the first quarter of 2008, 40 million or almost 16 percent of mobile subscribers were regularly accessing the Internet using mobile broadband services, according to Nielsen.

Analysts at Forrester Research use a lower figure of 34 million subscribers in 2008. That will have grown at a 52 percent rate in 2009 to 52 million, and mobile broadband will continue to exhibit double-digit growth through 2014, when 106 million users, or a full 39 percent of all wireless subscribers, will become regular mobile Internet users, Forrester now projects.

PC data cards represent about 34 percent of mobile broadband subscriptions, while smartphones rapidly have emerged as the key driver of new mobile broadband accounts.

Quantifying the Carrier Wi-Fi Hotspot Business Model

Customer retention--not direct customer fees--might be the biggest part of the carrier public hotspot busimess model, says Stephen Rayment, CTO, BelAir Networks.

"Churn reduction is where lots of the value is," is Rayment. Assume churn per month of two percent a month, which means a typical customer provides 50 months of revenue, he says.

Adding metro hotspot access can provide a 10 percent churn reduction, he adds. Assume the 10 percent churn benefit on a typical subscriber relationship of 50 months, meaning the typical account now remains active for 55 months. Assume a typical customer average revenue per user of $130 a month.

That suggests an extra $650 of subscriber revenue over the length of a relationship. For a service provider with 100,000 subscribers that works out to $65 million in extra revenue.

If the average customer value is $2,000 per customer, and that service provider can use public hotspot service to reduce churn 10 percent, it adds about $200 per subscriber in terms of equity value.

For a service provider with one million subscribers, that's $200 million in incremental equity revenue.

For a service provider with one million subs, making an investment of $40 million to cover all the high-traffic spots, there is a five-to-one return on investment.

There arguably could be other revenue contributors as well, though none likely approaches the value of enhanced retention. There might be an opportunity for a small amount of additional revenue. Some customers will be willing to be stand-alone hotspot subscriptions.

Service providers might make some money from other carriers by offering hotspot access to customers roaming into the local area. There could be some advertising upside or some commercial upside from providing services to public utilities or public safety organizations, he says.

Some service providers also might look at public Wi-Fi as a way to add some mobility features to their landline service.

Mobile providers also likely will find public hotspots a useful way to offload traffic from the 3G and 4G networks to the fixed network, Rayment says.

"The networks are just choking" because of heavy new smartphone traffic, says Rayment. "People really did not see this until the iPhone, but 3 in the U.K. market also saw skyrocketing demand when it started selling the iPhone," says Rayment.

Up to this point, aircards and dongles used for mobile PC connections have been driving new bandwidth demand on the 3G and WiMAX networks. But that is changing. "Dongles drove the initial demand, but will be overtaken by the smartphone," he says.

The point is that the business model for public hotspot networks frequently is indirect.

Verizon to Activate 25 to 30 LTE Markets in 2010

Verizon Communications CEO Ivan Seidenberg says his firm will begin deployment of its fourth-generation Long Term Evolution network "later this year with a few commercially-ready markets and will roll it out to 25 or 30 markets in 2010."

But the infrastructure only is "just one piece of the puzzle," he says. "It's the combination of devices, applications and network capabilities that will really cause this market to take off," Seidenberg says. "No single company will be able to envision, let alone provide, every aspect of this whole 4G ecosystem on its own."

That is a primary reason why the 4G business model will be different from what we have seen with 2G networks, with 3G being someplace in between. Where 2G was largely a vertically-integrated business, 3G has been more open, at least to the extent that broadband access to the Internet itself is an "open" environment.

The 4G model inevitably will be more of an "ecosystem" approach, in part because many applications are seen as "machine to machine," and in part because device and application openness will be much more central ways of creating new applications.

http://sev.prnewswire.com/telecommunications/20090401/NY9285501042009-1.html

Is Cable's WiMAX Business Model Anything Like Wi-Fi?

Cable operators continue to have more questions about wireless services than they do about any other products delivered over their wired broadband plant. They should. Wireless would be the first service not delivered over networks they fully control, and which build relatively logically on what their existing networks offer, in terms of value.

Wireless wouldn't be the first service they've ever offered that must take share from other providers in a saturated market. Cable digital voice clearly has had to take share from incumbent telcos. But core video entertainment and cable modem services essentially were "green field" services that only had to grab attention, not steal market share.

Wireless voice and data are not businesses where cable has existing core competence, and a price "race to the bottom" is not where cable traditionally is most comfortable.

Everybody seems to think mobile video and content is where cable might leverage its formidable assets in a more-logical way. But no killer app yet has emerged.

Should that tack succeed, the business model for WiMAX might be along the lines of how Cablevision Systems Corp. positions it own metro Wi-Fi offerings. Essentially wireless access drives the value and profitability of cable modem service.

So if "cable modem services" provide the business model for providing free metro Wi-Fi, perhaps wired video entertainment will provide the ultimate business model for WiMAX.

Cox Communications Plans CDMA, LTE Networks

Cox Cummunications is moving ahead with its plans to build an in-region moble broadband network using CDMA, the same platform used by Verizon Wireless and Sprint Nextel. Cox is said to be thinking more along the lines of Long Term Evolution for its fourth-generation network.

Huawei Technologies Co. says it has been selected to provide its end-to-end CDMA solutions and services to Cox Communications. Cox, the third-largest cable provider in the United States, will launch its new 3G wireless network utilizing Huawei’s LTE-ready SingleRAN solution and industry-leading 3900 Series base stations, Huawei says.

Cox might rely on its partnership with Clearwire or Sprint for out-of-region roaming. As Sprint's national network uses CDMA, it makes sense to rely on the Sprint network rather than WiMAX for out of region coverage.

http://www.lightreading.com/document.asp?doc_id=174434&site=cdn

WiMAX: Ultimate Role Unclear

Clearwire touts its vision of the future as mobile Internet. But so far, its customer base is a replacement for dial-up, cable modem or Digital Subscriber Line service. Just four percent of its customers appear to substituting a mobile service for WiMAX.

That isn't to say the customer base and apparent value proposition will remain as it currently is. WiMAX someday may compete more directly for the broadband-equipped mobile customer base.

That isn't the case today, where Clearwire seems to be competing with cable and telco fixed broadband services. At some point, the mobility play is supposed to have Clearwire and WiMAX competing more robustly for the data card and smart mobile phone customer. But lots of challenges remain.

WiMAX might someday primarily be a platform for mobile broadband. In Sprint's case, it might primarily be the next-generation replacement for 3G broadband. If the former winds up being the case, cost control will be more important. If the latter, feature richness will be more important.

The reason cost control is more important for a mobile broadband network is that the revenue sources will be less robust, on a "dollar for bit" basis, compared to networks that make lots of revenue from voice and texting services, which are highly efficient, on a "revenue for bit" basis.

Advertising also is more important if mobile broadband winds up being the primary attraction for WiMAX users. That suggests content access is more important than communications, and that in turn means media, and media always means advertising.

A Tip on WiMAX Direction

If analysts at In-Stat are right, and the WiMAX chipset market is driven primarily by embedded Mobile WiMAX chips in mobile PCs through 2012, we might conclude that some suppliers are betting WiMAX will be about mobile and tethered PCs, much more than dual-mode cellular/WiMAX handsets, at least for the foreseeable future.

In that view, WiMAX is, at least initially, a replacement service for cable modems, DSL and 3G data cards, rather than a platform for newer services. There's nothing wrong with approaching a possibly-new market by snagging revenues for legacy applications. What will be interesting is to see whether WiMAX can develop into something more than a 3G network with more bandwidth.

To be sure, there are several potential "disruptions" here. There is the "open networks" challenge, the possibility of disruptively-lower prices, opening up Web connections for whole new classes of devices as well as the potential creation of a mobile-Web-optmized network for the first time.

“The total WiMAX user terminal chipset market will reach almost $500 million in 2012, growing from $27 million in 2007,” says Gemma Tedesco, In-Stat analyst. “Furthermore, WiMAX base station semiconductor revenues are expected to be approximately $1.4 billion in 2012, compared to $130 million in 2007.”

Xohm: Where's the Beef?

Sprint Nextel says it will launch it Xohm WiMAX service at the end of April. Associated Press also reports that Xohm will not use subsidized handsets, will offer daily, weekly, monthly and longer-term contracts. In an attempt to differentiate itself from simple "access" services, Xohm will feature location-based services tied to advertising and search and portal services created by Google.

But Xohm will have to do more than that. As the first widespread network created expressly for broadband-based services, Xohm will be an early test of the economics of networks anchored on broadband access revenues rather than voice. And that is going to be a challenge in the early going. By definition, Xohm is soft launching service in three markets with established cable modem and Digital Subscriber Line service.

Chicago, Washington D.C and Baltimore, to be specific. Other markets are supposed to be added in April. The point is, if the offering is positioned as a terrestrial broadband substitute, how big is the opportunity? Conversely, if Xohm is positioned as a mobile broadband alternative to existing third generation services, are location services enough of a differentiating factor?

It is conceivable that customers will defect to Xohm for prosaic reasons: no-contract service or lower prices, for example.While helpful, that is hardly an objective requiring construction of an entirely-new network. Many years ago, when new blocks of spectrum were auctioned off for what was then called "personal communication services," the thinking was that the spectrum would be used to create new services, used in new ways. A prime example was a sort of quasi-cordless, quasi-cellular service that offered call handoff when the user moved at pedestrian speeds, but wouldn't be usable at freeway-driving speeds.

What happened is that all that spectrum wound up being used as the basis for CDMA and GSM-based 3G mobile networks instead. New services were created, of course, but not the ones everybody expected. People thought the access mode would be the difference. Instead, it was text messaging and mobile email that wound up driving new service revenues.

It is conceivable that some new use mode will develop for WiMAX networks, based on game platforms or media devices rather than phones, for example. The issue then will be about whether the cost of building and operating the network, and securing the spectrum, can support the revenue generated by the new use cases. It's not going to be easy.
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4G: It Isn't Really a Technology Issue

As service providers start placing their bets on WiMAX or High Speed Downlink Packet Access (HSDPA) technologies, it is easy to fall into the trap of "technological determinism," the notion that the technology determines adoption or commercial success. Nothing could be further from the truth.

Commercial decisions, not the technology, will be the decisive factor. Business decisions almost always are. One can make a technology either way for WiMAX or HSDPA. But that won't be key. Operational issues, backwards compatibility, installed base, manufacturing volumes and even voice compatibility will turn out to be hugely important.

Some might argue that building a new broadband mobile network with a view to voice performance is nuts. The countervailing argument is that no matter what other "data things" users frequently do, talking will be one of them. And poor voice performance is objectionable in a way that OS instability and Web page unavailability are not. People routinely tolerate lower quality of service for their Web browsers, Internet connections and PC operating systems than they will their voice or video services.

Don't believe that? Watch what happens when movie download services become more prevalent. Every degradation of isochronous service disturbs users more than any non-real-time service. Users are unforgiving of voice or video service hiccups that would not faze them when the hiccups affect a non-real-time data service.

In fact, that's the point: user experience is not degraded by packet loss or some amount of jitter or latency when the application is not real time. User experience is visually or aurally affected in a highly visible way when the application requires predictable, sequenced delivery of the packets. Voice and video, to be specific.

The Trouble with WiMAX

The "trouble" with WiMAX, I've maintained, has nothing to do with performance, or necessarily with network cost. The technology will work. The issue is how and where WiMAX fits in the business environment. In developed markets where lots of competition already exists, the issue is figuring out where WiMAX plays in the applications environment. As a fixed alternative to cable modem, fiber-to-customer or Digital Subscriber Line services, the issue is how big a market exists. As a mobile broadband platform, the issue is how it competes with 3G networks and Long Term Evolution, the GSM-based fourth generation network alternative.

There's less contention in rural areas or less-developed broadband environments. Where it is too expensive to deploy a terrestrial broadband network, WiMAX has a clear logic. Even there, though, there might be questions about how more-established mobile voice and 3G networks factor into the competitive equation. One certainly can argue that WiMAX will provide much more bandwidth than 3G, today. The issue is how long it will take to create robust revenue models for 3G services, let alone providing those services more effectively over a faster 4G network.

It is, in short, a business issue, not a technology issue. To be sure, one can argue that a new market for broadband-enabled devices other than mobile phones is coming to fruition. But the issue there remains whether WiMAX necessarily or primarily provides access to those devices in ways that 3G cannot, let alone 4G. One might argue that WiMAX has a shot at providing access to all kinds of consumer devices other than "phones." But one might also argue that such connectivity has to be much cheaper than anything we've seen so far.

WiMAX networks might be half as costly as a 3G network to build. But that's not enough. They also have to be less than half as costly to operate, or prices won't be low enough to entice users to pay for connections to cameras, music players, game or entertainment platforms, for example. Those functions also are enabled on 3G networks, in many cases, combining the text and voice functions with the very services WiMAX might enable.

WiMAX might not prove to have the market traction its supporters hope for, in other words, at least in developed broadband markets where there is robust competition from cable modem, DSL, fiber to home, 3G mobile, fixed wireless, Wi-Fi hotspot and satellite broadband alternatives. The difference could come if WiMAX becomes the mobile provider 4G platform or if mobile WiMAX access is priced well below current mobile rates, allowing customers to access enable more devices than they now do.

It is not unthinkable for users to consider simultaneous broadband subscriptions. But it does require a more-compelling value/price relationship. We can assume standard-issue mobile phones, increasingly of the "smart" variety and optimized for Web experiences. We also can assume greater penetration of wireless data cards to support notebook PC use in nomadic fashion. What is not yet clear is the potential demand for broadband-connected music players, cameras, game players, dedicated navigation devices or video players. How many different subscriptions are users willing to pay for?

There is some thinking that WiMAX will be used especially heavily by mobile PC customers, as WiMAX is seen as powering a good chunk of the access card business.

“In 2010, the forecasted WiMAX subscriptions in North America will represent two percent of that for mobile 2.5G/3G and 66 percent of the subscriptions for mobile data cards,” say Philip Marshall, Yankee Group vice president, and Tara Howard, Yankee Group analyst.

Yankee Group estimates the number of WiMAX subscribers will increase from 1.3 million to 7.8 million between 2006 and 2011 and that in 2011, 7 million subscribers will be using 802.16e technology. Some percentage of that use will be for fixed broadband access, of course.

Assume such forecasts are correct. The percentage of WiMAX subscribers relative to residential broadband subscribers in the North American market then will increase from 2.2 percent to 7.4 percent between 2006 and 2010. Whatever else one might say about this level of adoption, it certainly doesn’t represent some sort of full-blown challenge to cable modem, DSL or fiber-to-customer access technologies. In fact, WiMAX, if it is adopted as Yankee Group researchers now forecast, will be yet another ancillary or niche form of broadband access.

So in mature markets, the major upside opportunity for WiMAX is expected with mobile personal broadband services, with fixed and portable services gaining moderate early market traction. In some Asian markets, such as Korea, it is conceivable that WiMAX-based mobile broadband could succeed, despite the existence of robust 3G and mobile video alternatives.

Still, the ultimate role of WiMAX in the wireless market is debatable, says a recent Organization for Economic Cooperation and Development report. “Large supporters such as Intel have a vision that WiMAX will change the way we all access the Internet in a matter of years,” says the report.

“Detractors claim that the economics of large-scale WiMAX networks are simply not justified,” the OECD report suggests.

Mobile WiMAX technologies may have the most profound impact in some urban areas because they could fill a connectivity void between 3G data networks and Wi-Fi, though.

Ultimately, this will not be a matter of technology, but of commercial issues and creation of new niches. It's hard to see GSM mobile operators going with WiMAX as a full-blown replacement for 3G, when LTE is coming. And it isn't simply a matter of technical performance. Smooth migration paths are important for large carriers. WiMAX might be too abrupt a transition for many. That might not be the case in undeveloped broadband markets, where a fixed broadband capability is reason enough to deploy it. Mobile broadband is a tougher matter, though.

Right and Wrong, But for the Wrong Reasons

In its story on "Technology in 2008," The Economist makes three predictions, one that will not happen in 2008, one of which could--but won't--happen and one which already happened. The three:
1. surfing will slow
2. surfing will go mobile
3. networks will go open

Oddly, the article predicts the Internet will clog because of spam. The article also says access pipes operate "symmetrically." If only it were so! The article is more apt when it says user-generated content, especially of the video sort, will stress the networks. "Gridlock" is the prediction. But it won't happen. Pipes are being upgraded and "reasonable use" policies are going to change. Traffic shaping is coming and access pipes are getting bigger. "Surfing" isn't going to slow.

The article is correct in noting that wireless access is coming. But the article implies that it is the 700-MHz auctions that will drive the change. Keep in mind, these are predictions for 2008. There is no way any new network using 700-MHz spectrum is going to be operating in 2008. And the tier one mobile providers are doing everything they can to convince more users to buy data access plans, with modest success so far. It's coming, no doubt about it. But it's been coming for years.

Use of data cards, browsing plans and email access plans will grow incrementally, and at a faster rate, to be sure. But there's no "big bang" coming in 2008. The trend began years ago.

In predicting that we'll see more "openness" in mobile networks, the article is on track. Perhaps the article focuses a bit too much on open operating systems and not enough on unlocked phones and access, but of the three predictions, this one is most nearly correct. But a new operating open network in the U.S. market at 700 MHz, in 2008. Absolutely no way.

Web services are going mobile and open, no doubt. But neither trend is specific to 2008.