Study Confirms: Wireless Cheaper than Fixed for Rural Broadband

Wireless infrastructure has significant cost advantages over wired access in reaching homes in rural areas, it is often the most efficient way to provide broadband access, says the Brattle Group. That will come as no surprise to anybody who ever has attempted to model the cost of building broadband access infrastructure

The Group's analysis suggests that the cost of bringing high-speed access to most rural counties is between $1,000 per household to $7,500 per household.

The bigger issue is the degree to which mobile broadband can be a viable subsitute for fixed broadband in urban areas where fixed access already is plentiful.

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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.

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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National Broadband Plan Suggests Wireless Future

There are some fairly-significant implications one might draw from the Federal Communications Commission's proposal for National Broadband Policy. First of all, the plan explicitly relies on private capital and private firms to get the job done.

There are some important tweaks to funding of services rural high-cost areas, and a bit of new spending in other areas. But those are a gloss. The heavy lifting clearly is going to have to be done--or left undone--by private capital and existing service providers.

People can continue to advocate for, and support, alternative ways for getting things done, but there is at this moment no sense that radical changes in industry structure are possible. Some might argue that the country would be better off with a robust wholesale infrastructure, retail provider model, but that is not on the table.

The other really-significant implication is that the future will belong to wireless. In fact, the really-big proposal is to reallocate 500 megahertz of wireless spectrum away from TV broadcasting and to wireless communications.

In fact, though any of us might grumble that prices are too high and speeds too low, the FCC's own data suggests that "access" actually is not a problem, even restricting the definition to fixed networks.

The FCC says 78 percent of U.S. homes already have access to two broadband service providers. About four percent have a choice of three providers. Another 13 percent have at least one provider. Only five percent of homes do not have at least one fixed services provider. And, again, those estimates do not include two satellite broadband providers and between one to four mobile broadband providers as well.

Separately, the FCC notes that 77 percent of U.S. households already can buy service from three wireless broadband providers. Another 12 percent of homes have a choice of two mobile broadband providers, while none percent of homes have at least one mobile broadband service provider. Only two percent of U.S. homes cannot buy mobile broadband service.

For a variety of reasons, the FCC plan implicitly acknowledges that the current fixed broadband duopoly is about as good as it will get, and that, going forward, mobile broadband is the new battleground.

The FCC probably is completely right in that assessment. Mobility is the one industry segment that would have relatively little trouble attracting lots of new capital investment, and mobility is the one segment of the whole communications business that is exploding globally, not just in the United States.

Mobility is the segment where innovation already is the fastest, where new applications and devices are proliferating most rapidly, and where consumer interest and new adoption is highest.

Like it or not, the FCC always works within a political context. It has to work within the constraints of what is possible, and the emphasis on wireless is a clear reflection of those constraints. The FCC is smart enough to understand that, so long as private capital and private firms must drive the bulk of national investment and service provision, the agency must work within the constraints of the capital markets, which clearly signal that the perceived upside, and therefore investment interest, lie in wireless and over-the-top applications, not more wired infrastructure.

No Inevitable Need for Usage-Based Pricing, AT&T CEO Says

Usage-based wireless broadband pricing does not necessarily mean an end to unlimited-use plans, says AT&T CEO Randall Stephenson. But it might mean plans that tie usage in some broad way to retail cost of service.

Consider the way mobile plans are sold today. There are some true "unlimited plans" for voice, data and text messaging. But there also are plans with buckets of usage that sell for various lower prices. That same content might well work for future broadband access plans as well.

PC-based wireless broadband users, for example, consume more bandwidth than smartphone users. It might therefore continue to be the case that unlimited use is more practical for smartphones than for PC dongle service.

At the same time, there also are existing precedents for fully unlimited use even for PC devices. Business-grade services such as T1 connections, for example, are unlimited-use services, but also sell for higher prices than typical consumer services.

Anthony Melone, chief technology officer at Verizon Wireless also suggested the U.S. wireless industry might not be able to wait 10 years for additional spectrum of the sort the Federal Communications Commission now hopes to entice TV broadcasters to part with. "They need to have something in the five-year time line."

Perhaps the most interesting comment is Stephenson's take on the continued role for fixed broadband capacity. Stephenson says wireless capacity issues would maintain a role for fixed-line connections "at least in his lifetime."

That suggests even Stephenson can envision a time when fixed connections are not nearly as relevant as they are today.

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Telekom Austria Looks to Wi-Fi for Offload

Mobile broadband is cheaper than fixed-line access in Austria, and also the single largest method of access. In some ways, that is good for iTelekom Austria, if success is defined as dominant market share.

On the other hand, it entails capacity issues, since PC users consume far more bandwidth than smartphone users.  So it is not surprising that Telekom Austria CEO Hannes Ametsreiter says the company is looking hard at ways to better use Wi-Fi connections to offload much of that traffic. 

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.

Xohm: No Contract, No Subsidy, No Termination Fees, No Obligation

Sprint says Xohm WiMAX customers will not have to sign contracts and won't charge any termination of service fees either. Users will buy their own air interface cards without Sprint subsidizing the hardware. The whole message: "You don’t owe me anything, I don’t owe you anything."

Well, not quite. Users might just be offered subscription plans whose cost declines over time as the length of the relationship grows. Nice. Reward a customer for loyalty. Of course, Sprint also knows that customers with long tenure are the most profitable customers it has. So there is more margin to shave to keep those customers happy.

Xohm is expected to operate at aobut 2 Mbps to 4Mbps downstream and 1 Mbpt to 2 Mbps upstream. Pricing probably will be set about about $30 or $35 a month.

It is a small step, but one of many being taken throughout the wireless ecosystem to bring more user freedom.