What Balance of Licensed, Shared, Unlicensed Spectrum is "Best?"

It isn’t surprising that mobile service providers argue in favor of licensed spectrum as a principal way of dealing with spectrum and bandwidth needs in the wireless business. It isn’t surprising that would-be attackers often argue in favor of unlicensed spectrum.

Dedicated, licensed mobile broadband spectrum tends to create more-concentrated markets where license holders are few in number (normally three to five facilities-based operators in a country). That tends also to favor larger, well-capitalized service providers.

Unlicensed spectrum tends to appeal to smaller and entrepreneurial firms without the means to pay millions to hundreds of millions for spectrum, and tends to create a larger number of competitors.

In other words, licensed spectrum tends to favor larger incumbents, while non-licensed spectrum tends to favor smaller, upstart providers and innovators.

On the other hand, one might also argue that licensed spectrum tends to make technology transitions much easier, while non-licensed spectrum tends not to promote big changes so easily, since the wide range of non-licensed devices and providers makes any coordinated changes more difficult.

So licensed spectrum arguably is more amenable to “re-purposing” spectrum to new and better uses, compared to non-licensed spectrum.

Ericsson argues that licensed spectrum also promotes global roaming and allows for economies of scale. Also, non-licensed spectrum can lead to such interference that many of the advantages of the spectrum are not always optimized.

“Licensed but shared” spectrum is a newer concept that might arguably combine some of the better elements of each approach.

Ericsson perhaps logically argues for a primary reliance on licensed spectrum, with unlicensed and shared access as complements.

“Increasing the use of unlicensed spectrum as an independent main track is not an effective or sufficient approach for mobile communications,” Ericsson says.

The issue, of course, is in the details of how much shared access and unlicensed spectrum is made available. New competitors and smaller firms logically will argue for more reliance on unlicensed and shared approaches, there being little to no possibility regulators globally will suddenly adopt a new preference for unlicensed approaches.

Developed Asia-Pacific Telecom Markets Will Shrink Between 2012 and 2017

Aggregate statistics do not tell us very much about the health of various markets and product segments. Consider revenue projections for the Asia-Pacific region, generally acknowledged to be the fastest-growing region globally, with some estimates pegging revenue growth at about seven percent a year.

But telecom retail revenue in developed Asia–Pacific markets, for example, is set to decline at a compound annual growth rate of –0.4 percent during the next five years, according to new research by Analysys Mason.

Overall revenue is expected to fall from US$217 billion in 2012 to US$213 billion in 2017, even as gross domestic product grows three percent during this period.

As you might guess, the revenue decline will be driven by a fall in fixed revenue from US$86 billion in 2012 to US$74 billion in 2017.

The mobile sector will grow at around 1.5 per year from US$131 billion in 2012 to US$139 billion in 2017.

Fixed voice connections will decline by five percent between 2012 and 2017, from 138 million at the end of 2012 to 132 million at the end of 2017.

Mobile network connections will increase by 21 percent, from 255 million to 267 million in the same period, but mobile retail revenue will decline because the average revenue per voice minute will decrease – drastically in some countries.

“It is becoming increasingly difficult to extract the value of a mobile minute in developed economies,” says Tom Mowat, Analysys Mason principal analyst.

Still, mobile penetration will grow from 115 percent at the end of 2012 to 133 percent by the end of 2017.

Smart phones represented 42 percent of handset subscriber information modules at the end of 2012 and will grow to 84 percent by 2017.

By the end of 2013, smartphone SIMs in the region will outnumber those of non-smartphones.

The number of fixed broadband subscribers will grow from 75 million at the end of 2012 to 81 million by the end of 2017.

The proportion of fiber-to-the-home and business connections will grow from 42 percent of the region’s fixed broadband connections at the end of 2012 to 48 percent at the end of 2017.

The most rapid growth will be in Australia and Singapore, where national broadband projects could life penetration from about one percent up to perhaps 13 percent in Australia and 46 percent in Singapore by the end of 2017.

Dish abandons Sprint Bid

Dish Network says it is giving up on the effort to buy Sprint and instead will concentrate on trying to get a minority investment in Clearwire. The not unexpected move might be said to be dictated by the tight time frame for Dish to submit a revised offer by June 18. Dish couldn't comply. 

But many observers would say neither could Dish easily afford to take on the debt burden to buy Sprint, either. And some would say both that effort, and the continuing effort to win a minority stake in Clearwire (even Dish does not believe it can gain full control) are simply "negotiating" ploys to gain influence over Sprint. 

The move clears the way for SoftBank's merger bid with Sprint. SoftBank would own 78 percent of Sprint.

At $21.6 billion, the deal could mark the biggest overseas acquisition ever by a Japanese firm. But to the extent that SoftBank continues to see the Clearwire spectrum as essential to it plans, the drama now focuses on whether Sprint can win control of Clearwire or not.

Some would argue a Softbank-owned Sprint could still proceed with its plans, even if Dish Network were to gain a minority stake in Clearwire. But that would not solve Sprint's original problem, namely periodic differences with Clearwire management over strategy. 

As much sense as that makes for Dish, which badly needs an operating partner and more spectrum to launch its planned Long Term Evolution network, some might wonder how well a poisoned relationship between Sprint and Softbank, on one hand, and Dish, on the other, could work too well. 

Dish Network's position is something like "I don't care whether you like me; just help me build a rival network to yours." 

Service Providers Hope Ubuntu Will Emerge as a New Smart Phone Operating System

The new Carrier Advisory Group, including EE, Deutsche Telekom, Korea Telecom, telecom Italia, LG UPlus, Portugal Telecom and SK Telecom, aims to help shape the use of Ubuntu as a smart phone operating system.

The CAG is intended to allow mobile operators to help shape Ubuntu’s mobile strategy, leading ultimately to the creation of Ubuntu-based smart phones.

Carriers would prefer not to allow Apple and Android to become too powerful in the device business, as that increases leverage for providers of those handsets, while simultaneously limiting service provider choice and leverage.

The issue is whether there is room in the market for any new operating system. End users and device suppliers will have the ultimate say, no matter what service providers do.

Canonical is sponsoring the Carrier Advisory Group, as part of its own effort to establish a market position for Ubuntu in the smart phone market.

Largest South African Bank Might Become a Mobile Service Provder

First National Bank reportedly is in discussions with mobile service provider Cell C about FNB's launch of a branded mobile service. 

FNB already offers its banking clients discounted mobile devices, including tablets and smart phones. In fact, FNB already is one of the biggest airtime distributors and bulk SMS users in South Africa.

Such a move would be the bookend to the moves some mobile service providers are taking to become a bigger part of the banking services banking services ecosystem. 

Safaricom already has millions of Africans using their mobile phones to send cash through an SMS network, Safaricom is now trying to tempt them into a savings-and-loans service called M-Shwari.

An M-Shwari account can be set up instantly and accessed from any mobile handset. It is operated jointly with Commercial Bank of Africa.

Defaulters face losing their phone number, a deterrent to defaults. 

In its first four months 2.3 million subscribers opted in to M-Shwari; about 900,000 of them have active accounts. Deposits to date total four billion Kenyan shillings ($47m). A third of customers have applied for small loans, averaging around $12.

Liberty Global Bids for Kabel Deutschland

Germany's biggest cable operator Kabel Deutschland Holding AG has received an acquisition proposal from Liberty Global. Vodafone Group earlier had made a bid, which Kabel Deutschland initially rejected as "too low."

The move illustrates the growing wave of telecom mergers many expect to see unleashed, in part because conditions for consolidation in Europe are improving, because growth has stalled and because "growth by acquisition" is becoming the surest way to boost revenues. 

The other issue is that dealmaking has been muted in the wake of the Great Recession of 2008, as was the case following the collapse of so many firms in the Internet Bubble crash. History suggests activity will climb again as distance from the last recession grows.

                                     Global telecom deal volumes/deal values 2000–2010                                                                                                                                          Source: Thomson SDC Platinum

The "name of the game in the cable business is scale," Liberty Media Chairman John Malone says, referring to the need for yet another wave of consolidation in the U.S. and European     cable business. 

In part, the problem is that markets are more competitive, with other providers taking market share, and with more pressure on profit margins. 

As with any other market where margins are dropping, suppliers can compensate by increasing the volume of sales, which means more customer scale. 

In principle, the same dynamics are at work in other parts of the communications business as well, ranging from mobile services to rural telecommunications to competitive local exchange carrier and incumbent local exchange carrier markets. 

Apple and Samsung, for example, dominate profits in the smart phone industry, some would say because they also dominate market share. 

That relationship between market share and profits is one reason consolidation in the cable and other parts of the communications and video entertainment business will continue. 

                                                Deal values by transaction type 2000–2010

Source: EY Survey Why Capital Matters (2000-2009) and Thomson SDC Platinum (2010 data)

Chromebooks Getting Major Retail Support

Chromebooks now will be sold in more than 6,600 stores around the world, expanding beyond Best Buy and Amazon.com to Walmart and Staples. In the coming months select Office Depot, OfficeMax, and regional chains Fry’s and TigerDirect locations will begin selling Chromebooks, Google says. 

Walmart will be selling the Acer Chromebook in 2,800 stores across the United States for $199, starting this summer.

Staples will bring a mix of Chromebooks from Acer, HP and Samsung to every store in the United States, about 1,500 stores.

What is the Global Value of Wi-Fi? How Much More Would be Added by Additional Spectrum?

Each household globally already using Wi-Fi may derive a yearly benefit from Wi-Fi of $118 to $225 resulting in a total economic gain for all households of around $52 billion to $99 billion annually, a study commissioned by Microsoft suggests. 

In the absence of Wi-Fi, mobile operators would be forced to invest large sums in their 
networks or strictly curtail their users’ usage. 

Worldwide, approximately 150,000 to 450,000 new radio base stations would be needed to cope with world smartphone traffic in the absence of Wi-Fi. 

That suggests a savings of about $30 billion to $93 billion in a single year, given current rates of tower construction. 

A 40% yearly growth of data traffic to 2016 will require mobile operators to deploy an 
additional 115,000 extra sites, an increase of around 4% from today’s numbers. However, in 
the absence of Wi-Fi an additional 1.4 million macrocell sites, or 43% of the current total 
would be required. The difference in costs between the two scenarios is extremely large, 
$250 billion (NPV) – comparable to around one third of the total annual revenue of the 
telecommunications industry. Even the least expensive solutions involving femtocells or 

picocells would require an investment of $45 - $60 billion. 

Perhaps that is one way of illustrating the potential value of more extensive use of unlicensed spectrum. 

Many would argue that more spectrum--often licensed spectrum, but perhaps more crucially additional non-licensed spectrum--is needed to spur additional competition in the broadband access market (though some would argue competition in not everywhere the key problem at the moment).

In the case of smartphones and tablets, Wi-Fi carries 69 percent of total traffic. For 
traditional PCs and laptops, Wi-Fi is responsible for carrying 57 percent of total traffic, greater 
than the share of Ethernet connections and 3G data combined. 

Some 439 million households – 25 percent of all households worldwide – have home Wi-Fi networks. 

Without Wi-Fi the value of fixed broadband would be lower and would result in the disconnection of perhaps 50 to 114 million fixed broadband connections around the world. 

More Spectrum, and More Non-Licensed Spectrum is Needed

Many would argue that more spectrum--often licensed spectrum, but perhaps more crucially additional non-licensed non-licensed spectrum--is needed to spur additional competition in the broadband access market (though some would argue competition in not everywhere the key problem at the moment).

As always, perspectives hinge on any number of considerations including the ways such policies affect incumbents of all sorts, including the ability to secure capital to exploit available non-licensed spectrum, and the impact of licensing costs and access on the potential range of business models.

Investment has become a more important issue for many regulators given the growing uncertainty about traditional communications business models, combined with growing competition from network-based and over the top rivals.

On the other hand, even supporters of non-licensed spectrum approaches will note that unlicensed bands are less flexible if future needs change.

But some of us might argue that the value of the unlicensed approach is that it promotes experimentation and makes possible market entry into communications by providers that do not and cannot invest gobs of capital into their businesses.

In other words, most would agree that licensed approaches favor bigger companies, while unlicensed spectrum favors smaller companies, who can get into markets without investing in spectrum assets.

Some might also argue that unlicensed spectrum approaches traditionally have not gotten the serious attention of policymakers and regulators in many parts of the world where entrpreneurs might well leap into the ISP business if they were not required to pay for spectrum and comply with licensing requirements geared to tier one communications service providers.

80% Broadband Penetration in Western Europe

Almost 80 percent of homes in the EU-7 (France, Germany, Italy, Netherlands, Spain, Sweden, and UK) buy broadband access services in 2013, Forrester Research says. 

U.S. broadband penetration is about 83 percent, according to a new report by the Center for the Digital Future. 

The main issue now is how long it will take for Internet penetration, virtually synonymous with broadband access, to reach comparable levels everywhere on the planet. It will.

Telefonica Denies Talk of a AT&T Takeover Bid

Telefónica says that it has not received "any approach, nor any indication of interest, neither verbal nor in written form, from any party."

The reported $93 billion (70 billion euros) acquisition effort by AT&T was said by one report to have been blocked by Spanish legislators.

Reports such as that of an AT&T bid for Telefónica can happen for all sorts of reasons, sometimes essentially as trial balloons by would-be dealmakers, sometimes only because firms engage in "what if" exercises.

Still, the rumors come as a merger wave is thought to be coming, in the European Union. 

More Consolidation, for Cable and Everybody Else

The "name of the game in the cable business is scale," Liberty Media Chairman John Malone says, referring to the need for yet another wave of consolidation in the U.S. cable business. 

Until August 2009, the Federal Communications Commission had enforced a rule that no single U.S. cable company could serve  more than 30 percent of U.S. households. 

That limit mostly was an issue for Comcast, but Comcast decided to expand by getting into the programming side of the  business, rather than getting bigger "horizontally," by acquiring more cable TV systems. 

But growing competition in the business now puts a new premium on additional scale, Liberty Media apparently believes. 

In part, the problem is that markets are more competitive, with other providers taking market share, and with more pressure on profit margins. 

As with any other market where margins are dropping, suppliers can compensate by increasing the volume of sales, which means more customer scale. 

In principle, the same dynamics are at work in other parts of the communications business as well, ranging from mobile services to rural telecommunications to competitive local exchange carrier and incumbent local exchange carrier markets. 

Apple and Samsung, for example, dominate profits in the smart phone industry, some would say because they also dominate market share. 

That relationship between market share and profits is one reason consolidation in the cable and other parts of the communications and video entertainment business will continue. 

Chart courtesy of Stifel.

Incumbent ISPs will have to Disrupt Themselves

Disrupting the normal economics of providing Internet access might require disruptive ways of building networks. The perhaps typical thinking is that only “attackers” and non-traditional ISPs have a vested interest in disruption.

But it might now be the case that all ISPs will have to disrupt their own ways of supplying access, to continue to maintain a positive revenue model, on both the high end (fixed fiber optic networks in the United States and elsewhere) as well as the low end (perhaps a ire people who do not at present have access).

The reason is that the economics of Internet access are growing more challenging at both the high and low ends of the access business. At the high end, the example of 1 Gbps, symmetrical, for $70 a month is going to disrupt all other pricing expectations. At the low end, the issue is how to affordably and quickly provide basic access to up to a billion new users.

Google’s “moon shot” testing of balloon based Internet access might be the best example of an attempt at widespread disruption of the traditional costs of providing Internet access at the low end, the bookend to Google Fiber, the effort to disrupt the market for high-end Internet access.

And it is hard to say which is the tougher challenge: getting 1 Gbps fiber ot home costs way down, or supplying wIreless Internet access to a billion users in the global south.

Up to 80 percent of the total broadband investment cost is related to civil infrastructure works, the European Commission says. Another way of putting matters is to say that as much of 80 percent of the cost of building fiber-to-customer networks is not affected in a positive way by Moore's Law.

.

But that's only part of the problem. The other issue is that the financial return from any FTTH project is becoming more challenging in a competitive environment

In part, that is because multiple competitors in any market reduce the number of customers any of the competitors can hope to get. At the same time, revenue available from voice, Internet access or video entertainment faces growing pressure.

So ISPs face both more limited addressable markets and also potential or current threats to average revenue per service and therefore potentially lower average revenue per account.

The fundamental contradiction is that continued investment in fixed-line networks, which is necessary over time, occurs in a context of essentially zero growth.

Atlantic-ACM, for example, now forecasts that U.S. wireline network revenue, overall, between now and 2015, will be flat at best. Compound annual growth rates, in fact, are forecast to be slightly negative, at about 0.3 percent. Where total industry revenue was about $345 billion in 2009. By 2015, revenue will be $337 billion, Atlantic-ACM predicts.

That is not to argue against replacement of aging networks; in fact that is a necessary and normal part of any network deployment. The issue is the declining amount of revenue any such network can generate.

In the global south, there is a different problem, namely that the underlying cost of any current network is too high to rapidly add up to a billion new users.

Google's "Project Loon," for example, is testing prototype balloons as transmitting platforms, using unlicensed spectrum. But that should also be a spur for others to continue exploring ways to supply Internet access in the global south by other methods.

In many cases, unlicensed spectrum and radios (wireless) will be the only viable way to do so. All that can happen only if regulators are willing to unlock more unlicensed spectrum.

Google Tests Communications Balloons for Internet Access

 Disrupting the normal economics of providing Internet access might require disruptive ways of building networks.

And that might apply both to the high end 1 Gbps end of the access business as well as the other end, where "just a little Internet access" could be really important."

Google's "Project Loon," for example, is testing prototype balloons as transmitting platforms, using unlicensed spectrum. 



In the New Zealand tests, balloons float about 20 kilometers in the atmosphere, covering an area of about 40 kilometers on the surface. 
The radios on the balloons use the 2.4 GHz and 5 GHz radio spectrum, which are generally unlicensed globally.< It appears that inter-balloon communications are being tested, not just uplinks and downlinks from discrete balloons.

One of the architectural principles is that the balloons will float with the prevailing high-altitude winds, requiring quite a lot of balloons to provide coverage that is stable over time. 
That is a "flaky" way to build a network, by conventional thinking. Transmitter locations essentially cannot be "controlled" in the traditional sense.
They are not anchored or steered (except within small altitude limits). But the balloons should be able to traverse east-west and west-east by catching prevailing winds, to some extent.
The idea is to create a "latitude-specific" fleet of balloons that essentially would orbit west to east in the southern hemisphere. Part of the reason is that most of the Internet unconnected live in the southern hemisphere. 

Project Loon undoubtedly will trigger the expected sniggers of derision (“loons”), but it is the sort of “moon shot” that could radically change the availability of Internet access for millions to a billion people.


That is not to disparage the efforts of the ISPs who now supply most of the Internet access. But all providers will likely be forced to explore ways to supply vastly more bandwidth, while chopping operating and capital costs.


That is especially true in the global south, where the cost of an Internet connection is more than a month’s income.


That “requires looking at the problem of access from new angles,” Project Loon organizers say.


“We believe that it might actually be possible to build a ring of balloons ring of balloons , flying around the globe on the stratospheric winds, that provides Internet access to the earth below,” says Mike Cassidy, project lead.


Cassidy says access speeds “similar to today’s 3G networks or faster” have been obtained so far.

Building a usable network out of fleets of free floating balloons requires “complex algorithms and lots of computing power,” says Cassidy. But think about it: that’s what Google excels at.
Tracking and uplinks have to be somewhat dynamic. There may be a need for inter-balloon communications.

But the use of unlicensed spectrum and balloons two of the more-significant approaches to building Internet access networks. One of those key inputs is a matter of government intention and decision.

As proved to be true when the Wi-Fi spectrum was opened up for unlicensed use, sparking a huge wave of innovation, some of us would argue that opening up additional significant blocks of non-licensed spectrum likewise will enable new waves of disruptive innovation.

To be sure, that is why such calls will meet with opposition. The issue is whether at least some governments, some places around the world, must consider the creation of more unlicensed blocks of spectrum suitable for "access" to the Internet. 

The Google experiments furthermore indicate the value of globally unlicensed bands that are harmonized to some extent.

Frequency-agile radios will help handle the different frequencies in discrete regions. 

EU Votes to End All Roaming Charges Within European Comnmunity

European Union roaming rates will drop to zero, but it isn’t clear precisely when that will happen. The move could come as early as July 1, 2014, but some do not believe the EU could move that fast, making a 2015 change more likely.

The end of mobile roaming rates within the EU is expected to hit mobile service provider revenues about two percent, though saving EU mobile users substantial money.

An end to roaming fees for voice calls, texts and internet access will effectively be completely scrapped under the proposals, which are part of a broader effort to create a single European telecom market.

 

The EU already has been lowering rates  at both the wholesale and retail levels. But the group of 27 European Commissioners reportedly has voted to make the changes before European elections in May 2014.

Some might argue the EC cannot move that fast, or would want to give European Union service providers an extra year to get ready for the revenue hits.

In large part, the move to create a single telecom market also is intended to create a better climate for industry consolidation.

And that might be the key implication. Ignoring the revenue impact of lost roaming revenues for service providers, the big outcome is expected to be a major wave of industry consolidation in the EU.