LTE Capex Shifts to Software

The cost of mobile site hardware has become almost irrelevant to operators deploying Long Term Evolution, argue analysts at Maravedis-Rethink. Not only are base station costs crashing, but investment is shifting to software and operating expense.

Spending on radio hardware equipment by the top 100 LTE operators will only rise by 4.2 percent to $22.4 billion in 2013, according to Maravedis-Rethink.  

By 2018 base station costs will have fallen to just 15 percent of mobile operator network capex, compared to about 33 percent in 2012.

In part, that change will be propelled by the shift to small cells, which are expected to help mobile service providers reduce the cost of delivering data by 75 percent compared to conventional macrocell networks.

That architectural shift will affect capital investment as well. Small cell radio investments will account for $12 billion in spending in 2018, while servers to run cloud-based radio access networks will add $2.63 billion, according to Maravedis-Rethink.

Software defined networking (SDN) will be a growing investment driver as well. By 2018, 62 percent of tier-one Long Term Evolution carriers will be supporting virtualized networks.

Software already represents as much as 70 percent of modern communications network capex, and SDN will further that trend, potentially allowing mobile service providers to reduce costs by running more functions in software, rather than in network elements.

Gigabit Connections Will Be Commonplace by 2020, Really

Predictions always are difficult, under the best of circumstances, because researchers cannot really account for the unexpected, principally unexpected developments that analyst Nassim Taleb refers to as black swan events.

And it now appears all predictions about the typical U.S. Internet access speed, or its pricing, are becoming less reliable as the market becomes more unstable, in what many would consider a very good way.

You might argue Google Fiber, with its symmetrical gigabit service, accelerated the trend. Others might argue that the historic rate of growth of typical Internet access speeds would have suggested gigabit networks would arrive.

The point is that activity leading to higher speeds is happening on a faster scale. Since the Google Fiber launch, many other major ISPs have been committing to, and deploying, higher speed networks. AT&T and CenturyLink are among them, each committing to new gigabit networks in some markets where competition now requires it.

Separately, existing suppliers of gigabit services recently lowered prices from the earlier $300 a month level to match Google Fiber pricing of $70 a month, or come close, at $80 a month. Obviously, Google Fiber now creates the pricing umbrella.

Now the Los Angeles City Council, which has been looking at ways to provide a metro Wi-Fi network providing free service to residents, has decided to explore creation of a new citywide gigabit network.

The Council now apparently will issue a request for proposals for vendors willing to fund and build a fiber to the home reaching every home and business in Los Angeles, with wholesale access requirements as well, to be funded entirely from private sources.

The network would be required to offer free access at rates between 2 Mbps and 5 Mbps, but would be allowed to offer paid service at speeds up to a gigabit per second.

At the same time, new suppliers, seeing new business opportunities in the “heterogeneous networks” trend, are attempting to create new public Wi-Fi networks.

Gowex, a Spanish firm that already provides Wi-Fi networks in more than 80 cities globally, wants to combine public Wi-Fi and private access Wi-Fi services from mobile operators and businesses to create seamless mobile data coverage for consumers in New York, N.Y., and hopes to expand beyond New York later.

Called We-2, the new service will launch in December in New York with an initial network of more than 2000 Wi-Fi hotspots across New York,  with plans to further expand aggressively across the busiest corridors of Manhattan, Queens and The Bronx.

The company also hopes to create We-2 Wi-Fi hotspot networks in more than 300 cities by 2020.

The business model is what makes the initiative different from Fon.

Apparently, We-2 will be a network created and sold to mobile service providers who want Wi-Fi offload capabilities.

The larger point is that most existing predictions about how fast the typical U.S. Internet access connection will be, or what it will cost, are going to be wrong if they do not account for the actual pattern of supply growth we already have seen.

And that pattern suggests growth of two or three orders of magnitude, which would put a typical connection of today (perhaps 15 Mbps) at perhaps a gigabit by 2020 (two orders of magnitude growth in seven years), would simply be in keeping with past trends.

Notably, even large Internet service providers often are unable to accurately forecast how much bandwidth their own networks will require. For example, in a March 2011 presentation AT&T projected that data volumes would grow by eight to 10 times between the end of 2010 and the end of 2015.

That forecast appears to be based on an expectation that volumes would roughly double in 2011 and then increase by a further 65 percent in 2012.

Instead, AT&T in 2012 revised that projection to 40 percent annual growth. Now, 40 percent annual growth is significant. It means bandwidth consumption doubles about every two to three years.  

But annual bandwidth growth of 50 percent a year would be well within historical ranges, on an aggregate basis, in terms of long-haul bandwidth consumption. But policies and end user behavior can change the demand curve.

Some would suggest users learned to shift consumption to Wi-Fi, that lighter users unexpectedly had lighter usage profiles and that end users learned to modify their behavior in ways that reduced overall consumption or demand.

If demand grows at that level (doubling every two to three years), it is obvious that supply also has to grow to match consumption, all other things being equal.

And though it might seem improbable that typical purchased speeds could reach the gigabit level by 2020, that is indeed likely, based strictly on past precedent.

In August 2000, only 4.4 percent of U.S. households had a home broadband connection, while  41.5 percent of households had dial-up access.

A decade later, dial-up subscribers declined to 2.8 percent of households in 2010, and 68.2 percent of households subscribed to broadband service.

In other words, from 2000 to 2012, the typical purchased access connection grew by about two to three orders of magnitude in about a decade.

“Why would a consumer pay for a gigabit connection?” has been a reasonable question, given the costs and expected revenues.

Increasingly, that is the wrong question to ask. The relevant question is “why would a consumer want to buy an Internet access connection?” Speed grows, by about two to three orders of magnitude, every decade.

So “speed” is not the most relevant question. Speed grows. The question is the value of an Internet access connection.

Based on history and demand for access to the Internet, plus the dramatic compression of prices, gigabit connections will be common in 2020.

Los Angeles Wants Bidders for a New Fiber to Home Network Serving all Businesses and Homes

The Los Angeles City Council has been looking at ways to provide a metro Wi-Fi network providing free service to residents.

But the Council now apparently will issue a request for proposals for vendors willing to fund and build a fiber to the home reaching every home and business in Los Angeles, with wholesale access requirements as well, to be funded entirely from private sources.

The network would be required to offer free access at rates between 2 Mbps and 5 Mbps, but would be allowed to offer paid service at speeds up to a gigabit per second.

The issue is whether any entities want to take on the challenge of doing so, and overbuilding AT&T, Time Warner, Verizon, Cox, and Charter Communications, all of which offer triple play services in some parts of the city.

According to Steve Reneker, general manager of the Los Angeles Information Technology Agency, the network could cost  $3 billion to $5 billion.

C Spire, the Mobile Company, to Build Fixed Gigabit Networks in Mississippi

C Spire Wireless (formerly Cellular South), the Mississippi-based mobile service provider, now will build gigabit fixed networks for Internet access, video and voice services to several cities and towns in Mississippi.

Internet access will be available for $80 a month, $100 a month for combined Internet and home phone, $140 a month for Internet and digital TV, and $160 a month for the entire package.

Batesville, Clinton, Corinth, Hattiesburg, Horn Lake, McComb, Quitman, Ridgeland and Starkville were selected from 33 cities and towns who submitted applications to be the first to get gigabit access from C Spire.

That C spire Wireless is making a move into fixed access networks for the first time tells you something about the perception of opportunity in the gigabit networks business. 

EE Launches Beta of LTE-Advanced, Supporting 300 Mbps

U.K. mobile service provider EE has activated what it calls “the fastest 4G mobile network in the world” in a portion of London in a beta format, with commercial launch expected in mid-2014.

The network runs the LTE-Advanced air interface, capable of reaching 300 Mbps, initially covering London’s Tech City, and is the first live activation of new LTE spectrum acquired by EE during the recent LTE spectrum auction.

The EE 300 Mbps 4G network will be rolled out across London throughout 2014, but initially will provide Wi-Fi style access, as devices supporting LTE-Advanced will not be available until mid-2014.

Routers and dongles are expected to be first to market, with LTE-A-enabled smart phones following a few months after.

SFR, France's second largest mobile carrier, also is testing LTE-A, and has reported real-world download speeds in the region of 175 Mbps and, like EE, it's using carrier aggregation with the 1800 Mhz and 2.6 Ghz bands.

As part of the beta launch, some firms in Tech City will use CAT6 Huawei routers to support mobile Wi-Fi connections.

LTE-Advanced works by bonding channels. In this case, EE uses 20 MHz of 1800 MHz spectrum and 20 MHz of 2.6 GHz spectrum.

Spanish Firm Building Private Wi-Fi Offload Network in New York City

Another Spanish firm wants to build new networks from Wi-Fi networks, both private and public, and will test the idea in New York, N.Y.

Gowex, which says it already provides Wi-Fi networks in more than 80 cities globally, wants to combine public Wi-Fi and private access Wi-Fi services from mobile operators and businesses to create seamless mobile data coverage for consumers.

Called We-2, the new service will launch in December in New York with an initial network of more than 2000 Wi-Fi hotspots across New York,  with plans to further expand aggressively across the busiest corridors of Manhattan, Queens and The Bronx.

The company also hopes to create We-2 Wi-Fi hotspot networks in more than 300 cities by 2020.

The business model is what makes the initiative different from Fon.

Apparently, We-2 will be a network created and sold to mobile service providers who want Wi-Fi offload capabilities.

“We are giving operators the chance to improve mobile data access for the customers and offload traffic from congested networks,” said Carlos Gomez Vendrell, CEO We-2.

The idea is not new. Cable operators in both the United States and United Kingdom have considered creating wholesale Wi-Fi networks whose customers would be mobile service providers, not end users.

A Business Model for Licensed Wi-Fi Spectrum? Globalstar Thinks There is One

Is there a business model for repurposed satellite spectrum that was purchased by a firm that entered bankruptcy? Globalstar aims to find out, and has asked the Federal Communications Commission for permission to repurpose its mobile satellite spectrum for Wi-Fi.

The twist is that Globalstar wants to create a capability for private Wi-Fi services it could monetize, such as supporting the Amazon “Whispernet” delivery of Kindle content.

Amazon presently uses the AT&T mobile network for such purposes, and Amazon probably rightly assumes it could save money if there were an alternative supplier eager to create such a network for a single enterprise customer.

By using a privately-managed network, Amazon presumably would gain more control over quality of service, for example.

That would seem to be the thinking behind Globalstar’s interest in terrestrial “low-power” service (TLPS), an air interface it could use to support such a private Wi-Fi network.

Precisely what “low power” means is a question, since a terrestrial network would still have to be built.

Globalstar argues that the typically lightly-used or unused adjacent unlicensed spectrum would mean a new TLPS network could be created using existing mobile cell tower sites, far outstripping the actual “low power” coverage area of standard Wi-Fi.

Specifically,  Globalstar wants to use its former satellite spectrum to support “low-power” Internet access services using its licensed spectrum at 2483.5-2495 MHz, as well as adjacent unlicensed spectrum (which can be used for Bluetooth or Wi-Fi) in the 2473-2483.5 MHz band, pursuant to the applicable technical rules for unlicensed operations in that band.

To put it mildly, nobody ever has using licensed spectrum for Wi-Fi services.

Separately, Globalstar has asked for permission to build a Long Term Evolution network in both the S band (2483.5-2495 MHz) and L band (1610-1617.775 MHz) “over the longer term.”

As part of the proposal, Globalstar says it will provide 20,000 free access points to public and non-profit schools, community colleges and hospitals in the United States.

Globalstar also says it will provide mobile satellite services free of charge to customers in federally declared disaster areas following natural or man-made disasters for the duration of the disaster.

Presumably the backhaul network would use Globalstar’s satellite capacity, and the ground stations might be co-located with existing mobile tower networks.

Time Warner Cable in Play?

Charter Communications Inc is weighing a bid for Time Warner Cable that could occur before the end of 2013, Reuters reports. That move would have been entirely improbable a decade ago, when Time Warner Cable still was considered among the best-managed cable TV companies and Charter was debt-burdened and unprofitable.

Beyond the immediate performance issues, some believe structural changes lie ahead for the cable TV business, which might well be eclipsed or transformed by streaming delivery.

“Ultimately over the long term I think that the whole video product is eventually going to go to the Internet,” Cablevision Systems Corp. CEO James Dolan has said.

That doesn't mean cable TV companies will get out of the access business. Quite to the contrary, the revenue driver will shift to providing Internet access. 

But the economics of the subscription video business could well change. And though the conventional wisdom among consumers is that prices will drop, that might not happen. In principle, the costs of building and operating an access network are included in current costs of video service. 

But many other costs, including sales, marketing and fulfillment, would remain, if it altered form. If the costs of the network are mostly shifted to the voice and data services, cable operators would, in principle, have some room to alter pricing. But content acquisition costs would still be an issue.

It is not clear that content suppliers would willingly cut prices for their product, simply because the delivery method changed. Some might argue that content owners would prefer to deliver content direct to end users, but others would argue the content companies simply are not well set up to do so, as their current revenue models are "business to business," not "business to consumer."

That still suggests a vital role for distributors. Perhaps the bigger issues are whether current bundling methods would change, or at least be made available. Some might argue that the bigger innovation is not over the top delivery, but unbundled delivery (ability to buy a single TV episode or a TV series or a single channel on a subscription basis).

Android Surges to 81%b Global Market Share, and That is Not the Big Story

Android has managed to gain 81 percent share of the global smart phone operating system market, according to Strategy Analytics.

But some would say that is not the big story. 

Rather, some would say, the important news is that Windows Phone has been shipped on more than 10 million smart phones globally in a single quarter.

That is the first time that has ever happened, and represents Microsoft Windows Phone doubling its market share to become the world's fastest growing smart phone operating system.

Microsoft has doubled its global smart phone market share from two percent to four percent in the past year.

Microsoft grew its smart phone shipments by 178 percent annually in the third quarter of 2013.

Global smart phone shipments reached 251 million units in the third quarter of 2013, Strategy Analystics says.

Global smart phone shipments grew 45 percent annually from 172.8 million units in the third quarter of 2012 to 251.4 million in the third quarter of 2013.

Android’s gain came mainly at the expense of BlackBerry, which saw its global smart phone share dip from four percent to one percent in the past year.

Microsoft’s growth is almost entirely due to Nokia and its steadily improving Lumia portfolio across Europe, Asia and the United States.

OECD Mobile Broadband Users Paying 4% Less for Speeds Up 123%

Mobile Internet access users in the Organization for Economic Cooperation and Development areas are paying less for access to faster connections, the most recent mobile broadband price benchmarking results from Strategy Analytics shows.

The average monthly cost for a tablet user needing 2 GB per month has fallen four percent since the same period last year, to USD PPP 17.79, while average advertised speed for the same basket has risen by 123 percent, to 26 Mbps.

For a laptop user requiring 5 GB per month, the cost has fallen by nine percent, and currently averages USD PPP 25.24, while the speed has risen by 35 percent over the year, and now stands at just under 24 Mbps.

The data was generated by a survey of 3,549 SIM-only, modem, laptop and tablet plans from 107 mobile network operators in 34 OECD countries.

SIM-only plans account for around 25 percent of all plans covered as part of the survey, suggesting those accounts are used by consumers in addition to their primary service.

Some 51 percent of all plans have an advertised maximum download speed of 20 Mbps and above. About 31 percent of all plans are 4G Long Term Evolution tariffs, an increase of about three percent since June 2013.

Also, some 29 percent of all offerings include WiFi or public hotspot access.

AT&T to Deploy 40,000 Small Cells as Part of Move to "Heterogeneous Network"

As part of Project VIP, AT&T’s network upgrade program, AT&T also plans to deploy more than 40,000 small cells by the end of 2015, creating a denser mobile network better able to handle data traffic demand in dense or urban areas.

Project Velocity IP (or Project VIP) is a three year, $14 billion investment plan to enhance AT&T’s mobile and fixed network IP broadband networks.

Between 2007 and 2012, mobile data traffic on AT&T’s network has increased more than 30,000 percent, AT&T says.

AT&T furthermore is working on the next generation of small cell technology, such as multi-standard “metrocells” that will support 3G, 4G LTE and Wi-Fi air interfaces.

Most observers would agree that end user demand for mobile network capacity is going to grow exponentially over the next decade, while even Long Term Evolution provides only incremental bandwidth gains.

Many would suggest several simultaneous solutions must be embraced, ranging from new spectrum to better coding, more efficient air interfaces, new spectrum, shared spectrum, small cell and virtualized architectures and use of unlicensed spectrum and Wi-Fi. In all likelihood, all will play a part in creating new networks.

Mobile analyst Monica Paolini, Senza Fili Consulting principal, argues for an “all of the above” definition of “heterogeneous networks.” Paolini says all air interfaces (GSM, CDMA, UMTS, HSPA, HSPA+, 4G: LTE, LTE-Advanced and Wi-Fi will be parts of the heterogeneous network, though not all will be used by every network.

Radio architectures will include macrocells as well as small cells (pico, femto, Wi-Fi or personal area), as well as distributed antenna systems.

Heterogeneous networks will span Indoor and outdoor locations; public, enterprise and residential locations.

All of that explains why many observers now say a future “fifth generation network” will not be distinguished from 4G strictly by air interface, bandwidth or frequency, but by the integration of many different architectures, protocols, networks, air interfaces and network ownership patterns.

In essence, network access for end user devices will be assembled dynamically, which explains the interest in “self organizing networks” able to provide access to any available network, in real time, often using the best available network.

Paolini says most of the adaptation will be an overlay of sorts, with mobile service providers incorporating new small cells, carrier Wi-Fi or other techniques first in dense urban areas where data demand is greatest.

By definition, frequency planning and interference control issues will grow as smaller cells are activated. Also, by definition, call control, data access and handoff chores will become more complex as users move into and out of small cell coverage areas and across access networks.

“Different radio technologies manage interference differently, and so the same small-cell

location may work for an LTE-Advanced small cell with sophisticated interference

mitigation techniques and not for a 3G small cell,” says Paolini.

In fact, the limited ability to manage interference in 3G environments is often cited as a cause for mobile operators’ hesitance to deploy 3G small cells.

Also, for the first time, frequency planning and interference avoidance will have to account for cells that are separately vertically, not just horizontally. So floor location within a single building now matters.

Use of Wi-Fi networks owned by third parties is the best example of how mobile networks are becoming heterogeneous. But small cells represent a next step, as well. Radio sites supporting multiple air interfaces are another example.

BlackBerry Cancels Sale Process, Will Remain Independent

In an unexpected development, BlackBerry, which had been seeking buyers, has abandoned its plan to sell itself. Until Nov. 4, 2013, talks had been proceeding with a Canadian investor group lead by Fairfax Financial Holdings.

Apparently, Fairfax Financial Holdings was unable to raise the money it needed to make the bid, and BlackBerry now will try to raise funds by selling bonds. But it appears Fairfax will be among the entities buying some of the new bonds.

Fairfax Financial Holdings Limited will acquire U.S. $250 million worth of the convertible bonds. The transaction is expected to be completed within the next two weeks.

The bonds are convertible into common shares of BlackBerry at a price of U.S. $10.00 per common share.

At closing, John S. Chen will be appointed executive chairman of BlackBerry's Board of Directors. Prem Watsa, chairman and CEO of Fairfax, will be appointed lead director and chair of the compensation, nomination and governance committee. Current CEO Thorsten Heins and board member David Kerr will resign from the board.

Those moves suggest either that the board became sharply divided about BlackBerry strategy, and not simply that the Fairfax Financial Holdings bid was deemed insufficient. In that case, the board would likely have solicited additional bids.

Others might suggest that the inability to raise funds for the $4.7 billion bid simply suggests there is not support among investors for that type of a deal.

Yet others might argue that the bond deal is a stopgap measure, and that a future sale, though not for the $4.7 billion purchase price, still is envisioned.

Other potential buyers were said to include Cerberus Capital Management, Qualcomm, Lenovo and BlackBerry co-founders Mike Lazaridis and Doug Fregin.

The move is a blow to BlackBerry bankers J.P. Morgan Chase & Co. and Perella Weinberg Partners, which were retained to manage the sale process. The bankers reportedly had spoken to Facebook, and had sought indications of interest from other firms including Microsoft, LinkedIn and Oracle.

0.07 Percent of Startups Reach $1 Billion Valuations?

Software-based startup firms eventually valued at over $1 billion by public or private market investors represent a rather miniscule 0.07 percent of venture-backed consumer and enterprise software startups, a study by Cowboy Ventures finds. 

To be sure, the survey only studied software-based startups started since 2003.

Takeaway: it’s really hard, and highly unlikely, to build or invest in a billion dollar company. 

The odds of creating a $1 billion valuation company is "somewhere between catching a foul ball at an MLB game and being struck by lightning in one’s lifetime."