Okay, There are a Few Places Where There Really is No Spectrum Crunch

Is there really a spectrum “crunch?” Actually, the answer is more nuanced than you might think.

Certainly, there are places--such as the South Pacific--where spectrum seems not to be an issue, and is not considered to be a major concern even in the future. But that likely is an exception to the rule.

There are some who argue there really is not generally a problem, though that view seems a distinctively small minority opinion. And "when?" is a key qualifier.

Whether there is a spectrum problem today--in larger nations-- is a different question than whether there will be a problem later, unless multiple approaches are used to supply more spectrum.

Most observers agree that demand for mobile and untethered Internet access is growing fast, and will grow even faster as people consume more full motion video on untethered and mobile  devices.

Perhaps the better question is whether ISPs will need much more spectrum in the future to meet demand, even if they aggressively re-farm existing spectrum, redesign networks and have access to better network gear.

There is widespread agreement that mobile will become the primary way most people use the Internet, perhaps as early as 2017.

And if people start to use mobile Internet connections as they do fixed Internet connections, demand for spectrum will qualitatively change our notions of how much spectrum will be required.

Reasonable people can agree that spectrum ought to be “hoarded” only to deprive potential competitors of the assets. But reasonable people also can agree that present trends point to a clear need for more spectrum.

source: PriceWaterhouseCoopers

source: KPCB

U.S. Fixed Line Market Illustrates Mobile Importance

If you believe this access line forecast by JSI Capital Advisors is close to accurate, you will grasp the importance of mobile and wireless access technologies and revenue streams. 

Though up to this point firms such as Verizon Communications and AT&T, Comcast and Cox Communications have been able to maintain aggregate fixed line revenues by selling more services to a smaller number of accounts, one would be on safe ground in arguing that continued declines will, at some point, undermine that strategy.



The other observation is the important role now played by cable TV operators in the Internet access and voice businesses. Once upon a time it might have been thought new "telco" providers would be the big winners from the Telecommunications Act of 1996, which legalized local access competition.

In the early going, in fact, it was AT&T and MCI, then the dominant long distance companies, that represented most of the competitive local exchange carrier industry's leaders. Since then, both AT&T as an independent long distance company, and MCI, have disappeared, absorbed into other firms (AT&T was bought by SBC, which rebranded itself), while Verizon acquired the MCI assets. 

In voice or Internet access segments of the local access market, cable TV operators are the single most important category of "new" providers. 

The Internet in 1969

Sometimes it is helpful to remember just how far one has come. 

Mobile communications was a concept, before it became a commercial service. 

In 1985, when the CTIA  first began keeping statistics, there were about 200,000 mobile phone customers in the whole United States.

Consider mobile adoption rates now. 

Earlier, the big problem had been access to "telephone service" at all. In 1996, phone phone penetration was about 1.9 percent in Africa, for example. 

Today, mobile adoption in Africa is at least 67 percent. 

Consider the size of the Internet in 1969: four nodes. Today, two billion people, at minimum, use the Internet. 

To twist a commonplace phrase, "progress happens."

Comcast to Double Existing Speeds for Some Users

Comcast will be doubling Internet access speeds for at least some customers, boosting the "Performance" tier from 25 to 50 Mbps, the "Blast" tier from 50 to 105 Mbps, and the "Extreme" service from 105 Mbps to 305 Mbps.



Prices will vary by local market competition and rival offers, and probably will only be available to customers who buy double or triple play packages.



Comcast isn't the only major ISP making speed investments and boosting offers for customers.Verizon Communications is doing so, as well.





By the end of fourth-quarter 2013, 46 percent of Verizon Communications consumer FiOS Internet customers subscribed to FiOS Quantum, which provides speeds ranging from 50 Mbps to 500 Mbps, up from 41 percent at the end of third quarter 2013.



In the fourth quarter of 2013, 55 percent of consumer FiOS Internet sales were for speeds of at least 50 megabits per second.



The point is that, although there seems continual grousing about how slow and expensive U.S. broadband access is, that complaint is being addressed.  You can credit Google Fiber for stimulating such behavior, but history alone might have suggested speed improvements would continue.



Unbelievable though it might seem, typical access speeds have grown at about a rate you would predict, based solely on Moore's Law. That should strike you as highly improbable, given the fact that access networks, in particular fixed access networks, are construction projects. 



In 2007, Technology Futures Technology Futures made this prediction for bandwidth growth in the U.S. market, at a time when typical speeds ranged from 1.5 Mbps to 6 Mbps. If anything, the forecast seems to be turning out to be conservative. 

Verizon FiOS: 46% of Customers Buy 50 Mbps; 55% of Q4 2013 Sales Were for 50 Mbps or Higher

Though some still argue that the United States is woefully behind in Internet access speeds, the more important part of the story is growth.

By the end of fourth-quarter 2013, 46 percent of Verizon Communications consumer FiOS Internet customers subscribed to FiOS Quantum, which provides speeds ranging from 50 Mbps to 500 Mbps, up from 41 percent at the end of third quarter 2013.

In the fourth quarter of 2013, 55 percent of consumer FiOS Internet sales were for speeds of at least 50 megabits per second.

The availability of 100 Mbps to 1 Gbps Internet access services grew the fastest, from 2010 to 2012, according to the  National Telecommunications and Information Administration (NTIA).

Though growing from a low base, availability of 1-Gbps services grew nearly 300 percent between 2010 and 2012.

Availability fo 100 Mbps services grew even more: 448 percent between 2010 and 2012. Availability of 50 Mbps services grew 160 percent between 2010 and 2012.

Services operating at 25 Mbps, arguably the speeds most consumers tend to buy, grew about 57 percent, in terms of availability.

Up to this point, cable operators have been the primary providers of high speed access services of at least 25 Mbps or greater but less than 1 Gbps. That should start to change as more telcos begin to upgrade to networks offering speeds up to 1 Gbps.

Still, at the moment, 82 percent of U.S. homes have access to speeds in excess of 100 megabits per second, while in Europe, only two percent of the population has access to these speeds, Comcast notes.

The availability of 100 Mbps to 1 Gbps Internet access services grew the fastest, from 2010 to 2012, according to a new study by the  National Telecommunications and Information Administration (NTIA). Though growing from a low base, availability of 1-Gbps services grew nearly 300 percent between 2010 and 2012.

Availability fo 100 Mbps services grew even more: 448 percent between 2010 and 2012. Availability of 50 Mbps services grew 160 percent between 2010 and 2012.

Services operating at 25 Mbps, arguably the speeds most consumers tend to buy, grew about 57 percent, in terms of availability.

Availability of lower-speed services has reached virtual ubiquity. Some 98 percent of U.S. residents can buy Internet access at speeds of 3 Mbps or greater and upload speeds of 768 kbps or greater.

About 91 percent of U.S. residents can buy access at 10 Mbps downstream. Some 78 percent can buy access services operating at 25 Mbps downstream.

Also, about 81 percent of U.S. residents can buy mobile broadband access at speeds of 6 Mbps or greater.

And nearly 26 percent of the population can buy fixed wireless service with download speeds at 6 Mbps.

Up to this point, cable operators have been the primary providers of high speed access services of at least 25 Mbps or greater but less than 1 Gbps. That should start to change as more telcos begin to upgrade to networks offering speeds up to 1 Gbps.

Still, at the moment, 82 percent of U.S. homes have access to speeds in excess of 100 megabits per second, while in Europe, only two percent of the population has access to these speeds, Comcast notes.

LTE Grows Usage, But Revenue Gains are Uneven

The good news about Long Term Evolution networks is the faster speed and lower latency end users experience. The sometimes good news is that some mobile operators can charge a premium for use of the LTE network.

The in some ways good news is that people consume more data on an LTE network.

SK Telecom, for example, has seen average monthly data consumption per user rise significantly since the launch of its 4G network in 2011, with average consumption doubling between the fourth quarter of  2011 and first quarter of  2013, rising from 1.1 GB to 2.1 GB.

By way of comparison,  data usage on the 3G network remained flat. Basically, total 3G and 4G network traffic almost doubled in the space of 15 months, on a two-percent  growth in total connections.

What that means is that 4G users typically consume twice as much data per month as other users, according to GSMA.

That can have a direct impact on revenue when mobile service providers are able to charge somewhat incrementally for the additional usage. In other cases, where operators cannot bill for the higher usage, LTE can represent a problem.

Significantly, South Korean users actually are using Wi-Fi less, and using the LTE network more, than they had been doing in the past. GSMA believes that is happening because LTE now offers faster uploads and downloads than Wi-Fi does.

South Korean operators are generating significantly increased revenue from their 4G customers, GSMA notes. At KRW46,000 ($43), SK Telecom’s 4G average revenue per user in the the third quarter of 2013 was 32 percent higher than its blended ARPU.

In part, that is because more than 70 percent of new and upgrading 4G customers are buying higher-priced service plans.

At Korea Telecom, 4G ARPU of KRW44,000 ($42) was more than 40 percent higher than blended ARPU.

Operators in the United States are seeing similar trends. In October 2013, Verizon Wireless reported that the 38 percent of its retail 4G customers generated 64 percent of total data traffic.

But traffic is not revenue. Verizon Wireless third quarter 2013 average revenue per account was up 7.1 percent year over year.

Also, ARPA has grown 21 percent since the launch of the 4G network in 2010.

Cricket Communications says “usage from a 4G customer is about twice that what it is for a 3G customer,” while ARPU was up 8.4 percent year over year in the third quarter of 2013.

The picture in Europe is a bit more mixed. To be sure, 4G users consume more data than 3G users.

In the first quarter of 2013, Vodafone reported that average monthly data usage for its 4G smartphone users in Europe was 640 MB, approximately twice that for a 3G smartphone (350 MB) and roughly the same as a tablet operating on 3G.

In Germany, O2 reported third quarter 2013 monthly average data consumption by 4G users was three times that of non-4G users.

The UK’s EE said second quarter 2013 revenue from 4G customers was higher by about 10 percent. In the third quarter of 2013, 4G customers provided ARPU gains in the high single digits, EE said.

This contributed to a slight annual rise in blended ARPU (+0.5%), to £19.00 ($29.45) in Q3 2013.

In France, there has been no ARPU growth from 4G, however, among the three largest mobile providers. In part, that is because the operators have had to cut prices to compete with Illiad’s Free Mobile offers.

The average ARPU in France was down 13.2 percent year over year in the third quarter of 2013 to €22.82 ($30.23). GSMA expects the downward trend to continue.

But France isn’t the only market where an operator has chosen to offer 4G services without charging a premium. For example, 3UK, which switched on 4G last month, is allowing customers to migrate without switching from their 3G contracts and will continue to offer unlimited data allowances. Telefonica Movistar also is offering 4G at the same price as 3G.

                                       SK Telecom Data Consumption

Source: SK Telecom

Qualcomm Invests $14 Million in Wi-Fi Sharing Company Fon

There are several interesting conclusions one might draw about a $14 million investment Qualcomm has made in Fon, the Spanish Wi-Fi sharing company.



At a practical level, the investment will allow Fon to create new Wi-Fi routers--based on Qualcomm chips--that automatically will recognize and authenticate Facebook friends.


When a Fonista's Facebook friend enters a local Fon Wi-Fi zone, the router automatically will authenticate in the background. If authenticated, those Facebook friends will get access to the Fonista's Wi-Fi network without needing to remember any new passwords. 





Since the investment embeds Qualcomm technology in Fon routers, Qualcomm's immediate interest is obvious. Fon gains an easier way to authenticate new users, increased engagement and stickiness of its service. 



There are other implications, however. What can one make of a product (mobile Internet access) that its seller (mobile service provider) prefers its own customers essentially not use too much?



For that is precisely what the massive "Wi-Fi offload" trend represents. By some conservative estimates, about 33 percent of mobile Internet traffic already is offloaded to Wi-Fi. By 2014, says Cisco, about 47 percent of total mobile Internet consumption will use Wi-Fi, not the mobile carrier network.  



Other estimates are even more suggestive, finding that as much as 68 percent of all Android device Internet access occurs using Wi-Fi, across North America, Asia and Africa.







The point: encouragement of Wi-Fi offload by mobile operators illustrates a huge potential business model problem for mobile ISPs. They sell a product using a retail model that is dangerous, if in fact customers actually use the product. 



That is why mobile service providers encourage users to shift to Wi-Fi whenever possible. 



One might argue the huge amount of Wi-Fi offload illustrates the key role fixed networks now play in mobile Internet access and show why mobile Internet access demand requires additional spectrum.



Most important of all, Wi-Fi offload shows a dangerous vulnerability. It is not so clear that the mobile ISP business model actually is terribly well suited to dramatically-higher demand. If customers really start consuming vastly more data, the networks will crash, end user experience will deteriorate and profit margins will evaporate.