5G Coverage Actually Will Not be a Problem, Even for Verizon

Many discussions of 5G spectrum seem to center on where all the capacity (or coverage) will come from. The confusion is understandable. If every area where 5G is made available has to support the sorts of speeds millimeter wave small cells will support, there are serious questions. Verizon is a case in point.

Most agree coverage is better supplied by low-band or mid-band assets. But some mobile operators--Verizon being the case in point--might have relatively little low-band or mid-band spectrum to deploy, at the moment.

Of course, more mid-band spectrum is coming, so that is unlikely to be a long-term issue. The immediate problem is how to support the early 5G rollout if mid-band or low-band assets are scarce.

The answer lies in market demand. All hype aside, 5G really is needed at some locations because 4G capacity is going to prove inadequate in a couple of years.

But 5G capacity will not have to be evenly supplied. In fact, it will be highly uneven, or unequal, as has been the case for 3G and 4G. It is likely that, in terms of coverage, 5G speeds will resemble good 4G, and will not rely very much on the more-exotic millimeter wave assets.

Rather, lower-frequency and mid-band frequency will be more common for coverage purposes in rural areas.

There are several reasons. Coverage 5G spectrum will tend to be in lower frequency ranges simply because lower frequencies--while not best for capacity--are best for covering distances. Millimeter wave is optimal for bandwidth, but not distance covered.

In some cases, 5G devices actually will use a combination of new 5G spectrum and 4G spectrum, depending on where each connection takes place. In dense urban areas connections might often use new millimeter wave capacity. In rural areas 5G devices often will default to 4G. 

The point is the demand for mobile capacity is quite unevenly distributed. T-Mobile has noted in the past that 20 percent of 3G cells carry 60 percent of all 3G traffic. About half of all cell sites support 95 percent of 3G traffic. 

source: T-Mobile US

That pattern was true of 4G networks and undoubtedly be true of 5G networks as well. T-Mobile also has noted that, for any typical user, half of all data traffic is consumed from just one cell tower. About 80 percent of any typical user’s data consumption happens on just three cell sites. 

source: T-Mobile

Studies conducted by Amdocs have suggested that 20 percent of mobile network locations support about 80 percent of network data demand. 

source: Amdocs

Data consumption might also be related somewhat directly to revenue generation, if one assumes that where a customer uses most of his or her data is where the value of the subscription lies. Though coverage is “nice” where one does not need to use the network, it is a “must” where any particular user uses mobile networks daily. 

Some estimates suggest that as much as half the total revenue (value or usage) happens when users communicate on about 10 percent of total cell sites. Perhaps 80 percent of usage or revenue is generated on about 30 percent of cell sites.

It is worth noting that the half of all cell sites generating about 10 percent of service provider revenue are in rural areas. There simply are not that many people in rural areas. And lots of people mean lots of usage. 

source: techeconomy blog

So part of the answer to the question of “where will all the 5G spectrum come from?” requires understanding that demand is highly unequally distributed. Rural areas might have half of all cell sites, but support only 10 percent of data demand. 

Urban sites might be only about 10 percent of total sites, but support as much as half of all data demand, simply because that is where most of the people are. 

Spectrum resources will come from new low band capacity, repurposing legacy capacity, new mid-band capacity, millimeter wave assets, spectrum sharing, spectrum aggregation, offload mechanisms and use of smaller cells. 

But the supply is highly unequal: lots of new capacity in urban areas, some new supply in suburban areas and relatively light capacity needs in rural areas. The new 5G networks will not have to support urban small cell capacities “everywhere” across the whole network.

Few Urban Sites in Delhi, Mumbai Cause Most of the Call Drops

A new report on call drops in India, published by the Telecom Regulatory Authority of India, suggests that some mobile operator sites have no particular call drop issues, while others have significant problems, based on TRAI drive tests as well as analysis of performance records regularly submitted to TRAI by mobile operators.

Those findings mirror what one would expect, in terms of general problems caused by networking loading and congestion in any urban area: one or two percent of cell sites cause most of the problems.

TRAI’s study of call detail records from mobile operators in Delhi showed problems at six out of 8604 sites operated by one supplier;  10 out of 15850 for a second operator and 504 out of 16117 sites for a third operator.

In other words, the towers where call drop standards exceed TRAI standards (two percent or fewer dropped calls) are very few in number, compared to the total number of sites examined by TRAI.

Specifically, though for one operator about three percent of sites were problematic, two other mobile operators had problems with quality at just 0.06 percent or 0.07 percent of sites.

Weak signal strength, though not the only cause of call drops, is a big factor. Radio link failure also was found to be a big issue.

Mobile Operator Cell Sites with Call Drop Problems in Delhi, Based on Call Detail Records
Operator	Problem Sites	Total Sites	% of Total Sites
1	6	8604	0.07
2	10	15,850	0.06
3	504	16,117	3.13
source: based on TRAI data

A different analysis based on cells with three percent call drop rates at any hour of the day showed one operator with 108 out of 8604 sites affected; a second operator with 106 out of 15850 sites exceeding the three-percent threshold; while a third operator had call drop issues of three percent or more at 335 sites out of 16117 locations.

In other words, cell locations that exceeded three percent call drops at any hour of a typical day represent less than one percent to a maximum of two percent of sites.

Sites Exceeding 3% Call Drops at Any Hour of a Day
Operator	Problem Sites	Total Sites	% of Total Sites
1	108	8604	1.3
2	106	15,850	0.7
3	335	16,117	2.0
source: based on TRAI data

In a statement that mobile operators and TRAI can agree on, the report says “there is an urgent need to increase the number of the towers.” The full report also shows that blocked calls are an issue, not simply dropped calls.

Pareto Principle and Telecom Revenues and Profit

The Pareto Principle, often colloquially known as the 80/20 rule, explains many phenomena in nature, science and business, including the connectivity business. 

In the United Kingdom, for example, 70 percent of people live in areas using 20 percent of cell sites. Ericsson estimates that 20 percent of cell sites carry 70 percent of 3G traffic. We also should expect deployment of about 80 percent of small cells in hyper-dense or very-dense areas. 

CenturyLink earns 75 percent of its revenue from enterprise services. 80 percent of telco profits come from 20 percent of the products or customers. AT&T has earned the bulk of its actual profits from business services. 

Typically,  80 percent of any company’s profit is generated by 20 percent of its customers; 80 percent of complaints come from 20 percent of customers; 80 percent of profits come from 20 percent of the company’s effort; 80 percent of sales come from 20 percent of products or services; 80 percent of sales are made by 20 percent of sellers and 80 percent of clients come from 20 percent of marketing activities.

There are many other common Pareto examples:

• 80 percent of car accidents are caused by 20 percent of young people

• 80 percent of lottery tickets are bought by 20 percent of society

• 80 percent of air pollution is caused by 20 percent of the population

• 80 percent of all firearms are used by 20 percent of the population

• 80 percent of all Internet traffic belongs to 20 percent of websites

• 80 percent of car crashes happen within the first 20 percent of the distance covered

• 80 percent of mobile phone calls come from 20 percent of the population

• 80 percent of the time people use 20 percent of the tools at their disposal

It is estimated that 20 percent of Covid-19 cases were responsible for 80 percent of local transmission.  Some 80 percent of users will only use 20 percent of any piece of software's features. Microsoft also observed that 20 percent of software bugs will cause 80 percent of system errors and crashes.

It is estimated that the top 20 percent of players are responsible for 80 percent of a basketball team’s success. 

The issue is how to apply Pareto in the connectivity business, as telecom revenue growth rates are quite low, cash flow is shrinking, returns on invested capital are dropping and consequently equity valuations are under pressure. 

The now-obvious observation is that connectivity provider revenue growth is a fraction of economic growth. To change that situation, something other than “keep doing what you have been doing” will not produce different results. 

source: IDATE

Freedom to maneuver often hinges on the regulatory regime. Tier-one service providers with an obligation to “serve everyone” cannot make the same choices as non-regulated or lightly-regulated firms able to choose their geographies, customers and products. 

Carriers of last resort cannot simply choose not to serve consumer customer segments, or focus only on urban areas. Specialist providers can do so. 

Tier-one service providers have learned to rely on mobility services, though. 

In Western Europe, perhaps 80 percent of revenue growth is driven by mobile services, though mobility revenues overall are about 46 percent of total revenues. 

source: A.D. Little

That is even more true in other regions, where mobility revenue is as much as 82 percent of all connectivity provider revenues, and where mobile infrastructure accounts for most of the new facilities-based competition between service providers. 

source: IDATE

The traditional difference in profit margins between enterprise and consumer accounts also explains why many believe 5G profits will disproportionately be created by enterprise 5G services, not consumer 5G. 

80/20 Rule for Telecom Revenue Sources

This is a good illustration of both the Pareto theorem, which states that 80 percent of instances or outcomes in business or nature come from 20 percent of the cases or effort. The Pareto theorem is popularly known as the 80/20 rule.

The graph shows the percentage of total mobile service revenue generated by cell sites, if one apportions the mobile subscription fee to the sites that actually are used by any customer. 

Pareto accurately describes the actual use of mobile cell sites and radios, as well as the generation of revenue. 

Half of mobile revenue is driven from traffic on about 10 percent of sites. Fully 80 percent of revenue is driven by activity on just 30 percent of cell sites. 

source: Medium 

The theorem also explains why 80 percent of revenue generated by challengers in the telecom business come from about 20 percent of firms. 

In organizational terms, Pareto implies that 80 percent of results are driven by 20 percent of the actions or people. 

A perhaps-obvious question should arise: if 80 percent of results are generated by 30 percent of the instances, sites or actions, why bother with the other 70 percent? In part, the answer is network effect. A mobile operator whose network only covers 30 percent of the land mass where people actually live and work would not be able to compete with a supplier whose network covers nearly all the places people live and work. 

The traditional rule of thumb for a fixed network is that it makes money in urban areas, breaks even in suburban areas and loses money in rural areas. Profit is a Pareto distribution, but what mass market telco could survive if it refused to sell to rural or suburban customers?

What social, voice, messaging or other network would do as well if it connected just 30 percent of people you wanted to reach? In other words, a network often must connect “most” potential nodes to drive value. 

Universal service requirements for public telecom networks exist for that reason.

Pareto also exists because value for any single user depends on the number of other people or entities that specific person might ever wish to connect with. The actual set will be different for each person. But the network has to enable connections in unlimited fashion, so that any specific set can be created.

IoT Revenues Might be Necessary to Help Expand Rural Internet Access

As other mobile operators likely would attest, a relatively small number of cell sites generate the bulk of a mobile service provider’s  revenue. And that is why rural Internet access to lower-income potential customers is such a challenge.

The top 10 percent of total sites contribute over 30 percent of total revenue, whereas the bottom 50 percent of sites contribute under 10 percent of revenue, a Vodafone report says.

Of the top sites, just 10 percent are in rural areas.

Data revenues represent a much greater proportion of revenue at the highest earning cell sites than at the lowest earning sites; the top 1,000 sites contribute 37 percent of total data revenues, whereas the bottom 2,000 sites contribute less than one percent of total data revenues.

That illustrates the importance of lower-cost infrastructure to supply communications and Internet access in rural areas.

As always is the case for ubiquitous networks, more-profitable customers and portions of the network subsidize the less-profitable customers and portions of the network. Analysis of individual cell site revenues and costs suggests that around 30 percent of Vodacom’s cell sites would not be profitable on a standalone basis, for example.

That also suggests the importance of potentially big new revenue sources such as Internet of Things. Mobile and other network platforms might require the profit such services provider to business and enterprise customers to generate the surplus that allows more support of rural access facilities that will not generate much net revenue or profit.

That is one reason why Spectrum Futures, a conference promoting Internet access for everyone across South Asia and Southeast Asia, this year will focus extensively on apps, app development, partnerships with ISPs and business models for new apps.

Internet of Things apps--in addition to consumer apps such as Facebook and WhatsApp--will be part of the conversation at Spectrum Futures. V. Shrinath is one of the app development specialists who will share his views at the event.

Why IoT Matters for Rural Internet Access

Narendra Saini, TEC

Ubiquitous communication networks--including Internet access networks--always have multiple revenue segments, including consumers, small businesses and enterprises. Also, profit margins and revenue potential differ by geography, as well.

Most fixed and mobile operators earn a disproportionate share of revenue and profit from a relatively small number of locations and cell sites, for example.

The top 10 percent of total sites contribute over 30 percent of total revenue, whereas the bottom 50 percent of sites contribute under 10 percent of revenue, a Vodafone report says.

Of the top sites, just 10 percent are in rural areas.

Data revenues also represent a much greater proportion of revenue at the highest earning cell sites than at the lowest earning sites; the top 1,000 sites contribute 37 percent of total data revenues, whereas the bottom 2,000 sites contribute less than one percent of total data revenues.

That illustrates the importance of lower-cost infrastructure to supply communications and Internet access in rural areas. Also key: revenues and profits earned from some customers and areas that effectively subsidize users in other areas.

As always is the case for ubiquitous networks, more-profitable customers and portions of the network subsidize the less-profitable customers and portions of the network. Analysis of individual cell site revenues and costs suggests that around 30 percent of Vodacom’s cell sites would not be profitable on a standalone basis, for example.

That also suggests the importance of potentially big new revenue sources such as Internet of Things. Mobile and other network platforms will require the profit such services provider to business and enterprise customers to generate the surplus that allows more support of rural access facilities that will not generate much net revenue or profit.

Narendra Saini, of the Telecommunication Engineering Center (TEC) India, is among the speakers who will address smart city initiatives and the Internet of Things across South Asia and Southeast Asia at Spectrum Futures, to be held 19-21 October, 2016 in Singapore.

Fibonacci, Pareto and the Connectivity Business

Some mathematical ratios reoccur so often they are applied in nature and business. Fibonacci provides an example. “The Fibonacci sequence is a famous group of numbers beginning with 0 and 1 in which each number is the sum of the two before it. It begins 0, 1, 1, 2, 3, 5, 8, 13, 21 and continues infinitely,” Smithsonian magazine says.

Fibonacci sequences drive the Golden Ratio which applies to mollusk shells, sunflower florets, and rose petals to the shape of the galaxy. In financial markets Fibonacci is used by technical traders.

“If you divide the female bees by the male bees in any given hive, you will get a number near 1.618,” notes Investopedia.  “The golden ratio also appears in the arts and rectangles whose dimensions are based on the golden ratio appear at the Parthenon in Athens and the Great Pyramid in Giza.” 

Others note Fibonacci sequences also apply to human anatomy. 

source: Smithsonian 

The Pareto theorem also occurs often in life and business. Most of us are familiar with the 80/20 rule, which suggests that roughly 80 percent of value or outcomes are generated by about 20 percent of actions. Formally, it is the Pareto theorem. 

We also tend to see Pareto distributions in global connectivity provider revenue, though the pattern is clearer when looking at net profit rather than gross revenue, for example. As a rule, profits are driven by business accounts rather than consumer accounts, for example; urban areas rather than rural areas; dense parts of cities more than suburbs; some product lines rather than others.  

source: Techeconomy 

The traditional rule for fixed networks is that service providers made money in urban areas; broke even in the suburbs and lost money in rural areas. That arguably remains true for mobile networks as well. 

If usage is a measure of implied profit, then mobile operators might earn as much as half their “revenue” from about 10 percent of sites. Perhaps a total of 30 percent of all cell sites handle 80 percent of traffic, and hence, revenue. 

Another way to think about it is any single user’s usage. For any single user, perhaps half of all usage occurs in just one macrocell. About 80 percent of usage happens in three cells. About 20 percent of usage happens in 28 additional cells. Again, we see a Pareto style distribution: just four cells handle 80 percent of any single user’s traffic. 

source: T-Mobile

One way of possibly using Pareto is ownership of cell sites versus leasing capacity. A competitive supplier--such as a cable operator--might conclude it is best to own the sites where half to 80 percent of usage happens. That might include the home coverage and work site coverage, which are fixed usage locations. 

That is especially true if a cable operator can use its own existing network to support such cell sites. For the 20 percent of usage that happens when people are out and about, it makes sense simply to buy wholesale capacity. 

All service providers essentially try to do this when segmenting their customer bases. If most of the profit comes from  one or just a few customer segments, it makes sense to focus on those segments. The segmentation can be geographic, customer type, customer volume; product line or demographic or psychographic. 

The point is simply that mathematical patterns exist in the business.