Report - The Mobile Internet : Risk of Meltdown

Thu, 8 Oct 2009 10:44:14 +0100

“The success of mobile broadband is transforming the mobile operator business model. But it will lead to significantly lower margins and reduce cash flows unless operators take a completely different approach to networks.”

Mobile broadband has driven operators to adopt a model similar to fixed-line internet access: flat-fee subscriptions with ‘all you can eat’ usage. This is quite different to the traditional voice and SMS model, where revenues and costs maintain a relation with traffic. The mobile broadband business model offers less scalability and sees cost per customer increase with usage, while revenue per customer remains constant or even declines.

Mobile internet users are expanding their usage at a high rate – between 3x and 5x per year. As a result, access subscription revenue per user (ARPU) is dropping as mobile broadband spreads into the mass market from its original customer base of early adopters and business users.

Mobile broadband customers are using more while mobile broadband access ARPUs are falling. Network costs are increasing, both in response to this demand and to the changing mix of traffic on their networks:

As mobile broadband volumes grow – and also become the main driver of capital investment and operating costs – the profitability of mobile networks will shrink. Mobile broadband traffic eats into margins because of the capex, depreciation and operating costs associated growing data traffic.

Capital investment in mobile broadband is much less scalable than in the voice model. Some studies suggest that the network cost of 1Mb of data may be 7x the cost of 1 minute of voice. Because of increasing traffic levels per user, each unit of mobile broadband network investment supports a proportionally smaller set of the customer base every 12 months.

Analysis suggests that capex increases 2.6x and opex increases 2.0x with a 3x increase in traffic (based on an assumption of HSPA R7 radio performance). Whilst wireless technology developments in HSPA and LTE provide increased capacity, the rate of data growth outpaces any gains. And in any case, these developments are not without cost. Growth in demand for capacity also generates further costs in the backhaul network which carries traffic back to the operator core.

If nothing changes, margins decline:

Together, new users and increasing data usage are growing mobile broadband throughput by up to 10x per annum. This means operators must make major investments just to satisfy existing customer demand, with more investment needed to accommodate new users.

The financial consequences are serious. Mobile broadband operators will see capex lifetime reduced alongside increased capital investment, with depreciation costs increasing as a consequence. The outcome is reduced EBITDA margins, and significantly greater declines in EBIT margin and free cash flow.

The business model doesn’t need to change. But the network model does:

The fixed-fee, ‘all you can eat’ business model of mobile broadband access is locked in, with traffic- based charging unmarketable. While operators can and do apply usage ceilings, this is a retreating position. Incremental revenues may come from content and applications, but the evidence is that these will not offset network costs and will merely go to covering the cost of content. Access must therefore pay for the network.

While there are clear benefits to network co-operation between operators, continued traffic growth means that at best, the problem is postponed. In the areas of highest customer concentration and hence highest revenue potential, demand is already overstretching the available capacity for all operators. The demand for network investment is immediate.

So what gives? The solution lies in network strategy and architecture. Operators must take mobile broadband traffic off the mobile network and onto cheaper wireless broadband access wherever possible, reducing network costs whilst maintaining customer revenues.

In the mobile broadband world, the optimal model is to have as many customers as possible whilst carrying the lowest possible proportion of their usage:

This approach requires a re-think of the ‘vertical integration’ of customer experience and network infrastructure that prevails in mobile operator models. A ‘roaming user experience’ is the new paradigm.

Three factors make this new model possible:

• The inherent capability of laptops, smart phone and entertainment devices to access multiple network types (WiFi, 3G, HSPA).
• The concentration of mobile broadband demand in high-density environments, including urban centres, transport hubs and public locations.
• The millions of WiFi-based wireless broadband access networks in enterprise and home locations.

As a short-range, low-cost radio technology, WiFi can provide much greater capacity in high-demand locations, where the main network issue is the megabyte demand per square meter rather than the overall area that needs coverage. HSPA and LTE technologies are designed to spread capacity over a relatively large area, while WiFi technology is designed to provide 10x the capacity over a much smaller area. WiFi takes advantage of low-cost backhaul technologies such as DSL and residential fibre, with associated economies in provisioning and operation.

The millions of home or office WiFi networks provide mobile operators with wireless access networks funded by the location host. So traffic taken off the mobile network is inherently cost-free to the mobile operator. In urban centres and indoor public locations, mobile operators can use WiFi to provide low-cost, high-speed access at up to one-tenth of the cost of mobile broadband technology.

In order to prosper in the mobile broadband world, mobile operators need to:

• Drive as much economy as possible out of their network infrastructures by consolidating fixed and mobile infrastructure and sharing investment.

• Complement traditional mobile data coverage with WiFi in high demand, high-density areas and locations – enabling more Mbps of access capacity per square meter and reducing capital and operating costs.

• Encourage customers to use available private WiFi networks in homes and offices – automating the connection to these networks when customers are in-coverage and potentially intervening with the residential broadband network to ensure it is available to ‘roaming’ customers.

• Ensure the user experience is seamless and automated – directing customers onto the appropriate network according to where they are and what they are using.

Act now, don’t pay later:

Up to 50% of mobile broadband access demand takes place in home and office environments, and the bulk of truly mobile broadband access takes place in urban centres, transport hubs and other public locations. Laptops generate 5 to 10x the capacity demand of smart phones. All these devices are WiFi capable. The economies of a hybrid network strategy transform the negative implications of mobile broadband for traditional operator models. The solution is within the immediate grasp of those operators who can adapt to the mobile internet world.

(c) The Cloud Networks Limited, 2009

The trouble with iphones for everyone

Wed, 30 Sep 2009 10:32:23 +0100

Opinion Piece for Skynews.com

Monday and Tuesday this week saw announcements in the UK by Orange and Vodafone that they would be distributing the Apple iPhone, ending O2’s two years of exclusivity. Great news for the customers of these networks as the traditionally strong end-of-year season approaches. With a swell of Google Android devices, Nokia’s latest offerings, the Palm Pre, offensives by Samsung and LG, market forerunner Blackberry, and rumours of imminent product introductions by Dell and Acer, the once niche market of the so-called smartphone has turned into a tidle wave bring the mobile internet to everyone.

Millions of UK consumers are already YouTubing on the High Street, Facebooking as they travel the train, and Twittering from the park. But this explosion of mobile internet activity has a dark side for the very mobile operators bringing it to us. iPhone users consume a lot more data on their devices each month that any other type of handset user, thanks to the wide array of applications available for the device. Capacity demand on the mobile network is skyrocketing. Subscribers are benefiting from flat rate subscriptions, so operators have to bring more and more capacity on-stream just to keep existing customers happy, never mind new ones.

With millions more smartphone mobile internet customers coming on-stream next year at a rate faster than most analysts had projected, we’re likely to see capacity problems plaguing the mobile internet. Already operators are requiring certain applications like Slingbox and downloads larger than 10Mb to happen over WiFi and not the 3G network. This model of WiFi and 3G working together presents an attractive option for consumers and operators alike in avoiding a meltdown, provided the device and the service provider supports it of course.

Digital Britain Will Fail Without The Mobile Internet

Tue, 16 Jun 2009 19:55:28 +0100

The report fails to address the role of WiFi and related technologies, and to provide a framework for the availability of increased unlicensed spectrum and licensed spectrum with the capacity to provide ultra fast mobile internet services. WiFi today provides simple, fast, wireless broadband and open internet experience to millions of WiFi enabled devices across the UK. Millions of WiFi networks utilizing unlicensed spectrum are creating a high speed mobile internet access network across Britain. Given internet access by citizens in Britain during the course of the next 5 to 10 years will be fulfilled through handheld and mobile devices, it is crucial the Digital Britain report provides a strategy that will enable the broadest possible availability of ultra fast mobile internet access at the lowest cost, and supporting a dynamic digital economy and environment.

The Digital Britain interim report fails to discuss the benefits of blending technologies like WiFi and 3G or 4G together. Whilst there are clear benefits to spectrum re-farming and the availability of additional spectrum at 2.6GHz and through the digital dividend process, the report fails to address the scale of broadband demand that will be fulfilled through wireless. With mobile internet users today increasing their mobile data capacity demand at between 3 and 5 fold per annum, 3G and emergent 4G technologies provide insufficient capacity to service this demand – which will be almost 100 times greater per mobile internet user in Britain by 2015 than it is today.

The report sets the objective of ensuring a viable commercial model for mobile network operators. This goal will be impossible to achieve with operators required to undertake very large capital investments in one technology in an attempt to keep up with mobile internet speed demands. A solution is to utilize WiFi and similar short range, high speed wireless broadband technologies in combination with the ubiquity capabilities offered by 3G and 4G technologies. An ultrafast mobile internet environment can be created by blending 3G, 4G and WiFi technologies, and by undertaking initiatives to stimulate and support the creation of high speed wireless broadband WiFi networks across Britain.

The current success of the Apple iPhone provides a proof point for this model, with the device defaulting to WiFi for internet access and, if WiFi is not available, to seeking out 3G coverage. The result is a high speed experience and a cost efficient network.

Market forecasts indicate approaching 70% of all internet traffic will incorporate video or video clips by 2012 – as of today WiFi is the only available technology to effectively deliver high quality streamed video over the internet to mobile devices. Britains citizens will expect to benefit from and be able to apply a multimedia mobile internet, and it is therefore crucial that the right strategies are applied to see its creation in Britain. Britain will fail in its ambitions if these issues are unaddressed.

London Connecting

Tue, 2 Jun 2009 19:52:45 +0100

With over 1,500 WiFi hotspots in the inner London area alone, and outdoor WiFi networks spanning the famous Square Mile of the City, the Canary Wharf financial centre, and parts of the West End, London can boast a significant availability of wireless broadband for mobile devices. These networks compliment the mobile broadband provided by four 3G mobile networks.

Industry data indicates that each mobile internet user is consuming 3 to 5 times more mobile broadband network capacity each year. With the concentration of population London has – some 500,000 people commute daily into the financial district alone – the city requires all the mobile internet capability it can get.

Londoners have been early adopters of mobile services with tens of thousands of consultant and freelance workers roving the city every day. A visit into any of the many McDonalds or Pret a Manger, where free WiFi access is provided by The Cloud, reveals adhoc work groups of laptops. This internet snacking phenomena has become standard practice, adopted by bankers and students alike.

When the outdoor WiFi networks in the Square Mile and Canary Wharf were first launched in 2006 and 2007 few people in the city had WiFi enabled handsets to use them. With the launch of the Apple iPhone in late 2007 and the subsequent introduction of WiFi enabled smartphones by Nokia, Google, SonyEricsson and others, these networks have seen rapid growth in usage. Today the City of London WiFi network, provided and operated by The Cloud, is the highest traffic iPhone zone in the UK. The Cloud operates a bundled WiFi service for the iPhone with O2 in the UK.

WiFi networks, today able to provide access at speeds of between 2Mbps and 10Mbps, are able to provide high speed access over short distances. London is a proving ground for an emerging model of hybrid networking where thousands of WiFi access points in high density urban locations are able to provide high speed access, integrating with the 3G or LTE mobile networks on the device to ensure always-on connectivity for the user.

Reflections of Barcelona

Tue, 17 Feb 2009 17:10:19 +0000

While the usually excessive marketing budgets lavished on this Barcelona event were noticeably curtailed and there was no longer a need to fight ones way through the crowd to get to the doughnut stand, the industry came through with an exciting wave of defining announcements, and of course cool new devices.

The emphasis of the internet as the driving force for devices and services in mobile was hard to miss. Microsoft and Nokia both announced application stores that will be available on handsets later this year, allowing people to buy content, games and applications. The moves replicate Apple’s hugely successful App Store on the iPhone. In the space of a little over a year-and-a-half Apple has shown the importance and opportunity of the internet on handheld devices, and now the industry is scrambling to tap into this new economy where application developers around the world can sell their content and wares to people through their phones.

Nokia’s app store, called Ovi Store, will offer some funky social networking features for sharing applications and content, and promises to present services relevant to location and what people are actually doing with their device at the time. Waiting for a train? Something contextually relevant might pop-up to amuse you. So now Google, Microsoft, Apple, Nokia and SonyEricsson all have clear services platforms rolling out. RIM, the makers of BlackBerry, are anticipated to follow the trend soon. 2009 is the year handsets turned into application stores, and the battle front of the industry turned from who has the best hardware to who has the best software. The impact Apple and Google are having on the industry could be felt, with the iPhone still the market leading device and Google’s plans for its Android operating system and mobile services showing strong signs of adoption by the industry

While software was the headline story, there were some new devices to ogle over. Google and Vodafone surprised with a Vodafone exclusive HTC device based on Android called the Magic, complete with WiFi, GPS, the works. Nokia announced the E55 and E75 as solid smartphone devices. While the crowd didn’t appear wowed with their sex appeal, Nokia seems to believe solidity is an important attribute customers will appreciate. SonyEricsson previewed their much rumoured Idou device due for release later this year and which aims to catch-up with Apple. All of these devices are notable for their WiFi and 3G capabilities, touch displays and multi-media capabilities – the new standards for whether a device is going to make it or not.

There was a marked absence of big talk about next generation networks rolling out. A long running battle between LTE and WiMax over which technology will become the “4G” after 3G continues, but with a roadmap that appears to be moving further out in Europe as economic woes put the mobile industry under pressure to make more out of the networks they have and put plans for big new shiny ones on hold.

WiFi was all around, with all the new smartphone devices incorporating it. The vendors of data dongle USB modems were talking about how they could make “always best connected” experiences work. This co-existence of WiFi and 3G can ensure customers are able to get onto the fastest connection available wherever they might be, and is turning out to be a critical success factor for the application stores if they hope to sell multimedia experiences through handsets and mobile devices.

Barcelona 2009 threw a spotlight on the fact that the future of mobile is indeed the internet on your mobile device.