Spectrum is the First Step. How Will Operators Next Invest in 5G?

By Malla Poikela and Simo Isomäki

Consumers want faster internet. Operators want to offer it. And now, regulators in the United States say they want to give telcos the tools to deliver it.

This month, the Federal Communications Commission (FCC) announced it would open up a range of spectrum – 28 Gigahertz, 37 GHz and 39 GHz – for the creation of the next generation of wireless services. 5G connectivity will represent a “quantum leap” in wireless capabilities, said FCC Chairman Tom Wheeler, because it promises to deliver speeds at least 10 times and possibly 100 times faster than 4G LTE.

The U.S. will be the first country in the world to open up spectrum for 5G, and there are many positive takeaways from the FCC’s announcement. First off, releasing radio spectrum is an obvious and important first step toward innovation. It creates a great opportunity for first-movers to start testing and developing new wireless technologies.

Wheeler also points out that the high-frequency bands now available to telcos support much higher traffic throughput compared to existing licensed spectrum, which will give “fibre-like” traffic capacity to wireless users. That will allow operators to dream up intriguing new services and applications.

There’s a lot to like from the FCC announcement, but of course it’s just the first step in the ongoing development of 5G. There’s a lot of work left to do to make 5G a feasible and profitable option for operators.

A Complex Regulatory Environment

Communication services providers (CSP) and network equipment providers (NEP) will need to make substantial investments to roll out 5G across the world, and they’ll need to do it fast to meet consumer demand. How will they recoup the costs of their investments?

One strategy might be to sell premium 5G-enabled services at a premium cost, but of course, those operators would need to be careful not to defy net neutrality regulations and expectations. There’s friction between regulations and operators on this issue. While FCC has ruled in favour of net neutrality, major U.S. telcos have argued that an inability to create priority services limits the funds they’d use to invest in infrastructure.

This issue should only become more pronounced with 5G. How can regulators and operators meet in the middle? There are a number examples of differentiated service models that balance private and public interests while working in parallel, such as public libraries and private booksellers, or VIP services in the hospitality industry. Regulators and operators must create an environment that encourages equal access but also offers unique opportunities for differentiated service models.

A New Infrastructure for Better Latency, Connectivity

5G connectivity is supposed to offer the network speed needed to power next-generation applications, the types that can’t afford lags or gaps in connection. A connected car, for example, needs fast internet access all of the time, whether you’re driving in a crowded urban environment or a sleepy rural community.

But solving for network speed is ultimately more of an infrastructure problem more than it is about adding spectrum. User devices will need to be moved closer to the edge of the network, which means a massive deployment of unobstructed antennas – that’s where the biggest costs related 5G deployment will be found.

How will that impact the future development of cloud infrastructure? Will it push us even faster toward global urbanization, with fewer people living in rural communities? How will investment in 5G be balanced against investments in faster fixed connections, like fibre?

Interestingly, many of the most popular use cases for 5G seem to suggest that, in the future, we’ll mostly access the internet via mobile networks. But of course, that’s not nearly the case across the world. In the United States, only 20 percent of households access the internet exclusively through mobile networks – 75 percent get it from fixed connections, according to the NTIA.

Now, the numbers are in fact slightly trending toward more mobile-only connections and fewer fixed connections in the US market. Globally, mobile broadband connections are, on average, 1.7 times cheaper than fixed-broadband, according to the International Telecommunications Union. But will operators choose to invest in both areas evenly, or favour one connection over the other? The most realistic vision for 5G connectivity might be in heterogeneous networks, a combination of wireline and wireless, where operators will be able to exercise a variety of connectivity technologies, including 5G, to deliver maximum service and experiences to customers.

Spectrum is one important piece of the puzzle that is 5G, but it’s still early days. The telco industry needs to work with regulators to solve issues around differentiated service offerings, and operators need to determine how best to change network infrastructure to support futuristic bandwidth-hungry service and applications.

Around the World

CNET…
South Korea hits 100% mark in wireless broadband

The Organization for Economic Cooperation and Development (OECD) has found that South Korea is the first country to surpass 100% penetration for wireless broadband, with 100.6 subscriptions for every 100 inhabitants. To reach this conclusion, OECD analysed the standard mobile phone high-speed wireless Internet and data-only wireless Internet subscriptions. Additionally, the agency looked at its own data, which was based on the rate of high-speed Internet access versus the South Korean population.

The OECD is comprised of 34 countries, and based on the organisation’s metrics, the average domestic penetration percentage for high-Internet mobile wireless is 54.3%. Of this, Sweden comes in a close second to South Korea at 98 wireless broadband subscriptions per 100 inhabitants. The United States rated 76.1 followed by Finland at 87.8 and Japan at 82.4. Of the additional OECM member countries, the lower end included Mexico, at 7.7, Turkey at 8.9 and Hungary at 12.9.

The Guardian…
Superfast broadband will be available in 90% of UK by 2015, says Ed Vaizey

Britain’s culture minister Ed Vaizey has said that 90% of the country will have access to extremely fast broadband by the year 2015. The government is working to install an infrastructure that would both ensure the service’s longevity and enable consumers who want to connect to a “really, really fast” network to upgrade, if they choose.

Vaizey stated that when it comes to the speed of the network, “… most people define [superfast broadband] around the 35 megabits a second (Mbps) speed but we have said that 100% of the country should have access to 2Mbps. To put that in context, for example, if you want to watch the iPlayer on your computer you would need about 1-1.5Mbps.” To support this endeavor, a total of £1.2 billion has been dedicated to the project, plus additional funding for pockets of cities where broadband connection is poor.

However, a recent report by the House of Lords warned that the government’s broadband policy should shift its focus from delivering speed, and instead emphasise greater access through a national broadband network. After a six-month investigation, the committee concluded Britain would need a better overall broadband network in order to keep up with future technologies. It has raised concerns about Britain’s network, and the possibility of expanding the gap between those communities with fast Internet access and those without.

FierceBroadbandWireless and GigaOM…
ABI: Mobile data traffic growth to plummet below 50% after 2015
Mobile data growth rate to decrease by 2015? Doubtful.

A recent ABI Research report predicts mobile data traffic will soon level off, with 2015 being the last year that volume will grow by more than 50% annually. Although the rate of growth will start slowing down, the global mobile data traffic will exceed a whopping 107 exabytes by 2017. The forecasted slower growth rate is attributed to technology like Wi-Fi offload and more intelligent smartphones. For instance, on-demand video content will be increasingly viewed on non-cellular networks, such as Netflix’s iOS application, which utilises Wi-Fi.

GigaOM, however, argues this outlook may be flawed. Journalist Kevin Tofel points out that Cisco has estimated only 22% of mobile traffic will be delivered over Wi-Fi in 2016 – leaving a lot more for networks to handle. Tofel also says that as smartphones become more affordable and networks improve their service, it’s likely that mobile users will increase, thus accumulating more mobile data traffic. What do you think? Will mobile data traffic taper off as ABI predicted or does GigaOM have it right?

Around the World

Telecoms.com…
India Unveils Draft Telecom Policy
This past Monday, India unveiled a draft of new policy meant to “facilitate consolidation in the converged telecom service sector, while ensuring sufficient competition.” A major change will be the removal of roaming fees within the country. Policy makers are hoping this move will encourage customers to make more calls outside their home territory.

Amid corruption over the allocation of the telecom spectrum, this new policy also focuses on transparency by issuing telecom licenses and spectrum bandwidth separately rather than bundling them. Do you think this proposed plan will ultimately benefit CSPs and subscribers, and revitalize India’s telecom industry?

Telecomasia.net…
Time to Rethink Data Roaming
Informa Telecoms & Media’s Paul Lambert asserts that the European Commission (EC) regulation for the data roaming market is out of step with the way smartphones interact with the network and how smartphone data is used while roaming.

Paul believes EC regulations should guide operators to charge for usage rather than the number of kilobytes a device consumes. Many smartphones consume data by constantly interacting with the network to update data applications, even when they are not being accessed by users. Thus, data is unwittingly consumed much faster.

Do you agree that it’s time to rethink data roaming?

Bloomberg Businessweek…
FCC to Revamp Phone Subsidy to Spur Expanded Internet Access
FCC chairman Julius Genachowski recently revealed plans to overhaul the U.S. phone subsidy program, the Universal Service Fund, by extending broadband Internet connections in rural areas. The plan will bring wireline and wireless high-speed Internet connections to 18 million homes that don’t have access, increasing the number of people who use high-speed Internet from 65 to 90 percent.

The FCC also plans to revamp fees paid to rural carriers for connecting calls, which chairman Genachowski says could result in significant consumer benefits. We’re looking forward to hearing more details when the final version of the plan is unveiled on October 27^th for the FCC vote.

Around the World

Around the World

Cellular News…
Canadians Annoyed with Increasing Cell Phone Bills
J.D. Power and Associates conducted a survey that examined Canadian wireless customers’ perceptions of their service, mobile phone and retail experience. The study revealed an average of 648 for overall satisfaction (on a 1,000-point scale) and an average of only 551 for satisfaction with cost of service. This could be attributed to rising monthly wireless costs, which have increased from an average of $71 in 2009 to $78 in 2011—and are being driven by the bump in smartphones and, consequently, larger data plans. According to the article, 39 percent of Canadian customersown a smartphone, a 25 percent increase from 2009, while the number of those who have a data package has increased to 60 percent from 15 percent in 2009.

To provide a superior customer experience and balance profitability, operators should offer progressive pricing options based on demand for speed and data consumption, for example. This is especially important because, according to Adrian Chung, senior manager at J.D. Power and Associates, the low satisfaction levels with cost of service have led to a high potential churn rate. In fact, 28 percent of customers strongly agree that they would consider switching to a new wireless service provider with offerings that better met their needs.

Billing & OSS World…
Subscriber Data Management Exploding, Critical in Europe
Infonetics Research recently found that the market for subscriber data management (SDM) tools for wireless networks is growing worldwide, particularly in Europe. The SDM market is seeing significant growth with mobile operators viewing the tools as critical for their wireless infrastructure-sharing initiatives; SDM allows them to identify which subscribers are using their networks. The article also notes that the machine-to-machine (M2M) market is important for SDM investment in Europe, and predicts that this too will become the case in North America over the next few years.

Analyst Shira Levine believes that, “as SDM strategies mature, operators will  better leverage their subscriber data for functions such as customer care, campaign management, churn management, revenue assurance and marketing, and possibly to expand subscriber data sources to include IT systems, including CRM, billing and fulfillment.”

As Simo Isomäki previously noted, we too are seeing growing interest in using subscriber data for active decision-making in OSS/BSS. And while data management is still a challenge, there is no doubt that this intelligence will help operators improve customer loyalty and safeguard profitability.

Light Reading…
It’ll Be Cloudy in Dublin
Ray Le Maistre dwells on the location change from Nice to Dublin for this year’s Management World 2011, but looks forward to the event’s discussions around the deployment and support of cloud services. He states that, to play in this space, the first step will be building the physical infrastructure to support hosted applications and capabilities. Following this is the greater challenge of provisioning, activation, tracking, managing, guaranteeing and billing for those services against a service level agreement.  This is a topic we’ll be exploring at Management World – both on the expo floor and in Forumville with the Enhanced Cloud Service Management Catalyst.