EE announced upgrades to its LTE network today, doubling bandwidth for its 4G services starting in the next couple of weeks.  It will be allocating 2x20MHz of its 1800MHz spectrum to LTE services in 10 cities by the Summer, extending that to 98% of the UK population by the end of 2012. This will see its top speeds increase to 130Mbps and average speeds increase from the current 8-12Mbps to over 20Mbps.

The roll-out will be phased as EE matches the extra radio capacity with backhaul upgrades needed at some sites. No consideration needs to be made for phasing upgrades in order to protect GSM services in the 1800MHz band, with the remaining 2x25MHz more than sufficient to deliver high-quality voice services into the remaining 2G customer base.

EE is also planning field trials of LTE-Advanced and VoLTE before the end of 2013, with LTE-A seeming to be the greater driver at the moment: its current CSFB-based voice services are performing very well and the operator would like to see much greater VoLTE device availability before making a commitment there.

For the first time, EE has also discussed customer targets for LTE, aiming for 1 million postpaid customers by the end of 2013. It released two useful statistics about current subscriber growth:

• 1 in 4 new consumer and SME customers are picking LTE;
• 30-40% of Orange and T-Mobile customers with 4G phones in areas where EE has deployed 4G are upgrading to 4G (for an extra £5/month) when this offer is made to them by the customer care teams.

We view 1 million as a very achievable customer target. In fact, EE could probably go a lot higher. It had 2.7 million postpaid gross additions in 2012, so only a modest increase in the current 25% LTE share would see it hit 1 million this year. The key here is LTE needs to fit in with other targets, in particular its aim to increase EBITDA margins from 21% in 2012 to 25% by 2014 and “buying” LTE growth through aggressive device subsidies or removing the service price premium is not going to help there.

Strategy Analytics' Wireless Operator Strategies team will be releasing a more detailed competitive assessment of this announcement for clients later today.

 

The growing availability of LTE smartphones has delivered a significant boost to the technology over the last 6 months and Strategy Analytics has upgraded its forecasts to one billion LTE connections by early 2017. The US, South Korea and Japan are leading the way in 2012, with greater global scale achieved in 2013. By 2017, LTE will generate over one -third of mobile service revenues. Strategy Analytics' report "Worldwide Cellular User Forecast: 2012-2017" provides global forecasts of subscription, technology and revenues, with detail for 82 individual countries.

There will be over 6.6 billion cellular subscriptions worldwide by the end of 2012.

The market continues to slow as a more regions approach levels of saturation. Over 80% of subscriptions added between 2012 and 2017, will come from Asia-Pacific, the Middle East and Africa.  

Cellular subscriptions are outpacing unique users by 48%

Worldwide cellular service revenues will increase by 4% in 2012, a slight decline on the 5% growth witnessed in 2011.

Cellular Subscriptions

(M)                                  2011       2012       2017

W Europe                         556.7      576.0     624.6

CE Europe                        537.6      556.3      583.9

N America                        363.2      386.5      493.2

CL America                      642.3      697.1      841.8

Asia-Pacific                     3019.4    3357.7    4453.4

M East & Africa                 920.3     1026.8    1462.6

Additional questions answered in this forecast include:

How large will the subscription/user gap be in 2013 and 2017?

What share of users and revenue will be from business in 2012? 2017?

How will usage minutes grow from its 2011 level through 2017?

How significant will TD-LTE be in the next five years?

How will users, subscriptions, postpaid vs prepaid, service revenues, churn rates, traffic and ARPU vary across the 82 countries covered?

Client Reading

 

Skype today launched Video for iPhone, iPod Touch and iPads. This new version of the Skype service application software lets users make and receive video calls from iPhones, iPod touch and iPads, with instant messaging for other Skype users, over both Wi-Fi and AT&T's 3G network.

Was it a test for this iPhone video application that brought down Skype's Video Network Last week? The story going around last week was that a new release for Apple software - possibly the Skype iPhone Video application announced today - had a problem and triggered the Skype server failure when installed first on one and then several Skype 'supernodes'.

But don't blame the Apple software application.

Skype's supernodes act as both offline message (IM/SMS) relays and as Skype's Chief Information Officer noted yesterday "a directory, supporting other Skype clients, helping to establish connections between them and creating local clusters typically of several hundred peer nodes per each supernode."

The initial crashes brought down 25% to 30% of the Skype supernode servers - just before the normal daily peak. This in turn led to traffic overload that created extensive delays in the support servers responsible for offline instant messaging. This resulted in long response delays to some to Skype Windows clients and 20% of these had an old software bug that then caused them to crash.

The official Skype story was released yesterday by Lars Rabbe, Skype's Chief Information Officer, who describes the "snowball" effect that blocked most Skype users for 24 hours on 22^nd.- 23^rd. December 2010.

"50% of all Skype users globally were running (an older) 5.0.0.152 version of Skype for Windows, and the supernode crashes caused approximately 40% of those clients to fail. These ... included 25–30% of the publicly available 'supernodes', (that) also failed as a result of this problem."

"The failure of 25–30% of supernodes in the P2P network resulted in .. massively increased... load as (supernodes) reconnected to the peer-to-peer cloud... just before our usual daily peak-hour (1000 PST/1800 GMT)". As users tried to reconnect to the system, they generated "traffic to the supernodes that was about 100 times what would normally be expected at that time of day" and overwhelmed the remaining supernodes bringing the whole system to a standstill.

It is interesting that some sources focus blame on Microsoft, not just Skype's network, servers and software, but maybe the problem is more profound.

P2P Server Architecture.

Serious questions need to be asked about a network service architecture that allows:

• Application software to crash what should be 'carrier class' servers performing network functions
• P2P software that causes both network and user device based clients to crash as a result of network overload problems
• Network server problems that spread automatically across a large number of supernodes

Network servers need to be especially resilient and intelligent in how they 'fail-over' in a distributed networking environment; but a robust Service Architecture is always a pre-requisite.

Let other P2P and 'Cloud' service providers beware.

On a positive note Skype brought in massive extra capacity to stabilize the network and was also able to restore Group Video Calling functionality in time for Christmas.

Software Release Deployment

Lars Rabbe also committed to review Skype's "testing processes to determine better ways of detecting and avoiding bugs which could affect the system.". Hopefully this promise includes:

• 'Old fashioned' regression testing of all old versions of client software
• Large scale network testing that does not impact live users - especially at peak traffic times!

These are rules that traditional service providers have followed for decades. Perhaps a little more respect for the "old fashioned" network operators and their software release processes is warranted.

 

May you live in interesting times as the old Chinese proverb goes. Well in the information, communication and entertainment industry we certainly do. Some very interesting questions face our industry whether we look at:

• the outcome of much delayed Indian 3G auction or
• the battlegrounds around HSPA+ and LTE or
• the surging Android ecosystem vs. weakening Symbian or
• the upside potential for WebOS under it new owners
• the potential disruption caused by mobile cloud phones and device

Every major technology advancement has lead to a massive disruption in the handset and infrastructure vendor community.

• In 3G, Motorola’s slim myopia led to its near ruin and has provided huge growth for Samsung and a foothold in international markets for LG and SEMC.
• On the infrastructure side 3G was expertly grasped by Huawei and ZTE leading to a new wave of M & A and a new world order which counts Nortel as a victim and seriously challenges ALU.

So how will the migration to 4G change the playing field?

• Who will benefit most on the operator/service provider side?
• Will Cloud Phones be disruptive in LTE?
• Will operators find a path to realign the traffic/revenue mix with mobile broadband devices?

I would welcome your thoughts on these key questions. Also don’t forget to join our client webinar on Thursday May 27.

 

David

The bids in Germany’s current spectrum auctions are starting to add up. With a range of spectrum on the table (800MHz, 1800MHz, 2GHz and 2.6GHz), it is the digital dividend 800MHz spectrum that is dominating proceedings – at the end of round 94 the bids totalled €1.9 billion, with nearly 90% of this bid on the 800MHz spectrum. Although there is still some way to go, the auction is already pricing the 800MHz spectrum at more than 30x higher than the 2.6GHz spectrum. The need for denser LTE networks in higher frequency bands will come, but for now 800MHz is much more valuable as it is the most cost effective for delivery of next generation coverage. However, in this instance the government isn’t leaving that to chance as it strives to close the broadband coverage gap in rural areas. Winning bidders have to cover smaller towns before they can move on to larger cities. That is a nice touch by the government. The next few years of spectrum auctions in Europe are unlikely to raise the kind of sums seen in the 2.1GHz 3G auctions of 1999-2001. So getting some public good (other than money for the public purse) out of the auctions makes sense. Building in licence rules to make sure 800MHz spectrum really is used to close the digital divide is logical as 3G/4G mobile broadband adoption soars. So if you live in a rural community that has yet to be touched by DSL/cable and are fed up waiting for a decent 3G mobile broadband signal, the sale of 800MHz spectrum for mobile services and they way coverage is being prioritized in the legislation is good news (provided you can wait a little longer for the spectrum to be cleared of analogue TV). But for the rest of the population in Germany at least, this is probably all very dull. There are only four bidders in this auction (the four existing mobile operators), so it will do nothing for competition and probably nothing for pricing either. Many operators we speak to have a similar view to TeliaSonera and will position LTE as a premium mobile broadband product as they try to pull back from what has often been quite intensive price competition in this fledgling sector.

Newton MA.USA. The size and bureaucratic tone of the FCC’ s ‘Connecting America :The National Broadband Plan’ conceal some exciting implications for broadband wireless. So here is the crib sheet.The new pro-active US Federal Communications Commission has decided to follow the example of other industrialized countries - that have been aggressively promoting Broadband - and has proposed a Broadband Availability Target (BAT) for every household and business location in America to have access to affordable broadband service with download speeds of at least 4 Mbps and upload speeds of at least 1 Mbps with good quality of service. 14 million people in US today do not have access to a terrestrial broadband infrastructure capable of meeting the BAT. FCC projected potential broadband revenues from these 14 million people and subtracted the required capital expenditures and ongoing costs for terrestrial fixed broadband. The difference is the Broadband Availability Gap (BAG) which has a 2010 present value of $24 Billion. “The gap is greatest in areas with low population density” where, the FCC says “service providers .. cannot earn enough revenue to cover the costs of deploying and operating broadband networks, including expected returns on capital… there is no business case to offer broadband services in these areas.” So what role does the FCC assign to broadband wireless to help fill this gap? FCC notes that as of November 2009 3G service covered only roughly 60% of U.S. land mass. And although FCC politely questions the spectral efficiency and services of current Fixed Wireless technology and timing of 4G wireless it boldly announced new plans to: Make 500 MHz newly available for broadband use in 10 years, of which 300 MHz is for mobile use within 5 years as follows:

• 20 MHz for mobile broadband use in the 2.3 GHz WCS band • 10 MHz Upper 700 MHz D Block for commercial use compatible with public safety broadband services • 60 MHz in AWS bands • 90 MHz of Mobile Satellite Spectrum (MSS) for terrestrial use • 120 MHz reallocated with compensation from the broadcast bands television (TV).

And the FCC recommends allocating funds for the plan in stages as follows:

Stage 1: 2010–2011 - FCC will establish Connect America Fund (CAF) to support the provision of affordable fixed broadband and will begin to switch up to $15.5 billion from the Universal Service Fund(USF) to CAF. CAF funding is planned to be “technology and carrier neutral”. FCC will also establish new Mobility Fund for specific locations that are lagging significantly behind in 3G wireless coverage (and to establish) the basis for the future footprint of 4G mobile broadband networks. Stage 2: 2012–2016 - FCC will assign approximately $4 billion from Inter-Carrier Compensation (ICC) reforms and CAF to Mobility Fund and related activities. FCC will also provide funding of up to $6.5 billion to support deployment of a nationwide, interoperable Public Safety mobile broadband network. Fixed wireless broadband will compete with terrestrial broadband for CAF funding.

Our recent TRS report ‘Gambling on Telco Returns - Telco CAPEX and Risk in Six Countries’ calculated that today fixed broadband capital investment cost per subscriber in the US, is approximately $250. This compares to approximately $70 per subscriber for today’s wireless networks and potentially twice that for 3G+ or 4G. Wireless broadband is likely to require significantly less FCC subsidy than terrestrial broadband to fill the FCC’s ‘Broadband Gap’, especially in the underserved low density rural areas of the US. Tariff and Revenue Strategy Service analyzes how service providers can balance their fixed and mobile broadband capital expenditures and price new broadband services to achieve profitable ubiquitous operations. Sue Rudd, Director Tariff & Revenue Strategies – srudd@strategyanalytics.com

Softbank Japan will be switching off its 2G mobile network next month, one of the first WCDMA operators in the world to do so. In its financial results on Tuesday it said this would result in a small correction in subscriber numbers, though the revenue impact will be minimal - in Q4 2009, 3.6% of its customers were still on the 2G network, but they contributed just 1.7% of revenues. More importantly, terminating the 2G network is going to contribute to profit growth, so it’s all good news. For Softbank, that is. That’s just over eight years to move from launching a 3G network to closing down the 2G network. Unfortunately, no other operator is going to be running on those timelines, even NTT DoCoMo is going to see 10 years lapse between its 3G launch and 2G closure (down for March 2011).

• Many operators in developed economies are now 6-7 years into their 3G lives and nowhere near the subscriber/revenue ratios seen in Japan in that timescale – most have yet to even get 40% of their subscribers onto 3G.

We spend a large amount of time in our forecast models looking at adoption curves for new technologies, predicting an inflection point for LTE is the latest to tax us. I have just run a speed test on my HTC Hero and (with the wind blowing in the right direction) I am getting 3Mbps down and almost 1Mbps up on a 7.2Mbps HSPA network. It’s hard to sit here today and decide at what point in the future I am going to find that performance completely unacceptable. New technologies are fun, but what is equally interesting for us is looking at the other end of the technology life cycle:

• How should mobile operators manage the retirement of legacy technologies as they transition from 2G to 3G, or from circuit to packet voice?
• At what point is it worth investing more in 3G subsidies for 2G users in order to save money by shutting down the old network?

The analogue to digital switch-over involved migrating a peak of 93 million analogue connections and even that has taken well over a decade to complete – this time around, there will be 4 billion 2G connections to migrate. While Softbank looks forward to lower network operating costs from April, very few other operators will reach that point even by 2015. We see huge promise in LTE and other mobile broadband technologies attracting users away from 2G services, but as vendors fight it out to have the fastest 4G demo at MWC this year it will be interesting to see how much space is devoted to technology co-existence. As regulators move towards technology-agnostic spectrum licensing, there will be a real skill in managing resources across 2G, 3G and 4G technologies and great opportunities for vendors to help operators make the transition away from 2G as painless as possible. Phil Kendall

Telefonica’s acquisition of VoIP service provider Jajah over the Christmas period was an interesting move for a very much traditional telco. Jajah is one of the real success stories in pushing VoIP to the masses. It has pushed far beyond its call-back roots to offer mobile clients for 3G and WiFi-based VoIP calling and, more significantly, adding wholesale solutions (with Yahoo! Voice it’s most significant partner). Jajah launched in March 2006 and had 10 million customers by March 2008 and, helped by the wholesale expansion, 25 million customers by mid 2009. In a consumer (and mobile) VoIP space generally served by many small providers, Jajah is a major force. It is a minnow alongside Skype but then most players in this space are. Skype’s Q3 2009 results showed:    521M registered users,    over 20M users online at peak times,    27.7B minutes of Skype-to-Skype calls (of which over one third were video calls),    3.1B minutes to landlines & cellphones. So will Telefonica and O2 join Hutchison 3G as a mobile operator aggressively pushing VoIP on mobile phones? Well, initially it seems very little will change, with Jajah operating independently and reporting into Telefonica Europe. As an incumbent telco seeing its fixed telephony minutes under threat from VoIP, having a business to compensate for that by stealing minutes in other markets has some benefit. However, the real benefit will come from closer integration and the announcement alludes to this with the European operations to “be the first of Telefonica’s regional business divisions to offer seamless Jajah services to customers wishing to extend their communications experience.” Certainly, Europe’s mobile operators need to embrace affordable international call services. Hutchison 3G has made the leap with iSkoot’s Skype solution, but alongside some of Jajah’s VoIP competitors (fring, RebTel, Truphone, Vyke, etc.) there is an increasingly successful MVNO market offering low-cost international prepaid services. Players in this space (such as Lycamobile, Lebara and KPN’s Ortel) have gone from less than 3 million users at the end of 2007 to more than 10 million at the end of 2009. Collectively, these international call providers are scaling to a point where mobile operators need to respond. They have never relied on international calling as a meaningful revenue flow, but the international offers pull domestic use with them. With over 6% of the EU’s population being classified as foreigners based on citizenship and probably at least twice this number of people having an immigration background, mobile operators need to see international calling as a useful tool to serve an important market segment. Jajah offers Telefonica and O2 an excellent platform to achieve that. - Phil Kendall

 

As we rapidly close the cover on one of the toughest years the telecommunications, content and internet industries have ever seen, SA takes a look ahead beyond the recession to detail the key megatrends for the mobile industry in 2010.

We see a tough but positive mobile ecosystem outlook with devices recovering stronger than services. More consolidation is likely among network operators, while profits for device vendors will continue to flow away from handset only vendors in favor of device/services integration specialists. Emerging markets will continue to dominate volume with strong 3G rollout competition expected. The global market for services, applications, devices and infrastructure will post modest growth of approximately 3% in 2010.

The total mobile industry revenue including services, infrastructure and devices was flat in 2009. We expect a modest growth of 2.8% in 2010 to $1140B.

· In 2009, only strong growth in data spends by users ensured that total industry revenues did not decline. Data revenues grew 9.5% in 2009 and are expected to grow at a 13% rate in 2010 reaching over $200B.

· Handset market sell through revenue will rebound well in 2010, posting growth of 4% while the infrastructure market will continue to struggle and will decline slightly.

Key issues shaping the 2010 landscape include:

• Operators needing to balance the the strong rise in Capex requirements driven by the data traffic explosion against slow revenue growth. The likely outcome being significant M&A, network sharing and even applications development.
• Handset OEMs will be forced will put the early stake in the ground for new device categories. Traditional OEMS will continue to struggle to match the Apple & Google vertical integration strategy which has proven so successful.
• As the big five vendors focus on smart phones and content/services in the open markets, a race develops to get services/apps onto feature phone products or other operator customized devices
• On-portal traffic continues to grow but is outpaced by off portal session growth. Contextualization and personalization of the user experience will determine winners and losers.
• The rapid diffusion of Flash and HTML 5 on handsets could negate much of the need for mediacos to use open platforms/app stores in mature markets.
• In the business sector we see SMEs and Manage Mobility as key battlegrounds. We see growth in hosted services for SMEs (e.g. Unified Communications infrastructure-one phone mobile and fixed, one voicemail etc.  Personal v corporate liable devices (iPhone v BlackBerry) becomes a major issue.
• In the Emerging Markets area we see consolidation & 3G expansion in urban areas as key battlegrounds. With improved financing prospects, there will be significant consolidation among regional operators and rationalization of holdings.