Operator focus in North America shifting from LTE coverage to densification and monetization
Chris Antlitz , TBR Telecom Senior Analyst
OCT 16, 2014 11:00 AM
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TBR Perspective

With LTE now deployed pervasively across North America and gaining momentum in Latin America, industry focus is shifting toward how to densify these networks to handle the exponential increase in data traffic and how to monetize this powerful new network infrastructure. The private 2014 4G Americas Analyst Forum focused on these topics and others, and provided a unique view into how operators and vendors plan to address the major challenges the industry faces. Several of the sessions covered included how to better leverage Wi-Fi and cellular together, what 5G will look like, and what obstacles are slowing the take-off of the M2M market.

Event Overview

More than 80 industry members from well-known operators and vendors attended the annual 4G Americas event in Atlanta Oct. 1–2, 2014, to talk with over 60 top-tier analysts about the state of wireless communications in North America and Latin America, and discuss both challenges and opportunities presented by the rapid development of the mobile ecosystem.

Kris Rinne, SVP of Network & Product Planning at AT&T and chairperson of the 4G Americas Board of Governors, kicked off the event with her assessment of the wireless industry. Rinne provided a nostalgic view of how far the industry has come since she was hired at AT&T in 2006, and then fast-forwarded to the rapid development of the wireless market with the introduction of the iPhone and 4G LTE. Rinne gave her view of where the market is headed and what the new catalysts will be, such as wearables and connected cars, to take the telecom industry to the next stage. The addition of seemingly billions of new connected devices to networks in coming years coupled with exponential video traffic growth presents unique challenges and opportunities for stakeholders in the telecom industry. Rinne emphasized that innovation takes the industry by surprise and many times looks much different than what was originally projected — and noted this time around will be no different.

A mix of panels and small group discussions delved deeper into key industry topics, including NFV/SDN, LTE-Advanced, 5G, small cells, M2M, VoLTE and others. Of particular interest to the analyst community was greater insight to how Wi-Fi and cellular are being used together in the network.

Impact and Opportunities

Operators view Wi-Fi as complementary to cellular, not as a disintermediator

T-Mobile's and Apple's recent announcements that they are supporting Wi-Fi Calling have made quite a splash in the mobile world and lend further evidence that Wi-Fi is becoming more important to enabling connectivity to the network. While Wi-Fi was viewed as an offload technology by operators, it is now starting to be embraced by pioneering operators as a way to increase the value proposition to their subscribers by way of enhanced coverage and overall better quality of service. A couple of industry experts even opined that all small cells will ultimately be Wi-Fi compatible.

While handover and coordination software still leaves much to be desired in functionality, the vendor community is working proactively to address these challenges. One thing is certain: Wi-Fi is going to be more prevalent in networks and will be leveraged in coordination with cellular to provide a seamless and optimized quality of service in both indoor and outdoor settings.

5G: Lots of noise, little to see

5G was a topic of much discussion at the event with technology experts from multiple vendors and operators providing their best guesses as to what the standard will ultimately look like. Though many standards bodies are actively working to put a framework around the technologies that will comprise 5G, the reality is that 5G is in the early stages of being defined and conceptualized. The key takeaway from the roundtable discussion was that 5G will take years to define and be ready for commercial use, and in the interim more deliberation needs to take place. Some areas of agreement were that 5G will be shaped by multiple technologies and no single technology will drive 5G movement and development. Additionally, it was agreed that 5G will be driven by use cases and that industry will be a key facilitator of the move to a 5G world. NFV, IT and open source will all be key components to accelerating 5G development and the timeline for it to become commercially ready.

Critical mass adoption of Internet of Things on hold until module prices fall

In-depth conversation revolved around what kinds of new devices will be connected to networks and how the inclusion of these devices will impact the network. Wearables and connected cars were recurring examples. However, before the concept of the Internet of Things can be realized, the cost of modules needs to be more affordable for mass deployment. Most modules used thus far for M2M have been GSM, which provide good-enough coverage and capacity to transmit base-level data streams. Module prices for GSM are relatively low, around $10 per unit according to TBR research. For modules to get into a variety of devices in an economical, future-proof way, manufacturers will need to use LTE modules in their products, which is a more expensive proposition (LTE modules cost around $70 each according to TBR research). While this price point is justifiable for a connected car, it is not cost-effective for smaller devices. It will take a few more years for these prices to come down to levels that will facilitate an explosion of available connected devices in the market and allow the Internet of Things to reach a critical mass adoption level.

Regulatory challenges slow LTE development in Latin America

Latin America–based operators face a conundrum: Traffic is growing faster than revenue, and spectrum is getting more expensive and is in limited supply as regulators slow down the issuance process. Spectrum allocated to operators comes at a high price and usually with strings attached, for example agreeing to deploy LTE where it may not be economically viable, such as in rural areas. Also, most of the spectrum allocated for LTE thus far is in high frequency bands, which are good for capacity but not ideal for coverage. Low band frequencies are still waiting to be doled out by governments.

Operators in the region are trying to compete under this backdrop by introducing innovative ways to get smartphones into the hands of the populace to drive data revenue. This includes device financing, which is becoming increasingly popular. Still, it is challenging to make the economics work when the average revenue per user (ARPU) in Latin America is $10 to $11 per month and 80% of the populace is on prepaid plans.

The reality of the situation is that LTE deployment will lag behind across the region. Though LTE has been deployed in 45 networks in 18 countries across the region, POP coverage rates are relatively low, in most countries well below 50% compared to over 90% in North America. LTE is in the early stages of being rolled out to second-tier cities in major countries, such as Mexico and Brazil.

Conclusion

While LTE is front and center in the industry and the ecosystem developing around the standard is continuing to flourish, both vendors and operators are keeping an eye on the horizon to be prepared for market disruption and to capitalize on new market opportunities. Connected devices represent a unique opportunity for operators to leverage their powerful LTE networks to drive revenue. Meanwhile, SDN and NFV promise substantial opex savings from an operational standpoint. Alternatively, vendors are staking out an early claim on 5G as a key revenue driver and are looking to Wi-Fi as a supplementary growth business. Despite vendor awareness and operator preparation, Rinne's statement holds true: Innovation will blindside the industry.

Technology Business Research, Inc. is a leading independent technology market research and consulting firm specializing in the business and financial analyses of hardware, software, professional services, telecom and enterprise network vendors, and operators. Serving a global clientele, TBR provides timely and actionable market research and business intelligence in a format that is uniquely tailored to clients' needs. Our analysts are available to further address client-specific issues or information needs on an inquiry or proprietary consulting basis. 

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