AT&T Upgrades 3G Network while VZW On Track with LTE Buildout; IDC’s Market Forecast

Introduction

On the eve of the CTIA WIRELESS 2010® show in Las Vegas this week, the two biggest U.S. wireless carriers are pursuing different paths to eliminate current 3G bandwidth congestion, provide higher speeds to users and achieve lower cost per bit transmitted. These initiatives are extremely important for the health of the wireless industry, which has moved from a "lock in" cell phone subscriber business model to a smart phone/gadget for mobile broadband Internet enablement . Forrester Research reports that at the end of 2009, 46% of mobile subscribers owned a 3G phone; and by 2014, that number goes to 81%. Further, smart phone penetration in the U.S. was 17% of mobile subscribers, up 61% from the year before! We all know that its the 3G smart phones that are generating the bulk of the wireless traffic on carrier networks (with the exception of CLEAR WiMAX where all of the traffic comes from data cards/dongles/embedded notebook or netbook PCs).

Forrester states that the number of Americans accessing the mobile Internet will more than double to 106 million users by 2015, from 52 million today. Mobile marketing spend should grow 27% a year compounded to $1.3 billion in 2014. And data revenue for U.S. carriers should grow from just under $11 billion last year to almost $20 billion in 2014. But that growth won't occur unless current 3G networks are enhanced and true 4G networks get deployed in a big way.

Although AT&T and Verizon Wireless are investing in LTE technology, there is a very long lead time for building out a full 4G (OFDM and all IP) network. It's been estimated that LTE deployment will require investment of about $8 billion over next 3 to 5 years, excluding the costs of spectrum acquisition, which could be even higher. Due to this long deployment cycle for LTE, 3G network will still hold its importance for wireless careers. Router maker Juniper Networks, estimates that 3G networks will have more traffic than 4G networks as far out as 2014. We would certainly agree with that prediction. Yet AT&T and VZW are taking different paths in improving their wireless networks: AT&T has been upgrading their 3G data network, while VZW is aggressively building out LTE (the current 3GPP version of which is considered 3G by the ITU-R, but 4G by VZW).

The Road to a Faster and More Cost Effective Mobile Internet

AT&T has been aggressively upgrading its HSPA based 3G network over the past year, The Trefis Team writes  that AT&T has been upgrading its 3G network by deploying HSPA 7.2 technology to enable faster speeds and to increase network efficiency. AT&T expects this 3G+ data network will comprise 90% of its current 3G network footprint by the end of 2011. HSPA 7.2 is a variation of the GSM-based HSPA technology that has a peak speed of 7.2Mbps, although AT&T cautions that most users are unlikely to see data rates approaching theoretical peak speeds. AT&T’s improved 3G network upload and download speeds could match Verizon’s expected initial "4G" LTE speeds. Verizon expects initial LTE speeds of about 5 to 12 M bit/sec.

During a conference call hosted by the GSM Association on March 18th, Kris Rinne, AT&T Senior Vice President of Architecture and Planning, said the company's 3G network would be strong enough to handle data demand until it was ready to roll out 4G next year. Our underlying GSM and HSPA networks will be able to upgrade their capabilities while laying the groundwork for LTE," she said. "By improving our current HSPA capabilities, we can add more devices to our 3G portfolio while also growing our LTE portfolio."

With respect to the company's LTE aspirations, Ms. Rinne said that users can initially expect that AT&T LTE services will deliver the same applications that AT&T 3G customers currently enjoy and that the applications delivered over 4G will be faster and more reliable. In particular she said that LTE would provide for enhanced video and mobile gaming systems, as well as eventually voice services.

In contrast to AT&T, VZW is going full bore with LTE. The company says it's "on track with building the nation's first 4G LTE (Long Term Evolution) wireless network. A host of ecosystem partners, along with the company's network engineers, equipment vendors, backhaul providers and device design experts, are preparing for the launch of the highly anticipated fourth-generation network later this year."

Verizon Wireless engineers report trials showing peak download speeds of 40 to 50 megabits per second (Mbps) and peak upload speeds of 20 to 25 Mbps and expects LTE average data rates of 5 to 12 Mbps on the downlink and 2 to 5 Mbps on the uplink in real-world environments.

Running on a nationwide license won at the FCC 700 MHz auction in 2008 [#], the Verizon Wireless 4G LTE network is reportedly "being built to ultimately have the broadest geographic coverage and to leverage the deepest spectrum capabilities by using a commercial broadband technology that is unrivaled in its ability to extend into buildings."

[#] Please refer to these articles

1. Has the 700 MHz Auction Been a Failure? 
2. FCC 700 MHz Auction Postscript: Big loss for US Wireless Network Competition

Lowell McAdam, VZW President and CEO, recently stated, "The CTIA WIRELESS convention is the perfect setting to focus on the important behind-the-scenes work we are doing with more than 25 partners to bring 4G LTE to life. Our progress is good, and we're confident that the next generation of wireless network technology will deliver the speed, reliability and bandwidth that businesses, government and consumers have been anticipating. Our work on 4G LTE underscores our continuing commitment to provide the best wireless experience available today. Building and operating great wireless networks is what we do, and everything we do at Verizon Wireless – from devices to applications to solutions – stems from that foundation of network know-how." VZW is working with a variety of partners to create a "4G LTE ecosystem." The company has created a LTE Innovation Center, Open Development and the Verizon Developer Community to "foster and support on-ramps to LTE."          

IDC Market Forecasts for Mobile Broadband and LTE

At the March 10th IDC 2010 Directions Conference in Santa Clara, IDC analysts Amy Lind and Carrie MacGillivray predicted a 32% compound annual growth rate (CAGR) for global mobile broadband connections, which were projected fo reach over 350M by 2013.  [We wonder if those include M2M connections, which are potentially much larger than human held device connections].

More significantly, LTE was predicted to have a CAGR of 471%, with 2012 (and later for some countries) as the critical inflection point for LTE mass adoption.  The technology was said to: offer improved capacity, full mobility (vs "mobile" WiMAX portability), be Initially oriented toward PCs  with pricing In flux as operators continue to rethink their business models.  

By 2013, IDC predicts:

• Mobile broadband will be ubiquitous and the defacto way of communicating
• Business models will be focused on revenues per subscriber or device   
• Global mobile services spending will surpass $975 billion
• Iconic 4G devices will be critical to success

The two IDC analysts offered their essential guidance to session attendees:

• Wireless carriers should place emphasis on data services, which are essential for revenue growth.  
• Detailed market segmentation is required to focus devices (and apps) on relevant audiences.  To achieve this objective, IDC believes that wireless network operators will deepen partnerships with device and application vendors (AT&T and Clearwire are already doing this now).
• Integration key to staving off wireless displacement and driving mobile broadband adoption

In a separate presentation, IDC Research Manager Godfrey Chua was very optimistic about LTE.  This author was stunned to hear Mr. Chua predict that LTE infrastructure equipment sales would overtake all WiMAX infrastructure sales by 4G 2011!  That's less than 18 months from now!   According to Mr. Chua, both AT&T and VZW are looking to LTE to effectively deliver high quality mobile broadband service at the lowest cost per bit possible (through the more cost efficient OFDM based modulation and multi-carrier transport).  He sees 2012-2013 as the LTE market inflection point, which is consistent with the opinion of other IDC Analysts.  Why have all the major global cellular operators made such an early committment to LTE?  Here are a few reasons given: 

• To deliver high quality mobile broadband at the lowest cost per bit
• To relieve 3G capacity pressure by migrating laptop users to LTE
• To create a more robust platform for applications and services –that lead to new business models and therefore revenue streams         

Godfrey next compared the rationale and position of LTE (vs WiMAX):

• To address capacity pressure in 3G networks (vs WiMAX to address underserved broadband connectivity demand)
• Full mobility is the value proposition (vs WiMAX portablity of netbooks/notebook access)
• Geared towards developed markets (vs WiMAX orientation toward emerging markets)
• Relevance to emerging markets not until 2015 (vs WiMAX being always relevent to emerging markets)                                 

2010 will be a critical year for LTE network equipment companies as they all seek to build momentum. in the forthcoming global market.  Mr. Chua sees Ericsson and Huawei as early leaders in providing LTE gear.  He says that Alcatel – Lucent’s Verizon Wireless win is key, but now they must convert trials into contracts.  Meanwhile, Nokia Siemens Networks is  looking to maintain relevance in LTE.  The competitive pressure will surely intensify as other players –Motorola, ZTE, NEC and Fujitsu –seek to up the competitive ante. 

In closing, Godfrey offered the following essential guidance: 

• Realization of the long-held vision for the network is near
• Mobile data traffic will continue to explode
• Network transformation is critical, it is key to remaining competitive
• Green efforts will persist, it goes hand in hand with the transformation process
• Vendor positions will continue to shift