Small Cells, Carrier Wi-Fi Could be a “Game Changer”

May 15th, 2013
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The use of Wi-Fi functionality in small-cell base stations will be a game changer for mobile service providers, easing heavily congested data pipes while linking together billions of devices into a single network architecture, according to the IHS iSuppli.

Small cells–low-power base stations each supporting approximately 100 to 200 simultaneous users–will augment wireless coverage and capacity in dense urban areas.

The small cells likely will be installed in public facilities such as malls, railway and subway stations, the sides of public buildings, and on street or traffic lights. IHS expects large-scale deployment of small cells to start in 2014. The integration of Wi-Fi, in addition to 3G and 4G mobile capabilities, will complement residential Wi-Fi.

By 2015, some 725 million households globally will have Wi-Fi access. That will create usage habits that make Wi-Fi access a normal and accepted way of getting access to the Internet.

Shipments in 2013 of Wi-Fi chipsets will reach a projected 2.14 billion units, up a robust 20 percent from 1.78 billion in 2012. This year’s anticipated increase continues the impressive run of double-digit growth that started at least five years ago and will persist for three more years until 2016, after which expansion dips to a still-strong 9 percent. By 2017, Wi-Fi chipset shipments will amount to 3.71 billion units, as shown in the attached figure.

Overall, approximately 18.7 billion Wi-Fi chipset units will be shipped from 2011 to 2017—nearly all of which will belong to the high-performance 802.11n version. To put that number in context, the entire planet has seven billion people—which means that Wi-Fi chipset shipments will outnumber the earth’s population by more than two-and-a-half times.

The devices containing embedded Wi-Fi chipsets are many, but mobile handsets stand out in particular.

By 2015, nearly 1.2 billion handsets out of a total of 1.9 billion cellphones produced that year will include Wi-Fi functionality. Approximately 70 percent of handsets sold worldwide by then—and well over that figure in North America and Western Europe—will be smartphones with embedded Wi-Fi.

Some might also argue that increasingly ubiquitous Wi-Fi might create new opportunities in the device and application space. There might be whole categories of Internet devices designed to work only in the presence of a Wi-Fi signal.

Already, in most developed nations, 80 percent to 95 percent of the time, smart phone users are in zones where Wi-Fi can be the primary Internet connection, when they use the Internet.


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Cable Companies will in Future be Almost Exclusively ISPs

May 9th, 2013
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In the long run, cable TV operators will, for the most part, become simple ISPs. “The future value of the cable MSO home connection will be almost wholly tied to data bandwidth,” according to analysts at Fitch Ratings.

That might terrify most service providers, as it suggests cable companies, most telcos and others primarily will be suppliers of “dumb pipe” Internet access. But the prediction is a simple extrapolation from current trends.

Cable operator revenue and earnings growth has been “increasingly reliant” on high-speed data products, Fitch Ratings says. At the same time, cable operators continue to lose video customers, and video service margins are compressing as programming costs increase, which cannot be fully passed through to customers, Fitch Ratings maintains.

“Cable operators are now unable to pass through the full extent of programming price increases to subscribers due to competition from other operators along with substitution technology,” Fitch analysts say.

That likely will lead to an increased reliance on usage-based data services to support video delivery, whether or not those services are owned by the cable operator.

That trend also means the value of “dumb pipe” Internet access will grow. Ironically, for service providers that hate the idea that they are “dumb pipe” access providers, dumb pipe Internet access will underpin the whole business model.


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Are Tier One Telcos Now in the Position of the Old AT&T?

May 9th, 2013
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AT&T, once the U.S. monopoly provider, thought it made a pretty good choice in in the mid 1980s, when it chose to keep long distance, manufacturing and Bell Labs in the breakup of the old Bell system. AT&T chose wrong.

As a result, its basic strategy, for years leading up to its acquisition by SBC, was to slow the rate of decline in long distance revenue, while it sought a way to get back into the local business. It didn’t work.

Looking at many global tier-one telcos, one might say a similar situation is developing, only this time the issues are the divergence between mobile and fixed network assets.

How much longer will many tier one fixed network telcos be able to finesse business models that are under tremendous pressure?

So far, they have done comparatively well, relying on broadband and video revenues to offset declining voice revenues, and continually finding ways to attack capital and operating costs.

But stresses continue to mount, and the greatest stress is on the revenue front. Basically, the problem is that 66 percent or so of global revenue in the communications business now is generated by mobile networks. The percentage, and absolute level of revenue contributed by fixed networks is dropping.

That means a smaller base of customers are sharing the fixed costs, even assuming the revenue decline in fixed networks can be halted.

For Deutsche Telekom, as for some other tier one service providers, a “good quarter” therefore often means a slower rate of decline, especially in the fixed networks business.

As is the case for most tier one service providers in advanced markets, the real big problem is sluggish topline revenue growth. In fact, Deutsche Telekom revenue declined 4.5 percent, year over year.

In its home market, revenues declined 1.6 percent year-on-year, in line with results from recent previous quarters. Mobile revenues grew by 0.5 percent, but fixed line revenues declined 2.9 percent, in line with recent quarters as well.

Wholesale revenues declined six percent, quarter over quarter.

Though mobile is a bright spot, average revenue per user dropped again. In the business segment, domestic mobile saw an 11.7 percent minutes of use decline and a corresponding decrease of 11.5 percent in ARPU.

Text messaging revenue and usage also fell sharply, with usage down 18 percent year over year. Text messaging revenue dropped about 22 percent.

Net income was up 31 percent, year over year. As with other carriers, though, the problem is declining topline revenue.

“Our goal remains to return to positive underlying service revenue growth in Germany for the full year 2013,” said René Obermann, Deutsche Telekom chairman and CEO.

As voice and text messaging revenues continue to fall, it is likely they will gradually become fixed charges, perhaps on the model of Verizon Wireless retail pricing, where unlimited domestic messaging and voice becomes a flat rate part of the network access charge.

Telefónica had similar issues in the first quarter. Revenues were down 8.8 percent, or down 1.6 percent on an organic basis, not including currency effects. The bright spot was Telefónica Latinoamérica, which accounted for 51 percent of consolidated revenues and gres nearly three percent, year over year.

To be sure, European telcos are dealing with unhelpful changes in wholesale tariffs and roaming revenue, plus sluggish economic conditions.

The longer term issue is what will constitute a “turnaround” in fortunes, whether such a turnaround is possible, and what must be done to enable such a turnaround.


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