Coping with wireless traffic demand

I recently published an Insight article for Analysys Mason based on some of the research I was doing at Mobile World Congress. My focus this year was on wireless traffic growth and how MNOs could deal with it. Below are a brief summary of the findings. Full version here.

A major focus of Mobile World Congress (MWC) 2010 was the seemingly inexorable and exponential growth in wireless data traffic. This is exemplified by the growth in Vodafone’s European data traffic: a 300% increase over the last two years. There have been even more substantial localised spikes: O2 UK, for instance, experienced a twentyfold increase in data traffic during 2009, and Hong Kong’s CSL saw a fourteenfold increase in traffic in the nine months after the deployment of HSPA, in March 2009.

Given this trend, vendors at MWC outdid each other in predicting traffic growth over the next five years: Cisco claimed that global data traffic will increase by a factor of 39 between 2009 and 2014, while Ericsson predicted fiftyfold growth by 2015. NSN plumped for forecasting an equally round, but rather more ambitious, hundredfold rise. Analysys Mason is currently working on its own forecast of global traffic, which will be published in April. The consensus within the industry is that there will be substantial growth in demand for wireless traffic over the next five years.

A successful strategy for dealing with this exponential growth in wireless data traffic has four pillars, each of which is necessary, but is itself insufficient to deal with the demand.

• Spectrum: a scarce resource. Currently, MNOs rely on a relatively small piece of spectrum to provide data services. In Europe, for instance, 3G uses a total of 150MHz in the 2.1GHz band. Similar constraints apply in other regions. Large chunks of additional spectrum at 800MHz and 2.6GHz are soon to become available and MNOs are looking to refarm 900MHz spectrum to use for 3G. In the next five years in Europe, the total available spectrum for 3G and 4G will increase from 150MHz to 470MHz, which is a 200% increase in capacity. See here for more explanation.
• Technology choices: HSPA+, LTE, MIMO and beyond. The availability of capacity does not, of course, rest solely on what spectrum is obtainable. It also depends on the technology that is used. As MNOs upgrade to HSPA+ and LTE, they will be able to squeeze more capacity out of their spectrum. The addition of features such as MIMO and multiple carriers brings significant benefits. Compared with the existing 14.4Mbit/s HSPA that is fairly common in developed 3GPP markets today, LTE offers approximately three times the capacity (assuming the same amount of spectrum). For more, see here.
• In-building coverage: femtocell or repeater? Analysys Mason anticipates that by 2016, over 80% of global wireless data traffic will be generated indoors. It is critical to MNOs’ success that they offload this traffic from the wireless macro network. Today, much indoor usage, particularly that of PC-based mobile broadband, is already offloaded and MNOs must ensure that this trend continues. Evidence from Analysys Mason’s consumer survey shows that most mobile broadband usage takes place in the home and other recent analysis (our Comment article "What the Nordic markets can tell us about fixed-mobile broadband substitution" indicates that mobile broadband is becoming a true substitute for DSL. As in-building traffic increases, so will the requirement to offload it from the macro network. The femtocell is the most obvious technology to use to offload this traffic. Wi-Fi could achieve similar objectives, but its long-term success is in question because it uses unlicensed spectrum. Also, there are more-effective ways of delivering in-building capacity using solely the macro network. Delivering in-building traffic places up to three times as much strain on the network as the equivalent volume of outdoor traffic (see Analysys Mason Comment "Is indoor coverage good enough for mobile broadband?"). MNOs can significantly improve performance if they can make the provision of in-building bandwidth more closely resemble that of outdoor bandwidth. This can be achieved using repeaters, which can be strategically placed close to windows.
• Traffic, policy and subscriber management: making the users pay. The most important thing that MNOs can do to ensure the future profitability of their networks is effectively to manage their subscriber bases and the traffic that these generate. Figures vary, but MNOs are finding that, typically, 80% of wireless data traffic is generated by 5–10% of their subscribers. This is not a problem as long as those who are consuming the data are paying for it. This is often not the case, particularly where MNOs offer tariffs that include unmetered access. Operators that have chosen to offer unlimited plans are now regretting this. It is critical for future network upgrades that MNOs do not allow subscribers to consume bandwidth without generating commensurate revenue. If they are able to control this successfully, it will either reduce network load or ensure that their margin per gigabyte increases substantially. This will either lessen the need for expensive network upgrades or provide the cash to undertake them.

A combination of acquisition of new spectrum and deployment of LTE will increase network capacity to nine times what it is now. However, this will be expensive and it will not be sufficient to meet bandwidth demand. In order to meet the demand for data traffic cost-effectively in the next five years, MNOs must focus on halting the growth of in-building macro network traffic by using femtocell or repeater technology and on managing the demand for bandwidth by curbing the excesses of their heavy users.

Following up on this exercise, we'll be doing a lot of work looking at scenarios for coping with bandwidth demand and what strategies MNOs need to adopt. This will be based on a modelling exercise that looks at both the demand and supply elements of supporting wireless data traffic. The aim is to stitch the two sides together. Watch this space. Or drop me a line if you're interested.

Recession drives down mobile ARPU

I've just been doing a little analysis of the impact of the recession on mobile ARPU in Western Europe. It's interesting to compare ARPU at Q2 2009 with those at Q2 2008 (when we were just on the cusp of recession) and Q2 2007 when everything in the garden was still rosy!

Based on a rough average across all the markets, blended ARPU fell 10% between Q2 2008 and Q2 2009, compared to a decline of just 6% in the previous 2 years. The most prominent decline has been in prepaid ARPU which fell 12% in the period, compared to just 9% in the previous 12 months. Contract saw a 9% fall, compared to 8% in the previous year.

So prepaid seems to have taken the brunt of the recession. In some ways that's unsurprising. Contract users are tied in with a guaranteed minimum spend for the duration of their contract. So any decline in ARPU will be slower to materialise. So it will be worth keeping an eye on over the next 12 months. The decline in prepaid is more immediate as users can instantly influence their spending and reduce it as necessary. They are also the most immediate recipients of any price discounts that operators choose to hand out.

This is all based on the marvellous data collected for Analysys Mason's Telecoms Market Matrix, the finest source of quarterly quantitative telco data that you can lay your hands on, covering both fixed and mobile markets in Western Europe and Central & Eastern Europe.

Orange hopes for halo effect from launching HD voice

Orange UK has announced that it will be launching high definition (HD) voice, using the Wideband Adaptive Multi-Rade (WB-AMR) codec. Full nationwide roll-out will follow in 2010, as will compatible devices. Press release here.

Mobile operators have been flirting with high quality voice services for years but I'm healthily sceptical about demand. Clearly, with 70%+ of revenue coming from voice, Orange and other operators need to explore ways to differentiate that service. But HD voice isn't the way to do it. Users won't pay more for it and mobile operators should be looking at reducing, not increasing, the load on their networks.

The migration of traffic from traditional fixed line, where quality is best, to mobile and VoIP services (such as Skype) shows that sound quality is really a fairly minor issue for most users. Price and convenience are much more important. It's also interesting that having perfect clarity on telephone calls has proven to actually be disconcerting for users. If lines are too quiet, network operators insert artificial background noise (Comfort Noise Insertion) when the other party is not speaking so the caller knows they haven't hung up.

So if no-one cares and no-one's going to pay, why do this? PR. This is surely another way for Orange to continue banging on about the superiority of their network. Whether or not their network is superior (and for the average punter it's completely opaque) it's vitally important to have a message that yours is best. The concept of HD is linked to superior user experience, so this announcement is all about the halo effect. Surely Orange isn't expecting anyone to pay extra to take HD voice. In a world where no-one knows who has the best network, but network superiority is a good differentiator, it's critical to find ways to communicate how much better your network is. Being cynical for a moment, perhaps HD voice is one way of doing that.

Mobile broadband in Saudi Arabia: Mobily pass 1m subs but average usage only 50MB/month

I just saw this report that Saudi mobile operator Mobily had just reached 1m mobile broadband customers. In a country of 30m people that's an impressive feat. Furthermore that represents a four-fold increase (almost) on the subs base at the end of 2008. Tariffs aren't cheap either, with the cheapest option costing USD27/month for 1GB, up to USD94/month for an unlimited bundle.

Usage levels seem to be relatively low. According to the Zawya report, traffic for December 2009 stood at 50 terabytes, which equates to just 50MB per user. So either there are lots of inactive users or internet usage is very light in KSA, which would indicate that the vast majority of users are on the lowest tariff and there is very little use of peer-to-peer file sharing.

Retaining mobile broadband customers: it's all about inertia

Analysys Mason has just published a report looking at the thorny issue of churn management in mobile broadband. MNOs must put retention at the core of their mobile broadband strategy looks at the customer retention and churn reduction strategies that MNOs must pursue to be as effective as possible at retaining subscribers. In a nutshell it's all about recognising the importance of inertia (of which there's a lot) and looking for genuine customer acquisition opportunities (which have to be sought out).

This report was put together on the back of work done on retention and churn reduction in the mobile world in general. See here for more details.

Also published recently was Strategies for mobile broadband in CALA: forecasts and analysis 2009–2014, which focuses on the Caribbean and Latin American markets where mobile broadband threatens to be a real threat to DSL infrastructure and revenue opportunities are substantial.

Both excellent reads and I thoroughly recommend them.

France finally awards 3G licence to...Free

DSL service provider Iliad has finally been allocated France's fourth 3G licence. As the only applicant for the licence it was a fait accompli that they'd get it, but it's nice to finally get confirmation. Free Mobile (as the new operator will be known) will get the license in January 2010.

The implications? A shake up of a pretty stagnant mobile market and a particular focus on mobile broadband. They are a very strong #2 fixed broadband player (19% market share) behind incumbent France Telecom and they have a real opportunity to cross-sell mobile broadband services. This is particularly true given the established network of shared WiFi hotspots that Iliad has. There are 3 million households with Freeboxes which provide both private and public WiFi access, so Free Mobile effectively already has 3 million basestations. How they exploit this advantage will be the determining factor for how successful Free Mobile will be.

SFR has recent made such a move targeting their NeufWiFi subscribers. For analysis of that see here.

3 admits that mobile broadband can't meet user demand for video

Interesting to see this article about 3's concessions to people who have suffered poor mobile broadband services. Clearly, given the nature of MBB coverage, the service won't be suitable for some customers. Try-before-you-buy and no-quibbles money back guarantees should be a fixture in any operator's MBB offering.


What caught my eye though, was comments from Hugh Davies that mobile broadband was never intended for video downloading and streaming. A quick look at their website also shows that they're now stating that for video usage, fixed is best. The implication being that MBB is, and will remain, a complement rather than a replacement to DSL. If MBB can't meet user demand for video usage now, it's unlikely to be able to do so in the future. Usage will probably grow faster than supply.


Of course, I have always maintained that MBB is a complement to fixed (see here) but it's particularly interesting to see a mobile-only player admit that a subscriber's broadband needs can't be met by mobile!