Enterprise Wi-Fi 6/7 is here to stay: 5G is not enough

Overview of Wi-Fi 6/7 for enterprises

This report is not a traditional analyst report on Wi-Fi covering market segments, shares and forecasts. Numerous peer organisations have a long tradition of quantitative marketing modelling and prediction; we are not intending to compete with them. For illustration purposes, we have used a couple of charts with the kind permission of Chris DePuy from 650 Group presented at a recent Wi-Fi Now conference, during a joint panel session with the author of this report.

Instead, this report looks more at the strategic issues around Wi-Fi and the enterprise – and the implications and recommendations for CIOs and network architects in corporate user organisations, opportunities for different types of CSPs, important points for policymakers and regulators, plus a preview of the most important technical innovations likely to emerge in the next few years. There may be some differences in stance or opinion compared to certain other STL reports.

The key themes covered in this report are:

  • Background to enterprise Wi-Fi: key uses, channels and market trends
  • Understanding “Wi-Fi for verticals”
  • Decoding the changes and new capabilities that come with Wi-Fi 6, 6E and 7
  • How and where public and private 5G overlaps or competes with Wi-Fi
  • CSP opportunities in enterprise Wi-Fi
  • Wi-Fi and regulation – and the importance of network diversity.

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Wi-Fi’s background and history

Today, most readers will first think of Wi-Fi as prevalent in the home and across consumer devices such as smartphones, laptops, TVs, game consoles and smart speakers. In total, there are over 18 billion Wi-Fi devices in use, with perhaps 3-4bn new products shipping annually.

Yet the history of Wi-Fi – and its underlying IEEE802.11 technology standards – is anchored in the enterprise.

The earliest incarnations of “wireless ethernet” in the 1990s were in sectors like warehousing and retail, connecting devices such as barcode scanners and point-of-sale terminals. Early leaders around 2000-2005 were companies such as Symbol, Proxim, 3Com and Lucent, supplying both industrial applications and (via chunky plug-in “PCMCIA” cards) laptops, mostly used by corporate employees.

During the 2003-2010 period, Wi-Fi exploded for both enterprises and (with the help of Apple and Intel) consumer laptops, and eventually early smartphones based on Windows and Symbian OS’s, then later iOS and Android.

The corporate world in “carpeted offices” started deploying more dedicated, heavyweight switched systems designed for dense networks of workers at desks, in meeting rooms and in cubicles. Venue Wi-Fi grew quickly as well, with full coverage becoming critical in locations such as airports and hotels, both for visitors and for staff and some connected IT systems. A certain amount of outdoor Wi-Fi was deployed, especially for city centres, but gained little traction as it coincided with broader coverage (and falling costs) of cellular data.

A new breed of enterprise Wi-Fi vendors emerged – and then quickly became consolidated by major networking and IT providers. This has occurred in several waves over the last 20 years. Cisco bought Airespace (and later Meraki and others), Juniper bought Trapeze and Mist Systems, and HP (later HPE) acquired Aruba. There has also been some telecom-sector acquisitions of Wi-Fi vendors, with Commscope acquiring Ruckus, and Ericsson buying BelAir.

While telcos have had some important roles in public or guest Wi-Fi deployments, including working with enterprises in sectors such as cafes, retail, and transport, they have had far less involvement with Wi-Fi deployed privately in enterprise offices, warehouses, factories, and similar sites. For the most part that has been integrated with the wired LAN infrastructure and broader IT domain, overseen by corporate IT/network teams and acquired via a broad array of channels and systems integrators. For industrial applications, many solution providers integrate Wi-Fi (and other wireless mechanisms) directly into machinery and automation equipment.

Looking to the future, enterprise Wi-Fi will coexist with both public and private 5G (including systems or perhaps slices provided by telcos), as well as various other wireless and fibre/fixed connectivity modes. Some elements will converge while others will stay separate. CSPs should “go with the grain” of enterprise networks and select/integrate/operate the right tools for the job, rather than trying to force-fit their preferred technical solution.

Roles and channels for enterprise Wi-Fi

Today, there are multiple roles for Wi-Fi in a business or corporate context. The most important include:

  • Traditional use in offices, both for normal working areas and shared spaces such as meeting and conference rooms. There is often a guest access option.
  • Small businesses use Wi-Fi extensively, as many workers rely on laptops and similar devices, plus vertical-specific endpoints such as payment terminals. Often, they will obtain Wi-Fi capabilities along with their normal retail business broadband connection from a service provider. This may include various types of guest-access option. Common use of shared buildings such as multi-tenant office blocks or retail malls means there may be a reliance on the landlord or site operator for network connectivity.
  • Working from home brings a wide range of new roles for Wi-Fi, especially where there is an intersection of corporate applications and security, with normal home and consumer demand. A growing range of solutions targets this type of converged situation.
  • Large visitor-led venues such as sports stadia, hotels and resorts are hugely important for the Wi-Fi industry. They often have guests with very high expectations of Wi-Fi reliability, coverage, and performance – and also often use the infrastructure themselves for staff, displays and various IoT and connected systems.
  • Municipal and city authorities have gone through two or more rounds of Wi-Fi deployments. Initial 2010-era visions for connectivity often stalled because of a mismatch between usage at the time (mostly on laptops, indoors) and coverage (mostly outdoors). Since then, the rise of smartphone ubiquity, plus a greater array of IoT and smart city devices has made city-centre Wi-Fi more useful again. Increasingly, it is being linked to 5G small cell deployments, metro fibre networks – and made more usable with easier roaming / logon procedures. Some local authorities’ scope also covers Wi-Fi use within education and healthcare settings.
  • Public Wi-Fi hotspots overlap with various enterprise sectors, most notably in transport, cafes/restaurants and hospitality sectors. Where organisations have large venues or multiple sites, such as chain of cafes or retail outlets, there is likely to be some wider enterprise proposition involved.
  • The transport industry is a hugely important sector for enterprise Wi-Fi solutions. Vehicles themselves (buses, planes, trains, taxis) require connectivity for passengers, while transport hubs (airports, stations, etc.) have huge requirements for ease-of-access and performance for Wi-Fi.
  • Wi-Fi technology is also widely used as the basis for fixed-wireless access over medium-to-wide areas. Sometimes using vendor-specific enhancements, it is common to use unlicenced spectrum and 802.11-based networks for connectivity to rural businesses or specific fixed assets. A new version of Wi-Fi technology (802.11ah HaLow) also allows low-power wide area applications for sensors and other IoT devices, which can potentially compete against LoRa and 4G NB-IoT, although it is very late to the market.
  • Niche applications for Wi-Fi technology also exist, for example backhauling other wireless technologies such as Bluetooth, for in-building sensing and automation. There are also emerging propositions such as using high-capacity 60GHz Wi-Fi to replace fibres and cabling inside buildings, especially for rapid installation or in environments where drilling holes in walls requires permits.

Enterprise Wi-Fi solutions cover a broad range of contexts and uses

Given the range of Wi-Fi enterprise market sectors and use cases, it is unsurprising that there are also multiple ways for companies and organisations to obtain the infrastructure, as well as operate the connectivity functions or services.

Some of the options include:

  • Self-provision: Many large organisations will source, install, and operate their own Wi-Fi networks via their IT and networking teams, as they do for fixed LAN and sometimes WAN equipment. They may rely on vendor or outsourced support and specific tasks such as wiring installation.
  • Broadband CSP: Especially for smaller sites, Wi-Fi is often obtained alongside business broadband connectivity, perhaps from an integrated router managed by the ISP.
  • Enterprise MSP: Larger businesses may use dedicated enterprise-grade service providers for their Internet connections, UCaaS services, SD-WAN / SASE networks and so on. These organisations may also provide on-site Wi-Fi installation and management services, or work with sub-contractors to deliver them.
  • Solution providers: Various IT and OT systems, such as building management systems or industrial automation solutions, may come with Wi-Fi embedded into the fabric of the proposition.
  • Managed Wi-Fi specialists: Especially for visitor-centric locations like transport hubs, Wi-Fi coverage and operation may be outsourced to a third party managed service operator. They will typically handle the infrastructure (and any upgrades), authentication, security and backhaul on a contractual basis. They will also likely provide staff/IoT connections as well as guest access.
  • Network integrators: Enterprises may obtain Wi-Fi installations as a one-off project from a network specialist (perhaps with separate maintenance / upgrade agreements). This may well be combined with fixed LAN infrastructure and other relevant elements. This may also be a channel for hybrid Wi-Fi / private cellular in future.
  • Vertical specialists: Various industries such as hotels, aviation, hospitals, mining and so on will often have dedicated companies catering to sector-specific needs, standards, regulations, or business practices. They may tie together various other technology elements, such as IoT connections, asset tracking, voice communications and so forth, using Wi-Fi where appropriate.
  • In-building wireless specialists: Various companies specialise in both indoor cellular coverage systems and Wi-Fi. Often linked to tower companies or neutral-host business models.

Table of Contents

  • Executive Summary
  • Introduction
    • Structure and objectives of this report
    • Background and history
    • Roles and channels for enterprise Wi-Fi
    • Recent enterprise Wi-Fi market trends
    • Note on terminology
  • The evolution of “Wi-Fi for verticals”
    • Understanding Wi-Fi “verticals”
    • Existing vertical-specific Wi-Fi solutions
    • Wi-Fi in industry verticals – building ecosystems
  • Wi-Fi 6, 6E & 7: Rapid cadence or confusion?
    • Continual evolution of Wi-Fi capabilities: 6, 6E, 7
    • Wi-Fi 7 may be a game-changer for enterprise
    • The long-term future: Wi-Fi 8 and beyond
    • Other Wi-Fi variants: 60GHz and HaLow
  • Where do Wi-Fi and 5G overlap competitively?
    • Does private 5G change the game?
    • Convergence / divergence
  • The political and regulatory dimensions of enterprise wireless
    • 6GHz spectrum
  • CSPs and enterprise Wi-Fi
    • CSPs and large enterprise / industrial Wi-Fi
    • Wi-Fi service value-adds
    • Wi-Fi and edge compute
  • Conclusions

Related research

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Regulation: A Good Case for Change (at last)

Introduction

As one of the most regulated sectors of the economy, telecoms services are the product of a complex mix of market forces and a multitude of rules governing everything from prices to the availability of spectrum. Many of these rules date from the days when an incumbent telco, often state-owned, was the dominant player in the market and needed to be carefully scrutinised by regulators. However, some of these rules, such as those governing Net Neutrality, are relatively new and relate to telcos’ role as the gateway to the Internet, which has become so fundamental to modern life. For more on this topic, please see STL Partners’ recent report: Net Neutrality 2021: IoT, NFV and 5G ready?

As telcos’ profitability has come under increasing pressure, they are lobbying hard for greater regulatory freedom. This report outlines and analyses telcos’ various campaigns to improve the business case for infrastructure investment and level the playing field with Internet players, such as Google and Facebook. It also considers whether telcos are actually putting their money where their mouth is. Is the current regulatory and competitive climate actually prompting them to cut back on investment? What will be the impact on 5G?

For their part, governments are increasingly aware of the need to stimulate new investments and new solutions in the digital economy. Greater digitisation could help solve important socio-economic problems. For example, most governments believe that digital technologies can improve the business environment, and support lower-cost, but effective, healthcare, education and security services, that will make their economies function and grow. The EU, for example, is trying to build a Digital Single Market, while the Indian government’s Digital India initiative aims to make all public services available online.

Thus governments need telcos and tech companies to succeed. Given that telcos are typically more national than global in their outlook and organisation, they tend to seem a more natural partner for national governments than the giant Internet players, such as Google and Apple.

In light of these factors, this report explores whether policymakers’ priorities are changing and how regulatory principles and competition policy are evolving. In particular, it considers whether policymakers and regulators are now taking a tougher stance with the major Internet platforms. Finally, the report analyses several areas of uncertainty – arenas in which telcos and others are likely to concentrate their lobbying efforts in future, and gives our high level analysis of areas of potential for telcos – and regulators – to make progress.

 

  • Introducton
  • Executive Summary
  • The regulatory constraints on telcos
  • Telcos’ lobbying efforts
  • More than just talk?
  • Policymakers change their priorities
  • Taking a tougher line with Internet players
  • Conclusions and areas of uncertainty

 

  • Figure 1: EBIT margins for various segments of the digital economy
  • Figure 2: ROCE in various segments of the digital value chain
  • Figure 3: Western Europe isn’t investing enough in telecoms infrastructure
  • Figure 4: Europe’s big five have stepped up capital spending
  • Figure 5: Vodafone & Telecom Italia invest more than 20% of revenues
  • Figure 6: The capital intensity of European telcos has been rising
  • Figure 7: Europe’s large telcos are seeing ROCE fall
  • Figure 8: Europe lags behind on LTE availability
  • Figure 9: In the UK, mobile operators already share infrastructure
  • Figure 10: The EU alleges Google uses Android to unfairly promote its apps
  • Figure 11: The key issues in telecoms regulation & their relative importance
  • Figure 12: The flywheel that can be driven by ROCE-aware regulation

Growing the Digital Economy: Lessons from Brazil, Mexico, and Iran

Introduction

Recent data on the growth of the Internet shows that different public policies have dramatically different impacts. In Latin America, two nations following very similar policies are achieving spectacular success, both in terms of raw quantity and in terms of deeper qualitative improvement, while other countries, sometimes with higher per-capita GDP, pursue different policies and see radically worse results.

In the Middle East, there is evidence of a similar breakout to development in some surprising countries, which turn out to be adopting key elements of the policy mix that has been successful in Latin America.

Renesys, a US company which provides software tools to monitor Border Gateway Protocol BGP routing activity, also collects large amounts of data on the structure of the Internet as a by-product of this activity. In May 2013, they issued a fascinating blog post, which drew attention to the dramatic development gap emerging between – for example – Brazil and Argentina on one hand, and Mexico on the other.

AS numbers: a key metric for Internet participation

What Renesys was looking at was the count of ASNs (Autonomous System Numbers) over time, a measure that we believe gives an excellent and profound indication of the development of the internet.

ASNs identify networks that control their own routing policy and IP address block. The voluntary interconnection of autonomous systems through BGP routing, which is based on AS numbers, makes up the fundamental structure of the Internet. In this sense, counting ASNs is a better metric than counting subscribers, domain names, Web sites, or IP addresses, because it is a measurement of participation in the Internet, not just consumption of cat videos and Google adverts. The creation of new ASNs is evidence that new businesses, organisations, content providers, hosting and cloud computing providers, and ISPs are emerging. It is evidence that technical competence is diffusing through society.

Because an ASN is the entry ticket to Internet peering, it’s also evidence of growing direct interconnection between networks, the fundamental purpose of the Internet, and the source of reliable, resilient, and high-performance service. In important ways, more AS numbers shows not just quantitative growth, but also qualitative improvement.

So how does the scoreboard look?

Figure 1: Brazil & Argentina Lead The Way
Latin America: New ASNs Feb 2014

Source: Renesys data, STL Partners visualisation

Argentina is doing well; Brazil is doing incredibly well; Mexico is either stable, or stagnant. We’ve labelled the chart selectively, so you can also see that among the poorer and smaller Latin American nations, Costa Rica is doing very well while Venezuela is doing poorly.

Mexico’s per-capita GDP at purchasing-power parity was calculated at $15,312 in 2012 dollars by the IMF, whereas Argentina’s was $18,112. But this gap doesn’t explain what’s going on here. Brazil’s was $11,875, and the Brazilian Internet is doing even better. Clearly, money is not enough. Every year, Brazil adds as many ASNs as there are in the whole of Mexico. This is a reflection of vastly different government policy and market structure. Similarly, there doesn’t seem to be any reliable link between population, ASN growth, or how many citizens there are for each ASN, as the following chart shows. Even GDP is a very weak predictor.

Figure 2: Policy, not population or GDP, drives Internet growth
It's not population nor GDP Feb 2014

Source: STL, IMF data, ANATEL

 

  • Executive Summary
  • What did Brazil get right?
  • A More Democratic Internet: Understanding the Problem from a Latin American Viewpoint
  • A Policy Mix That Supports Innovators
  • What did Mexico and others do wrong?
  • Monopolies lead to inertia
  • State Telecoms: not a great strategy either
  • Taking A Similar View On The Middle East
  • Censorship and Internet Development
  • Wholesale Transit as a Weapon
  • Conclusions
  • About STL Partners

 

  • Figure 1: Brazil & Argentina Lead The Way
  • Figure 2: Policy, not population or GDP, drives Internet growth
  • Figure 3: Brazil has been adding 700+ new local ISPs a year
  • Figure 4: The Middle East by ASN count
  • Figure 5: Iran’s Internet Flourishes Behind the Firewall
  • Figure 6: In the Middle East, it’s policy that matters too

Mobile Broadband 2.0: The Top Disruptive Innovations

Summary: Key trends, tactics, and technologies for mobile broadband networks and services that will influence mid-term revenue opportunities, cost structures and competitive threats. Includes consideration of LTE, network sharing, WiFi, next-gen IP (EPC), small cells, CDNs, policy control, business model enablers and more.(March 2012, Executive Briefing Service, Future of the Networks Stream).

Trends in European data usage

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Below is an extract from this 44 page Telco 2.0 Report that can be downloaded in full in PDF format by members of the Telco 2.0 Executive Briefing service and Future Networks Stream here. Non-members can subscribe here, buy a Single User license for this report online here for £795 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003. We’ll also be discussing our findings and more on Facebook at the Silicon Valley (27-28 March) and London (12-13 June) New Digital Economics Brainstorms.

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Introduction

Telco 2.0 has previously published a wide variety of documents and blog posts on mobile broadband topics – content delivery networks (CDNs), mobile CDNs, WiFi offloading, Public WiFi, network outsourcing (“‘Under-The-Floor’ (UTF) Players: threat or opportunity? ”) and so forth. Our conferences have featured speakers and panellists discussing operator data-plan pricing strategies, tablets, network policy and numerous other angles. We’ve also featured guest material such as Arete Research’s report LTE: Late, Tempting, and Elusive.

In our recent ‘Under the Floor (UTF) Players‘ Briefing we looked at strategies to deal with some of of the challenges facing operators’ resulting from market structure and outsourcing

Under The Floor (UTF) Players Telco 2.0

This Executive Briefing is intended to complement and extend those efforts, looking specifically at those technical and business trends which are truly “disruptive”, either immediately or in the medium-term future. In essence, the document can be thought of as a checklist for strategists – pointing out key technologies or trends around mobile broadband networks and services that will influence mid-term revenue opportunities and threats. Some of those checklist items are relatively well-known, others more obscure but nonetheless important. What this document doesn’t cover is more straightforward concepts around pricing, customer service, segmentation and so forth – all important to get right, but rarely disruptive in nature.

During 2012, Telco 2.0 will be rolling out a new MBB workshop concept, which will audit operators’ existing technology strategy and planning around mobile data services and infrastructure. This briefing document is a roundup of some of the critical issues we will be advising on, as well as our top-level thinking on the importance of each trend.

It starts by discussing some of the issues which determine the extent of any disruption:

  • Growth in mobile data usage – and whether the much-vaunted “tsunami” of traffic may be slowing down
  • The role of standardisation , and whether it is a facilitator or inhibitor of disruption
  • Whether the most important MBB disruptions are likely to be telco-driven, or will stem from other actors such as device suppliers, IT companies or Internet firms.

The report then drills into a few particular domains where technology is evolving, looking at some of the most interesting and far-reaching trends and innovations. These are split broadly between:

  • Network infrastructure evolution (radio and core)
  • Control and policy functions, and business-model enablers

It is not feasible for us to cover all these areas in huge depth in a briefing paper such as this. Some areas such as CDNs and LTE have already been subject to other Telco 2.0 analysis, and this will be linked to where appropriate. Instead, we have drilled down into certain aspects we feel are especially interesting, particularly where these are outside the mainstream of industry awareness and thinking – and tried to map technical evolution paths onto potential business model opportunities and threats.

This report cannot be truly exhaustive – it doesn’t look at the nitty-gritty of silicon components, or antenna design, for example. It also treads a fine line between technological accuracy and ease-of-understanding for the knowledgeable but business-focused reader. For more detail or clarification on any area, please get in touch with us – email mailto:contact@stlpartners.com or call +44 (0) 207 247 5003.

Telco-driven disruption vs. external trends

There are various potential sources of disruption for the mobile broadband marketplace:

  • New technologies and business models implemented by telcos, which increase revenues, decrease costs, improve performance or alter the competitive dynamics between service providers.
  • 3rd party developments that can either bolster or undermine the operators’ broadband strategies. This includes both direct MBB innovations (new uses of WiFi, for example), or bleed-over from adjacent related marketplaces such as device creation or content/application provision.
  • External, non-technology effects such as changing regulation, economic backdrop or consumer behaviour.

The majority of this report covers “official” telco-centric innovations – LTE networks, new forms of policy control and so on,

External disruptions to monitor

But the most dangerous form of innovation is that from third parties, which can undermine assumptions about the ways mobile broadband can be used, introducing new mechanisms for arbitrage, or somehow subvert operators’ pricing plans or network controls. 

In the voice communications world, there are often regulations in place to protect service providers – such as banning the use of “SIM boxes” to terminate calls and reduce interconnection payments. But in the data environment, it is far less obvious that many work-arounds can either be seen as illegal, or even outside the scope of fair-usage conditions. That said, we have already seen some attempts by telcos to manage these effects – such as charging extra for “tethering” on smartphones.

It is not really possible to predict all possible disruptions of this type – such is the nature of innovation. But by describing a few examples, market participants can gauge their level of awareness, as well as gain motivation for ongoing “scanning” of new developments.

Some of the areas being followed by Telco 2.0 include:

  • Connection-sharing. This is where users might link devices together locally, perhaps through WiFi or Bluetooth, and share multiple cellular data connections. This is essentially “multi-tethering” – for example, 3 smartphones discovering each other nearby, perhaps each with a different 3G/4G provider, and pooling their connections together for shared use. From the user’s point of view it could improve effective coverage and maximum/average throughput speed. But from the operators’ view it would break the link between user identity and subscription, and essentially offload traffic from poor-quality networks on to better ones.
  • SoftSIM or SIM-free wireless. Over the last five years, various attempts have been made to decouple mobile data connections from SIM-based authentication. In some ways this is not new – WiFi doesn’t need a SIM, while it’s optional for WiMAX, and CDMA devices have typically been “hard-coded” to just register on a specific operator network. But the GSM/UMTS/LTE world has always relied on subscriber identification through a physical card. At one level, it s very good – SIMs are distributed easily and have enabled a successful prepay ecosystem to evolve. They provide operator control points and the ability to host secure applications on the card itself. However, the need to obtain a physical card restricts business models, especially for transient/temporary use such as a “one day pass”. But the most dangerous potential change is a move to a “soft” SIM, embedded in the device software stack. Companies such as Apple have long dreamed of acting as a virtual network provider, brokering between user and multiple networks. There is even a patent for encouraging bidding per-call (or perhaps per data-connection) with telcos competing head to head on price/quality grounds. Telco 2.0 views this type of least-cost routing as a major potential risk for operators, especially for mobile data – although it also possible enables some new business models that have been difficult to achieve in the past.
  • Encryption. Various of the new business models and technology deployment intentions of operators, vendors and standards bodies are predicated on analysing data flows. Deep packet inspection (DPI) is expected to be used to identify applications or traffic types, enabling differential treatment in the network, or different charging models to be employed. Yet this is rendered largely useless (or at least severely limited) when various types of encryption are used. Various content and application types already secure data in this way – content DRM, BlackBerry traffic, corporate VPN connections and so on. But increasingly, we will see major Internet companies such as Apple, Google, Facebook and Microsoft using such techniques both for their own users’ security, but also because it hides precise indicators of usage from the network operators. If a future Android phone sends all its mobile data back via a VPN tunnel and breaks it out in Mountain View, California, operators will be unable to discern YouTube video from search of VoIP traffic. This is one of the reasons why application-based charging models – one- or two-sided – are difficult to implement.
  • Application evolution speed. One of the largest challenges for operators is the pace of change of mobile applications. The growing penetration of smartphones, appstores and ease of “viral” adoption of new services causes a fundamental problem – applications emerge and evolve on a month-by-month or even week-by-week basis. This is faster than any realistic internal telco processes for developing new pricing plans, or changing network policies. Worse, the nature of “applications” is itself changing, with the advent of HTML5 web-apps, and the ability to “mash up” multiple functions in one app “wrapper”. Is a YouTube video shared and embedded in a Facebook page a “video service”, or “social networking”?

It is also really important to recognise that certain procedures and technologies used in policy and traffic management will likely have some unanticipated side-effects. Users, devices and applications are likely to respond to controls that limit their actions, while other developments may result in “emergent behaviours” spontaneously. For instance, there is a risk that too-strict data caps might change usage models for smartphones and make users just connect to the network when absolutely necessary. This is likely to be at the same times and places when other users also feel it necessary, with the unfortunate implication that peaks of usage get “spikier” rather than being ironed-out.

There is no easy answer to addressing these type of external threats. Operator strategists and planners simply need to keep watch on emerging trends, and perhaps stress-test their assumptions and forecasts with market observers who keep tabs on such developments.

The mobile data explosion… or maybe not?

It is an undisputed fact that mobile data is growing exponentially around the world. Or is it?

A J-curve or an S-curve?

Telco 2.0 certainly thinks that growth in data usage is occurring, but is starting to see signs that the smooth curves that drive so many other decisions might not be so smooth – or so steep – after all. If this proves to be the case, it could be far more disruptive to operators and vendors than any of the individual technologies discussed later in the report. If operator strategists are not at least scenario-planning for lower data growth rates, they may find themselves in a very uncomfortable position in a year’s time.

In its most recent study of mobile operators’ traffic patterns, Ericsson concluded that Q2 2011 data growth was just 8% globally, quarter-on-quarter, a far cry from the 20%+ growths seen previously, and leaving a chart that looks distinctly like the beginning of an S-curve rather than a continued “hockey stick”. Given that the 8% includes a sizeable contribution from undoubted high-growth developing markets like China, it suggests that other markets are maturing quickly. (We are rather sceptical of Ericsson’s suggestion of seasonality in the data). Other data points come from O2 in the UK , which appears to have had essentially zero traffic growth for the past few quarters, or Vodafone which now cites European data traffic to be growing more slowly (19% year-on-year) than its data revenues (21%). Our view is that current global growth is c.60-70%, c.40% in mature markets and 100%+ in developing markets.

Figure 1 – Trends in European data usage

 Trends in European Data Usage
 

Now it is possible that various one-off factors are at play here – the shift from unlimited to tiered pricing plans, the stronger enforcement of “fair-use” plans and the removal of particularly egregious heavy users. Certainly, other operators are still reporting strong growth in traffic levels. We may see resumption in growth, for example if cellular-connected tablets start to be used widely for streaming video. 

But we should also consider the potential market disruption, if the picture is less straightforward than the famous exponential charts. Even if the chart looks like a 2-stage S, or a “kinked” exponential, the gap may have implications, like a short recession in the economy. Many of the technical and business model innovations in recent years have been responses to the expected continual upward spiral of demand – either controlling users’ access to network resources, pricing it more highly and with greater granularity, or building out extra capacity at a lower price. Even leaving aside the fact that raw, aggregated “traffic” levels are a poor indicator of cost or congestion, any interruption or slow-down of the growth will invalidate a lot of assumptions and plans.

Our view is that the scary forecasts of “explosions” and “tsunamis” have led virtually all parts of the industry to create solutions to the problem. We can probably list more than 20 approaches, most of them standalone “silos”.

Figure 2 – A plethora of mobile data traffic management solutions

A Plethora of Mobile Data Traffic Management Solutions

What seems to have happened is that at least 10 of those approaches have worked – caps/tiers, video optimisation, WiFi offload, network densification and optimisation, collaboration with application firms to create “network-friendly” software and so forth. Taken collectively, there is actually a risk that they have worked “too well”, to the extent that some previous forecasts have turned into “self-denying prophesies”.

There is also another common forecasting problem occurring – the assumption that later adopters of a technology will have similar behaviour to earlier users. In many markets we are now reaching 30-50% smartphone penetration. That means that all the most enthusiastic users are already connected, and we’re left with those that are (largely) ambivalent and probably quite light users of data. That will bring the averages down, even if each individual user is still increasing their consumption over time. But even that assumption may be flawed, as caps have made people concentrate much more on their usage, offloading to WiFi and restricting their data flows. There is also some evidence that the growing numbers of free WiFi points is also reducing laptop use of mobile data, which accounts for 70-80% of the total in some markets, while the much-hyped shift to tablets isn’t driving much extra mobile data as most are WiFi-only.

So has the industry over-reacted to the threat of a “capacity crunch”? What might be the implications?

The problem is that focusing on a single, narrow metric “GB of data across the network” ignores some important nuances and finer detail. From an economics standpoint, network costs tend to be driven by two main criteria:

  • Network coverage in terms of area or population
  • Network capacity at the busiest places/times

Coverage is (generally) therefore driven by factors other than data traffic volumes. Many cells have to be built and run anyway, irrespective of whether there’s actually much load – the operators all want to claim good footprints and may be subject to regulatory rollout requirements. Peak capacity in the most popular locations, however, is a different matter. That is where issues such as spectrum availability, cell site locations and the latest high-speed networks become much more important – and hence costs do indeed rise. However, it is far from obvious that the problems at those “busy hours” are always caused by “data hogs” rather than sheer numbers of people each using a small amount of data. (There is also another issue around signalling traffic, discussed later). 

Yes, there is a generally positive correlation between network-wide volume growth and costs, but it is far from perfect, and certainly not a direct causal relationship.

So let’s hypothesise briefly about what might occur if data traffic growth does tail off, at least in mature markets.

  • Delays to LTE rollout – if 3G networks are filling up less quickly than expected, the urgency of 4G deployment is reduced.
  • The focus of policy and pricing for mobile data may switch back to encouraging use rather than discouraging/controlling it. Capacity utilisation may become an important metric, given the high fixed costs and low marginal ones. Expect more loyalty-type schemes, plus various methods to drive more usage in quiet cells or off-peak times.
  • Regulators may start to take different views of traffic management or predicted spectrum requirements.
  • Prices for mobile data might start to fall again, after a period where we have seen them rise. Some operators might be tempted back to unlimited plans, for example if they offer “unlimited off-peak” or similar options.
  • Many of the more complex and commercially-risky approaches to tariffing mobile data might be deprioritised. For example, application-specific pricing involving packet-inspection and filtering might get pushed back down the agenda.
  • In some cases, we may even end up with overcapacity on cellular data networks – not to the degree we saw in fibre in 2001-2004, but there might still be an “overhang” in some places, especially if there are multiple 4G networks.
  • Steady growth of (say) 20-30% peak data per annum should be manageable with the current trends in price/performance improvement. It should be possible to deploy and run networks to meet that demand with reducing unit “production cost”, for example through use of small cells. That may reduce the pressure to fill the “revenue gap” on the infamous scissors-diagram chart.

Overall, it is still a little too early to declare shifting growth patterns for mobile data as a “disruption”. There is a lack of clarity on what is happening, especially in terms of responses to the new controls, pricing and management technologies put recently in place. But operators need to watch extremely closely what is going on – and plan for multiple scenarios.

Specific recommendations will depend on an individual operator’s circumstances – user base, market maturity, spectrum assets, competition and so on. But broadly, we see three scenarios and implications for operators:

  • “All hands on deck!”: Continued strong growth (perhaps with a small “blip”) which maintains the pressure on networks, threatens congestion, and drives the need for additional capacity, spectrum and capex.
    • Operators should continue with current multiple strategies for dealing with data traffic – acquiring new spectrum, upgrading backhaul, exploring massive capacity enhancement with small cells and examining a variety of offload and optimisation techniques. Where possible, they should explore two-sided models for charging and use advanced pricing, policy or segmentation techniques to rein in abusers and reward those customers and applications that are parsimonious with their data use. Vigorous lobbying activities will be needed, for gaining more spectrum, relaxing Net Neutrality rules and perhaps “taxing” content/Internet companies for traffic injected onto networks.
  • “Panic over”: Moderating and patchy growth, which settles to a manageable rate – comparable with the patterns seen in the fixed broadband marketplace
    • This will mean that operators can “relax” a little, with the respite in explosive growth meaning that the continued capex cycles should be more modest and predictable. Extension of today’s pricing and segmentation strategies should improve margins, with continued innovation in business models able to proceed without rush, and without risking confrontation with Internet/content companies over traffic management techniques. Focus can shift towards monetising customer insight, ensuring that LTE rollouts are strategic rather than tactical, and exploring new content and communications services that exploit the improving capabilities of the network.
  • “Hangover”: Growth flattens off rapidly, leaving operators with unused capacity and threatening brutal price competition between telcos.
    • This scenario could prove painful, reminiscent of early-2000s experience in the fixed-broadband marketplace. Wholesale business models could help generate incremental traffic and revenue, while the emphasis will be on fixed-cost minimisation. Some operators will scale back 4G rollouts until cost and maturity go past the tipping-point for outright replacement of 3G. Restrictive policies on bandwidth use will be lifted, as operators compete to give customers the fastest / most-open access to the Internet on mobile devices. Consolidation – and perhaps bankruptcies – may ensure as declining data prices may coincide with substitution of core voice and messaging business

To read the note in full, including the following analysis…

  • Introduction
  • Telco-driven disruption vs. external trends
  • External disruptions to monitor
  • The mobile data explosion… or maybe not?
  • A J-curve or an S-curve?
  • Evolving the mobile network
  • Overview
  • LTE
  • Network sharing, wholesale and outsourcing
  • WiFi
  • Next-gen IP core networks (EPC)
  • Femtocells / small cells / “cloud RANs”
  • HetNets
  • Advanced offload: LIPA, SIPTO & others
  • Peer-to-peer connectivity
  • Self optimising networks (SON)
  • M2M-specific broadband innovations
  • Policy, control & business model enablers
  • The internal politics of mobile broadband & policy
  • Two sided business-model enablement
  • Congestion exposure
  • Mobile video networking and CDNs
  • Controlling signalling traffic
  • Device intelligence
  • Analytics & QoE awareness
  • Conclusions & recommendations
  • Index

…and the following figures…

  • Figure 1 – Trends in European data usage
  • Figure 2 – A plethora of mobile data traffic management solutions
  • Figure 3 – Not all operator WiFi is “offload” – other use cases include “onload”
  • Figure 4 – Internal ‘power tensions’ over managing mobile broadband
  • Figure 5 – How a congestion API could work
  • Figure 6 – Relative Maturity of MBB Management Solutions
  • Figure 7 – Laptops generate traffic volume, smartphones create signalling load
  • Figure 8 – Measuring Quality of Experience
  • Figure 9 – Summary of disruptive network innovations

Members of the Telco 2.0 Executive Briefing Subscription Service and Future Networks Stream can download the full 44 page report in PDF format hereNon-Members, please subscribe here, buy a Single User license for this report online here for £795 (+VAT for UK buyers), or for multi-user licenses or other enquiries, please email contact@telco2.net / call +44 (0) 207 247 5003.

Organisations, geographies, people and products referenced: 3GPP, Aero2, Alcatel Lucent, AllJoyn, ALU, Amazon, Amdocs, Android, Apple, AT&T, ATIS, BBC, BlackBerry, Bridgewater, CarrierIQ, China, China Mobile, China Unicom, Clearwire, Conex, DoCoMo, Ericsson, Europe, EverythingEverywhere, Facebook, Femto Forum, FlashLinq, Free, Germany, Google, GSMA, H3G, Huawei, IETF, IMEI, IMSI, InterDigital, iPhones,Kenya, Kindle, Light Radio, LightSquared, Los Angeles, MBNL, Microsoft, Mobily, Netflix, NGMN, Norway, NSN, O2, WiFi, Openet, Qualcomm, Radisys, Russia, Saudi Arabia, SoftBank, Sony, Stoke, Telefonica, Telenor, Time Warner Cable, T-Mobile, UK, US, Verizon, Vita, Vodafone, WhatsApp, Yota, YouTube, ZTE.

Technologies and industry terms referenced: 2G, 3G, 4.5G, 4G, Adaptive bitrate streaming, ANDSF (Access Network Discovery and Selection Function), API, backhaul, Bluetooth, BSS, capacity crunch, capex, caps/tiers, CDMA, CDN, CDNs, Cloud RAN, content delivery networks (CDNs), Continuous Computing, Deep packet inspection (DPI), DPI, DRM, Encryption, Enhanced video, EPC, ePDG (Evolved Packet Data Gateway), Evolved Packet System, Femtocells, GGSN, GPS, GSM, Heterogeneous Network (HetNet), Heterogeneous Networks (HetNets), HLRs, hotspots, HSPA, HSS (Home Subscriber Server), HTML5, HTTP Live Streaming, IFOM (IP Flow Mobility and Seamless Offload), IMS, IPR, IPv4, IPv6, LIPA (Local IP Access), LTE, M2M, M2M network enhancements, metro-cells, MiFi, MIMO (multiple in, MME (Mobility Management Entity), mobile CDNs, mobile data, MOSAP, MSISDN, MVNAs (mobile virtual network aggregators)., MVNO, Net Neutrality, network outsourcing, Network sharing, Next-generation core networks, NFC, NodeBs, offload, OSS, outsourcing, P2P, Peer-to-peer connectivity, PGW (PDN Gateway), picocells, policy, Policy and Charging Rules Function (PCRF), Pre-cached video, pricing, Proximity networks, Public WiFi, QoE, QoS, RAN optimisation, RCS, remote radio heads, RFID, self-optimising network technology (SON), Self-optimising networks (SON), SGW (Serving Gateway), SIM-free wireless, single RANs, SIPTO (Selective IP Traffic Offload), SMS, SoftSIM, spectrum, super-femtos, Telco 2.0 Happy Pipe, Transparent optimisation, UMTS, ‘Under-The-Floor’ (UTF) Players, video optimisation, VoIP, VoLTE, VPN, White space, WiFi, WiFi Direct, WiFi offloading, WiMAX, WLAN.