Network convergence: How to deliver a seamless experience

Operators need to adapt to the changing connectivity demands post-COVID19

The global dependency on consistent high-performance connectivity has recently come to the fore as the COVID-19 outbreak has transformed many of the remaining non-digital tasks into online activities.

The typical patterns of networking have broken and a ‘new normal’, albeit possibly a somewhat transitory one, is emerging. The recovery of the global economy will depend on governments, healthcare providers, businesses and their employees robustly communicating and gaining uninhibited access to content and cloud through their service providers – at any time of day, from any location and on any device.

Reliable connectivity is a critical commodity. Network usage patterns have shifted more towards the home and remote working. Locations which were previously light-usage now have high demands. Conversely, many business locations no longer need such high capacity. Utilisation is not expected to return to pre-COVID-19 patterns either, as people and businesses adapt to new daily routines – at least for some time.

The strategies with which telcos started the year have of course been disrupted with resources diverted away from strategic objectives to deal with a new mandate – keep the country connected. In the short-term, the focus has shifted to one which is more tactical – ensuring customer satisfaction through a reliable and adaptable service with rapid response to issues. In the long-term, however, the objectives for capacity and coverage remain. Telcos are still required to reach national targets for a minimum connection quality in rural areas, whilst delivering high bandwidth service demands in hotspot locations (although these hotspot locations might now change).

Of course, modern networks are designed with scalability and adaptability in mind – some recent deployments from new disruptors (such as Rakuten) demonstrate the power of virtualisation and automation in that process, particularly when it comes to the radio access network (RAN). In many legacy networks, however, one area which is not able to adapt fast enough is the physical access. Limits on spectrum, coverage (indoors and outdoors) and the speed at which physical infrastructure can be installed or updated become a bottleneck in the adaptation process. New initiatives to meet home working demand through an accelerated fibre rollout are happening, but they tend to come at great cost.

Network convergence is a concept which can provide a quick and convenient way to address this need for improved coverage, speed and reliability in the access network, without the need to install or upgrade last mile infrastructure. By definition, it is the coming-together of multiple network assets, as part of a transformation to one intelligent network which can efficiently provide customers with a single, unified, high-quality experience at any time, in any place.

It has already attracted interest and is finding an initial following. A few telcos have used it to provide better home broadband. Internet content and cloud service providers are interested, as it adds resilience to the mobile user experience, and enterprises are interested in utilising multiple lower cost commodity backhauls – the combination of which benefits from inherent protection against costly network outages.

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Network convergence helps create an adaptable and resilient last mile

Most telcos already have the facility to connect with their customers via multiple means; providing mobile, fixed line and public Wi-Fi connectivity to those in their coverage footprint. The strategy has been to convert individual ‘pure’ mobile or fixed customers into households. The expectation is that this creates revenue increase through bundling and loyalty whilst bringing some added friction into the ability to churn – a concept which has been termed ‘convergence’. Although the customer may see one converged telco through brand, billing and customer support, the delivery of a consistent user experience across all modes of network access has been lacking and awkward. In the end, it is customer dissatisfaction which drives churn, so delivering a consistent user experience is important.

Convergence is a term used to mean many different things, from a single bill for all household connectivity, to modernising multiple core networks into a single efficient core. While most telcos have so far been concentrating on increasing operational efficiency, increasing customer loyalty/NPS and decreasing churn through some initial aspects of convergence, some are now looking into network convergence – where multiple access technologies (4G, 5G, Wi-Fi, fixed line) can be used together to deliver a resilient, optimised and consistent network quality and coverage.

Overview of convergence

Source: STL Partners

As an overarching concept, network convergence introduces more flexibility into the access layer. It allows a single converged core network to utilise and aggregate whichever last mile connectivity options are most suited to the environment. Some examples are:

  • Hybrid Access: DSL and 4G macro network used together to provide extra speed and fallback reliability in hybrid fixed/mobile home gateways.
  • Cell Densification: 5G and Wi-Fi small cells jointly providing short range capacity to augment the macro network in dense urban areas.
  • Fixed Wireless Access: using cellular as a fibre alternative in challenging areas.

The ability to combine various network accesses is attractive as an option for improving adaptability, resilience and speed. Strategically, putting such flexibility in place can support future growth and customer retention with the added advantage of improving operational efficiency. Tactically, it enables an ability to quickly adapt resources to short-term changes in demand. COVID-19 has been a clear example of this need.

Table of Contents

  • Executive Summary
    • Convergence and network convergence
    • Near-term benefits of network convergence
    • Strategic benefits of network convergence
    • Balancing the benefits of convergence and divergence
    • A three-step plan
  • Introduction
    • The changing environment
    • Network convergence: The adaptable and resilient last mile
    • Anticipated benefits to telcos
    • Challenges and opposing forces
  • The evolution to network convergence
    • Everyone is combining networks
    • Converging telco networks
    • Telco adoption so far
  • Strategy, tactics and hurdles
    • The time is right for adaptability
    • Tactical motivators
    • Increasing the relationship with the customer
    • Modernisation and efficiency – remaining competitive
    • Hurdles from within the telco ecosystem
    • Risk or opportunity? Innovation above-the-core
  • Conclusion
    • A three-step plan
  • Index

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5G: Why Verizon thinks differently – and what to do about it

Introduction

Verizon’s path

Verizon is deploying 5G as quickly as it practically can, already planning to have over 1,000 base stations by the end of 2018. CEO Lowell McAdam told investors he wants to quickly reach 30 million homes, while Goldman Sachs estimated Verizon planned to spend US$20 billion for this initial phase to 2021/22 – although there is no publicised schedule. Verizon’s investments include the acquisition of XO Communications for US$1.8 billion, which has fibre in 45 of the 50 largest cities, which Verizon sees as vital infrastructure for its 5G build.

The base stations will support mobile 5G as soon as the handsets are ready. Leading mobile chip vendor Qualcomm expects a limited number of mobile phone chips to be available by the end of 2018. Sufficient chips for phones in volume are expected by mid-year 2019.[1] Taiwan’s MediaTek, the number two 4G chipmaker, says it will “hit the 5G chip market with a bang in 2019”.[2]

Verizon is building a state-of-the-art network in 800MHz of spectrum at 28GHz using existing towers and new small cells, delivering a peak speed of 10 gigabits per second or lower. A consumer in a good location should get a true gigabit in both directions, with mobile network latency of between 5 ms and 20 ms.[3]

This will probably be the largest fast 5G network built before the next decade. The Chinese operators will mostly be using frequencies below 6GHz, which will be 65% to 85% slower.

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Verizon’s large fixed opportunity

In two-thirds of the US, Verizon sells wireless but is not the incumbent wireline carrier. With limited unbundling at present, it cannot offer a landline (or equivalent) service to over 70 million of its wireless customers. It therefore cannot offer quadruple play for higher revenue, lower churn and better margins.

Yet in half the US, there is only one choice for decent broadband: the cable company. Over half of US cable has been upgraded to gigabit download speeds, and over three-quarters of the country will be offered gigabit cable by the end of 2019.[4] Faster speeds contributed to the 2.7 million broadband subscriptions cable added in 2017.

Figure 1: Cable is dominating US broadband

Cable dominates US broadband

Source: Leichtman Research based on company filings

In many places, the telephone companies have not upgraded decade-old DSL lines and are not competitive with their cable counterparts.  In 2017, US telephone companies lost 625,000 broadband subscriptions.

McAdam expects to quickly win 10– 20% of the new market Verizon can address. Dean Bubley notes it is very difficult to persuade reasonably happy customers to switch, but cable service in the US is notoriously bad. Verizon’s long-term goal is 40– 50%, consistent with its results where it has FIOS fibre to the home. CFO Matt Ellis believes, “When you look at other cities outside of the ILEC footprint, offering consumer services using 5G is, we think, going to have a lot of upside for the company.”[5]

Contents:

  • Executive summary
  • The contentions of Verizon and other proponents
  • Doubts about proponents’ claims
  • Crucial questions to resolve
  • Introduction
  • Verizon’s path
  • Verizon’s large fixed opportunity
  • Verizon’s cost estimates
  • What carriers should consider based on Verizon’s choice
  • Two crucial questions for predicting when you will need mmWave
  • Will there be a large first-mover advantage?
  • AT&T is divided on 5G
  • Two carriers’ planning for uncertainty
  • Preparing for 5G: contingency scenarios
  • 5G: Vendor insight
  • Risks to this analysis
  • Technology appendix
  • Advances in 4G LTE and mid-band 5G also deliver enormous capacity

Figures:

  • Figure 1: Cable is dominating US broadband
  • Figure 2: NTT DOCOMO capex by generation and traffic demand
  • Figure 3: Verizon finds 5G requires fewer cells than 4G in some locations
  • Figure 4: Samsung test data comparing LTE 1.8GHz versus 5G GHz
  • Figure 5: Wireless traffic growth to 2021
  • Figure 6: Samsung indoor and outdoor mmWave CPE

[1] http://bit.ly/2JR2bVK

[2] http://bit.ly/2la0q8c

[3] End-to-end latency for a user will depend on how far their data request needs to go into the network and the Internet. If the signal has to go from one side of the US to the other it will take longer than a locally or edge hosted service.

[4]  https://www.fastnet.news/index.php/cable/641-gigabit-broadband-downstream-available-to-50m-u-s-homes

[5] https://www.verizon.com/about/investors/jp-morgan-global-technology-media-and-communications-conference-2018

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Indoor wireless: A new frontier for IoT and 5G

Introduction to Indoor Wireless

A very large part of the usage of mobile devices – and mobile and other wireless networks – is indoors. Estimates vary but perhaps 70-80% of all wireless data is used while fixed or “nomadic”, inside a building. However, the availability and quality of indoor wireless connections (of all types) varies hugely. This impacts users, network operators, businesses and, ultimately, governments and society.

Whether the use-case is watching a YouTube video on a tablet from a sofa, booking an Uber from a phone in a company’s reception, or controlling a moving robot in a factory, the telecoms industry needs to give much more thought to the user-requirements, technologies and obstacles involved. This is becoming ever more critical as sensitive IoT applications emerge, which are dependent on good connectivity – and which don’t have the flexibility of humans. A sensor or piece of machinery cannot move and stand by a window for a better signal – and may well be in parts of a building that are inaccessible to both humans and many radio transmissions.

While mobile operators and other wireless service providers have important roles to play here, they cannot do everything, everywhere. They do not have the resources, and may lack site access. Planning, deploying and maintaining indoor coverage can be costly.

Indeed, the growing importance and complexity is such that a lot of indoor wireless infrastructure is owned by the building or user themselves – which then brings in further considerations for policymakers about spectrum, competition and more. There is a huge upsurge of interest in both improved Wi-Fi, and deployments of private cellular networks indoors, as some organisations recognise connectivity as so strategically-important they wish to control it directly, rather than relying on service providers. Various new classes of SP are emerging too, focused on particular verticals or use-cases.

In the home, wireless networks are also becoming a battleground for “ecosystem leverage”. Fixed and cable networks want to improve their existing Wi-Fi footprint to give “whole home” coverage worthy of gigabit fibre or cable connections. Cellular providers are hoping to swing some residential customers to mobile-only subscriptions. And technology firms like Google see home Wi-Fi as a pivotal element to anchor other smart-home services.

Large enterprise and “campus” sites like hospitals, chemical plants, airports, hotels and shopping malls each have complex on-site wireless characteristics and requirements. No two are alike – but all are increasingly dependent on wireless connections for employees, visitors and machines. Again, traditional “outdoors” cellular service-providers are not always best-placed to deliver this – but often, neither is anyone else. New skills and deployment models are needed, ideally backed with more cost—effective (and future-proofed) technology and tools.

In essence, there is a conflict between “public network service” and “private property” when it comes to wireless connectivity. For the fixed network, there is a well-defined “demarcation point” where a cable enters the building, and ownership and responsibilities switch from telco to building owner or end-user. For wireless, that demarcation is much harder to institutionalise, as signals propagate through walls and windows, often in unpredictable and variable fashion. Some large buildings even have their own local cellular base stations, and dedicated systems to “pipe the signal through the building” (distributed antenna systems, DAS).

Where is indoor coverage required?

There are numerous sub-divisions of “indoors”, each of which brings its own challenges, opportunities and market dynamics:

• Residential properties: houses & apartment blocks
• Enterprise “carpeted offices”, either owned/occupied, or multi-tenant
• Public buildings, where visitors are more numerous than staff (e.g. shopping malls, sports stadia, schools), and which may also have companies as tenants or concessions.
• Inside vehicles (trains, buses, boats, etc.) and across transport networks like metro systems or inside tunnels
• Industrial sites such as factories or oil refineries, which may blend “indoors” with “onsite”

In addition to these broad categories are assorted other niches, plus overlaps between the sectors. There are also other dimensions around scale of building, single-occupant vs. shared tenancy, whether the majority of “users” are humans or IoT devices, and so on.

In a nutshell: indoor wireless is complex, heterogeneous, multi-stakeholder and often expensive to deal with. It is no wonder that most mobile operators – and most regulators – focus on outdoor, wide-area networks both for investment, and for license rules on coverage. It is unreasonable to force a telco to provide coverage that reaches a subterranean, concrete-and-steel bank vault, when their engineers wouldn’t even be allowed access to it.

How much of a problem is indoor coverage?

Anecdotally, many locations have problems with indoor coverage – cellular networks are patchy, Wi- Fi can be cumbersome to access and slow, and GPS satellite location signals don’t work without line- of-sight to several satellites. We have all complained about poor connectivity in our homes or offices, or about needing to stand next to a window. With growing dependency on mobile devices, plus the advent of IoT devices everywhere, for increasingly important applications, good wireless connectivity is becoming more essential.

Yet hard data about indoor wireless coverage is also very patchy. UK regulator Ofcom is one of the few that reports on availability / usability of cellular signals, and few regulators (Japan’s is another) enforce it as part of spectrum licenses. Fairly clearly, it is hard to measure, as operators cannot do systematic “drive tests” indoors, while on-device measurements usually cannot determine if they are inside or outside without being invasive of the user’s privacy. Most operators and regulators estimate coverage, based on some samples plus knowledge of outdoor signal strength and typical building construction practices. The accuracy (and up-to-date assumptions) is highly questionable.

Indoor coverage data is hard to find

Contents:

  • Executive Summary
  • Likely outcomes
  • What telcos need to do
  • Introduction to Indoor Wireless
  • Overview
  • Where is indoor coverage required?
  • How much of a problem is indoor coverage?
  • The key science lesson of indoor coverage
  • The economics of indoor wireless
  • Not just cellular coverage indoors
  • Yet more complications are on the horizon…
  • The role of regulators and policymakers
  • Systems and stakeholders for indoor wireless
  • Technical approaches to indoor wireless
  • Stakeholders for indoor wireless
  • Home networking: is Mesh Wi-Fi the answer?
  • Is outside-in cellular good enough for the home on its own?
  • Home Wi-Fi has complexities and challenges
  • Wi-Fi innovations will perpetuate its dominance
  • Enterprise/public buildings and the rise of private cellular and neutral host models
  • Who pays?
  • Single-operator vs. multi-operator: enabling “neutral hosts”
  • Industrial sites and IoT
  • Conclusions
  • Can technology solve MNO’s “indoor problem”?
  • Recommendations

Figures:

  • Indoor coverage data is hard to find
  • Insulation impacts indoor penetration significantly
  • 3.5GHz 5G might give acceptable indoor coverage
  • Indoor wireless costs and revenues
  • In-Building Wireless face a dynamic backdrop
  • Key indoor wireless architectures
  • Different building types, different stakeholders
  • Whole-home meshes allow Wi-Fi to reach all corners of the building
  • Commercial premises now find good wireless essential
  • Neutral Hosts can offer multi-network coverage to smaller sites than DAS
  • Every industrial sector has unique requirements for wireless

Free-T-Mobile: Disruptive Revolution or a Bridge Too Far?

Free’s Bid for T-Mobile USA 

The future of the US market and its 3rd and 4th operators has been a long-running saga. The market, the world’s richest, remains dominated by the duopoly of AT&T and Verizon Wireless. It was long expected that Softbank’s acquisition of Sprint heralded disruption, but in the event, T-Mobile was simply quicker to the punch.

Since the launch of T-Mobile’s “uncarrier” price-war strategy, we have identified signs of a “Free Mobile-like” disruption event, for example, substantial net-adds for the disruptor, falling ARPUs, a shakeout of MVNOs and minor operators, and increased industry-wide subscriber growth. However, other key indicators like a rapid move towards profitability by the disruptor are not yet in evidence, and rather than industry-wide deflation, we observe divergence, with Verizon Wireless increasing its ARPU, revenues, and margins, while AT&T’s are flat, Sprint’s flat to falling, and T-Mobile’s plunging.

This data is summarised in Figure 1.

Figure 1: Revenue and margins in the US. The duopoly is still very much with us

 

Source: STL Partners, company filings

Compare and contrast Figure 2, which shows the fully developed disruption in France. 

 

Figure 2: Fully-developed disruption. Revenue and margins in France

 

Source: STL Partners, company filings

T-Mobile: the state of play in Q2 2014

When reading Figure 1, you should note that T-Mobile’s Q2 2014 accounts contain a negative expense item of $747m, reflecting a spectrum swap with Verizon Wireless, which flatters their margin. Without it, the operating margin would be 2.99%, about a third of Sprint’s. Poor as this is, it is at least positive territory, after a Q1 in which T-Mobile lost money. It is not quite true to say that T-Mobile only made it to profitability thanks to the one-off spectrum deal; excluding it, the carrier would have made $215m in operating income in Q2, a $243m swing from the $28m net loss in Q1. This is explained by a $223m narrowing of T-Mobile’s losses on device sales, as shown in Figure 2, and may explain why the earnings release makes no mention of profits instead of adjusted EBITDA despite it being a positive quarter.

Figure 3: T-Mobile’s return to underlying profitability – caused by moderating its smartphone bonanza somewhat

Source: STL Partners, company filings

T-Mobile management likes to cite its ABPU (Average Billings per User) metric in preference to ARPU, which includes the hire-purchase charges on device sales under its quick-upgrade plans. However, as Figure 3 shows, this is less exciting than it sounds. The T-Mobile management story is that as service prices, and hence ARPU, fall in order to bring in net-adds, payments for device sales “decoupled” from service plans will rise and take up the slack. They are, so far, only just doing so. Given that T-Mobile is losing money on device pricing, this is no surprise.

 

  • Executive Summary
  • Free’s Bid for T-Mobile USA
  • T-Mobile: the state of play in Q2 2014
  • Free-Mobile: the financials
  • Indicators of a successful LBO
  • Free.fr: a modus operandi for disruption
  • Surprise and audacity
  • Simple products
  • The technical edge
  • Obstacles to the Free modus operandi
  • Spectrum
  • Fixed-mobile synergy
  • Regulation
  • Summary
  • Two strategic options
  • Hypothesis one: change the circumstances via a strategic deal with the cablecos
  • Hypothesis two: 80s retro LBO
  • Problems that bite whichever option is taken
  • The other shareholders
  • Free’s management capacity and experience
  • Conclusion

 

  • Figure 1: Revenue and margins in the US. The duopoly is still very much with us
  • Figure 2: Fully-developed disruption. Revenue and margins in France
  • Figure 3: T-Mobile’s return to underlying profitability – caused by moderating its smartphone bonanza somewhat
  • Figure 4: Postpaid ARPU falling steadily, while ABPU just about keeps up
  • Figure 5: T-Mobile’s supposed “decoupling” of devices from service has extended $3.5bn of credit to its customers, rising at $1bn/quarter
  • Figure 6: Free’s valuation of T-Mobile is at the top end of a rising trend
  • Figure 7: Example LBO
  • Figure 8: Free-T-Mobile in the context of notable leveraged buyouts
  • Figure 9: Free Mobile’s progress towards profitability has been even more impressive than its subscriber growth