Frost & Sullivan analysis: Mobile Industry Preparing to Surf the 4G Disruption Wave: Key CTIA Takeaways

1. Mobile Industry Preparing to Surf the 4G Disruption Wave:
Key CTIA Takeaways
Ronald Gruia
Program Leader, Principal Analyst - Emerging Telecoms
Frost & Sullivan ICT Practice
March 31, 2010

2. Surfing the 4G Disruption Wave: CTIA Roundup
Agenda
• CTIA 2010: Facing Challenges Ahead of 4G
• Explosive Mobile Data Growth
• Mobile Data Traffic Growth Drivers
• Operator Ways to Mitigate Mobile Data Traffic Explosion
• The Move to 4G / LTE
• “LTE Steeplechase”
• LTE Value Proposition, Trial Feedback & Deployment Options
• Elaborating a Compelling Application Strategy
• Conclusions
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3. 2010: 25th Edition of CTIA
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4. CTIA 2010: Facing Challenges Ahead of 4G
• Tremendous mobile data consumption increase causing operators
to focus on backhaul and core spend
• Operators also focusing on other ways to mitigate the data growth
explosion, including:
Usage-based pricing (usage caps)
Data traffic prioritization
Throttling down the access speed (once user’s monthly limit is reached)
• Carriers are evolving their next-gen services strategies (opening up
opportunities for app stores and third-party application developers),
and gradually shifting towards two-sided business models
• Growth in data traffic will also spur the migration to 4G as operators
start to put new spectrum to use and to attain LTE spectral efficiency
gains
• LTE upgrade strategies will vary on a carrier-by-carrier basis
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5. Explosive Mobile Data Growth
Source: Cisco Systems VNI, Feb. 2010
Source: AT&T Presentation at the CES, January 2010
• Explosive growth: 108% CAGR or 39x over the next 5 years
• Video (e.g. YouTube, DVD, HD) responsible for the lion’s share of the
growth (66% of total mobile data traffic by 2014)
• AT&T revealed a a $2B increase in wireless and backhaul spending and an
aggressive fiber backhaul plan (~20k sites per year in 2010/11)
• Verizon will spend to have 80% backhaul fiber coverage 3G sites by 2011;
T-Mobile aiming for 75% coverage
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6. Mobile Data Traffic Growth Drivers
Higher iPhone / Smartphone Data Usage Higher Global Mobile Broadband Penetration
Mobile Content Consumption iPhone Smartphone Avg. Feature Phone
70%
% of US Mobile Subs
60%
50%
40%
30%
20%
10%
0% Source: Banc of America Securities
Music Games Social Web Search IM News Video
Networking
Mobile BB Penetration: 18% (over 1B subs) by 2013
Spread of Advanced Services Larger Throughputs
HSPA Carrier Frequency
LTE
Mail 15
Source: NTT DoCoMo Bandwidth 4x
deco mail 85
News (top page) 220 5 MHz 20 MHz
Transmittable Data
I I
GPS 430 Volume / Carrier
Data Modulation
i-channel 470 Formula
1.5 x
Q Q
deco-anime 640
16-QAM 64-QAM
Chaku-uta full (1.5Mbyte) 12,700 4 bit Transmittable Data 6 bit
Volume / Carrier
Movie (5Mbyte) 42,500
Transmission
4x
Multiplexing
1 10 100 1,000 10,000 100,000
w/o MIMO Source: Frost & Sullivan w/ 4x4 MIMO
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7. Operator Ways to Mitigate Mobile Data Traffic Explosion
• Several carriers hinted their desire to Source: NSN
move towards usage-based pricing
(e.g. AT&T) but none wants to be the
first to move in that direction for fear
of subscriber backlash
• That said we believe a “toll road”
approach will eventually prevail, with
usage caps, traffic prioritization, retreat
from “all-you-can-eat” smartphone offers
and an a case being made against extreme net neutrality policies
• Carriers will set bandwidth caps at a much higher level than the
current 3G usage; Clearwire’s 7GB/sub/month threshold remains the
offer to beat and makes pricing more challenging for other operators
• CTIA released its mobile data traffic for the US market for 2H09:
107.8 bill. MB ≈ 58 MB/month/person (equivalent to Japan’s level)
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8. The Move to 4G / LTE
LTE Operator Commitments (Global) EMEA
Asia / Pacific
Hutchison 3 Austria
North America EMEA Australia New Zealand
Hutchison 3 Ireland
USA KPN, Netherlands Telstra New Zealand Telecom
Mobilkom Austria
China Philippines
Aircell Elisa, Finland MTS Uzbekistan Piltel
AT&T Mobility DNA, Finland Orange Austria China Mobile, China
Singapore
CenturyTel SFR, France Orange France China Telecom, China M1
Cox Cell C, South Africa Tele2 Sweden Hong Kong Starhub
Metro PCS Vodacom, South Africa T-Mobile Austria China Mobile South Korea
T-Mobile USA Zain, Saudi Arabia T-Mobile Germany CSL Limited KTF
Verizon Wireless STC, Saudi Arabia Hutchison 3 LG Telecom
Telecom Italia, Italy
PCCW SK Telecom
Canada Telefonica O2, Spain Taiwan
Bell Canada Telia Sonera, Sweden SmarTone-Vodafone
Chunghwa Telecom
Rogers Wireless Telia Sonera, Norway Japan
Telus Telenor Sweden eMobile
Brazil Telenor Norway KDDI
Vivo TMN NTT DoCoMo
Vivacell-MTS Armenia SoftBank Mobile
59 operator commitments for Vodafone Germany Source: GSMA, GSA
LTE in 28 countries (Feb. 2010) Zain, Bahrain
• 16 additional LTE trials ongoing (at the pre-commitment stage)
• Carriers regard the 4G evolution as an opportunity to migrate to usage-based pricing
• SPs will leverage LTE to put more spectrum to work and get spectral efficiency gains
8

9. 2 7
3 5 2
LTE “Steeplechase” 1
4
6
1
3
6
2 7 4
5 2 7
3 5
• Radio network speed is proportional to available spectrum, 1 6 3
4 1
2 7
spectral efficiency and spectrum re-use 5
• From CTIA, the latest US operator LTE info:
• AT&T: Planning to have initial deployments in late 2010 for launch in 1H 2011
• Sprint: Selling first 4G handset (HTC EVO 4G - GA: Summer’10) Wi-Fi enabled
• T-Mobile: Currently focused only on HSPA+ deployment
• Verizon: On track for ~20+ cities by YE 2010; LTE data handoffs demos in Boston
and Seattle w/ avg. throughputs of 5-12 Mbps down and 2-5 Mbps up
• The migration from HSPA+ to LTE will be mostly software-based (i.e. light in
hardware) and will require a lower level of civil engineering, thereby yielding a
good bang-for-the-buck (in terms of Mbps/$):
• Orange estimates €50 - €100M to upgrade 2 large French cities from 3.75 to 4G
• Telenor’s LTE overlay tender is worth about $200M over 6 years
• Increased evidence that operators are playing Chinese players such as
Huawei off other vendors (ALU, Ericsson, NSN)
• 3.75G and 4G kit prices expected to drop over time, perhaps slightly faster
than what happened with 3G
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10. LTE Value Proposition, Trial Feedback & Deployment Options
• Initial trials focused on web browsing, file sharing (upload/download),
VoIP calls and streaming video
• Operators such as Verizon believe in a significant improvement in the
QoE for a subscriber, with an 8-fold increase in its network capacity
vis-à-vis 3G, download throughputs of 7-12 Mbps and upload speeds
of 3-5 Mbps
• Data modems will clearly be the initial focus upon the introduction of
LTE service
• Spectrum considerations: mobile carriers will have 4 options when
deploying LTE:
Deploy on digital dividend spectrum (e.g. 700 MHz - Verizon)
Rollout utilizing new bands (e.g. 2.6 GHz IMT extension band)
Utilize re-farmed spectrum (e.g. white spaces) at 850, 900, 1800,
1900, 2100 MHz, etc.
Use new LTE spectrum bands (450 MHz or 3.6 MHz may emerge)
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11. Elaborating a Compelling Application Strategy
• Our discussions with operators at CTIA revealed their concern that
“over the top” players can easily bypass the centralized LTE service
control layer which is currently not being used by third parties
• Therefore carriers increasingly believe that the current ecosystem
must change and that they have to evolve their mindset to help foster
an environment in which new services can be developed, hence the
advent of initiatives such as RCS, One API (ongoing Canadian
operator trial w/ Bell, Rogers and Telus) and the recently announced
WAC (Wholesale Application Community)
• These initiatives help achieve more uniformity for third party
developers and stimulate the creation of new app stores; they also
indicate that operators are exploring alternative sources of revenue
and also tapping into new opportunities such as sponsored services
and targeted mobile advertising
• We believe that over time, operators will gradually embrace a “two-
sided” business model and start focusing on upstream customers
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12. Conclusions
• 2010: 25 years of CTIA and the start of LTE
• Besides backhaul and 4G, another key investment area is the
optical upgrade to 100 Gbps (current strategy is 100 Gig optical
pipes to large MPLS routers, as “pure optical” systems remain years
away
• Operators will devise strategies to help alleviate the current mobile
data crunch, including the ones previously discussed and some
demand-management approaches (roll-out of “off-load” solutions
such as femtocells or Wi-Fi and the eventual migration of voice from
circuit switched to packet switched / VoIP on the radio network)
• Application stores remain very much a hot topic as does third-party
application development; operators hinting that they could consider
a two-sided model variant to the original NTT DoCoMo “bill-on-
behalf” i-mode strategy
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13. Q & A Session
Thank You
Ronald F. Gruia
Program Leader - Emerging Telecoms, Principal Telecom Analyst
rgruia@frost.com +1-416-490-0493
Twitter: http://twitter.com/rgruia
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17. For Additional Information
Brian Cotton, PhD
Jake Wengroff Vice President
Corporate Communications Information & Communications
(210) 247-3806 Technologies
jake.wengroff@frost.com (416) 490-0983
bcotton@frost.com
Ronald Gruia
Program Leader & Principal Analyst,
Emerging Telecoms
(416) 490-0493
rgruia@frost.com
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