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

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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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2010: 25th Edition of CTIA

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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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Explosive Mobile Data Growth

• 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

Source: AT&T Presentation at the CES, January 2010Source: Cisco Systems VNI, Feb. 2010

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Mobile Data Traffic Growth Drivers

5 MHz 20 MHz

HSPA LTECarrier Frequency

4xBandwidth

Data ModulationFormula

TransmissionMultiplexing

Transmittable DataVolume / Carrier

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Transmittable DataVolume / Carrier

Q

I I

Q

16-QAM4 bit

64-QAM6 bit

w/o MIMO w/ 4x4 MIMOSource: Frost & Sullivan

5 MHz 20 MHz

HSPA LTECarrier Frequency

4xBandwidth

Data ModulationFormula

TransmissionMultiplexing

Transmittable DataVolume / Carrier

1.5 x

4x

Transmittable DataVolume / Carrier

Q

I I

Q

16-QAM4 bit

64-QAM6 bit

w/o MIMO w/ 4x4 MIMOSource: Frost & Sullivan

Spread of Advanced Services Larger Throughputs

42,500

12,700

640

470

430

220

85

15

1 10 100 1,000 10,000 100,000

Movie (5Mbyte)

Chaku-uta full (1.5Mbyte)

deco-anime

i-channel

GPS

News (top page)

deco mail

MailSource: NTT DoCoMo

42,500

12,700

640

470

430

220

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1 10 100 1,000 10,000 100,000

Movie (5Mbyte)

Chaku-uta full (1.5Mbyte)

deco-anime

i-channel

GPS

News (top page)

deco mail

MailSource: NTT DoCoMo

Source: Banc of America SecuritiesSource: Banc of America Securities

Higher Global Mobile Broadband Penetration

Mobile BB Penetration: 18% (over 1B subs) by 2013

Higher iPhone / Smartphone Data Usage

Mobile Content Consumption

0%

10%

20%

30%

40%

50%

60%

70%

Music Games Social

Networking

Web Search IM News Video

% o

f U

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iPhone Smartphone Avg. Feature Phone

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Operator Ways to Mitigate Mobile Data Traffic Explosion

• Several carriers hinted their desire tomove towards usage-based pricing(e.g. AT&T) but none wants to be thefirst to move in that direction for fearof subscriber backlash

• That said we believe a “toll road”approach will eventually prevail, withusage caps, traffic prioritization, retreatfrom “all-you-can-eat” smartphone offersand an a case being made against extreme net neutrality policies

• Carriers will set bandwidth caps at a much higher level than thecurrent 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)

Source: NSN

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• 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

The Move to 4G / LTE

North America

USA

Aircell

AT&T Mobility

CenturyTel

Cox

Metro PCS

T-Mobile USA

Verizon Wireless

Canada

Bell Canada

Rogers Wireless

Telus

Brazil

Vivo

Source: GSMA, GSA

EMEA

Hutchison 3 Austria

Hutchison 3 Ireland

Mobilkom Austria

MTS Uzbekistan

Orange Austria

Orange France

Tele2 Sweden

T-Mobile Austria

T-Mobile Germany

Telecom Italia, Italy

Telefonica O2, Spain

Telia Sonera, Sweden

Telia Sonera, Norway

Telenor Sweden

Telenor Norway

TMN

Vivacell-MTS Armenia

Vodafone Germany

Zain, Bahrain

Asia / Pacific

Australia

Telstra

China

China Mobile, China

China Telecom, China

Hong Kong

China Mobile

CSL Limited

Hutchison 3

PCCW

SmarTone-Vodafone

Japan

eMobile

KDDI

NTT DoCoMo

SoftBank Mobile

New ZealandNew Zealand TelecomPhilippinesPiltelSingaporeM1StarhubSouth KoreaKTFLG TelecomSK TelecomTaiwanChunghwa Telecom

LTE Operator Commitments (Global)

59 operator commitments for LTE in 28 countries (Feb. 2010)

EMEA

KPN, Netherlands

Elisa, Finland

DNA, Finland

SFR, France

Cell C, South Africa

Vodacom, South Africa

Zain, Saudi Arabia

STC, Saudi Arabia

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LTE “Steeplechase”

• Radio network speed is proportional to available spectrum, spectral efficiency and spectrum re-use

• 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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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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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 theadvent 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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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 opticalpipes 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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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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Ronald Gruia

Program Leader & Principal Analyst,

Emerging Telecoms

(416) 490-0493

rgruia@frost.com