Chinese operators and their suppliers battle depression in 3G market
By Caroline Gabriel
The 3G build-out by the three Chinese cellcos did help save the wireless infrastructure market from disaster during the worst of the recession, but now that services are going live and roll-out coming to an end, neither the carriers nor their suppliers are left looking very pleased with the results.
On the equipment side, a slowdown in spending in China - as well as delays in the next hoped-for 3G goldmine, in India - created a 1% decline in global sales of mobile kit between the first and second quarters this year, even though the general economy was recovering in many areas. According to new figures from Infonetics Research, spending fell to $8.7bn in Q2, from $8.8bn in Q1.
The Chinese operators spent only 12% of their allocated 3G capex budgets in the first half of 2010, while delayed auctions and security clearances meant Indian carriers also spent far less than expected.
“It’s been a tough year so far for the mobile infrastructure market, mainly due to the absence of spending in China and India,” said analyst Stephane Teral. “Last year, China spent like mad on its massive 3G roll-out. This year, India was supposed to pick up some of the slack, but due to a combination of bans on Chinese vendors and a delayed spectrum auction, the spending virtually stopped in 2010.” Teral did predict a recovery in both markets in the second half of the year.
Other weak spots included “prolonged weakness in Europe across the board”, though there was an upturn in Africa and Latin America and “sustainable 3G and CDMA upgrades in north America”. Among the vendors, Ericsson retained the top position for macro RAN equipment revenue share, although Nokia Siemens and Alcatel-Lucent each gained around two percentage points. The French giant pushed ahead of Huawei in this league table, to gain third place for the first time since early 2009.
As for the operators, they are seeing mixed results in from their 3G roll-outs so far. Uptake is still in the early stages, so in some cases the cost of build-out is still weighing more heavily on results than new revenues.
This was particularly evident at China Unicom, the W-CDMA carrier, which suffered a 62% fall in profits in the first half of the year to CNY2.53bn ($372m), largely because of the costs of 3G build, though wireline decline was also a factor. Operating revenue was up 7.6% to CNY82.11bn, but mobile specific revenues outpace this, rising 14.4% to half of the total at CNY41.05bn. Within that figure, 14.4% was from 3G and the rest from GSM.
The firm noted in its statement: “As the company’s 3G business was still at the initial stage of operation, the revenue from the 3G business could not cover 3G network operation and maintenance, asset depreciation and marketing costs.”
China Unicom’s 3G base is now 7.56m, less than 5% of its total of 156.96m mobile subscribers. Predictably, 3G has the highest growth rate, up about 60 times year-on-year, while the total base was up 12%. Compared to the end of 2009, a point at which there was significant 3G coverage, the 3G figure has climbed 175% from 2.74m.
These figures suggest that Unicom’s relatively aggressive build-out and the short term hit on profits may be reaping rewards. Mobile ARPU was up almost 3% year-on-year to CNY42.9 a month and 3G users are delivering the hoped-for boost to ARPU, at CNY134 compared to CNY39.8 for 2G. It also has a far larger percentage of its base, at 4.8%, using higher value 3G services, than its bigger rival China Mobile. Mobile has only achieved 1.9%, though of a larger customer base, partly because of problems with sourcing attractive devices for its TD-SCDMA network. Unlike Unicom’s W-CDMA, there is no global ecosystem for its homegrown RAN system. Unicom plans to exploit its advantage by launching at least 10 new smartphones during the rest of this year, as well as a more layered set of tiered tariffs.
However, Unicom’s 3G percentage is outclassed by the smallest of the three Chinese cellcos, China Telecom, which is using CDMA2000 technology. It now has 9.63% of its base using 3G. Telecom is the most dependent of the three carriers on the stagnant fixed line market, where it is the largest player, so mobile growth is particularly important. It is focusing on narrowing the gap with Mobile and Unicom in higher margin 3G, if not 2G services, and also on leveraging its fixed line base to offer more integrated offerings - half of its mobile customers also take another service.
Despite solid first half results, though, its profit growth was marginal, up 0.7% to CNY9.12bn ($1.34bn), on total operating revenue up 4.5% to CNY107.82bn. Mobile revenue was outpacing this growth dramatically, up 57% year-on-year to CNY25.1bn, but Telecom needs to be able to convert the growth into bigger profits. Its mobile revenues were split between voice (56%), data (34%) and ‘other’, mainly handset sales.
Mobile services now account for 23% of its revenues, a change of 7.7 percentage points on the same time last year. Its mobile base numbers 74.52m, an increase of 18.43m or one-third during the six-month period, and its mobile market share is almost 10%, from 5% at the end of 2009. 3G has been a more significant factor in this pattern than for its two rivals, so far at least, partly because of an early focus on business users. Its 3G base is now 7.18m, close to the size of Unicom’s though over 3m less than Mobile’s (though Mobile’s total cellular customer numbers are seven times larger than Telecom’s).
The CDMA carrier’s 3G users were up by 76% during the six months. It said mobile ARPU was stable, though actually, despite 3G, it fell slightly, from CNY59.5 in mid-2009 to CNY58.1. To address this, it is focusing more heavily on value added mobile services - it saw high growth in some of these, notably mailboxes and the eSurfing video offering, and it is introducing location and payments services. The firm said in a statement: “We will also focus on mobile internet traffic and open our service platforms to strengthen the cooperation in applications and handset terminals.”
Last week, China Mobile had reported a 4% rise in net profit for its first six months, and announced a new CEO, with Li Yue replacing six-year holder Wang Jianzhou, who remains as chairman. Profit was up 4.2% to CNY57.6bn ($8.4bn) on revenune up 7.9% to CNY229.8bn. Total subscribers reached 554m, after net additions of 31.76m, but the firm was downbeat in its statement. It said it faced “new challenges amid the already high mobile penetration rate and the intensifying competition in China’s telecommunications market.”
ARPU was down slightly to CNY72, but as at Telecom, value added services were a growth area, especially music downloads and online payments. VAS revenue increased 13.4% to reach almost 30% of total revenue and Mobile boasted 2.7m users of its mobile wallet service just a month after launch, and 6m for its mobile ebook service, also launched in May. Mobile video attracted over 6m customers too but the mobile TV offering only notched up 300,000. Mobile also said it had over 5m machine-to-machine customers, a year-on-year growth of 60%.
According to analyst Levi Shapiro, a partner at TMT Strategic Advisors, 3G has been particularly disappointing to date because the Chinese are already, even with 2G, “voracious consumers of mobile data”. He told RCRWireless News that 80% of the 777m Chinese mobile subscribers use text and there are more mobile web users in China than there are Americans. Yet only about 3% of this base has subscribed and “consumers are not adopting value added services as quickly as they are abandoning voice”, leading to a plunge in ARPU last year by 10%.
Shapiro suggests the Chinese cellcos should learn from the lukewarm early response to European 3G service and employ three key strategies to boost performance - heavier handset subsidies, a wider range of devices, and a clearer focus on web services.
He says the top three reasons given by Chinese consumers for avoiding 3G are all price related - hardware cost, service plan cost and upfront payment. With subsidized, high end products, cellcos could shift their initial focus on rural, non-mobile populations to high value users, whereas currently upfront costs are prohibitive even for most middle class consumers - Unicom requires a deposit of $1,032 for the iPhone, which is then credited against monthly fees. This explains why, according to Morgan Stanley estimates, Unicom has sold 300,000 iPhones compared to 2m grey market Apple handsets in China. By contrast, neighboring Korea, which has 3.5% of China’s population and more smartphone competition, has sold three times as many iPhones in the same period.
NSN wins first Indian 3G deal, Huawei and ALU lurking
By Caroline Gabriel
Wireless infrastructure vendors have been pinning high hopes on the Indian 3G build-out to fill the gap left by the slowing of Chinese 3G deployments. But actual contracts have been delayed by disputes over government security rules. Now the gates may be opening at last - Nokia Siemens has announced the first 3G deal in the country, with Tata Teleservices.
This comes despite the fact that Tata, along with Reliance Communications, was cleared last week to purchase equipment from Chinese suppliers Huawei and ZTE. Although this ruling signalled the end of the frustrating delays over security rules, some western rivals may be disappointed they have to compete with their price aggressive Chinese rivals on an apparently almost level playing field in terms of clearance requirements.
NSN, which has walked away from certain 2G deals because of the intense price war in India, claiming they would be lossmaking, is leading the way in 3G, where the suppliers hope for a greater services component and slightly higher margins. The joint venture beat Ericsson, Alcatel-Lucent and both Chinese majors for the deal to supply W-CDMA base stations plus implementation support.
The contract highlights two key trends in new 3G deployments, especially in emerging economies - the Flexi base stations will be software programmable, making them upgradeable to LTE relatively easily; and the deal includes managed services, as Indian carriers increasingly outsource the running of their systems. This is where the margins lie in the subcontinent, and all the big vendors have stepped up their services activities in the region in recent years. NSN appointed its former head of services, and an Indian national, Rajeev Suri, as its new CEO a year ago.
“There is huge demand for mobile internet access in India, and that’s what 3G brings - we want to move quickly, which is why we’re the first to secure our key 3G technology and services provider,” said AG Rao, CTO of Tata Teleservices, in a statement. The cellco, which already buys 2G kit from NSN, has 3G licenses in nine of India’s 22 telecoms circles or operating regions. It offers GSM in 17 circles under its Tata DoCoMo joint venture and CDMA offerings under its Tata Indicom brand.
3G services are expected to launch in the country from early 2011, though state-owned BSNL and MTNL are already rolling out the new networks.
NSN may have scored the first points, but the Indian roll-outs will be hard fought battle. For a start, it seems the Chinese suppliers will be able to compete on a level playing field. Earlier this year, it was reported that the Indian government had blocked imports of infrastructure from Chinese majors Huawei and ZTE, or imposed tight approval processes on them, though more recently, it emerged that the authorities were tightening up certification procedures for all suppliers - which has delayed equipment tenders and frustrated the new 3G license holders.
However, progress is being made, with two carriers, Reliance Communications and Tata Teleservices, being cleared to buy telecom equipment from Huawei or ZTE. This could open the floodgates to a wave of purchases through the fourth quarter. Operators have been concerned at the delays to their roll-outs, the confusing rules, and the threat that they might not be able to take advantage of the price leverage that comes from including the Chinese suppliers in bids.
“The approval will definitely help the Indian telecom companies on the costing front. It also signals that security issues related to these imports such as spyware are now being resolved,” an analyst told Dow Jones Newswires. The vendors will be celebrating too - nearly all of them had cited delays in Indian deals as a negative factor in their second quarter results, and ZTE blamed a fall in first half revenue partly on delays to India’s safety inspections of communications equipment.
Meanwhile, Alcatel-Lucent says it is in talks to provide equipment for both 4G platforms in India, and is negotiating with “most of the people who have won the spectrum” in 2.3GHz, recently awarded in India’s broadband wireless auction.
Reports from Reuters and India’s Economic Times quote Munish Seth, Alcatel-Lucent’s new country head for India, indicating the potential customers include Reliance Industries, the only privately held firm to win 2.3GHz spectrum on a national basis (via its acquisition of ISP Infotel). He also mentioned another ISP, Tikona Digital Networks, which has licenses in several telecom circles or operating regions.
The negotiations could lead to orders in early 2011, the reports indicate, though this will depend on the Indian authorities clarifying rules on security checks for telecoms suppliers, which have been holding up deals for 2G expansion, 3G and BWA.
The big debate in India has been whether the 2.3GHz TDD spectrum would be built out with WiMAX, as expected until earlier this year when Qualcomm decided to bid for licenses, in order to promote the newer TDD alternative, TD-LTE. Qualcomm won spectrum in several circles. While the state-owned telcos, BSNL and MTNL, which had early access to BWA frequencies, are already rolling out WiMAX, other players have been less clear about their choices.
Reliance talked about LTE when it first acquired Infotel but is now trialling WiMAX and looks almost certain to use that standard at least for its first phase of deployment. Like operators elsewhere, it may keep its options open for LTE coexistence at a later stage, when TD-LTE becomes commercially viable. Other winners like Ikona and Augere will capitalize on the earlier availability of WiMAX.
This could boost the profile of WiMAX within ALU’s portfolio once again. Unlike Nokia Siemens, the company has never pulled away from the older standard and remains one of its top five suppliers, but it has put far greater emphasis recently on LTE, targeting its traditional cellco user base and FDD bands. However, it will be keen to leverage its expertise in WiMAX to compete for the huge Indian market and wrongfoot Huawei and ZTE, both of which are strongly positioned in the subcontinent and in WiMAX (but bear the brunt of the government’s sensitivities about security issues).
ALU’s president of 4G wireless networks told Wireless Week in a recent interview that he had recently met with seven “key customers” in India to discuss their 4G plans.
Meanwhile, the technology choice for Qualcomm and its two local partners - Global Holding and Tulip Telecom - is clearcut, but the firm still has to cross one hurdle. It needs to get government approval for its investments in three firms that will use the joint venture’s networks to offer services. These are three units of Wireless Broadband Services, focused on Haryana, Delhi and Kerala, the key areas where the Qualcomm JV has licenses.
Although the Department of Telecom allowed foreign companies to bid for spectrum, they can only own 74% of the bidding company (Qualcomm sold 13% apiece to Tulip and GHC) - and can only offer services through locally registered firms. Any foreign company that owns more than 49% in a venture must get separate approval from India’s foreign investment promotion board.
Tablets will come to Verizon LTE soon, and FiOS tablet could be ‘home-changer’
By Caroline Gabriel
While the iPad may be scoring consumer points by supporting almost every imaginable mobile behaviour, many other tablets will gain acceptance by enabling a specific function and delivering an optimized experience. Cisco has showed the way with its videoconferencing and home energy management tablets, and of course, Amazon with its Kindle e-reader. One of the most interesting examples of the trend emerged a couple of weeks ago when reports surfaced of a planned Motorola tablet, co-developed with Verizon to support its FiOS IPTV service, and more details have now come out.
A tablet for the TV could become something truly ‘home changing’. For Motorola the holy grail would have to be DLNA (Digital Living Network Alliance). This is a six-year old, highly labored industry grouping, begun by 18 of the largest constituents in the digital home and now swelled to 26 promoter members, from chipmakers to content producers to consumer electronics vendors to pay-TV operators.
This group has long established use cases for how content can move around a home. Those use cases are quite advanced and consumers are only now just beginning to see the fruits of fairly boring, but necessary, standards work and plugfests, which are the staple diet of this organization. In May, Nokia, Samsung, LG, Motorola and Sony Ericsson all obtained DLNA certification for some of their devices, though curiously this has hardly made it into the news pages at all - probably because those devices are mostly not launched.
Just last week the Alliance said that the number of DLNA certified Blu-ray players had nearly doubled to 105. And before phones, or tablets, can interact with TVs in the home, the core devices - Blu-ray players, TV sets and DVRs - have to make that leap themselves.
DLNA is all about accessing any content, mostly unprotected content, on any device in the home. We say mostly unprotected, because the DLNA has never really got to grips with DRM (digital rights management) and it has no strategy on interoperable DRM.
Until now it has been more interested in defining format types for, say, printers from mobile devices, or defining device classes, or adding support for H.264 video. But there are two ways it can deal with protected content. The first is if a content operator also offers a second device and supplies transparent DRM - this is something that Verizon could easily do, offering DRM keys to portable devices from FiOS, such as to this proposed Motorola tablet.
The other approach, and one we see very clearly on the roadmap of DLNA, is the idea of supporting streaming protocols such as RTP and offering link protection. That way streaming protection such as DCTP can prevent some level of piracy when the content is on the way to another device, and content can simply be streamed to a second device, with no copy being kept.
What DLNA makes possible is the ability to locate content anywhere in the DLNA universe in your home, so on a DVR, a camera, a PC, phone or home server, and shift it to be streamed on ANY of the other devices. This can also work with music and photos.
DLNA breaks all the devices into storage, controllers and rendering devices and makes them plug and play together. So you can watch a TV program on TV, decide to switch it to another portable device, and send the sound to the speakers on your laptop. What the DLNA had to deal with early on was the issue of control and giving control power to other devices. In this way your TV remote can increase the volume on the bedroom TV, where you just sent the rest of your TV program. Now it is embracing the streamed video world, not just one that relies on storing new copies of video files.
So what could a video tablet do? It could flip to the electronic programming guide of a pay-TV service, and then select a channel. It might send the program on that channel to a DVR or just pause it while you go upstairs to another room, and then let you trigger play. You might use the tablet to look up something on the internet, while watching another channel. It might deliver the sound to the channel you’re watching to your earbuds, or to your laptop, which has a better set of earbuds. It might let you control your Blu-ray player, and stream the video to your tablet, notebook or a TV.
All of that you get from DLNA certification. So that’s pretty much without reinventing anything, just putting tried and tested control features, and tried and tested stream and file types, on a new device. Every one of Nokia, Motorola, Samsung, LG and Sony Ericsson has already proved to the DLNA that they have code which can do all that, so it just needs porting to a new device, which will no doubt run Android, the same operating system that Motorola will have probably first delivered it on.
It’s the other features of the Motorola tablet device which are hardest to design. Well for sure it will play Android Market apps, so that’s games, streaming video services over Wi-Fi in your home and at work as well as some VoIP-style voice capabilities. Already this device is sounding cool to take out of the home, despite its core function being one that is attached to the pay-TV operator.
If you add a TV Everywhere service from FiOS, so that its pay-TV programming can be viewed anywhere over the internet for paying subscribers, including on this tablet, then it is a pretty neat device and probably capable of offering a better video serviced than Apple and iTunes. If that happens, Motorola will suddenly have improved leverage in the set-top world and also have a new product to ship to all of its existing IPTV operators. It might even be able to make it work with cable boxes too, though that comes with a different set of problems.
We have for some time talked about iTunes TV and Apple’s desire to offer TV channels on a monthly pay basis, to rival cable and other pay TV operations. Because it has not yet emerged, and potentially this is because Apple cannot get the kinds of content licenses that it needs, it may well put both Apple, as well as Google TV, at a huge disadvantage in home tablets. Tablets without content are just heavy Gameboys or MIDs.
But we know that Verizon FiOS has content galore if Motorola first targets the digital home at Verizon with tablet number one, and then frees up other tablets to work outside the home with cellular services, it could mount a viable challenge to the iPad outside of the AT&T cellular customer base - which is about two-thirds of the US. Of course people can buy an iPad without an AT&T data contract, either cellular or Wi-Fi, but the number that prefer to be sure that their data is paid for, before they start using a tablet is likely to be a lot higher than those who have their own Wi-Fi service.
The first Motorola tablet will be out during 2010, which is likely to make it one of the first that support Adobe Flash, and it will be thinner and lighter than the iPad, and offer two cameras, one to take pics and the other for video conferencing. All in all if Motorola has the same kind of success or better than it had with the Droid and Droid X, then it will seriously be in the tablet game through America’s second largest telco.
Whatever the future shape of the Motorola tablet, its reported plans highlight how important carrier support remains to the success of media devices - and also how intensely Verizon is relying on broadening its range of gadgets to boost its services and customer loyalty. This is true of FiOS, and also of its forthcoming LTE wireless data offerings. Much of the revenue growth on new networks will rely on non-traditional mobile devices, and the apps and content services for which they are optimized. So tablets, personal hotspots and media players could lure new users to 4G systems, rather than phones, a factor Clearwire has already embraced for its WiMAX offering. Now Verizon Wireless expects to launch tablets on its upcoming LTE network before it releases smartphones.
John Killian, CFO of co-parent Verizon Communications, said the cellco believes it will be able to charge a premium for the speed and quality of LTE services, especially when these are driving new applications or usage patterns. “Customers will pay for quality and premium service and premium speed,” he said. Verizon has previously hinted that it would use LTE as the trigger to introduce tiered data pricing, making it acceptable to consumers with improved quality of service and new content options.
He also said that Verizon would release tablets in the “not too distant future”, meaning early next year, while smartphones would arrive in mid-2011. The timeline, a reversal of the 3G pattern, will be partly down to the complexities of developing and testing phones, which will have to be multimode for CDMA roaming - not essential for data-only devices like tablets, dongles and hotspots, which will be usable just within areas of LTE coverage. It also demonstrates the importance of eye-catching gadgets supporting new services to encourage early 4G uptake.
On a webcast, Killian said Android would remain the centrepiece of its smartphone strategy, despite the rising expectation that Verizon will get its own iPhone. “I definitely think in terms of the Droid franchise we’re going to continue to be unique,” he said, adding, in response to a question about Apple: “All of our assumptions about our business is we’re going to have devices that act and perform just like the iPhone does. If the iPhone became available to us under the right terms, we would be interested in that.”
Russia shows how LTE build-out patterns will differ from those of 3G
By Caroline Gabriel
Over the past few years, the wireless vendors’ hopes have been firmly focused on the remaining major unbuilt 3G markets, notably China and India. But with Chinese roll-out slowing now, and India’s marred by delays, there is a new source of potential revenue in LTE. Thought this will be slow to gather steam, there are already signs that purchasing will follow a very different pattern to those of 3G.
One reason is that many governments and carriers will regard 4G as a fixed as well as mobile broadband platform. This means it will be deployed more quickly than 3G was, in many cases, in rural areas and emerging economies, because of the urgent need for high speed access. In this scenario, 4G - whether LTE or WiMAX - does not have to be a ‘network in search of an application’ as 3G often was.
The other reason is that some countries will aim to deploy 4G quickly in order to minimize investment in 3G, where this has been limited to date, and to kickstart mobile, broadband and web services expansion via the more cost efficient IP standards. In some countries, mainly in sub-Saharan Africa, 3G may be bypassed altogether, and in others, like Brazil, operators are discussing confining 3G to a few areas and using non-deployed spectrum elsewhere for 4G instead. This would be particularly practical where 3G investments have been fairly recent and used software upgradeable base stations, and where regulators are technology neutral.
One of the most interesting countries in terms of the 4G pattern will be Russia. In the top five growth markets for wireless, Russia’s 3G expansion has been slow and bureaucratic, but in 4G it is moving far more quickly as the momentum behind broadband and web services rises. It already has several WiMAX operators, one of which, Scartel/Yota, is also trialling LTE. The early WiMAX spectrum auction opened the door to some smaller players and now the three main cellcos - MTS, VimpelCom and Megafon - may face another wave of new competition as Russia gears up for its main tranche of 4G auctions.
Russia is facing a dilemma that has affected the spectrum policies of many economies - whether to let experienced operators expand wireless availability, or encourage new competition. The main cellcos are dismayed at president Dmitry Medvedev’s belief that new spectrum should be opened up to new entrants so that 4G services are spread more widely than 3G between different operators and business models. In particular, they are keeping a wary eye on the rising mobile ambitions of landline incumbent Rostelecom which gained licenses in the first tranche of 4G auctions. A second wave of auctions around 2.5GHz will be held later this year.
According to Russian business newspaper Vedomosti, Medvedev has told the minister of communications, Igor Shchegolev, to draw up plans to distribute ‘4G’ licenses on a broad basis. This could speed up development of new services in Russia, which is one of the world’s largest potential markets for wireless and broadband, but whose development has often been delayed by bureaucracy. In particular, localized carriers could be encouraged to bring access to rural areas, which are vast but sparsely populated in the highly urbanized country. Medvedev also hopes smaller players would introduce innovative web offerings and support government and industrial applications.
However, as the US and other countries have discovered in the past, new operators can be financially unstable and inexperienced, raising the risk that spectrum goes unused or new services fail.
Of course, Medvedev’s proposals are encountering fierce opposition from the big three. The newspaper reports that they have all written letters to Shchegolev and prime minister Vladimir Putin arguing that only they have the cash and expertise to handle the roll-out of LTE in Russia. This will not stop them lobbying for state support in the financing of LTE, though. Medvedev argues that national LTE will cost far more than 3G because he wants it deployed as much as 10 times faster than the sluggish pace of 3G, in order to support fixed as well as mobile broadband. This may require state financial support, which in turn will increase his negotiating power over the cellcos. Last week Vedomosti reported that Osnova Telekom, 25% owned by Russia’s Defense Ministry, is willing to help build the LTE system.
The Russian press says that potential new spectrum bidders are already making themselves known. They include Rusenergotelekom, a new firm formed last October and controlled by energy investor Grigory Berezkin, who also owns a blocking stake in national landline operator Rostelecom. This company is getting increasingly active in wireless services and has said it will increase its influence and revenue streams by supporting new mobile entrants in order to boost competition.
Rostelecom has also invested directly in spectrum. It was recently awarded 30MHz of spectrum in the 2.3GHz to 2.4GHz band, covering one-third of the country’s population, and plans to launch LTE test networks in Penza by the end of August. The carrier, an arm of state-owned conglomerate Svyazinvest, won licenses in 38 of the 40 Russian regions covered by the tender, while fellow Svyazinvest subsidiary Sibirtelecom got the license for the Tomsk area and local operator Vainakh Telecom won in Chechnya. The operators have 18 months to build and launch networks and must adopt Russian-made equipment. However, the largest cities, Moscow and St Petersburg, were excluded from the tender to give the big three cellcos - MTS, Vimpelcom and MegaFon - more time to get return on their recent investments in 3G.
Svyazinvest is currently undergoing a reorganization, combining Rostelecom with its local divisions nationwide to provide integrated fixed, broadband and mobile services, but the group has less power in the cellular than the fixed market. It has regional cellcos like Sibirtelecom, Uralsvyazinform and SkyLink, but has been rumored to be considering a bid for one of the big three, or even a start-up like Scartel/Yota, which has 2.3GHz spectrum in the main cities. Svyazinvest’s wins of new 4G spectrum make it the fourth largest cellco in terms of licensed area, overtaking Tele2. It plans an IPO in April 2011.
Another hallmark of Russian 4G is the way that its operators are using their subsidiaries in neighboring, former Soviet states to test LTE at a very early stage, with less cost and risk than building out in key Russian cities. So an unlikely nation, Uzbekistan in central Asia, has become the world’s first to gain LTE networks from two different operators - TeliaSonera’s UCell and Russian-based MTS. Both are primarily serving as testbeds for the cellcos’ larger owners, which can trial LTE in tough terrain but without the significant expense and risk of rolling out at such an early stage in their key territories. MTS recently switched on its LTE network in capital Tashkent and has plans for the main Russian cities once it validates the technology and acquires spectrum, probably later this year.
Meanwhile, UCell is a subsidiary of TeliaSonera, which was the world’s first operator to launch commercial LTE networks in Sweden and Norway, and is looking to expand the technology around its many bases in the Nordic, east European and central Asian regions. The two providers have a combined 78% market share in Uzbekistan.
UCell has turned to ZTE for its equipment, favouring the Chinese firm’s software defined base station architecture, while MTS is using kit from rival Huawei. ZTE now claims seven commercial or pre-commercial LTE networks and 50 trials while Huawei has been part of several high profile early awards, including Telia’s in Norway.
Uzbekistan may be a testing ground rather than a strategic market for its carriers, but it does illustrate a key trend - the squeezing of the upgrade cycle between 3G and 4G in emerging nations. In some areas, 3G may be largely bypassed altogether as operators chase the better economics and spectral efficiency of the new IP-based systems, and their superior ability to support fixed broadband and packet data services as well as mobile offerings.
The US race to 4G accelerates as Verizon launch looms
By Caroline Gabriel
The US mobile broadband market is becoming an Olympic-class race, in words as well as actions. Clearwire continues to expand its network and has an important new deal with Best Buy, but has to fight hard to maintain its headstart over Verizon’s LTE roll-out, as the cellco reportedly ups the ante itself. Meanwhile, Clearwire’s wholesale model will get a new competitor with the LightSquared LTE venture, assuming that delivers real results in its mobile satellite spectrum.
According to the IntoMobile blog, Verizon plans to cover more POPs with its LTE network this year than previously thought. Citing unnamed sources, the researchers said the carrier has been cautious about its public roll-out targets and actually aims to cover 115m to 120m POPs, rather than 100m, by year end, with commercial services planned around Atlanta and Dallas/Fort Worth as well as eastern Massachusetts, in addition to the announced launch bases of Seattle and Boston. Verizon did not comment, but has previously said it would cover 50-60 markets by early 2012 and fill out its 3G footprint by the end of 2013.
Meanwhile, Clearwire can be judged by real results rather than promises, and this month it announced the availability of its WiMAX services in five new cities, raising its coverage to 49 markets and 56m POPs. The new markets are mainly midrange ones already covered by Clearwire’s legacy broadband service - Jacksonville, Florida; Wilmington, Delaware; Stockton and Modesto, California; and Grand Rapids, Michigan. But 56m is less than half of the target of 120m by year end - a target that Verizon Wireless is chasing.
The real impact will depend on where those POPs are and how receptive they are to the new services. One analyst firm, TownHall Research, believes Clearwire has fallen behind in coverage terms but is getting higher than expected penetration and uptake in the markets where it does go live. Also, Clearwire may well light up some major metros in the last quarter of the year, adding significantly to its POPs total.
With mounting bills, Clearwire reported a widening second quarter loss. Uptake of its services is better than most predicted, but at this early stage, investment in network expansion is bound to outrun revenue growth. The loss was $126m or 61 cents per share, compared to last year’s $73m. The results included a loss of nine cents per share for inventory adjustments. Excluding that item, the loss would have been 52 cents per share, in line with analyst expectations. Revenue rose 93% to $122.5m, behind forecasts of $132m.
Clearwire added a net 722,000 subscribers in the quarter, to end at 1.7m. Its base received a significant boost from the launch of the HTC EVO, the US’ first WiMAX capable smartphone, by Sprint, which runs its ‘Sprint 4G’ WiMAX/CDMA service on Clearwire’s network (and holds the largest stake in the start-up). The success of the EVO is good for Sprint but has a more limited effect on Clearwire’s own financials because many subscribers have taken the HTC superphone even in areas with no WiMAX coverage. The company receives only a “nominal” fee for them, it said.
The WiMAX carrier also followed through on pledges to keep its technology options open, and is to start testing LTE, which it could potentially use in future for new markets, or alongside WiMAX. Any switch would be unlikely to happen until 2012 or later, once the TDD version of LTE has commercial equipment and an ecosystem. Clearwire has only TDD spectrum, although it said it would test an FDD implementation with paired 20MHz channels since it has so much spectrum capacity that it could deploy 40MHz per carrier in many markets.
Clearwire said it would test LTE in its 2.5GHz spectrum using Huawei and Samsung gear. CEO Bill Morrow said the firm was “by no means committing” to deploy commercial LTE in future but it aims to demonstrate to backers that it has flexibility. In particular, it wants to prove that the two technologies can coexist, so that an LTE strategy would not entail a full rip-out of current networks.
“As we have consistently stated we remain technology agnostic,” Morrow said on the Q2 earnings call. “If we elect to add LTE to our network at some point we could do so using existing core infrastructure and backhaul.”
LightSquared has an even tougher hill to climb to hit the targets for its LTE network in satellite bands. Philip Falcone, the billionaire head of LightSquared’s backer Harbinger Capital, is said to be in advanced talks to lease this spectrum to third parties, which would sweeten the business case (and an approach Clearwire may also adopt) and CEO Sanjiv Ahuja says it has already reached agreements with device makers.
“We are talking to most of the wireless players,” Ahuja said in an interview last week (though AT&T and Verizon are barred from using the new network by the FCC). “We want to serve every player in this industry, from the largest to the smallest.” Like Clearwire, the wholesale model will target wireless, wireline and cable providers, as well as device makers and game manufacturers. Leasing capacity to them before the network is built out would add a nearer term revenue stream, but many analysts expect LightSquared to sell out to a major carrier, or at least lure one into a joint venture like Sprint’s with Clearwire. RBC Capital Markets’ Jonathan Atkin commented to Bloomberg: “To start out from scratch and build out a network from the ground up is highly speculative. An established company has the resources and manpower to really make this work on a national scale.”
Initial trials of the actual wholesale network will take place in early 2011 in Baltimore, Phoenix, Las Vegas and Denver, Ahuja said. And LightSquared has signed its first public partner, though not a major operator, but a vendor focused on the burgeoning market for the smart grid.
Airspan Networks, which made its name in broadband wireless access and WiMAX infrastructure, has signed an exclusive deal to market spectrum to utilities on behalf of LightSquared. Airspan will market the 1.4GHz wireless backhaul solution, including spectrum, equipment and services for smart grid applications in the electric, gas and water utility sectors in the US. It will manage the frequencies and potentially the networks, and will help utilities to build optimized proprietary grid management networks.
WAC sets out anti-bitpipe campaign, but Vodafone gives up on carrier devices
By Caroline Gabriel
The Wholesale Applications Community (WAC), formed in February to spearhead the operators’ fightback against the bitpipe, has announced details of its formal organization and business model. The platform will incorporate the existing widgets-based framework created by an earlier carrier alliance, JIL (Joint Innovation Lab). Its plans show that operators will look to gain power by opening up a huge target user base, and value adding capabilities to developers, in order to compete with over-the-top brands. But they are going cold on the idea of controlling the user experience right down to the device and operating system. Especially at the high end, users will be more attracted to vendor than carrier brands for devices, but remain open to relying on the operator for cloud-based web services. This realization is not just driving the priorities of industry alliances like WAC, but has forced a rethink of Vodafone’s own cloud/apps strategy, 360, including the end of its own-branded handsets.
WAC aims to create a common software development platform that can be used as the basis of own-branded applications offerings by any member, creating a huge pooled user base to lure developers. It will focus initially on widgets and is incorporating the work already done by JIL, a collaboration between Vodafone, China Mobile, Verizon Wireless and SoftBank.
This week, WAC said it should officially become a corporate entity in September and in the meantime, announced its management team and its commercial and technical models. The organization will be headed by CEO Peters Suh, previously head of JIL and before that an executive at Vodafone. Michel Combes, CEO of Vodafone Europe, was elected WAC chairman and Jean-Philippe Vanot, France Telecom’s deputy CEO, its vice-chairman. The board of directors also includes AT&T’s CTO, John Donovan, and his Verizon counterpart Dick Lynch; Li Zhengmao, a VP at China Mobile; and representatives of 11 other cellcos plus the GSM Association.
In his statement, Suhs said: “Our goal is to create a wholesale applications ecosystem that will establish a simple route to market for developers to deliver the latest innovative applications and services to the widest possible base of customers around the world. We’re focused on establishing WAC as the first choice for brands and developers in the mobile ecosystem, ultimately delivering greater choice and value for the end user, the consumer.”
While the formation of WAC was a loud clarion call from the cellco industry, stating that the operators would seek to shape the mobile apps business rather than just provide the pipes, it has been less clear how this would be achieved. Some details of the incentives on offer to developers have been filled in, though more will be needed to convince the Community really can put brakes on the march of Google and the open web. WAC’s key aim is to “monetize apps across the whole ecosystem”. At launch, it will allow operators to distribute applications through their own stores and charge users through their phone bills – a key driver of consumer uptake.
Developers will set the application price and receive a revenue share, defined by the individual carriers. “This will ensure that revenue shares will be competitive in today’s application market,” said the organization. “WAC is a not-for-profit organisation and will receive a small transaction fee for each application to cover its operating costs.”
Other business structures will be added in future, including in-app purchases, advertising, and support for apps that harness network APIs such as location. At this point, WAC’s platform will be vying with vendor white label app platforms, aimed at boosting the cellco’s position in the value chain – such as those from Alcatel-Lucent and Qualcomm.
“Developers will see great benefit in a single process through which they can create, distribute and profit from their applications on multiple retail outlets,” said John Delaney, a research director at analysty firm IDC.
On the technical side, the initial specifications, and some components of the software development kit (SDK), will be released to developers in November. The spec will be based on W3C web standards and provide backwards compatibility for devices running JIL or the important Bondi specs, which also leverage carrier APIs and security. Full details of the specs will be released in September.
Vodafone will be one of the key supporters of WAC, but it is plowing ahead with its own mobile web platform too. This has already undergone a significant change of thinking, following lacklustre consumer response in the first nine months or so. The cellco now plans to give up on own-branded handsets for 360, and focus instead on expanding the mobile back-up and other cloud services under the brand.
Although own-brand cellphones remain important at the low end, Vodafone will look to entice handset vendors to preload 360 services on their devices, rather than competing with them. It has already released a version of the 360 store for Android, as well as its launch operating system, LiMO – a Linux-based OS that is heavily driven by the operators, but has not achieved the market weight of its Google backed alternative. And it has even said it would like to see 360 apps on the iPhone.
True to its new approach, the carrier is to halt development of its second generation 360-branded smartphone, the LiMO-based H2 from Samsung. The existing two 360 handsets, M1 and H1, are also from Samsung, although the services are supported across a wide variety of non-cellco phones too, numbering about 100 models and five platforms.
“From now on we will be focusing all efforts on expanding the range of handsets and platforms that support Vodafone 360 and in developing and enhancing the suite of Vodafone 360 services,” said the operator in a statement to Total Telecom. “Consequently there will be no further development of bespoke Vodafone 360 handsets, and activity on the H2 ceases with immediate effect.”
The change of heart is a blow for LiMO, whose selling point is the way it supports carrier brands and business models. Outside its Japanese stronghold, Vodafone 360 had been its flagship alliance and Verizon Wireless was expected to launch a similar service with LiMO devices later in 2010.
It seems a fair assumption that operators might be better at services and networks than devices and operating systems. And failure has dogged successive attempts by carriers to create their own OS and user interface (remember SavaJe, in some ways a Java-based precursor to LiMo?) But is Vodafone throwing in the towel too early? Forrester Research, in a report on app stores, says: “Cross-platform players will continue to emerge, but stakeholders with the ability to succeed are more likely to be those that control the operating system and the user experience and are able to offer reach to a wide variety of connected devices.” WAC and the new-look 360 will deliver many benefits, but they will not help operators improve on their poor track record of controlling the OS and user experience.
Reliance Infotel to choose WiMAX in India after all
By Caroline Gabriel
When the Indian BWA spectrum auctions concluded earlier this year, it seemed that the 2.3 GHz TDD band - once considered a clear run for WiMAX - would actually be split between that technology and TD-LTE. While state-owned telcos BSNL and MTNL are already deploying WiMAX in their 2.3 GHz spectrum, the privately held winners were more divided. The only one of these players to get licenses nationwide was Infotel, which was quickly snapped up by Indian conglomerate Reliance Industries (RIL). The firm implied that it would choose LTE for its new frequencies, even though Infotel had previously been committed to WiMAX, but now the firm appears to have opted for the more readily available technology after all, in the interests of early market impact
The other BWA victors only gained licenses in selected circles or operating regions. Qualcomm won in four circles and will recruit local partners to create a foothold for its favoured platform, TD-LTE. However, equipment will not be commercially available at prices to suit the Indian market for at least a year so these licenses look set to stay dormant for the time being. Other winners were Aircel, in eight circles, Bharti Airtel in four, Tikona in five and Augere in one. Tikona and Augere are committed to WiMAX while the two cellcos are undecided as yet.
Like RIL, they will face the choice of a technology that is available now, with a growing ecosystem driving down prices; and one that involves a hiatus period but is more closely integrated into the broader LTE market, promising possible economies and synergies in future when operators have deployed LTE widely in FDD spectrum. This dilemma explains the growing interest in software defined base stations that make it simpler for carriers to support both technologies, coexisting in different markets and business models, or with the flexibility to migrate from one to the other if conditions demand.
This is likely to have been one factor influencing RIL, which knows it needs to deploy quickly to meet India’s desperate shortage of broadband and wireless capacity and to steal a march on rivals. When it acquired Infotel, it referred specifically to LTE, even though its new ISP arm had been trialling WiMAX and planning to use it if it won licenses. But now it is taking the more pragmatic route and has begun its own WiMAX trials this month, according to company sources, which say the firm has installed five WiMAX base stations, testing kit from Alvarion and Samsung and working on interoperability.
RIL’s decision may be the first crack in the armor of TD-LTE, showing that the technology is not as close to market readiness as its supporters suggest. The operator gets a headstart in 4G and an improved bargaining position - buying affordable WiMAX equipment now and setting the benchmark for LTE equipment prices. Even if it introduces FD-LTE or even TD-LTE in future, there will be coexistence for at least 4-5 years and possibly permanently.
Having re-entered the telecoms space for the first time since it divested its mobile arm, now Reliance Communications, RIL is expected to form closer ties with that company. RCom also has significant WiMAX activities, which fit into a growing pattern for operators to harness the IP technology, and the TDD spectrum it targets, to build international power bases at relatively low cost. This spectrum is often cheaper than cellular focused FDD bands, and provides a lower cost, lower profile route into new markets than big ticket expansion programs like France Telecom’s in Africa. Even this roadmap, which relies heavily on acquiring mobile operators or licenses, is also supplemented heavily by investment in WiMAX players and spectrum. Others, like RCom, Orange spin-out Augere, ChinaTel and even Clearwire are focusing entirely on Clearwire and on the TDD bands, banking on an explosion of usage and value in unpaired TDD because of its suitability for IP-based data applications.
Augere has funding from Orange and has launched networks in Pakistan, Bangladesh, Rwanda and Uganda, and has an Indian license in some circles. It is likely to form part of its investor’s broader program to establish its presence throughout Africa and south Asia.
Clearwire is cultivating partnerships in India, China and other parts of Asia and Latin America, and has spectrum in several European markets, and networks in parts of Spain and Denmark. This week, it announced that it had acquired a 7% stake in another WiMAX operator, Ireland’s Imagine Communications, for €5m. The US firm will transfer its own Irish network and customer base, and 400 cells sites, mainly around capital Dublin, to Imagine. Clearwire launched wireless broadband services in Ireland in 2005 and the Irish unit generated a pre-tax loss of €13.4m on sales of €8.3m in 2008. Imagine has launched its service in 15 towns around Ireland.
Meanwhile, US-based Chinatel Group, in partnership with CECT-Chinacomm Communications, owns exclusive rights to roll out WiMAX to the 29 largest cities in China - despite that country’s general preference for TD-LTE. It is mandated to cover the first 12 cities by June 2011 and has completed partial deployments in Beijing, Shanghai and Shenzhen. It has about $640m in funding and is also active in Peru.
As for RCom, the firm created a separate business unit, Reliance Globalcom, in 2008 to push into 50 markets by 2012, largely on the back of WiMAX and fiber investments. It aims to become a multinational operator in fixed and mobile services, taking its place among the new breed of global providers emerging from outside the traditional mobile economies, many of them looking to use WiMAX to support 4G-style and fixed broadband offerings.
NSN snaps up most of Motorola’s wireless networks unit
By Caroline Gabriel
Motorola is not waiting until its planned break-up to offload its wireless networking business, and as expected, Nokia Siemens is to acquire the bulk of those activities. NSN will pay $1.2bn for most of the operations apart from the iDEN system used by Sprint’s Nextel arm.
The main attractions for NSN seem to be a strengthening of its US base and the addition of CDMA to its portfolio. These were the same factors that led it to bid for Nortel’s CDMA and LTE unit, where it was gazumped by Ericsson.
CDMA itself may be a declining platform, but carriers using the technology are in the forefront of the migration to LTE - while W-CDMA operators are, in many cases, relying on the extended HSPA+ roadmap to expand their networks before leaping to 4G, their CDMA counterparts have a nearer term need to implement next generation standards. Without an established presence among these CDMA majors, NSN has been at a disadvantage in bidding for LTE contracts. Although it gained some IMS business at Verizon Wireless, for instance, it lost out in the main RAN and core deals. It has said that it hopes to muscle into that deal in a future round of tenders, and a greater knowledge of CDMA will help.
It will be cheered by Verizon’s official reaction to the deal. “Verizon views today’s announcement as good news for the global wireless industry,” said CTO Dick Lynch in a statement. “This deal brings together two important Verizon suppliers; we look forward to our continuing work with Nokia Siemens Networks.”
Of course, Motorola’s CDMA installed base is significantly smaller than that of Nortel (now Ericsson) or market leader Alcatel-Lucent. But NSN will gain useful footholds around the world, most notably Sprint in the US and KDDI in Japan (which is already trialling Motorola LTE kit). The firm expects that the addition of Motorola will make it the number three wireless infrastructure vendor in the US, number one foreign wireless vendor in Japan, and “strengthen its current number two position in the global infrastructure segment”. This will, at least for now, put it ahead of the encroaching Huawei.
As well as its CDMA base, Motorola also has particularly strong expertise in the TDD flavor of LTE, thanks to its heavy investment in another TDD technology, WiMAX, and created China Mobile’s TD-LTE network in Shanghai along with Alcatel-Lucent.
It is not clear what NSN might do with the WiMAX business. Having virtually exited W-CDMA, Motorola focused all its efforts outside the 2G and CDMA worlds on WiMAX, and more recently LTE. It has a top three position in WiMAX, including deals with Sprint’s Clearwire joint venture, and has created a common platform that can run WiMAX and LTE. However, NSN quit WiMAX at an early stage, despite initially winning part of the Sprint deal itself, and has focused entirely on LTE.
Its options are to sell on the WiMAX activities, perhaps to a more committed WiMAX player like Huawei, Alvarion or Samsung; defocus on them and try to convert the higher profile customers to TD-LTE; or re-enter the WiMAX market, an option that could become attractive if Reliance Industries does decide, as seems likely now, to adopt the technology in India.
As for the legacy CDMA business, NSN has a clear interest in that installed base in the developed economies, especially north America, but may be less enthusiastic about supporting and evolving CDMA systems for emerging economies where LTE is a distant prospect. ZTE, in particular, is becoming dominant in low cost CDMA.
The deal is the latest step in a consolidation process that has been reshaping the wireless infrastructure business as its products become commoditized, driving players to seek greater scale and put more emphasis on higher margin activities like services. Nokia Siemens was itself created from this process, while Alcatel and Lucent also merged, and Ericsson acquired first Marconi Networks and then many units of Nortel.
Huawei was reported to be interested in Motorola Networks and even to be in talks with the US government to help pave the way for a Chinese bid, but has been pipped to the post again by a rival. In its statement, NSN said the acquisition would “significantly strengthen Nokia Siemens Networks’ presence globally, particularly in the United States and Japan” and that it would “gain incumbent relationships with more than 50 operators and strengthen relationships with others ….. it will give the company a large global footprint in CDMA.”
As for Motorola, it divests a business in which it no longer has the scale to compete effectively, despite its 4G breakthroughs. And it retails “substantially all the patents related to its wireless network infrastructure business”. This shows how important LTE IPR is, even to companies that have limited prospects in the equipment game. The rump of the bankrupt Nortel also retains significant LTE patents, and could sell these on - for a higher value than they would have attracted if bundled into the Ericsson deal - or even set up a standalone licensing company. The same options will now face Motorola.
The companies expect to complete closing activities by the end of 2010. Many questions are still to be answered, such as the fate of the government, enterprise and public safety businesses, which were to have been included in the newly named ‘Motorola Solutions’ along with wireless infrastructure. This company was to have been one of two created next year when the company plans to split in half - the other will be the handset and set-top box units, renamed Motorola Mobility. Motorola retains these other elements, but may be seeking buyers. Indeed, it seems likely NSN will add the public safety unit to its purchase, at least as a joint venture with Motorola. The companies’ joint statement said they were “exploring a global relationship in the public safety arena. This relationship would combine Motorola’s leadership in providing solutions to public safety organizations with Nokia Siemens Networks’ commercial LTE solutions.”
Commenting on the deal, NSN CEO Rajeev Suri said: “This is an exciting acquisition that I believe has significant benefits for customers, employees and our shareholders. Motorola’s current customers will continue to get world class support for their installed base and a clear path for transitioning to next generation technologies while employees will join an industry leader with global scale and reach. Nokia Siemens Networks will see the benefits of a deal that is expected to enhance profitability and cashflow and to have significant upside potential.”
Greg Brown, co-CEO of Motorola, said in his statement: “This is great news for our customers, our investors and our people and will allow us to sharpen our strategic focus on providing mission and business critical solutions for our government, public safety and enterprise customers.”
Motorola claims to be the market leader in WiMAX, with 41 contracts in 21 countries; and to have 30 active CDMA networks in 22 countries; plus more than 80 active GSM networks in 66 countries.
“As customers look to transition from CDMA networks to next generation technologies, the addition of the Motorola wireless network infrastructure business is targeted to ensure that we are well placed to meet those needs,” said Bosco Novak, head of customer operations at NSN.
About 7,500 employees are expected to transfer to NSN when the transaction closes, including large R&D sites in the US, China and India.
Modules and SIM cards converge for ubiquitous wireless
By Caroline Gabriel
The appearance of wireless connectivity in a vast range of devices from vending machines to TV sets is creating an explosion in two key technologies, both enablers of the ubiquitous web. These are modules for connectivity, and SIM cards for authentication, security and a rising number of other applications. This week, French digital security firm Gemalto brought the two technologies closer together by acquiring Cinterion of Germany, a specialist in machine-to-machine modules which was spun out of Siemens in 2008.
A year ago, Gemalto missed out on acquiring another M2M modules firm, Wavecom, when it was gazumped by Sierra Wireless. Sierra’s purchase has delivered sound results, making it a clear market leader and seeing its M2M revenues rise from 42% to 50% of its total in 2009-10. Now Gemalto is determined to have another go, and it is paying $198.7m for the privilege. Cinterion has about 20% of the M2M market, and this translated to revenues of $179m last year, less than Sierra’s $221m in M2M (which only included three quarters with Wavecom). Sierra expects to make $88.7m from M2M in its first quarter.
The new owners of these M2M specialists are coming from different starting points, but represent the convergence of the communications module and the SIM card to create the modern wireless device.
SIMs have shrunk down over the past few years to fit into tiny embedded devices, while modules are also moving down the size scale from their initial heartlands in laptops and dongles into every kind of wireless enabled gadget. A year ago, for instance, T-Mobile USA announced an innovative embedded SIM for M2M applications. The size of a pinhead, it is designed to withstand extremes of temperature, humidity and motion for industrial usage, while offering the usual benefits of a GSM-based SIM, such as authentication, encryption and data storage. The embedded SIM is made from silicon rather than plastic, like an in-phone card, and can be hard-mounted into M2M modules so that there is no additional work in the field to add these capabilities to systems. The operator is setting up a certification process to ensure third party software and device partners can create a common platform.
Meanwhile, the module is casting its net wider too, even finding its way into the handset, as a low cost way to create new smartphones. Ericsson Mobile Platforms, one of the leading module makers along with Qualcomm, Sierra, Novatel and Huawei, spoke of creating a smartphone module this year, as it pushes its technology beyond netbooks and into many consumer electronics and, in future, M2M devices.
So it was inevitable that the two technologies would come closer together, leading to tighter integration of authentication and security with wireless modules, reducing cost and increasing efficiency in low power devices. “We are taking the leadership position in a fast growing market, the market of smart machines that paves the way to the ‘internet of things’,” said Gemalto’s CEO, Olivier Piou, in a statement. “Together with Cinterion we can address the strong interest of our largest customers, the mobile network operators, in M2M and team up with them to offer the M2M market the right combination of advanced software, premium devices and remote management services that has historically been successful in our SIM card business.”
Gemalto may also take the next step and bypass the SIM, creating SIM-less modules where identity and authentication are directly loaded into the module. This trend has been seen in the NFC (Near Field Communications) world. NFC, the main technology for swipe-based applications like contactless payments and transportation tickets, is increasingly being incorporated into smartphones and other devices. Currently, most manufacturers favor doing this by combining NFC with a SIM card for security, but it can also be done directly using a dedicated chip. Last week, we saw Broadcom acquiring Innovision to address the rise of embedded NFC in cellphone chipsets.
The SIM card is always a popular option with carriers as it enables them to control their devices and customers - the other growing aspects of the smartphone, like storage capacity and web access, do not give the operator any influence over how the customer uses their phone. Indeed, new high density SIM cards may be a way for cellcos to offer multimedia content and applications that remain tied into their networks.
Infineon, Intel and Micron Technology have been working on taking the capacity of a SIM card beyond 128Mb, to support media-rich applications together with the usual security and access control functions. Infineon says this will be a way for carriers to offer media-rich value added services that also require access control, such as mobile banking, ticketing and content delivery.
The HD-SIM could also be a simpler way for operators to control the apps on individual handsets on their networks, including pushing downloads and updates to the user, and deleting or altering programs.
Femto World Summit: eyes on offload and LTE, but don’t forget the apps
By Caroline Gabriel
The femtocell community gathered for its third annual conference in London last week, and there were clear signs that the market was maturing - more big name vendors involved; more than a dozen large operators on board; and extension of the standards to address additional business models. This is a technology that has moved very rapidly, even by wireless standards - two years ago, it was interesting but untried, and last June it was on the brink of the real world, with Vodafone announcing its first commercial deployment, Sure Signal in the UK. This year it is approaching a mass market, but the danger of such rapid progress is that an industry runs before it can walk.
Many uncertainties lurk in the current deployments, which are focused on residential devices mainly geared to improved indoor coverage. A row over AT&T’s extension of new tiered data charges to femtocell users highlights how regulatory vagaries can impact a business case that has not yet been fully articulated; and even as the market moves towards new markets, such as enterprise and outdoor metro deployments, there are serious question marks over the initial and relatively simple residential case. These include the balancing of the consumer proposition (indoor quality of signal - but should the end user have to pay for that?), with the operator’s real interest, offloading data from the hard-pressed macrocell and building out 4G more cost efficiently.
None of these is unanswerable, and as more carriers unleash commercial services, doubts will be better addressed by real world experience than a host of committee meetings. The industry sector is deservedly proud of its lightning sprint from theory to commercial reality - helped by the fact that, unlike some technologies, femtos offer something carriers actually need. But it needs to beware that the uncertainties inevitably raised by such fast evolution do not turn into a climate of backlash.
One notable contrast with last year’s summit is an apparent narrowing of focus. In 2009, the headlines were live deployments from Sprint and Vodafone, plus demonstration of interoperability standards (the 3GPP’s Iuh interface between the femtocell and femto gateway). But much of the conversation was about applications rather than hardware claims, with the Femto Forum establishing a special interest group for the kind of apps that would extend the business model beyond simple indoor coverage and traffic management/offload. It is understandable that the first stage of real build-outs relies on the relatively simple and obvious business case of improving indoor signals, but if carriers are to achieve their offload objectives - and use femtos to reduce cost of delivery of LTE - they need to appeal to consumers on many different levels. In our opinion, the level of debate and discussion about applications needs to increase in volume again to sustain the second wave of momentum.
There is clear interest in other femtocell applications, as indicated by a survey carried out by Parks Associates for the Femto Forum. The main consumer interest in femtos emerged, unsurprisingly, as indoor coverage, followed by reduced homezone rates, increased battery life because of low power signals, and faster data rates. But in addition, 72% said they would be interested in signing up for proposed femto services such as virtual home numbers, or family noticeboards, with over half of respondents being willing to pay $5 a month for one such service.
This indicates the ability to push the femtocell to users with no coverage issues - vital not just to achieving scale for the industry but addressing cellcos’ offload targets, especially in the urban areas where data strain is often highest, but indoor quality highest. The Parks study found that awareness in the US market, where three cellcos now have femto services, remains low at only 10% of mobile consumers, but once explained, the technology and services appealed to 56%. Of those that were already aware of femtocells, a huge 89% found them appealing. Forum chairman Simon Saunders commented: “Once consumers are told what the benefits are they’re not just interested, but willing to pay for them” - an important point for carriers, which are unwilling to add yet another subsidy bill to their cost base, but have faced criticism from some quarters for, in effect, charging consumers to address poor 3G network quality.
For now, though, the rising rate of deployments is being driven by signal quality on the user side and offload for operators. The second wave will rely on new services, LTE build-out approaches, and emerging markets like the enterprise. Even in stage one, global femtocell deployments have more than doubled in the past nine months, according to a report from Informa, which counts 16 operator commitments including 13 commercial launches - up from eight commitments last November. Informa expects the femtocell market to hit the 49m unit mark by 2014, supporting 114m mobile users. Femto unit sales would reach 25m in 2014 alone.
Next will come expansion into the potentially higher margin corporate sector. Both Vodafone - expanding its residential UK service to business users in Spain - and AT&T, are now focusing on the corporate segment, as the technology evolves to support larger number of users and more advanced enterprise functionality. AT&T’s executive director of radio networks, Gordon Mansfield, told the conference that the cellco has completed its nationwide roll-out of residential femtocells and is now looking to the enterprise. “Femtocells are now available to our customers anywhere in the continental US,” he said. “Now we’re focusing on the enterprise… now we want to integrate femtocells with IP PBXs.” However, he stressed there was no firm timescale for this move.
The operator defended its decision to apply new data caps to its femtocells as well as smartphones and dongles, which seemed to fly in the face of claims about offloading traffic to the tiny base stations. It said the traffic still had to travel via its core, creating congestion issues, because of US regulations insisting that carriers are able to examine all the data on their networks. AT&T sells its MicroCell 3G for $149.99, but customers have the option to take out a dedicated $19.99 monthly plan that provides unlimited femto voice minutes in return for a $100 rebate. Existing AT&T broadband customers can additionally receive an extra $49.99 rebate, which makes the femtocell free.
The next stage is likely to be the use of femtocells to create metrozones outdoors, usurping some of the role traditionally taken by picocells, but bringing femto signature qualities such as advanced self-management. Ubiquisys is one of the specialist vendors building on an initial product range in the home to introduce a metro femto, and according to Informa, Vodafone - which has enthused about the potential of metro deployments for a couple of years - is already using outdoor femto technology in shopping malls in Qatar.
For carriers, of course, looking to relieve data stress on their 3G networks and lower their cost of data delivery with 4G, the real appeal of femtocells is to offload traffic from the macrocell. “The mobile data boom - and the increased demand on capacity it has led to - is the biggest challenge currently facing mobile networks,” said Saunders. “Femtocells represent the natural solution for offloading this data. They allow mobile operators to significantly improve the mobile broadband experience as well as their other services without incurring the costs that macro upgrades would require.”
In a new white paper on this critical offload issue, the Forum expanded on its existing business case model, developed with Signals Research Group, to show that a femtocell can lower the cost per Gb of data delivered by four times with current technology and significantly more with future enhancements.
The white paper says the benefits go beyond easing congestion on the RAN and backhaul. Femtos can also reduce the cost of data delivery and improve quality of service, by offloading signalling traffic from ‘chatty’ smartphones, managed by the radio network controller. This capability is included in 3GPP femto standards and was recently implemented by picoChip for its system-on-chip architecture. Also, in contrast to Wi-Fi offload, revenue generating traffic remains on the operator’s network, since the femto is an extension of the RAN, says the Forum; while the devices allow carriers to respond to data spikes in a rapid and targeted way by deploying new capacity almost overnight.
As well as larger femtocells, stretching concepts like self-management concepts into the former realm of the picocell, the next big market extension will come in LTE. Many carriers are intensely interested in the potential to build out 4G capacity in a highly targeted way, with roll-out cost directly related to the demand for services, by using very small cells. Always in the technology vanguard, Japan’s DoCoMo wants to deploy LTE femtocells as early as 2011-2012. Yoshiyuki Yasuda, its managing director of radio access networks, told the summit he would like to deploy femto and macro cells in parallel to ensure the best balance of coverage and capacity, in relation to capex and user demand. Its first LTE macrocells go live near the end of this year. “We’re looking for which LTE femtos are available by this timeframe,” said Yasuda. “We are receiving some proposals but have not decided yet.”
picoChip has already shown off LTE silicon and reference designs, working with partners like Continuous Computing, and some suppliers are hinting that they could come close to Yasuda’s deadlines. In particular, long time DoCoMo supplier NEC - which is enjoying something of a rebirth in wireless infrastructure thanks to femtocells - has announced it will have an LTE femto ready for friendly user trials next year, though it may not be fully commercial until 2012. DoCoMo’s current main femto supplier for 3G is Mitsubishi.