Sunday, June 27, 2010

Are we ready for the "mobile revolution"?

According to Chris O'Brien in this morning's edition of the San Jose Mercury News, "We're not ready for the mobile revolution".  In the aftermath of this week's iPhone-4 hysteria, Chris raises a number of important red flags.  It's a good summary of some issues that will impact deployment and adoption of mobile broadband services in the U.S., but I found that some of the points were perhaps overstated while others are a bit more serious than described.  Here are the points raised in the Mercury News article, along with my comments and analysis.
Competition: Or I should say, the lack of it. In late May, the FCC released its annual report on the state of competition in mobile and wireless markets. The news is not good. Consolidation has accelerated to the point that we are all but living in a duopoly controlled by AT&T and Verizon Wireless.At the end of 2009, those two companies controlled 60 percent of the wireless market...

The numbers used for this calculation took into account all cellular subscribers, not just the minority that are currently using 3G data services. When you break down 3G market share, as in the illustration below, you see that in actuality AT&T and Verizon Wireless account for approximately 75% of the market.  I based this data on the most recent numbers reported in Q1, except for Sprint where I had to estimate from other data such as reported ARPU and number of post-paid subscribers. Regardless, the iPhone has definitely been a great benefit to AT&T in the 3G market, as they reported "3G Postpaid Devices" totaled 26.8 million in Q1-2010.  Verizon Wireless reported that 30% of their 92.8M subscribers have 3G devices, equivalent to approximately 15.8 million. With the iPhone-4 introduction coming at the same time as the new DROID-X, it will be interesting to see how this plays out next quarter.

Investment: AT&T and Verizon boasted about the money they are spending on their wireless networks. "We've spent $59 billion on our network since Verizon Wireless was formed, about $5.5 billion a year, every year," said Nicola Palmer, vice president for networks at Verizon. Britton said AT&T has spent almost $55 billion over the past three years.  But according to the FCC report, because the number of subscribers has exploded, this spending has actually fallen as a percentage of revenue, from 20 percent to 14 percent between 2005 and 2008.
I'd like to see this data presented at CTIA Wireless the next time FCC Chairman Genachowski shares the same stage with Ralph de la Vega (President and CEO-AT&T Mobility and Consumer Markets), who is this year's Chairman of the CTIA organization.

Exclusive handset deals: These deals are making the bottleneck worse in two ways. First, all the iPhone traffic gets carried by one company's network, rather than being distributed over several networks. And second, exclusive deals allow carriers to compete on the availability of handsets rather than the quality of service. "If consumers could get an iPad and put it on any network, they would," said Chris Riley, policy counsel at Free Press, a consumer advocacy group. "And it would drive AT&T to invest more."
I don't totally agree on this issue. First, the media often ignore the fact that there is no one wireless communication standard in the U.S. Handsets do not become exclusive purely through business agreements. To be totally portable across any operator network requires support for all the 2G and 3G bands (CDMA/EVDO and GSM/HSPA). This might be doable, but it adds cost.

Second, if the purpose was to roam, say from AT&T to Verizon to fill gaps in coverage, battery consumption (from redundant radio operation) would suffer as well. (Not to mention all the other data network handover issues, which are non-trivial, and associated business issues).

Do consumers really suffer from these exclusive deals?
The iPhone is no longer as dominant as it was at introduction. Companies such as HTC are making multiple versions of their Android phones that provide a very competitive alternative, along with choice of service. The smartphone market is intensely competitive in the U.S., and I would argue that consumers do benefit when the operators and manufacturers need to fight for differentiation. Some may raise the concern for Android "fragmentation", but look how much innovation has occurred in just a little more than a year and a half since the G-1 was introduced!

Spectrum: Here's one that everyone does agree on. "We have been suggesting that there is a crisis brewing and there needs to be a focus on bringing spectrum to the market," said Chris Guttman-McCabe, vice president of regulatory affairs for CTIA-The Wireless Association.
Well, maybe not everybody. Of course CTIA wants as much spectrum as they can get their hands on for their members. It's a critical resource. But, is the issue really more spectrum or better coverage? Once again, it is the iPhone problem on AT&T's network that everyone seems to focus on.

As I pointed out in my report on The Emerging 4G Wireless Landscape in the U.S. the generalization does not hold true for all the operators. Sprint and Clearwire hold a significant advantage with the capacity of their 2.5GHz WiMAX spectrum licenses.

In the press release for my 4G report I stated that the "Explosive Growth in Mobile Video Shifts Advantage to WiMAX Providers Until 2012". I stand by that prediction today. With Verizon and AT&T accounting for 75% of the current 3G market, it should come as no surprise that the "spectrum crisis" gets as much attention as it does. Sprint, which has been trailing badly in 3rd position, has a real lead in deploying 4G technology. Regardless of arguments of what is really 4G in terms of speed, the capacity advantage is clear (no pun intended) and quantifiable.

More is always better when it comes to spectrum, but inevitably we do need to look at how we use what we have more efficiently. Conservation is also good. See my report on Next-Generation ICs for Mobile Devices - Innovations in Wireless Design for a glimpse at how future cell phones may take advantage of software-defined (SDR) and cognitive radios.

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