Mobile Network Capacity Issues

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Mobile Network Capacity Issues

  1. 1. 21 Gnostam  LTE  Network  Issue   15th  April  2012     1   Performance Through Independent Research Wireless  network  capacity  issues:    Threats  and  opportunities   EXECUTIVE SUMMARY: that clients will pay for, without clogging up the network with unprofitable users. The Problem with Mobile wireless: While most operators are managing to In simple terms, demand is outstripping grow their top line with mobile data, supply, and costs per gigabyte are rising margins on mobile data have been under faster than revenues. Supply is constrained severe pressure for operators. Mobile data by physics. One single fiber optic cable has ARPUs are not delivering the same more capacity than the entire RF spectrum. EBITDA margins as voice: this leads to a significant share of customers being To avoid mobile networks being overwhelmed unprofitable. The carrier choice of mobile by a flood of data, these networks which data bundled plans has limited the market support widely desired mobility applications, segmentation capacity of these operators. [e.g. Apple I-pad 3] these networks capacity Examples: the price of data plans are must be upgraded. Reliability and access are decreasing at a rate of 60 percent p.a. on key to long term survival, as we witnessed average. Plus, individual users can place a with Blackberry. However this is not just an IT huge strain on the network: 10% are technical issue. It is fundamentally a responsible for 50% of the network data business model issue. traffic – without contributing one cent more in revenues. Actual revenues per megabyte The business issue is how to capture traffic are decreasing at around 50% p.a. – a Continued  on  Page  4   Capacity  constraint  is  at  Radio  Link   “Cloud” economics are pushing mobile network capacity constraints. Mobile devices have memory and speed limitations that might prevent them from acting as media consumption devices, were it not for cloud applications and services. Cloud applications and services such as Netflix, YouTube, Pandora, and Spotify allow mobile users to overcome the memory capacity and processing power limitations of mobile devices. A user with an 8 GB smartphone who streams cloud video and music will consume more content over the course of 2 years than can be stored on the device itself. A smartphone user adopting Netflix, Pandora, and Facebook will generate more than twice the volume of traffic generated by a smartphone user adopting only email and web applications
  2. 2. Gnostam  LTE  Network  Issue   15th  April  2012     2   A “Flood of Data” s being generated by the I-pad type applications. In 2011, a fourth-generation (4G) connection generated 28 times more traffic on average than a non-4G connection. Although 4G connections represent only 0.2 percent of mobile connections today, they already account for 6 percent of mobile data traffic. Data storage costs have also dropped, allowing for more “cloud” based solutions.   Units  used:     Tera  =  1012                  Exta  =  1018        Zetta  =  1021  
  3. 3. Gnostam  LTE  Network  Issue   15th  April  2012     The Mobile Network Through 2016 3   Mobile data traffic will reach the following milestones within the next five years. • Monthly global mobile data traffic will surpass 10 exabytes in 2016. • Over 100 million smartphone users will belong to the "gigabyte club" (over 1 GB per month) by 2012. • The number of mobile-connected devices will exceed the worlds population in 2012. • The average mobile connection speed will surpass 1 Mbps in 2014. • Due to increased usage on smartphones, handsets will exceed 50 percent of mobile data traffic in 2014. • Monthly global mobile data traffic will surpass 10 exabytes in 2016. • Monthly mobile tablet traffic will surpass 1 exabyte per month in 2016. • Tablets will exceed 10 percent of global mobile data traffic in 2016. • China will exceed 10 percent of global mobile data traffic in 2016.  
  4. 4. 43 Gnostam  LTE  Network  Issue   15th  April  2012     4   trend expected to continue over the next few pacing within the overall mobile years if radical action is not taken soon. broadband strategy will ensure success and optimize the road to The solutions…… ……………… ……? 4G business cases. Operators need to focus on topics such as 1. Choice of spectrum and technology regional rollout priorities, fixed upgrade path. Operators [carriers and substitution propositions, and enterprise solution providers] need to further capacity extension decide on the succession of technology strategies. For instance, reforming upgrades that will best fit their current 1,800 MHz 2G spectrum could be a data ~ corporate strategy and expected viable strategy to build additional market demand for mobile broadband. LTE capacity networks, but this Does the company already have a requires advance planning. dominant technology and service Partnering opportunities could offer position, or is it a value-for- money operators great value creation price leader? What is the spectrum potential as well. Those operators application plan and spectrum auction that pool spectrum based on positioning in their arena, including network-sharing agreements will reservation prices? And what reap a significant cost-to-serve technology succession in spectrum advantage. bands will align best with the expected demand development? MOBILE WIRELESS CAPACITY AS AN 2. Given that the main constraint is now ECONOMIC OPPORTUNITY: supply and not demand, the main issue becomes the choice of tactical We have witnessed the collapse of implementation and timing of network Blackberry, [RIMM] a casualty of “failed” upgrades, be they 3G LTE, 4G or some supply side network management. All other evolution. Only optimal tactical major participants in the carrier and Continued  on  page  6  
  5. 5. Gnostam  LTE  Network  Issue   15th  April  2012     5   Diagrammatic  representation  of  an  LTE    wireless   network  switched  into  a  PSTN.    It  only  supports   the  IP  protocol  for  voice  calls.   The LTE standard only supports packet switching with its all-IP network. Voice calls in GSM, UMTS and CDMA2000 are circuit switched, so with the adoption of LTE, carriers will have to re-engineer their voice call network. Three different approaches sprang up: 1.CSFB (Circuit Switched Fallback): In this approach, LTE just provides data services, and when a voice call is to be initiated or received, it will fall back to the CS domain. When using this solution, operators just need to upgrade the MSC instead of deploying the IMS, and therefore, can provide services quickly. However, the disadvantage is longer call setup delay. The diagram above shows the increased ▪ SVLTE (Simultaneous Voice and LTE): In volume in wireless data capacity usage this approach, the handset works from different mobile devices. A simultaneously in the LTE and CS smartphone on average uses 35 x more modes, with the LTE mode providing capacity than a regular cell phone. A data services and the CS mode Tablet, on average uses 121 x more providing the voice service. This is a capacity than a regular cell phone. solution solely based on the handset, which does not have special Demand for tablets and I–pad’s is requirements on the network and does growing exponentially because these not require the deployment of IMS tools are seen as the single most either. The disadvantage of this solution important productivity tool [source is that the phone can become expensive Information Week 8/2011, mobile device with high power consumption. management and security survey of 323 business technology professionals]. VoLTE (Voice Over LTE): This approach is based on the IP Multimedia Subsystem network.
  6. 6. 65 Gnostam  LTE  Network  Issue   15th  April  2012     6   enterprise areas are at risk, as are the BRCM, RFMD, as these suppliers to dominant mobile device and application network capacity, along with Nokia Siemens, suppliers. Alcatel Lucent, the Chinese manufacturer Huwaei offer the most bang for our The 4-G network will be an evolution of , investment buck. However this is a very many different types of “internet protocol” complex transition and there are bound to {IP} based networks. As can be seen in the be more RIMM type occurences for those schematic on page 5, these networks are who are not able to build redundancies into real evolutions of technologies and know their mobile broadband networks. how, with the common objective of utilizing Radio Frequency band-width more Examples of unpredictability of efficiently. LTE evolution: Any technology that allows a mobile network Operators initially deployed High Speed greater service portability and Packet Access (HSPA) in 5 MHz + 5 MHz interoperability will be utilized, using the IP radio channels. HSPA uses a 5 MHz radio platform that has been made ubiquitous by channel, so this means one channel was for Cisco Systems. With the proliferation of the base-station to mobile- user (forward) mobile and portable devices, there is an direction and one channel was for the imminent need for networks to allow all reverse direction. Based on a spectral these devices to be connected efficiency of .5 bps/Hz, the HSPA initial transparently, with the network providing deployments data capacity was 2.5 Mbps in high-performance computing and delivering each sector17 and EV-DO in a 1.25 MHz enhanced real-time video and multimedia. radio channel with the same spectral This openness will broaden the range of efficiency had a data capacity of 600 kbps. applications and services that can With improvements in radio technology, we be shared, creating a highly enhanced expect a 50% increase in the capacity. But mobile broadband experience. The one can see how small a number of expansion of wireless presence will increase simultaneous YouTube viewers each at the number of consumers who access and almost 1 Mbps can occupy the entire rely on mobile networks, creating a need for bandwidth of the data channel, which really greater economies of scale and lower cost puts a strain on network capacity. per bit. Looking forward to advanced technologies While the net neutrality regulatory process such as LTE, capacity will be higher, but it and business models of operators evolve, will still be extremely limited compared to there is an unmet demand from consumers wireline capacity. Verizon Wireless’ LTE for the highest quality and speeds. As network will operate in the 700 MHz band wireless technologies aim to provide using 10 MHz radio channels. With a experiences formerly only available through spectral efficiency of 1.5 bps/Hz, this wired networks, the next few years will be delivers a sector throughput of 15 Mbps. critical for operators and service providers to plan future network deployments that will Meanwhile, there are about 1000 create an adaptable platform upon which subscribers in the US for every cell site, will deploy the multitude of mobile-enabled which makes for an average of 333 devices and applications of the future. subscribers per sector. If 10% of them were using the LTE data service, that would mean We have focused on the manufacturers of 33 users for the 15 Mbps data channel. the Radio Frequency chipsets, ARMH, Now, compare this with a subscriber of a
  7. 7. 87 Gnostam  LTE  Network  Issue   15th  April  2012     7   Investing  in  the  pressure  points  in  the  LTE  system   wireline high-speed Internet service of 50 One network in the US that has Mbps that is dedicated, and not shared. considerably more capacity is Clearwire’s WiMAX network. This has been deployed Asias mobile networks are also getting more in 30 MHz of spectrum, which is filled, rising from 54 percent utilization two considerably more than what any 3G years ago to 62 percent in 2011. Western operator has deployed for data so far. As European networks are getting less demand increases, Clearwire has constrained, falling from 66 percent to 56 indicated it can make up to 120 MHz of percent. Both regions will be well over 60 spectrum available. Whereas many 3G percent within two years, however. Latin networks place caps of 5 Gbytes on Americas mobile networks will hit 85 percent monthly data usage, the Clearwire average utilization within a year, according to network currently has no caps. Even the the survey. Clearwire network, however, cannot match the capacity of wireline access The point is not that the wireless network networks that are fiber oriented (e.g., fiber cannot deliver extremely valuable mobile to the home). services, but that wireless capacity is inherently  limited compared to wireline capacity. Cloud media applications and services such as Netflix, YouTube, Pandora, and Spotify allow mobile users to overcome the memory capacity and processing power limitations of mobile devices.
  8. 8. 21 Gnostam  LTE  Network  Issue   15th  April  2012     8   INDIVIDUAL RECO MMENDATIONS: Most of the suppliers to this exploding market As for Broadcom, it has been winning are discounting the economic benefits of the some baseband share at Samsung this market. As with many growth markets, the year. However, we believe the magnitude early hype tends to push valuations into the of these share gains is fairly meaningful, stratosphere. and likely underestimated by the Street. Samsung seems to be pushing for Nevertheless there are certain stocks which we massive smartphone shipment growth in believe should be on a watch list for an 2012, forcing smartphones into as many opportunity to buy on market sell offs. different price points as possible. The best buy in the current market is Independent handset supply chain checks Broadcom, followed by Cisco. Arm Holdings is suggest that Broadcom could supply a buy, and since it is a very difficult stock to 30%-40% of Samsung’s smartphone buy, it is best to buy on weakness. Ciena is basebands in 2012 (60M-80M units out of also a long term buy. The upside on Ciena is Samsung’s 195M unit smartphone target), not huge at moment, $20. plus some of Samsung’s non-smartphone shipments (some portion of another 150M-170M handsets). This meaningful Ciena is likely to see revenue rise faster than growth this year should help to stem the the broader telecom landscape’s 3 to 5% rate impacts from Broadcom’s falling 2G over the next three years, perhaps seeing baseband shipments to Nokia and more like 11% pa. Samsung. The move from traditional telco “SONET” ARMH’s smartphone and the tablet gear to “dense wavelength division markets are larger than thought, multiplexing,” or DWDM, fiber optic producing 10% greater earnings than equipment — a move that’s been going on for expected for this year and next. years now but seems finally to be happening in earnest – should benefit Ciena, as it has ARM maintains the upper hand, in the only 5% of the SONET market but 12% of the mobile market relative to its competitors DWDM market. including Intel. After 31% growth in ARM’s total chip unit volume in 2011, growth If management can keep operating expense will cool to more like 16% for 2012 but growth to just 2.2% over that three-year term, then it will resume 20% growth in 2013. combined with a 2.5% expansion of its gross profit margin, the company could see operating margin widen to 8.5% in 2013 and 11.5% in 2014.
  9. 9. Gnostam  LTE  Network  Issue   15th  April  2012     9   COMPONENTS IN I-Pad 3 SUPPLIER Dual Core ASX processor ARM Architecture, Samsung Fab LCD Display Screen Samsung, LG HSPA & LTE Baseband processors Qualcomm MAC/Baseband/Radio/Bluetooth Broadcom BCM4330 802.11a/b/g/n NETWORK OPERATORS IN US AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ) will launch LTE-compatible versions of the device in the United States. Analysts have said that Verizon, which has an LTE network covering 200 million POPs, may be the largest carrier beneficiary of the new device, though AT&T has been quick to point out that even though its LTE network covers 74 million POPs, customers can still drop back to its faster HSPA+21 network outside of LTE coverage. Market research firm Gartner Inc. estimates 103.5 million tablets will be sold in 2012, with Apple accounting for two- thirds of those, rising to 326.3 million in 2015, Apple Share 46% Source: FierceWireless-FierceWireless
  10. 10. Gnostam  LTE  Network  Issue   15th  April  2012     10  
  11. 11. Gnostam  LTE  Network  Issue   15th  April  2012     11   CONCLUSIONS: The mobile-broadband industry is experiencing tremendous success, yet its very success is undermining its ability to deliver a consistent, reliable trouble-free experience. As the number of users increases with ever more demanding applications, it is inevitable that there will be ever more cases in which the volume of traffic in different coverage areas exceeds capacity, resulting in congested operation. More efficient applications not only reduce the likelihood of congestion occurring in the first place, but they also are inherently more resilient, since they require less time and data to operate. They also reduce battery consumption, and most importantly for users, reduce costs, especially with usage-based pricing plans. Beyond user benefits, greater application efficiency results in significant savings for operators including lower costs in the radio network, lower costs in backhaul, lower infrastructure costs and the need for less new spectrum. We think this environment is an opportunity to buy several of the LTE emerged technologies, namely, ARMH, RFMD, CIEN, CSCO, BRCM. GLOSSARY OF ACRONYMS: GSM: Global System for Mobile Communications; LTE- Long Term Evolution, [of 4-g networks from 3-g wireless networks]; HPSA: High Speed Packet Access UE: Ultra Edit, a software text editor for Microsoft Windows; MSC: Message Sequencing Chart; IMS: IBM Information Management System; SGSN: Serving a GPRS Service Node; MME: Mobility Management Entity, System Architecture Evolution, core of 3GPP LTE; GERAN: GSM EDGE Radio Access Network; UTRAN: Universal Terrestrial Radio Access Network; E-UTRAN: air interface of 3GPPs Long Term Evolution (LTE) upgrade path for mobile networks. Sources & References: Cisco Networks White Paper – Global mobile data traffic: Forecast update 2011-2016; Accelerate Technology Challenges in technology roll-out, 2012; Infonetics 2011 White Paper, Research in optical equipment leaders; Rysavy 2011 Mobile broadband capacity constraints; Infonetics: The road to plain 4G survey excerpts 2011; Net neutrality regulatory proposals, Rysavy Research; Shifting the supply axis: The road to 4-G McKinsey White Paper; Wireless design magazine: Testing LTE network, benefits and challenges; Mobile broadband with HSPA and LTE – capacity and cost aspects, Nokia Siemens White Paper; Dragonwave: The Road to 4G is Easier with Microcellular Solutions; Agilent: The road to 4G IMT Advanced LTE Advanced webinar;
  12. 12. Gnostam  LTE  Network  Issue   15th  April  2012     12   Gnostam LLC performance Graphs Gnostam  was  established  February  4th  2004.   Since  inception  the  annualized  rate  for  return  for  a  client  portfolio   managed  by  Gnostam  LLC  has  returned  a  total  8.4%%  to  February   29th  2012.    
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