The following was originally published on September 5, 2017 as an analyst angle piece at RCR Wireless News:
Mobile operators have reached a critical juncture. According to CTIA – The Wireless Association, there are 396 million devices connected to mobile networks in the U.S. Nearly everyone has mobile phones (about 80% smartphones), the percentage of wireless-only households has surpassed 50%, and mobile operators are adding more “things” (such as tablets, cars, and machines) to their networks.
If mobile operators expect another decade of vigorous growth, then they must look beyond phones. They must also choose carefully: The wrong decision could lead to stagnation and decline.
The two biggest growth opportunities are the internet of Things (IoT) and internet and TV to the home.
Beware of the internet of things hype. I first wrote about this in 2004. That year, industry analysts predicted that tens of billions of things would be connected to the internet within five years. It didn’t happen. More than a dozen years later, they are still saying that tens of billions of things will be connected to the internet in five years.
Don’t get me wrong. The internet of Things is a huge opportunity. Actually, IoT is many opportunities – and that is part of the problem. There are dozens of market segments, each developing at its own pace. Some are best served by wide area networks, but many are best served by local area networks. And while many families are willing to add their automobiles to shared data plans, few enterprises are going to spend $30 per month on individual sensors.
The FCC’s 2016 Wireless Competition Report estimates that mobile operators in the U.S. are adding about 2 million IoT devices to their networks every quarter. Even if we assume that operators worldwide are adding 20 million IoT devices to their networks every quarter, it will take ten years just to reach one billion connected devices. Until the rate at which IoT devices are added accelerates, mobile operators can’t expect much revenue growth from the internet of things.
What about the other major opportunity: broadband services to the home? Up until now, it hasn’t been practical for mobile operators to compete with cable, wireline, and satellite operators providing TV and internet services to the home. The average home consumes nearly 200 gigabytes of internet data per month and an even larger quantity of high-definition TV. That’s way more than the average mobile user consumes.
Though 4G networks boast speeds up to 1 Gbps, they don’t have the capacity to provide internet and TV services to homes. The “unlimited” video plans that mobile operators tout really aren’t unlimited. Once the subscriber consumes about 20 gigabytes for the month, their download speed is reduced. And this is despite the fact that it takes less data to fill the smaller screens on smartphones and tablets.
5G wireless could be a giant step forward. According to a report by Rysavy Research, by using millimeter wave spectrum, small cells, and higher spectral efficiency, mobile networks will leapfrog cable networks, delivering up to 100 times greater capacity. Factor in other wireless benefits, and you have a very different competitive environment. While cable operators must build networks that run past each home they wish to serve, wireless operators need to get within radio range – about 200 meters. Wireless operators can bundle mobile and home broadband services. Keep in mind that the average household spends over $100 per month for internet and TV.
The breakthrough is the use of an expansive millimeter wave spectrum. At the start of 2016, there was a total of about 750 megahertz of spectrum available to mobile phone operators in the U.S. Then, last summer, the FCC allocated 3.85 gigahertz of spectrum in the 20 and 30 GHz bands for 5G. That’s a 500% increase in spectrum.
Why wasn’t millimeter wave spectrum exploited earlier? Signals at such high frequencies don’t travel as far and are blocked by physical objects. However, antennas at those frequencies are also smaller, so building sophisticated antenna arrays that overcome the propagation challenges by creating steerable beams is practical. Field trials by AT&T and Verizon suggest that millimeter wave coverage is good provided that operators employ closely-spaced cells. (Perhaps that’s why AT&T and Verizon have spent $billions acquiring millimeter wave spectrum rights.)
Using 5G to provide internet and TV to the home involves a number of challenges. Local governments must approve small cell siting requests in a timely manner. Millimeter wave base station equipment must be made smaller and more power efficient. Customer equipment must be developed that the average homeowner can self-install. And it will take years and tens of billions of dollars to deploy hundreds of thousands of small cells.
Cable operators say there is no need to panic. Cable has its own upgrade paths, such as extending fiber deeper into networks and even using millimeter wave radio to connect to homes. Still, cable operators could find mobile operators are the most formidable competitors they have ever encountered.
5G network slicing ensures that mobile operators can pursue both the internet of things and broadband to the home. However, broadband is the more lucrative, immediate, and specific opportunity. Pursuing it will be very expensive, but mobile operators have everything riding on this bet.
Ira Brodsky is Senior Industry Analyst at Datacomm Research.