Telecoms & Broadband Business Newsletter - June 2013

Editorial - Will LTE steal the broadband revolution?

There is no doubt that LTE is going to take a prime position in broadband developments. With competitively priced services, innovative smartphones and an increasing range of very innovative apps this market is set to continue to boom. So how will all this impact the overall broadband market?

First of all, this is not an ‘us or them’ issue between fixed and mobile broadband. As a matter of fact the companies that are rolling out LTE are increasingly dependent on deep fibre rollouts as they need to handle massive amounts of data, to which the mobile infrastructure technology is not well-suited. So the quicker they can offload their mobile traffic onto a fixed network the better. As we have said before, one of the key drivers of fibre deployment will be the growth in mobile broadband.

A similar situation will occur in the home. More and more, people are using their mobile devices rather than PCs and laptops; and more people within the home are using more and different mobile devices, so this will significantly increase the need for capacity within the home. The reality of mobile broadband is that 60%-80% of capacity usage of smartphone and tablet use is in the home, and these devices are all connected to the fixed network through the WiFi modem. People are becoming accustomed to the quality of the LTE network, so they will want a similar quality of service over the fixed network; and over the next 3-5 years the current network will start to run out of steam. And, with at least one-third of all fixed broadband connections being of such an inferior quality, these households are already facing these quality problems now.

So, while access to the internet and broadband is moving quickly towards smartphones and tablets as the preferred access devices, at the same time the majority of broadband capacity required through these devices will still need to be provided by the fixed network.

While the capacity of the mobile network is greatly improved by LTE – as well as by the upcoming extra capacity through new spectrum allocation – the physics of mobile technology is such that it will be impossible to handle all the traffic of these mobile devices over the mobile network.

Obviously the mobile operators are not sitting still. They are improving their network infrastructure in order to capture as much of the traffic as possible, and increasingly they are looking at WiFi technologies as another alternative to off-load traffic and/or add extra access points for users in high traffic areas such as shopping centres, entertainment venues, transport stations, etc. But again these WiFi access points need to be connected to the fixed network, and in the case of WiFi access points you virtually need fibre-to-the premise/business to be it of any use.

So, while LTE will greatly increase the use of broadband and broadband applications, this will at the same time put increased pressure on the fixed network.

On the end-user side of the fixed broadband market – we don’t have the same dynamics as in the mobile market. Few, if any, fixed network devices capture the users’ attention in the way the new smartphones do. Also, there is a clear lack of exciting fixed broadband applications. Entertainment is largely captured by content providers who want to protect their existing business models, and applications in healthcare, education, energy, etc are going to take a long time to reach maturity and mass market penetration levels. So all attention is clearly on mobile and this is creating a skewed perspective on what is needed overall to ensure that these mobile developments can be used to their full potential.

The developments in mobile and LTE will generally stimulate the need for better fixed networks, but at the same time there will be a significant group of users who – at this point in time – do not have high capacity requirements, and for whom a $30 or $40 monthly mobile connection will cater for all their comms needs. This group will actually lead to stagnation, and even a decline, in fixed broadband connections. We already see this happening in the Hong Kong market. The situation will only be exacerbated if LTE becomes available in areas that have very poor fixed broadband coverage. BuddeComm estimates that up to 25% of users could simply abandon their unsatisfactory fixed broadband connection in favour of LTE. Most will eventually re-connect in 3-5 years’ time, but only when important applications are becoming available over the fixed network.

These short-term developments could be interpreted by some who don’t have a good understanding of the total picture as an indication that fixed broadband is not needed, and this could potentially undermine the build-out of the fixed broadband networks that are so desperately needed for the longer-term social and economic developments in the country.

If we look at the very latest smartphone devices (eg GalaxyS4) we see an increase in what is called machine-to-machine (M2M) or Internet of Things (IoT) applications, often linked to location-based services (LBS). What happens behind the scenes of these applications is that they gather data often from a variety of sources and process that information in real time, giving users interesting services in relation to healthcare, sport achievement, calorie intake, weather transport and traffic information and so on.

It is these M2M and IoT applications that are finally going to stimulate the sort of killer apps that are needed to drag some of the lagging sectors into the digital age – such as healthcare, education, utilities, government and business, who are at present trying to limit the impact of the digital economy, rather than embracing it. This, in turn, will start stimulating the sort of applications that require the capacity, robustness and security that can only be delivered by fibre optic networks.

All of this will come together in 5 to 10 years’ time when the requirements from the mobile-based developments, the rapid growth of M2M applications, and the somewhat slower growth from the requirements following the industry and sector transformations, combined, make the need for a fibre-based infrastructure essential for the economic development and social wellbeing of any developed economy.

What is required from business leaders and politicians is that they recognise this need and start planning for it from the earliest possible opportunity. Doing this on the run is not the ideal way to make infrastructure investments that will have to last for 25-50 years.

Paul Budde