Editor’s Note: Welcome to a special CTIA Show Daily edition of our weekly online feature, Analyst Angle. Every Monday at www.RCRWirelessNews.com you can find columns from the industry’s leading analysts, including NPD Group’s Ross Rubin, Enderle Group’s Rob Enderle and more. Visit www.RCRWirelessNews.com/analyst for more Analyst Angle.
In case you hadn’t noticed, it’s become fashionable — at least among analysts — to question the value of 4G.
The issue isn’t whether or not 4G can live up to many of the ambitious performance claims that have been made about mobile WiMAX and LTE. The issue isn’t whether or not 4G will get rolled out in-line with the ambitious timeframes that have been suggested. The issue isn’t even whether or not we can call any technology “4G” absent any official definition. Each of these issues has some validity, but there is another that is more pressing in the minds of market observers.
The issue at hand is the 4G business model. And the argument is fairly easy to follow: Where operators haven’t yet turned 3G into a raging success, the logic of building out new 4G networks — networks promising a speed-boost over 3G, while taking away built-in voice support — simply isn’t there. Do you think that 3G has been a success? Consider that less than 10% of users on 3GPP networks are 3G users.
Need for more G
None of this, however, means that there is no real rationale for 4G. In fact — in a classic example of turning the analysis on its head — the failure of 3G to live up to its promise while delivering massive operator profits could be the greatest argument for moving on whatever you personally want to call 4G.
It all starts with a simple question: Why has 3G uptake been limited? You could blame a general lack of interest in mobile data. The broad acceptance of fixed-line data services and the unqualified success of Apple Inc.’s iPhone in driving data usage would suggest you’re wrong. Speaking of the iPhone, you could blame a lack of compelling devices. This might be closer to the truth. Yet, prosumer devices have put 3G into the hands of more and more people and we all know people who have 3G phones but never actually use 3G services.
So then, is coverage to blame? For some users, sure; 3G coverage still trails 2G by a decent margin in many markets. Yet, this doesn’t explain limited uptake in metro areas where 3G coverage has been in place for years.
Of course, you could blame costs. And you’d have a lot of people on your side.
But before we place too much fault at the feet of mobile operators, consider the food chain. High-cost spectrum — a result of insane auction bidding — drives up service costs as operators look to break even on expenses. High-cost network gear — a result of proprietary platforms as well as site and RF inefficiencies — further drives up services costs. Further conspiring against inexpensive services is 3G spectral efficiency, putting a cap on the number of users that can be delivered a “quality” experience. And, while I’m no device expert, I know that operators and vendors too blame high-cost intellectual property rights for driving up device costs, though scale can just as easily be blamed since devices designed for compelling mobile broadband experiences (big screens, high-resolution, touch) have been slow to emerge.
4G to the rescue
How, you might ask, does 4G solve any of this?
Just to get it out of the way, let’s start with how it won’t help. 4G won’t make spectrum any cheaper and it won’t make the basic building blocks of base stations or core network gear any cheaper. Earlier suggestions that WiMAX base stations would be a fraction the cost of 3G base stations were either misinformed or misinterpreted.
On the whole, however, 4G should allow for cheaper wireless networks and services and devices. How?
Where 4G is more spectrally efficient than 3G (thanks to the magic of OFDM and/or MIMO), more users can be packed into spectrum and network assets, driving down service costs. Where organizations such as the WiMAX Forum and NGMN have brought 4G stakeholders to the table to agree on some basic IPR policies, device costs should be impacted. Where the market has finally gotten around to developing devices suitable for delivering the mobile Internet, 4G should benefit from a broader supply of cheap, useful devices.
This last point doesn’t relate only to 4G; device scale deriving from advanced 3G products will develop independent of any larger 4G movement. And that may point to the biggest argument in favor of 4G: The market is simply conspiring to make it happen.
Regardless of 4G, network-equipment costs (capex and opex) are coming down thanks to platform reuse and technologies such as remote radio heads. Spectrum, likewise, may not be getting any cheaper, but as operators begin to re-farm their 2G resources they will get ready access to “new” spectrum resources. As operators gain access to new spectrum (either re-farmed or through auctions) what technologies will they look to deploy? 3G or 4G? If they have faith in vendors being able to make it work, 4G is the obvious choice given the efficiency benefits and investment-protection of cutting-edge technologies — particularly if they’re looking to compete in markets where 3G or 3G+ (HSPA+, EV-DO Revision B) services have been launched. And, the operators running those 3G/3G+ networks? They’ll obviously be looking to 4G as a way to keep up with 4G competitors.
It just makes sense
Nobody would argue that 4G makes sense in the near-term in every market on earth. And, to be fair, if you consider all the people who simply use mobile devices as phones, 4G may not seem to make sense at all. Mobile broadband usage, however, is bound to remain limited until service pricing comes down. And, though 3G tariffs will doubtless decline over time, it will be much more profitable for operators to support massive wireless data usage and compelling multimedia applications with more efficient and cost effective 4G solutions. To that end, 4G is going to happen. Decrying it as a technological distraction is simply to avoid getting a heads up and early insights into the inevitable.
Peter Jarich is principal analyst on wireless infrastructure at Current Analysis Inc. Questions or comments about this column? Please e-mail Peter at pjarich@currentanalysis.com or RCR Wireless News at rcrwebhelp@crain.com.
