Editor’s Note: Welcome to our weekly feature, Analyst Angle. We’ve collected a group of the industry’s leading analysts to give their outlook on the hot topics in the wireless industry.
When Apple launched the iPhone a little over a year ago, they disrupted the industry forever. Apple went beyond simply replacing the keyboard with a huge touch-screen display. They created a “fun” platform by utilizing an open operating system to deliver entertainment instead of just productivity applications. The user interface was cool, yet effective. Essentially, the smartphone was brought to the masses.
Smartphones go from wall street to main street
This is what opened the eyes of the real handset manufacturers. Nokia, Sony Ericsson, Samsung, and Motorola now know that there is a high margin business if you deliver the right product. One of the most interesting trends in handsets is that there is now a blurring of the lines between multimedia handsets and smart phones. “Smartphones” like Samsung’s Instinct, Nokia’s N70 and Apple’s iPhone are all loaded with multimedia features like high resolution image sensors, compelling displays, and superior music capabilities.
A smartphone is commonly defined as being an open platform handset that allows access to the OS for application development. However, the target market for these handsets has historically been business professionals. Now with smartphones adding a full complement of multimedia capabilities, the market has now split into two classes, with a new consumer-oriented segment emerging. Cleary, the up-coming tidal wave of “iPhone killers” such as Samsung’s Instinct, Nokia’s Tubes and the HTC’s G1 provides validation of this trend.
The boogey man cometh
An interesting byproduct of the iPhone and other open platform handsets is that they “encourage” unlimited data plans. The result is that the handset is transformed into an Internet access device. Essentially, MultiMedia Intelligence sees this as a disruptive business model to the status quo. We see the rise of a new class of mobile devices that are application-centric with voice functionality. These devices are first Internet browsers, music players, text messengers, and e-mail devices, with the bonus of being able to still make voice calls. Hence the introduction of the “unlimited” plans from providers like Sprint Nextel’s “Simply Everything Plan.” At the epicenter of these packages are the once ancillary features/functions outside of talk, although unlimited talk is included.
As more devices on the cellular network become Internet access devices, one question needs asking: what do we do with peer-to-peer file sharing? Our friends in the broadband space are struggling with it, and they have REALLY fat pipes. P2P Internet traffic (not mobile), despite having grown at a torrid pace for years, will grow almost 400% over the next 5 years. Growing from a level of 1.6 petabytes of Internet traffic per month in 2007, P2P Internet traffic will grow to almost 8 petabytes per month by 2012. P2P data currently represents 44% of all consumer traffic over the Internet and 33.6% in North America.
The problem is becoming increasing complex as all the traffic is not illicit. Although the base of legitimate P2P traffic is starting quite small, legitimate P2P traffic is expected to grow 10 times as fast as illicit P2P traffic (non mobile). Content owners will increasingly see P2P as a cost effective way to distribute digital entertainment services and content.
P2P in mobile
P2P has started to surface within the mobile world, with BitTorrent clients for mobile applications and sharing sites like PeerBox. As was true for broadband, the ability to use P2P for accessing and distributing content will grow with the increasing speed of mobile data services. While the primary motivating factors for higher bandwidth often arise out of the desire to enable more robust video services and Web-centric traffic, this higher bandwidth will also open the door further for P2P.
Additionally, as more smartphones infiltrate the market place, engendering a growth in the use of mobile data services, consumption of multimedia content, and connections beyond simple voice, P2P can and will start to play a more substantive role. As in the broadband market a significant segment of the P2P market will remain translucent to the consumer, working behind the scenes as it were, serving content and facilitating communications.
Fundamentally, the problem with P2P is that the cost of the distribution of content is pushed from the content provider to the operator, in the case of mobile. Clearly, P2P can be a nightmare for network operators, a nightmare of which they are seemingly aware. T-Mobile USA, in the pre-G1 roll-out campaign, instituted this disclosure in their general policy:
“To provide the best network experience for all of our customers we may temporarily reduce data throughput for a small fraction of customers who use a disproportionate amount of bandwidth. Your data session, plan, or service may be suspended, terminated, or restricted for significant roaming or if you use your service in a way that interferes with our network or ability to provide quality service to other users.”
Dealing with bandwidth caps in an “unlimited” data plan is hardly palatable for most consumers. T-Mobile USA, in fact, retracted the previous policy in their general policy. Dealing with unconstrained P2P traffic is definitely not palatable for network operators. However, rest assured, the P2P boogey man will rear its ugly head in the cellular world.
Bandwidth cap alternatives
There are alternatives to bandwidth caps. However, they are not without issues either.
One approach is to specifically target P2P traffic. This is the approach that Comcast initially used, drawing the ire of the FCC. The strategy used deep packet inspection technology from Sandvine to identify P2P traffic and manage its volume. Since the available bandwidth is asynchronous with the upstream being more constrained, this was the sole target for the traffic shaping strategy. In addition, Comcast only targeted unilateral upstream data flow. In other words, bidirectional data flow where the subscriber was actively participating in the “transaction” of data was not targeted. When a threshold was reached, the Sandvine unit issued instructions to “reset packets” which delayed unidirectional uploads for the specific P2P protocol in the geographic area managed by the Sandvine unit (Sandvine Policy Traffic Switch 8210).
A newer strategy does not target any particular protocol but rather sets two priority levels to target individuals using the most bandwidth. In essence, there are two main states: no congestion, where all subscribers are classified as Priority Best Effort (PBE), and near congestion/congestion, where consumers who exceed 70% of their provisioned bandwidth upstream or downstream will be reclassified as Best Effort (BE). Provisioned bandwidth is determined based on each respective subscriber’s service plans. Data points are taken every 15 minutes and reclassifications are made depending on changes to user behavior.
In effect, this strategy reduces the quality of service for those users engaging in high bandwidth activities, such as the downloading video. It is uncertain if the 70% threshold will necessarily hold, since cable broadband speeds vary depending on the usage of subscribers sharing the same pipe. During peak hours, a subscriber’s data speed could dip below the necessary 70% threshold – particularly if we consider streaming video at lower bitrates and the 50 megabits per second provisioned bandwidth. In addition, as video files grow in size (or bitrates increase for streaming), these individuals could find themselves reclassified as BE, when they are in fact engaging in actions well within the intentions of the broadband service. One could argue this is grounds to pay for a higher tier of service – or
reason to institute a content revenue share with the ISP.
Why buy when you can share?
Naturally a major concern with P2P speaks to an issue we raised in a previous Analyst Angle. That is, once the Web is fully open to the mobile handset, the file sharing problems that have plagued the music industry could move to the mobile handset. After all, the mantra of many digital music consumers seems to be, “Why buy when you can share?”
The piracy issue is much more devastating in the mobile world. Open Internet pipes enable sharing to go beyond MP3s to other forms of content. Ringtones have been a blessing for music companies. Although we are seeing marginal declines in ringtone sales in some markets, the sharing of ringtones could be devastating. The “DRM free” trend, one of the worst missteps in the history of the music industry, exacerbates the problem – although these seeds were sewn since a universal or interoperable DRM scheme was lacking. Beyond piracy, free Internet radio makes subscription downloadable music less compelling. In this new world, ringback tones are the last protected class.
