The push to LTE is having a marked impact on rural carriers that have to this point been able to remain relatively competitive in the market due to their 2G and 3G networks. However, with LTE, rural carriers have to decide how they want to proceed into what is an entirely new network technology.
One trend pushing carriers towards LTE is the growing consumer demand for smartphones and the accompanying desire to stream video content over those devices. While years ago, carriers seemed most afraid of the damage that could be done to the integrity of their networks by personal computers linked through wireless modems, the consumer electronics phenomenon that is the smartphone has carriers shaking in their 3G boots.
A recent Ovum report noted that revenues generated by smartphones using mobile broadband services will increase from 78% of total mobile broadband revenues in 2012 to 85% by 2017, with connections to mobile broadband networks through a smartphone increasing from 89% this year to 92% by 2017.
The move to more efficient mobile broadband services is also being hastened by the incredible marketing push from larger operators that have engrained the notion that customers need “4G” services. This move began several years ago when Sprint Nextel began promoting its WiMAX-based service running across Clearwire’s network using the “4G” tag. It seemed you could not talk with anyone from Sprint Nextel on any topic without having the term “4G” thrown about, despite the fact the version of WiMAX being offered by the carrier did not officially conform to “4G” standards set by the International Telecommunications Union.
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Legit or not, Sprint Nextel’s brazen leadership in the “4G” space lit a fire under its rivals who have rapidly begun to expand their high-speed data offerings. Verizon Wireless has been the most aggressive, having launched LTE services in late 2010, with plans for near-network wide coverage by the end of 2013. AT&T Mobility initially relied on upgrades to its HSPA-based network in order to compete in the “4G” marketing wars, before finally beginning to rollout LTE services this year. Sprint Nextel took a more convoluted path to LTE, having finally ditched its WiMAX plans linked to Clearwire for its own LTE plans that launched this summer. T-Mobile USA continues to rely on its HSPA+ network to bolster its “4G” marketing claims, though the carrier recently announced a network overhaul that will see it begin rolling out LTE beginning in 2013.
Another reason rural carriers are eager to move towards LTE is the inherent cost and spectrum efficiencies embedded in the new technology. Macquarie Equities Research released a report this summer noting that the cost to deliver a bit of data over an LTE network was roughly 66% cheaper than delivering that same bit over a 3G-based network. The firm claims that in talking with carriers and vendors, the cost in capital expenditures and operating expenditures to deliver 1 gigabyte of data over LTE is roughly $3.20, while delivering 1 GB over 3G is $9.39.
This news would seem to indicate that carriers should continue striving to load up their device portfolios with LTE-enabled devices and continue to furiously build out LTE coverage so as to get as many consumers as possible off of legacy 3G networks. Carriers have already begun to move in this direction as investments in 3G networks are being diminished in order to support LTE expansion, while smartphone prices across LTE-enabled and 3G-only smartphones has remained tight despite the expected increased costs associated with LTE chipsets.
The ability to move consumers to LTE-equipped devices also received a boost this month as Apple announced LTE compatibility in its latest iPhone 5 device. Along with the device unveiling, Apple announced that Verizon Wireless, AT&T Mobility and Sprint Nextel would be involved with the initial launch plans. However, smaller operators were not left out as a handful of carriers, including Leap Wireless and C Spire, said they would begin offering the device by the end of September.
Sara Kaufman, analyst of telecom strategies at Ovum, noted that this competitive pressure is forcing smaller carriers to make a decision on next-generation network plans at a far faster pace than they are used to, which could further muddle the decision-making process.
Rural options
One positive for smaller carriers looking to get into the “4G” space is that there a number of options, however, most of those come with a significant risk.
The most direct option is for rural carriers to launch their own network using their own spectrum and network infrastructure. This option has been used by a number of smaller carriers, including MetroPCS, Leap Wireless, C Spire, U.S. Cellular and others.
For those with the means – and that means both spectrum and money – this option would seem be the most direct as the carrier remains in control of the whole operation. This allows direct control over network resources and the ability to recoup full compensation from customers.
However, taking full control over a network deployment also comes with significant upfront costs associated with securing spectrum, lining up vendors for both equipment and devices, and then marketing those services in the jungle that is the telecom space.
Even if a carrier does manage to roll out an LTE network under its own power, consumer demand for nationwide coverage will force that carrier to eventually have to look towards competitors to provide that offering. For the most part, that nationwide footprint is limited to a handful of larger rivals, which have a stranglehold on roaming services.
Roam, if you want to
This leads to an alternative approach of forming a roaming partnership with a major network operator. This method has been used for 3G services by a number of carriers, allowing them to offer customers nationwide services. Most recently, Leap Wireless struck a deal with Sprint Nextel to allow for not only Leap’s Cricket customers to use their flat-rate, unlimited services when roaming outside of Leap’s native network, but also allowed Leap to market and sell its Cricket-branded services in markets where it did not have its own network.
Leap has also aggressively followed this model for LTE services, having initially signed a deal with LightSquared to offer nationwide services. That deal looked to have fallen apart earlier this year when LightSquared was unable to gain access to its spectrum assets due to interference concerns with some ground-based GPS services. That seemed just a blip on the radar for Leap, which then turned around and struck a similar agreement with Clearwire.
In the “4G” space, this move could enable a rural carrier to take its time in building out its own service as it could rely on its roaming partner to provide coverage until the smaller player gets its network built. This option has been a bone of contention for many larger carriers that opposed a 2010 Federal Communication Commission ruling requiring support for so-called in-market roaming, with those larger carriers saying the move only serves to delay the build out of spectrum licenses by smaller carriers.
“By eliminating the exclusion, the order encourages carriers of all sizes to reach commercially reasonable voice roaming agreements, and promotes competition, fosters innovation and empowers consumers, while creating a fair process for the commission to handle disputes that may arise in an expedited and equitable manner,” the FCC said in its decision, adding: “The commission will address any disputes on a case-by-case basis, taking into consideration the totality of the circumstances presented to determine whether requiring a roaming agreement would best further the public interest goals.”
Allies in arms
Another alternative for carriers looking to deploy “4G” services is to partner with fellow rural carriers either directly or through an alliance. This option has typically been bolstered by the formation of various collectives that attempt to attract rural carriers to combine their resources for greater buying power on equipment and to establish reciprocal roaming agreements to enhance coverage.
Companies that have looked towards supporting this model include the likes of NetAmerica and Globecomm.
NetAmerica last year unveiled plans for rural wireless operators to pool the resources of 700 MHz license owners into a larger collective able to generate better pricing on equipment. In addition, NetAmerica also offered to own and operate the core of an LTE network for clients, which would allow them to focus on the actual network infrastructure components.
The company announced this week that member partner Guymon, Okla.-based Panhandle Telephone Cooperative was set to launch LTE services by the end of March. Panhandle currently owns spectrum covering six counties in Oklahoma that are home to more than 45,000 people. The carrier’s network includes 45 towers covering 5,000 square miles and is connected to NetAmerica’s SuperCenter core. The NetAmerica equipment was provided by Ericsson and is designed to provide the tools and infrastructure platform necessary for carriers to house their converged wireline and wireless services.
NetAmerica member Peoples Telephone Cooperative began offering services last month in parts of Texas using its 700 MHz spectrum assets. The carrier’s move to LTE also involved replacing its legacy WiMAX-powered network.
Brett Calder, director of North American wireless operations at Globecomm, explained that these forms of alliances help smaller carriers that often find it difficult to nail down the resources they need at a cost they can afford.
“They realize they can’t do it all themselves, especially with LTE,” Calder explained. “There are various models to participate in and no doubt that there is more acceptance in working together. However, there is still a lot of skepticism as to whether they can make money regardless of their implementation plan.”
Keep you friends close …
A more controversial option for carriers is to form a tighter partnership with a larger, nationwide operator. This form of relationship has been highlighted by Verizon Wireless’ LTE in Rural America program, which was initiated in 2010.
The program calls for Verizon Wireless to lease all 22 megahertz upper C-Block, 700 MHz spectrum it controls to the rural operator until at least 2029. Those rural operators are then charged with building out the physical network that can then have back-end services run through Verizon Wireless’ switches.
In return for building out the network, Verizon Wireless has agreed to not build out its own network in those markets and will rely on the rural operator to provide roaming services for Verizon Wireless customers, and in turn to provide nationwide LTE roaming to the rural operators. The agreement is similar to the affiliate program used by Sprint to build out its PCS network in the late 1990s, which in the end resulted in Sprint having to acquire most of those affiliates due to competitive clauses in their contracts following Sprint’s $35 billion acquisition of Nextel Communications in 2004.
Verizon Wireless’ LTE in Rural America program has garnered strong reaction from both sides as proponents of the offering, including those carriers that have signed up for the program, claim it allows them to move quickly to market with a robust 4G offering, something that as rural carriers they have never been able to do in the past.
However, many also continue to look skeptically at the program as Verizon Wireless has also been pushing a so-called 700 MHz “band plan” that does not require device and equipment makers to supply products that include all of the different 700 MHz spectrum bands auctioned by the government, including those that were acquired by rural operators. This has left many, including CCA, arguing that equipment makers will bypass building products that support all the 700 MHz spectrum bands and this limit interoperability.
Verizon Wireless has stated that equipment makers only needed to support its band 13, while AT&T Mobility is pushing only for support of its band 17 in the 700 MHz band. These were supported by the 3GPP that did require standards for interoperability between the different bands.
Verizon Wireless noted that a pair of carriers have already launched commercial services through the program – Cellcom in Wisconsin and Pioneer Cellular in Oklahoma – with six more carriers expected to offer services by the end of the year and nine additional carriers signed on for 2013. Verizon Wireless noted it has signed agreements covering more than 2.7 million potential customers across 14 states.
End game
While the number of options open to rural carriers is vast and varied, they all have issues and obstacles that could prove too much for some operators to handle. In those instances, the best move could be to just cash out. Unlike previous network evolutions, moving to “4G” is a significant investment at a time when smaller carriers are already struggling to put together business models for their legacy operations. For those, the “4G” decision could be that one move too far.
Larger carriers are on a continuous hunt for spectrum assets, and the money they are willing to throw around to get their hands on those precious airwaves could be an end-game alternative for some operators.
“The move to ‘4G’ will indeed be tough on a number of carriers,” explained Ovum’s Kaufman. “This could be a ‘make or break’ time for some operators.”
While the number of options are many, Kaufman noted that one thing rural carriers can’t afford to do is to wait much longer on deciding how to pursue the “4G” space. Each possibility has various obstacles that can make it difficult for operators to pursue, but with many of those issues not expected to be resolved for at least a year, rural carriers will have to figure out which plan fits their needs.
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