The rollout of 4G networks could dramatically change the market dynamics for the industry’s major operators. Spectrum, devices, timing and execution are all part of the equation.
The rollout of LTE networks this year will dramatically change the longterm competitive landscape for operators. Early movers could upset slower-moving incumbent operators; spectrum position will come into play; devices will need to be compatible with odd combinations of technology standards – and that’s just the beginning. Fourth-generation technology has the potential to both revolutionize people’s mobility and change the way operators do business.
“... 4G will significantly change the competitive landscape in wireless,” says Mike Sievert, chief commercial officer at Clearwire. “What we’re doing with this movement is bringing together the two biggest trends in the history of high tech: mobility and broadband Internet.”
Clearwire and Sprint are at the forefront of the move to 4G with a network deployment almost two years ahead of Verizon Wireless’ and MetroPCS’ planned LTE launches. The carrier debuted its mobile WiMAX service in Portland, Ore., last year and has built out its network to cover more than 30 million people in 25 markets. By year-end 2010, Clearwire hopes to cover 120 million people and plans to launch a 4G handset by late December.
“With each market, we’ve gotten more experience rolling out the network and dealing with the massive onslaught of demand. When you give people this kind of speed, they use it,” Sievert says.
Clearwire’s significant head start gives it an immediate advantage over Verizon Wireless and MetroPCS, which will deploy later this year, and AT&T, whose network deployment isn’t slated until 2011. Analysts say Clearwire and its majority owner Sprint could parlay this advantage into long-term success – if they’re careful.
“My observation is that Sprint basically has the next 18 months to quickly augment their coverage to be truly nationwide; and they have a limited opportunity to introduce 4G handsets that will work on 4G and roam onto 3G CDMA so there are continuous services; and they need to do it quickly,” says Yankee Group analyst Andy Castonguay. “They’re also going to have to be cognizant of price pressure if they hope to take away the addressable market of AT&T and Verizon.”
Because Sprint is going with WiMAX, it doesn’t stand to benefit from the same economies of scale that will be enjoyed by LTE backers like AT&T and Verizon.
Although WiMAX is ahead of LTE in terms of global deployments, the majority of those deployments are being done in rural areas with small operators. The vast majority of large, well-known legacy operators are going with LTE. Even though LTE networks have yet to be deployed en mass, handset manufacturers are tailoring their products for LTE, since the market for WiMAX devices appears to be limited in the long-term.
“There are very few handset manufacturers of significant brand that are planning any sizable amount of WiMAX production. There’s a challenge in convincing a brand name to support them,” Castonguay says. “The execution of that is going to mean very close coordination between Clearwire and its MSOs for a concerted and consolidated push to procure devices and get them out there in a cohesive way. Together they have enough buying power to make things interesting, but they’re going to have to do it in a coordinated fashion.”
Clearwire remains in a precarious financial position as it continues to build out its network and is largely dependent on the sizable support of its partners to stay afloat until its business is self-sustaining. Sprint continues to struggle with a shrinking subscriber base and worsening finances while AT&T and Verizon rake in massive profits and expand their ranks of customers.
Perhaps one of Clearwire’s most basic of challenges is brand recognition: Verizon Wireless and AT&T are household names, whereas Clearwire is a relative newcomer to the consumer consciousness. Back at Clearwire, Sievert admits that the company has some catching up to do but expects to benefit from its big-name resale partners.
“AT&T and Verizon are sizable companies with sizable brands… but we also have the power of other brands beyond just Clearwire,” Sievert says. “Our strategy is to be a network of networks, and our partners include giant companies like Time Warner and Comcast.”
Phil Marshall, chief research officer at Tolaga Research and former Yankee Group analyst, warns that other carriers will catch up fast to Sprint’s head-start advantage.
“Sprint, if you look at their strategy, is a little more speculative,” he says. Sprint and Clearwire also must juggle the complex and competing interests of their multiple investors and compile a rock star device ecosystem.
One problem Sprint and Clearwire don’t have – a problem that has vexed AT&T and threatens Verizon – is a shortage of capacity. Sprint and Clearwire are practically swimming in it.
Sprint and Clearwire’s substantial spectrum holdings are cited by many as one of the companies’ top advantages going forward. “They have an excellent overall load capacity,” Castonguay says. “In their spectrum position and with the right pricing, they could push more customers onto that network than the typical network.”
Sprint’s 2.56 GHz spectrum being used by Clearwire doesn’t have the reach of the 700 MHz spectrum that will be used by AT&T and Verizon for their respective LTE deployments. However, Sprint’s high spectrum position makes it ideally suited to handle the massive volumes of traffic generated by next-generation media applications. As a result, Sprint stands to benefit somewhat in dense urban areas where capacity will be more important than distance covered.
“Verizon has greater dispersion characteristics but because they have a comparatively limited amount of spectrum, they may or may not have less capacity per area than Clearwrie and Sprint have. The total load that they’ll be able to put on that will be better,” Castonguay says.
Verizon’s spectrum is still prime beachfront property, however, and the company will be able to get away with fewer cell sites to cover the same amount of area as Sprint and Clearwire.
“I don’t see any better way to do that than the 700 MHz spectrum,” says Nicki Palmer, Verizon Wireless vice president of networks. Verizon is set to deploy LTE in 25 to 30 different markets later this year. The carrier currently has trial markets in Boston and Seattle.
“We’re rolling out LTE to one-third of our covered population, so we’re going to have overlap with Clearwire and other carriers,” Palmer says. “I think we’re going to fare very well… and are positioned well for the future.”
LEGACY = HIGHER COSTS?
Although Verizon is going with LTE, a technology that will be more widely deployed than WiMAX and therefore provide better economies of scale, the carrier’s legacy network complicates matters a bit.
Verizon is building its LTE network alongside its existing CDMA infrastructure. Dualmode devices compatible with its CDMA network will be considerably more expensive to procure than GSM/LTE handsets because markedly fewer carriers need handsets compatible with both LTE and CDMA.
Essentially, the LTE devices made for Verizon will be different than the LTE devices made for the rest of the world. Because CDMA/LTE is a fairly unique combination, there likely will be a price premium on devices, particularly in the short term.
AT&T will be able to capitalize on the economics of its 3G network for some time to come. Third-generation devices are now shipping in big enough volumes to bring the prices down, and AT&T’s HSPA 7.2 network can be upgraded to provide downlink speeds of 14.0 Mbps. The carrier has decided not to further upgrade its network to HSPA+.
T-Mobile USA is going with HSPA+ upgrades, which can provide speeds almost approaching that of early LTE. T-Mobile's parent company, Deutsche Telekom, has been performing extensive LTE network tests in Europe.
Qualcomm estimates that HSPA+ R8 can reach 42 Mbps peak data rates in the downlink. Protocols defining HSPA+ R9 began in early 2009 and may expand HSPA+ multicarrier beyond 10 MHz deployments combined with MIMO (Multiple Input Multiple Output) to provide peak rates of 84 Mbps and more.
AT&T, which has received widespread complaints over its network performance, recently completed upgrading its network to HSPA 7.2 and has added in thousands of cell sites for additional backhaul. AT&T's network is burdened by heavy data users, most of whom use the iPhone.
"The player who is perhaps not doing too well today, but is positioning themselves the best for 4G, is AT&T," Marshall says. "First, AT&T doesn't have the CDMA legacy to deal with. They have embraced Wi-Fi [offloading] and by virtue of their fixed network footprint, they have the ability to bring mobile across a larger area of the country and possibly use it for backhaul."
While AT&T has not announced plans to further upgrade its 7.2 network to provide faster downlink speeds, doing so could buy some time and capacity before it deploys LTE. The carrier currently has plans to deploy 4G in 2011.
Not everyone is convinced the HSPA upgrades will be sufficient. "It seems AT&T looks to be in the worst position going forwards, though they're doing stuff to shore up HSPA 7.2," says ABI Research analyst Phil Solis.
Over time, Solis believes that subscribers may migrate away from networks with performance issues in favor of faster, next-generation networks.
Sprint's subscriber losses have an upside: Its declining user base has actually helped free up its network capacity. Unlike AT&T and Verizon, Sprint doesn't have the pressure of an overburdened network pushing them toward 4G. "We're interested in what Sprint will look like in four years," says ABI Research analyst Kevin Burden. "They could be in a better position for capacity than any other operator out there."
Solis agrees. "Sprint has been seeing better capacity and performance because they're losing subscribers, and as heavy data users switch over to WiMAX, their 3G network will get even better," he says.
Burden and Solis believe Sprint's combined 3G and 4G assets will begin to lure in subscribers who are beginning to base their buying not just on price but on devices and network performance as well. Over time, the two analysts say this nascent trend could lead to a major competitive upset.
How things will actually shake out is anybody's guess. With luck and careful planning, Solis and Burden believe Sprint and Clearwire could go from the back of the pack to the front. Marshall says AT&T will be the breakout winner, while Verizon stands to benefit from its head-start advantage over AT&T.
One thing is certain: The wireless industry is competitive and fast-moving, and that's unlikely to change in the near future.
|Operator Paths to 4G|
Clearwire: Since its Portland, Ore., debut in January 2009, the mobile WiMAX provider has built out its network to cover 30 million people in 25 markets. The operator plans to continue its ambitious network buildout this year, with the goal of covering 120 million people nationwide by year-end.
Verizon: Verizon Wireless plans to deploy LTE in 25 to 30 markets this year. Though the operator has not divulged which specific markets it will launch in, it currently has trial markets in Boston and Seattle. Verizon’s LTE deployment will happen very close to MetroPCS’ planned LTE launch. The carrier says it is currently reinforcing its backhaul systems to handle the increased traffic from 4G.
MetroPCS: The prepaid carrier says it will launch LTE in the second half of 2010 in unnamed markets it described as “major metropolitan areas.” In September 2009, the company selected Ericsson to provide the network infrastructure and Samsung to provide its initial LTE/CDMA handset.
AT&T: The nation’s secondlargest carrier has bulwarked its network with a series of HSPA 7.2 upgrades and is in the process of installing more backhaul connections over the course of 2010 and 2011. AT&T has already deployed backhaul in six U.S. cities. Ultimately, the company plans to deploy HSPA 7.2 in 25 of the nation’s 30 largest markets by the end of 2010, and to reach about 90 percent of its existing 3G network footprint with HSPA 7.2 by the end of 2011. AT&T plans to begin LTE trials this year as part of its effort to deploy 4G in 2011.
T-Mobile USA: T-Mobile says HSPA 7.2 is now enabled across its entire 3G network, and it will deploy HSPA+ services across the country by the end of this year. The company has not publicly committed to LTE or a timeframe for it, but it would be the logical path.