LTE North America 2012: Tinder Box Market Ripe for a Firestorm of Disruption

LTE North America ran from 13-15 Nov in Dallas.  There was a record 1000 delegates at the show, with 60 unique carriers in attendance from small local rural players such as the Texas-based ZIPnet US, to regionals such as MetroPCS, and of course, the duopoly of AT&T and Verizon.  North America is a unique market with the highest ARPU (Average Revenue per User) of most developed markets and still demonstrating strong revenue growth.  Just taking Verizon as an example, their 2012 Q3 revenue was $29B, up 4% year on year, with an EBITDA of 35%.  With an ARPA (Average Revenue per Account) of $145 for wireless and a similar amount for their fixed FiOS customers.  As a comparison point, in the UK the typical mobile ARPU is about $25.  There isn’t an operator in the world that isn’t envious of AT&T and Verizon’s position.  The use of buckets of minutes and text in conjunction with punitive overage charges keeps customers buying bundles of text and minutes they do not use as well as selling pricey data plans ($20 for 200MB).  Given the weak regulation and relative isolation of the US market this fortunate situation has continued for some time.  But this does create conditions for disruption, as we see Dish, Clearwire and Google trying to find ways to shake things up.

I remain perplexed at the constant reference to OTT (Over The Top) providers as parasites.  In the US they’re driving customers to buy data plans while customers still pay for voice and messaging.  If anything the telcos should be thanking the OTT providers for encouraging customers to buy increasingly large (more expensive) data plans.  A common suggestion which has been made for nearly a decade is operators should strike deals with leading content providers such as Google (YouTube) to offer customers the chance to pay a few extra dollars to get a stream with a guaranteed higher QoS (Quality of Service). Given the decade over which this has been mentioned it should be taken as an indication that an agreement cannot be reached.  Firstly, there is a large difference in price points between the 2 parties, as customers are generally NOT prepared to pay a couple of extra dollars for guaranteed QoS as the service works most of the time.  Also a couple of extra dollars is a 25% price hike on a service like Netflix and an infinite hike on services like YouTube.  It also ignores the fact there is a Content Delivery Network in the middle, which will happily site their servers deep in the telco network to save them core network expense, interconnect traffic and also improve the quality of the service.  So let’s stop the wishful thinking on taxing the economy of free, and instead focus on segments what are willing to pay, more on this later..

AT&T observed that presence was the new dial tone, I think that statement is at least 20 years old, with knowing the status of a user and what services were available to connect with them as the mark of a useful network. He also noted that standard applications were incredibly inefficient when it comes to signaling and that networks could use their knowledge of user behavior to reduce signaling across the core network by as much as 95 per cent. This could come through using RCS (Rich Communication Suite) services and employing smart algorithms that are aware of with whom a user most frequently communicates. He said that research has shown that if a user has 150 social connections on average most of these are weak ties and that 80-90 per cent of communication is between 2-6 people. In addition usage was ‘diurnal’ – a pattern of frequent usage during the day, giving a lot of scope for signaling optimization.  Engineers love presence and availability management for all the complexity and configuration that is possible.  While customers simply what things to work.  Take the typical Skype interaction, you IM “can we talk?” the response is “can I call you in 10?” you reply “sure” and hence the standard escalation to a call occurs.  Simply we cannot be bothered with all the sophisticated configuration of presence and availability management – it just needs to work.  The fact an expensive core network is involved in a presence updates shows we’re not engineering networks correctly, but more on that later…

Another comment was “We’re building a network and they (OTTs) take advantage of it!”  No you’re delivering only an internet access service to customers because your portals became irrelevant.  We’re now entering a phase where to deliver services you must give world-class experiences.  Strategically this is a critical point for the telecom industry, has the gap between the complexity of running the network and delivering world class
services become too large?  An ecosystem approach is required, thought it was very telling after the panel on the second day when about one third of the audience walked out as the Google presenter was about to speak.  It looked like we prefer to keep things insular.

I show below some slides from the conference that capture some of the highlights / themes being discussed.

  • Managing Interference and Handover Between Macro and Small Cells, Ahmad Armand, Ph.D., Staff Vice President, CTO Office
    • Reviews some of the Heterogeneous Network deployment challenges, a common theme through the conference.  HetNets have some way to go in achieving full mobility.  Its impact on the customer may be quite small given they happily use HetNets today with no operator intervention, so its really an operator issue.  Which given the cost/complexity is delaying many operators or limiting the application to solving city business district hot-spot issues.
  • Creating an Appropriate WiFi Offload Framework to Address Capacity Shortfalls and Ensure Seamless Connectivity, Ahmed Bencheikh, VP, Wireless Engineering & Technology Development, Time Warner Cable Inc.
    • Review of TWC’s role in providing small cell WiFi coverage over their cable access network.  Showing how WiFi will start to appear outdoors.
  • Rating Engine (3G/4G): Creating Winning Offers for MVNO Subscribers, Antonio Mendoza
    • The MVNO Summit that ran in parallel felt much more customer focused, and LATAM (Latin America) appears to have lots of opportunities across all customer segments compared to the US where the focus is the unbanked customers the incumbents do not want to target.
  • LTE Roaming Bands
    • Given the LTE band diversity, 800MHz and 2600MHz are likely to emerge as the ‘international’ roaming bands for North American (mainly US) handsets.
  • 4k Video is here!
    • Sony shows how video will continue to gobble up capacity.
  • Humanity and MVNOs: The Importance of Money Money.  David Glickman, Ultra Mobile
    • I remain circumspect on the scope of most operators current attempts to move beyond simply being a payment option for mobile content stores their customers use, but Ultra Mobile shows how to deliver a much more compelling and customer relevant offer using technology that works today, and no mention of NFC.
  • Does LTE Itself Necessarily Create Increased Revenue?  Creating a Tangible Business Case, Gennady Sirota, VP MITG, Cisco Systems
    • I include this to highlight the misconceptions out there as the “marketing echo-chamber” encourages weak or incorrect ideas to be repeated all too often.
  • A few slides on the Diameter signaling mess – have the standards bodies got it wrong?
    • On chatty devices and the video explosion the mobile guys should go and talk to the fixed ISPs they’ve been managing with this for much longer.
  • Improving customer experience using rich communication services, Solyman Ashrafi, Vice President, Product Management
    • I include this to highlight the challenge RCS is facing, with the lack of focus on the real-world customer adoption issues.  RCS must work across all operators in a country, it must not be promoted until all operators are doing it, and we must obsess on the UI/UE (User Interface / User Experience).  Most device manufacturers do not care about the RCS UI, its is way down their priorities.  Telcos are not focused on the complete user experience, rather hoping a good enough UI and partial interoperability will be enough for consumers – it will not!

Some final thoughts:

  • Enterprise mobilization: with 4G the mobile network is now adequate for corporate applications.  With 3G is was OK but congestion made if a real pain to work outside of a real fixed broadband connection.  And enterprise customers will pay for QoS, not an OTT video provider running on the economy of free that’s already paid its CDN provider.
  • Mobile guys need to talk to the fixed guys, do not write off their architecture because its not mobile.  Offer data connectivity that ‘homes’ to a basestation not roams, many times I lose data connection anyway so data roaming feels more like data tethering.
  • Diameter signaling is a mess, chatty devices and the video explosion are NOT new, talk to the fixed guys. Why aren’t we sacking the standards guys that created this mess?
  • RCS: we’re not tackling the real issues rather focused on the geeky engineering stuff which should be left to 5 good people, not rooms full of standards people.
    • We need to obsess about the complete user experience, not just what’s on the device but how customers first become aware of the capabilities; and please drop the messy Joyn logo it adds no value just confuses the customer.
  • A big mistake is for the operator to pay for their employees’ mobile services, if the people at the conference had to pay their own mobile bills they would have a much different view on the what consumers think.
    • When I explain the frustration on being triple billed for data in one month, people look at me blankly.  If they’d experienced it and then say couldn’t afford to pay for a meal out that weekend with their family they would have a much better appreciation of what consumers are facing and the relevancy risk operators are facing in creating a “tinder box market ripe for a firestorm” of disruption.