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.
Almost every presentation at the conferences this year includes the “tsunami chart.” You know the one: It shows growth of mobile data demand, doubling every year. It’s great to have such tremendous demand for mobile services, and it’s a good sign of health in our industry.
But there is a disconnect here. All of the recent announcements from Ericsson, Huawei, Nokia Siemens, Alcatel-Lucent and ZTE indicate that base station shipments and radio shipments have dropped for the last 18 months. In fact, Mobile Experts has collected shipment data from multiple suppliers in the base station market, indicating that 2012 will see 12% fewer RF transceiver shipments than 2011. The last two months have been better, but something is wrong in the base station market. What’s going on here?
In recent announcements, the OEMs have explained their reduced shipments with a string of reasons:
–CDMA deployment has dropped in the United States.
–European capital spending has been affected by the debt crisis.
–The AT&T/T-Mobile USA merger delayed capital spending in North America.
–LTE spectrum delays have pushed out deployment all over the world.
Of course, all of these are valid reasons for the drop in base station shipments during the past 18 months. But none of these fully explain the disconnect between the “tsunami” of demand and weak investment in capacity.
There’s a larger shift taking place. The distributed antenna systems market grew by more than 15% over the past 12 months, while the base station market was shrinking. Carrier Wi-Fi business is taking shape. Small cell deployments will grow 67% this year, and will reach about 3.6 million units during 2012.
The good old days of “tower and power” are over. It’s no longer beneficial to blast a 200-watt signal to get coverage everywhere. It’s more important to add capacity to 3G and LTE networks in the cities, where voice coverage is okay but capacity is constrained.
How to add capacity? Imagine doubling the number of macro sites every year, to keep up with data demand … of course the thought is ridiculous. Instead, operators are turning to small cells, DAS and Wi-Fi. We know that 75% of data traffic comes from indoor locations already, so it’s natural to put the capacity closer to the users and take advantage of the higher data rates that are possible with in-building capacity.
The issue is that macro base station investment has ramped down without an equivalent rise in small cell, DAS and Wi-Fi investment. We would like the $1 billion to $2 billion shortfall in capital expenditures during 2012 to be redirected to small cell deployment, but for now spending has simply slowed down for infrastructure. In fact, a shift in deployment is taking place, with consumer femtocells growing along with the decline in base stations. Unfortunately, the initial small cell deployments involve consumer femtocells costing only $100 to $200, so the money coming from small cells cannot offset the huge loss of revenue in the base station market.
Mobile Experts predicts that the capital spending will shift to carrier-grade solutions, including high-capacity small cells, Carrier Wi-Fi and DAS. In some cases, such as DAS, the products are available now. In other cases, such as carrier-grade femtocells with integral Wi-Fi, the products are not available yet. High-capacity chipsets have been developed and initial products are in trials, but the software is not ready for the big dance. For capacity solutions, we still need another 12 to 18 months of field experience with various small cells to work out handovers, network coordination, self-optimization and other key features for large-scale deployment.
Meanwhile, the pressure is building. Mobile data traffic continues to double every year, and in fact some urban centers hit 100% capacity limits during the busy hours every day. Currently, it’s a few base stations that have problems for one to two hours per day, only in very dense cities. One or two years from now we may find that the demand for data exceeds capacity limits for several hours per day, in entire city districts.
Mobile Experts believes that during the 2014 timeframe, consumers will notice a lack of capacity in widespread locations and the complaints will begin. Mobile operators will be forced to react quickly … and will turn to small cells in 3G and LTE to add capacity throughout wide urban and some suburban markets. In our recent “Small Cells” forecast, we predict growth to more than 9 million carrier-grade capacity small cells during 2017.
As time goes by, we become increasingly convinced that carrier-grade small cells will be the preferred approach. Look at the alternatives:
–Operators like Softbank in Japan have tested the limits of dense Wi-Fi deployment with over 250,000 access points. Based on their inputs, it’s clear that less than 25% of mobile data traffic can be offloaded to Wi-Fi in the long term.
–Most major operators will be refitting and re-farming existing sites for LTE, but so far this process has involved primarily urban deployments, which have not represented enough volume to offset the drop in 2G/3G spending. In addition, some re-farming can be achieved through software upgrades, reducing the opportunity for hardware suppliers.
–New spectrum will come, but governments are moving very slowly. As LTE spectrum becomes available, we expect new growth in the macro base station market and some relief. But it won’t happen fast enough to keep up with data demand that doubles annually.
–Consumer femtocells are useful, but they don’t add significant capacity where it’s needed. Since 2009, Mobile Experts has been predicting weak growth for consumer femtocells and stronger growth in carrier-grade small cells which can tackle the data tsunami. Our June 2009 forecast called for 1.9 million femtocells in 2011 … and the actual figure came in at 2 million. Consumer femtocells handle coverage problems, not capacity problems.
–The best solution for operators involves carrier-grade small cells. Mobile Experts expects innovation to happen fast in this area, with advanced heterogeneous network features and highly coordinated networks coming together to boost capacity dramatically.
In short, mobile operators are slowing down their investments right now, but their customers are driving huge demand growth at the same time. The train wreck is coming, and in fact it’s already happening in some dense urban locations. Mobile operators are moving slowly now, but soon they will be jumping to put small cells on every street corner. Hold on to your hat.
Joe Madden founded Mobile Experts in 2002 and serves as the company’s primary expert in RF hardware for mobile handsets and infrastructure. Madden has more than 22 years of experience in mobile RF hardware, providing amplifiers, filters and other devices for both infrastructure and handset applications. A Silicon Valley veteran, he has survived two startups, with successful IPOs and LBOs along the way. Madden holds a Bachelor’s degree in Physics, cum laude, from UCLA, and an executive MBA from Stanford University.
