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.
The broadband ecosystem continues to evolve but a key question remains: When will wireless operators play a major role in disintermediating wired broadband service providers?
Wireless access via LTE delivers speeds that rival wired broadband in many places, yet today consumers often purchase both broadband in the home (supplied by wired operators) and data access via smartphones (supplied via wireless operators). With continued investment in wired consumer broadband networks from the likes of Google, AT&T, Comcast and Time Warner Cable, the stakes are high. And with carriers pouring money into both wired and wireless networks, those stakes are moving even higher as data access represents a key driver for many operators’ consumer business models. From a theoretical perspective, some quarters like to question whether consumer wired broadband access networks go the way of the landline phone. This question may be an exaggeration, but it does raise questions about the impact wireless broadband will have on the marketplace over time. At the very least, it’s worthy of open discussion.
Historically, wireless access speeds have not been on par with wired services. With “4G” networks, this dynamic is changing. Take the Spark initiative, which represents Sprint’s rollout of high-speed, LTE-based Internet access in 17 markets. Download speeds will range up to 60 megabits per second. At the same time, Verizon Wireless, AT&T Mobility and T-Mobile US are rolling out deep, LTE-based wireless networks that deliver 10 Mbps-plus speeds. While these speeds do not match the fastest speeds of wired connections, they are closer to becoming on par with them and in fact rival the speeds of many of the lower-tier consumer broadband services, arguably closing a key chasm that has prevented wireless broadband from becoming a strong alternative to today’s wired solutions.
On the skeptical side of the equation, video raises potential challenges and many question the ability for wireless networks to handle heavy video consumption. We all remember when the first iPhone came to market and AT&T Mobility’s network nearly collapsed in several major metro markets due to massive spikes in data consumption (which grew 5,000% from 2007 to 2012). In our Netflix/iTunes/YouTube society, wireless operators positioning their offerings as serious alternatives to wired connections would need to augment their network capacities in order to support the video consumption that would accompany consumer migration. This is a muddier issue than it may appear on the surface because future evolutions in video quality, potentially driving up minimum levels of acceptable quality with consumers, hold the potential to seriously hinder the wireless access value proposition, especially if increasing quality standards outpace advancements in signal compression. Ultimately, as wireless operators evolve their networks toward dark-fiber-based backhaul at macro cell sites, and deploy more sites (macro cell and small cell) to ramp up network density, the viability of strong wireless offerings becomes a reality.
Pricing represents another challenge. In today’s marketplace, wireless connections and their usage-based pricing schemes are more expensive than wireline connections, which tend to be fixed-cost solutions. Mobility is a major factor here as, generally speaking, fixed locations have fixed costs and variable locations have variable costs. In fact, most wireless users push data consumption toward fixed solutions (via Wi-Fi access) whenever possible in order to minimize their wireless data costs. If wireless operators were to come to market with serious home access products, pricing would need to be competitive with wired broadband plays (think DirecTV vs. cable/fiber programming). The widespread adoption of pricing strategies that overcome current wireless norms for usage-based pricing holds the potential to become a game changer in terms of the wireless access value proposition, moving these solutions from rural, backup and other niche plays into mainstream consumer adoption.
In reality, the factors in these equations are more complex than is reasonable to delve into here because many broadband providers also own wireless networks (raising questions of positioning and cannibalization), the emergence of Google fiber speeds in key metros and other marketplace factors that make for a few too many forward-looking if/then scenarios to cover all the bases. From the 10,000-foot perspective, however, the simple reality is that LTE deployments offer the potential for meaningful wireless alternatives (read: instead of today’s wireless access adoption being driven by geography and access to wired solutions) but true disintermediation remains a long way away.
Aaron Blazar works as a VP for Atlantic-ACM on projects ranging from market sizing and forecasting to corporate strategy covering both the wireline and wireless telecom markets. Blazar has a broad perspective on the telecommunications industry and expertise in market segmentation, market analysis, market entry strategies and statistical analysis.
