I had the opportunity to meet and interact with key stakeholders in the mobile infrastructure industry last week during the Mobile World Congress show in Barcelona.

Key Takeaways from the show:

  • Doing more with less
  • Opportunities drive high level of innovation
  • In-building/densification puzzle not solved
  • Carriers don’t want to wait five more years for 5G
  • The future is promising

The main themes of this show reflected the state of the mobile industry namely that it is in the midst of an on-going digital transformation, meaning MWC 2016continuously changing and more demanding end-user requirements. At the same time, vendors and carriers are struggling to convert these more demanding end-user trends into increased revenue and vendors have become extremely good at doing more with less. Incremental mobile data consumption has grown nearly 10-fold over the past five years and during the show, the leading radio vendors announced new BBUs that will provide enough processing capacity for the foreseeable future for even the most optimistic data traffic consumption scenarios. At the same time, I did not talk to one service provider that expects infrastructure prices to go up.

Despite flat-ish infrastructure trends, interest is high to capitalize on the on-going shift from outdoor coverage to indoor and urban densification. After all, this is a $30 B-plus market that was initially designed to support voice services and the ever changing end-user requirements are opening up opportunities for new entrants while the incumbents want to defend their turf. The end result is that the level of innovation that we have witnessed in the mobile infrastructure industry has been mind-boggling. More BTS architectures have been introduced over the past couple of years than the entire industry introduced in the first 25 or 30 years rolling out 2G and 3G. And during the show, vendors announced several new architectures and solutions which ultimately will improve the efficiency, flexibility, and scalability of RAN resources. Of particular interest during the show was how far some vendors have come when it comes to moving radio functions towards standard IT hardware.

While small cell deployments have clearly moved from the hype phase to reality (the Dell’Oro Group estimates the non-residential small cell market more than doubled in 2015 approaching $1 B), it is still very early days for small cells and there is yet plenty of on-going innovation both from a technology and business perspective targeting a more compelling TCO.

Of particular interest during the show was the continued commitment to basically make small cells more like WiFi – the combination of neutral host and lower-cost equipment/installation/maintenance are more and more seen as a good framework for accelerating small cell adoption particularly in the enterprise. All of the leading small cell players have now announced plans for deploying LTE (LTE-U/LAA, or MuLTEFire) in the unlicensed 5 GHz bands. Increasingly, vendors find the non-existent or negligible interference from outdoor macro and WiFi to be a lucrative proposition – spurring interest in the 3.5 GHz band, where applicable. It is also becoming increasingly clear that the initial vision of having these integrated small cells deployed with dedicated operator specific radios will limit the pace of adoption – and the inherent benefits of the unlicensed bands will open up opportunities to transfer network ownership from the carrier to the enterprise, building owner or third party. As a result, you could stop by Qualcomm’s booth and see a plethora of 3.5 GHz solutions including prototypes with interest from non-traditional players, including Google.

Although initial small cell vendor share estimates suggest the traditional macro RAN players, including Huawei, Ericsson, and Nokia, are capturing the largest revenue shares in the non-residential small cell segment, new entrants see the reduced technical barriers of entry with a spectrum band that is not interfering with the outdoor macro as an opportunity. At the same time, go-to-market strategies and enterprise channel experience will likely play an important role for the indoor enterprise segment. Ruckus – a WiFi provider – announced it plans to bring 3.5 GHz LTE products to market in 2017.

An important piece to make small cells more like WiFi is cost. I remember having a conversation a couple of years back with a CTO with one of the Tier1s in the US and he told me the small cell radio can be free of charge as he would still rather deploy a macro. This is a reflection of the business case challenges with small cells if one uses similar models and processes as one did with macros; as a result the radio equipment will account for a single-digit share of total TCO, resulting in a rotten business case when comparing to a macro (if 90% of the costs remain constant). Much of the emphasis over the past couple of years has naturally been on working on bringing down the cost of the 90% as opposed to the 10%. But with some progress on the 90% side (though it should be pointed out that there is much work left), carriers and vendors believe the time is ripe to address the cost of the 10% portion (which ideally will be higher than 10% assuming progress on the 90%).

For example, Parallel Wireless introduced an enterprise “white box” small cell solution that they hope will make LTE as easy to deploy as WiFi, partly by bringing down the equipment cost to the <$500 range. Similarly, numbers were thrown around by other players suggesting target prices in the <$100 range for 3.5 GHz and 5 GHz LTE APs.

There were also a wide range of new RF mapping solutions launched at the show aimed at making LTE as easy to deploy as WiFi. In short, lots of progress when it comes to the “WiFi-ification” of small cells (I can’t take credit of the term – saw it in a Ruckus article). The irony is that the 802.11 roadmap is also evolving and who is to say that for some of these use cases, particularly in the not overly crowded enterprise scenario, that the performance gap between WiFi and LTE will not be smaller by the time the LTE or 5G-fication (new term, my invention) will be a reality.

Finally, when it comes to 5G, my main conclusion from the show was that 2020 is still four to five years out – yet carriers and vendors need new revenue streams today. At the heart of this matter is the fact that we are at a similar phase today as we were ten years ago, namely four or five years to the next big thing – LTE then, 5G today. The difference being that ten years ago, 3G deployments were sparse while 4G coverage today is available nationwide in most of the advanced economies and well on the way in many of the developing economies. The challenge here is that carriers are deploying new technologies at a faster pace with each technology generation, yet the standards are not accelerating at the same pace. As a result, pre-5G commitments are growing at a rapid pace, even if the LTE-A roadmap will drive strong upgrade investments and deliver adequate performance for some of the potential revenue streams carriers envision with 5G.

As with any technology shift, it is not always clear initially what will ultimately be the killer use case and there is no difference with 5G. I was impressed by the variety of demonstrations and the imagination used for these potential use cases. Ericsson had brought in folks from the industry to demonstrate potential applications with trucks and automation among other things.

AT&T recently suggested that 5G will likely be driven by IoT, 4K video, and virtual reality. I will probably not be one of the early adopters when it comes to virtual reality. However, after trying several times unsuccessfully to get on to the virtual reality roller coaster ride during the show because of the lines, I was simply amazed by the interest in this “ride”, and this was a bit of a wake-up call – this is not just a toy for kids, this is real.

I spent a good portion of the flight home thinking about my kids and how different their future will be with virtual reality and self-driving cars. What would all of this mean for the mobile infrastructure market? Will my models support this type of data consumption? The only conclusion I came up with at the time was that surely there must still be a lot of work left to ensure a more consistent user experience throughout the network. Fresh in mind was my recent visit to IKEA in Palo Alto over the holidays for a delicious meatball lunch and the difficulties I had communicating with my wife because T-Mobile’s network did not provide enough signal strength to send a good old fashioned text message.

In summary, behind those flattish infrastructure revenue trends, there is an awful lot of opportunities as well. But one step at a time…


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Stefan Pongratz

Posted by Stefan Pongratz on March 7, 2016

About Stefan

Stefan Pongratz joined Dell’Oro Group in 2010 and is responsible for the firm’s Carrier Economics, and Mobile RAN market research programs. While at the firm, Stefan has expanded the Mobile RAN research adding significant detail on LTE and as authored several Advanced Research Reports on the wireless market.