The Four Tiers of Global Wireless Services
As we head into the latter part of this decade, it appears that the ‘digital divide’, which has historically referred to the haves and have-nots of broadband, is hitting wireless services, as well. This theme has crystallized in my mind over the past week, having been part of three important wireless-related events: The Telecom Infrastructure Project Summit, spearheaded by Facebook; the Qualcomm/T-Mobile launch of Gigabit LTE; and an industry analyst day hosted by leading infrastructure vendor Ericsson, which focused mainly on 5G and IoT.
It looks to me like the world is separating into four ‘tiers’ of wireless service. In Tier 1, you have the United States & Canada, Japan, South Korea, and, increasingly, China. These countries have 70% plus of their customers already on 4G LTE, and are rapidly moving along the LTE Advanced path toward Gigabit LTE. They are also likely to be among the first to deploy initial 5G services. A healthy (but not unhealthy) level of competition, and high income correlate here, not only with regard to wireless service spend but also on the most advanced handsets that take advantage of the best LTE has to offer.
Then there’s Europe, which has fallen a step behind. A decade ago, if you traveled to Europe, you’d marvel at how good wireless coverage was in comparison to the U.S. But Europe has lagged on the depth and breadth of LTE deployment. This has been a huge change from the 3G era, where many European countries were among the leaders. There are a multitude of reasons, but chief among them are a somewhat stagnant economy, overheated competition that has depressed spend (and as a consequence, capex), and where the epicenters of wireless innovation shifted from Europe to the U.S. and Asia. Actually, like an airplane circa 2017, Europe has more like two classes of economy: basic economy (some countries, and many areas outside cities), where good LTE services are still lacking; and premium economy, where 4G is closer to the top tier.
Tier 3 is where the fastest subscriber growth is. But it’s easy to forget that with our $1,000 smartphones and hype around LTE Advanced and 5G, many countries are just getting to 3G. Take Africa: Only 50% of the continent has access to 3G coverage, and whereas we have phased out 2G here, it is critical for voice on that continent. In fact, most of the deployment in Africa over the next 5-10 years will be 3G (because 4G remains too expensive). In India, 69% of the population is still on 2G, although that is changing, and rapidly. Similar story in Latin America, but slower pace of change. Getting mobile connectivity to folks in these areas is critical, since wireless is likely to be their primary form of Internet access for the foreseeable future.
Expanding and improving connectivity to these regions is the major focus of the Telecom Infrastructure Project (TIP). Spearheaded by Facebook but now consisting of some 500 members, the objective of TIP is to connect the next 1-2 billion people at much lower cost than your typical $150,000 base station, using develop an open, software defined network platform. Although still in its early stages with respect to deployments, TIP will at least push, if not disrupt, the incumbents. If TIP is successful with the new LTE OneCell, it might accelerate Tier 3 countries’ upgrade or leapfrog to 4G.
In addition to disruptive infrastructure, innovative business models are needed. One oft-cited example is more of a partnership arrangement with operators, where revenue sharing arrangements could help fund projects. Then there’s Reliance Jio, which has disrupted the Indian market by focusing on alternative revenue streams, rather than trying to finance a build of hundreds of thousands of cell sites on the back of sub $5 per month ARPU.
Finally, there’s the ‘connecting the unconnected’ tier. This is still the intractable segment of the market, where a lot of effort is being expended but no viable, scalable connectivity solution yet exists. Developing cheap base stations doesn’t solve all the problems here. The main challenge is power and backhaul. The lack of a reliable power grid, inaccessible roads, issues of on-site equipment theft, and even the lack of commercial/network data makes planning difficult. It will take something different to get to the “last 1-2 billion”. Google Loon, OneWeb’s planned satellite service, and other ‘airborne’ solutions are all possibilities, but it will still be several years before we know whether these are viable options, at scale, and can deliver the sort of speed and capacity that will be at least in the ballpark of 21s century infrastructure.
So, four themes from “telecom infrastructure week”: 1) the rich will get richer, as 5G will be driven by the already haves; 2) China will play a much bigger role in 5G innovation that it did in 4G—in infrastructure, chipsets, IoT deployments, and even driving global spectrum bands; 3) getting connectivity to the next 1-2 billion subs in Africa, Asia, and Latin America will have to be done in a dramatically less expensive fashion; and 4) reaching the ‘last 1-2 billion’ remains a yet unsolved challenge.