The major story in U.S. wireless so far in 2017 is the Big Four operators are now all in on unlimited offerings. Sprint had used this as a differentiator for the past two years and T-Mobile set the tone with its announcement of T-Mobile ONE last summer. Over the past couple of weeks, Verizon and AT&T announced their version of unlimited. With mobile data traffic projected to grow some 50% per year, driven by video, will the operators be able to support unlimited data?
Let’s first recognize that unlimited in wireless is not truly unlimited. There’s always an asterisk. All the operators have fine print that says they can slow down your speed if you reach a certain usage level, typically in the 22-28 GB per month range, depending on the operator. This is a very generous amount of data from a wireless perspective, given average usage is in the 4 GB/month range. But this does prevent you from binge-watching “Game of Thrones” over LTE. There are other tools being used to manage usage, such as slowing down video and restricting tethering, although that has become a new battleground in ‘whose unlimited is better’ over the past couple of weeks.
Now that unlimited seems to be the default, I believe the competitive battleground will increasingly shift to network management and capacity. Marketing around network capabilities over the past couple of years has been about network speed. But the difference between the operators has narrowed and who has the ‘best LTE performance’ now seems to vary by market and often comes down to one’s personal context or experience (or who’s testing regime one prefers).
We have already seen network capacity being worked into the marketing message. AT&T has touted it has 65 MHz of ‘fallow’ capacity to deploy. T-Mobile issued a press release earlier this week about launching LTE-U to ‘boost capacity’.
So, which operator is in the best position, capacity wise? There are different ways of looking at this but many Wall Street analysts believe T-Mobile has the most capacity deployed per subscriber. Sprint has the most ‘raw’ capacity of any operator, mostly at 2.5 GHz, much of which has not been deployed yet, and with less favorable propagation. AT&T plans to put some of its ‘fallow’ capacity to work over the next two years, although 20 MHz of that is predicated on its winning the FirstNet contract. Verizon is the most capacity-challenged, in theory, because it has less spectrum per active subscriber. Verizon has been on a mission to boost capacity, densifying its network with small cells, refarming 2G/3G spectrum, and putting any capacity it has to work. And all of the major operators, except Sprint, are expected to gain significant new spectrum from the 600 MHz auctions, which will conclude in the coming weeks (although it will be at least a couple of years before that spectrum can be put to work).
Capacity, and the tools to optimize and manage it, will become key differentiators over the next couple of years. I believe this will lead to some important changes in the wireless industry and in the way wireless services are delivered. First, there will be a spur of innovation in order to bring more capacity online. Examples include LTE Unlicensed (LTE-U), shared spectrum (the 3.5 GHz band), and various ways of leveraging Wi-Fi and broadband. Wi-Fi and small cells will play a more important role as well. The work done by companies such as Broadband.com (which owns Republic Wireless) and Google, with Project Fi, to develop a viable mobile/Wi-Fi service could work its way into more offerings.
Second, operators will implement a greater array of network management tools. The slowing of video to 480p is an example used over the past couple of years. There will be additional ways to ensure video and other bandwidth- consumptive uses are optimized and managed. I could also see a situation where there is a premium charge for HD video, tethering, or other features. As well, with network neutrality being sidelined in the new FCC administration, I believe operators might begin offering tiered service options, similar to what we see in broadband. Alternatively, as operators implement carrier aggregation and other improvements along the LTE roadmap that increase network speed, one can see there might be ‘premium speed options’, where there might be a premium offering for 50 Mbps or something of that order.
Finally, I think some of these unlimited moves set the stage for further industry consolidation, especially once the 600 MHz auction dust settles. Sprint and T-Mobile, which are moving closer to a consolidation, will use spectrum and network capacity comparisons to AT&T and Verizon as an important justification for a deal being approved. DISH, and its treasure trove of spectrum (some of which needs to be put to work soon, by law), will be involved in some sort of deal as well. Cable might also be involved in some way. We’ll learn more about Comcast’s ambitions, for example, once the 600 MHz auction results are made public.
With more aggressive price plans and continued growth in data demand, network capacity will become as important as traditional competitive benchmarks such as speed and coverage.