Why Cellular Carriers Have Not Delivered on the Promise of the Mobile Internet

Abstract

Siavash Alamouti, CTO of Intel’s Mobile Wireless Group offers insight and
perspective on: "the traditional cellular voice model and the walled garden,"
mobile Internet user requirements, business models, cellular network evolution
(including 3G and LTE), mobile WiMAX, and related topics.  Cellular
industry hype vs. reality is examined in a very provocative way.  A
checklist of the necessary ingredients for the success of mobile broadband is
provided along with commentary and opinions.

Expert Opinion and Assessment of the Current State of the Cellular Industry


Siavash Alamouti is a cellular industry veteran in a very young industry. 
He worked on the development of mobile data protocols in the early 1990s for
several companies, including AT&T Wireless.  He’s also worked on smart
antenna technologies for WiFi and vertical applications of wireless
communications using unlicensed spectrum.  He is most well known for the
invention of the Alamouti Code which is now included in almost every wireless
standard.  When he joined Intel in 2004, he had the opportunity to meet
with senior executives of the established cellular carriers to assess their
status and future plans.  He was very disappointed with their lack of
appreciation for the opportunities that would result from a mobile Internet.

Siavash believes the cellular industry has stagnated over the last few years,
because of its intense focus on voice and low data rate communications (for text
messaging/SMS and emails).  Despite expensive auctions for spectrum, 3G
data services (HSPDA and EVDO) have not lived up to the potential of the
broadband Internet.  The cellular industry spent a lot of money for the
licensed spectrum without knowing what the killer application would be. 

As a result, the cellcos did not make much progress in enabling mobile Internet
access.  It’s ten years since the 3GPP release of Wideband CDMA and UMTS
(3G protocols), but affordable consumer mobile Internet has not really happened
yet.

Here are a few staggering

statistics from Screen Digest to support this assertion:

- Less than 9 percent of the 186 million people with 3G phone service have
mobile broadband Internet service.  Those who do have it, have paid €3.6
billion ($5.1 billion) to operators in 2008

- That was just 6.8 percent of 3G operators total revenue from data, which
implies that over 93 percent of mobile data revenue came from SMS/text
messaging.

- Only 1% of the total global cellular industry revenue came from mobile
broadband access

CellCo Problems: Limited Service & High Revenues

Consumers in the US are paying an average of $50 per month for 10-50 Kbps
service on mobile operators’ networks.  That constitutes 99% of the total
revenues of the mobile operators.  In 2009, we are seeing a shift towards
higher data services thanks to new devices like the iPhone.  However, the
experience of these devices are nowhere like the Internet experience on a PC. 

The iPhone (offered exclusively in the U.S.  by AT&T Wireless) was the
first time users experienced a decent web browsing on a mobile device thanks to
a very user-friendly interface and attractive form factor.  The iPhone has
proven that there is pent up demand for mobile Internet.  However, the
weakest attribute of the iPhone is the relatively poor performance of the 3G
networks, which has

resulted in a class action lawsuit and many customer complaints.

To prevent even worse performance, AT&T has blocked selected bandwidth intensive
applications like Sling box video (www.slingmedia.com
) on their 3G network.  Using the iPhone as a 3G modem (tethering) is
also still prohibited by AT&T, because it could quickly saturate the network and
jeopardize their cash cows- cellular voice and SMS.  As a result, WiFi is
used more than 3G for Internet browsing by most iPhone subscribers. 

A January 2009 Cisco study revealed that users generate 30 times more traffic on
a smart phone compared to a standard cell phone – and notebooks will send and
receive 450 times more traffic than a smart phone.  So it’s clear the trend
is to provide much more throughput and higher bandwidth to mobile Internet
subscribers.  But this has not yet happened in any meaningful way.

Mobile data rates are generally limited to less than 1 Mbps for HSPA and EVDO
based 3G data service.  And no mobile operator in the US is offering
unlimited 3G Internet service (i.e.  Internet access with no data caps). 
If they did, the network capacity would become saturated, resulting in denial of
Internet service for many users. 

Editors Note: Typical 3G pricing is $60 per month with a data cap of 2G
to 5G bytes transferred per month.  Additional data transferred is usually
priced in 1G byte increments.

Siavash believes that for decent mobile Internet service, the network must
deliver at least 1 to 5 M bit/sec (Downstream) and a monthly rate of not more
than $30 per month in developing countries ($10 per month in developing
countries) with flat rate pricing.  That’s 100 times the service at ? the
price!

And therein lies the problem: low cost per bit is hard to deliver on a cellular
network (including 3G and 3G+ technologies).  This is one reason Siavash
firmly believes that new mobile broadband technologies (dubbed as 4G) are needed
today and 3G cannot fulfill the vision for mobile Internet.  This is why
Intel and the rest of the WiMAX community created the IEEE 802.16e standard and
developed the resulting technology to meet the perceived user requirements for
mobile broadband Internet access. 

Siavash firmly believes that mobile WiMAX can significantly drive down the cost
per bit, while significantly increasing user throughput – especially when
compared to 3G technologies (HSPDA/HSPA and EVDO).  Spectral efficiency,
low cost infrastructure, and low cost modems are all needed to realize low cost
per bit wireless transport.  Mobile WiMAX can deliver on all of those
attributes, today.  To quantify this, he claims that the data throughput of
Mobile WiMAX is three times better than HSPA and that is why operators like
Clearwire in the US and Yota in Russia can provide unlimited Internet access at
half the price of 3G services, which are often subject to data caps

All Agree: The Internet Needs to Go Mobile

Many industry analysts and strategists believe that the future growth of the
Internet will come from mobile broadband applications, especially entertainment,
information retrieval, and education.  A June 2008 OECD Policy Brief on the
Future Internet Economy stated: "The Internet underpins a range of new economic
activities, as well as activities and infrastructures that support our
economies, from financial markets and health services to energy and transport. 
In the longer term, small wireless sensor devices embedded in objects, equipment
and facilities are likely to be integrated with the Internet through wireless
networks that will enable interconnectivity anywhere and at anytime."

Consumers demand true "Broadband" Internet Services all over the world. 
The Internet experience is global and does not have boundaries.  To be able
to access all the video, graphics and multi-media content available, multi-Mega
bit/sec service is needed for a decent user experience. 

Moreover, data rate needs will increase with time.  Video will be the
primary bandwidth driver, as it has been for the last several years since You
Tube and similar applications became popular.  New wired broadband
technologies (DOCSiS 3.0, VDSL 2, FTTH/FTTP) will push the requirements quickly
and wireless technologies need to keep up with this.  This is why emerging
wireless standard like IEEE 802.16m and 3GPP’s LTE Advanced are targeting peak
rates of up to 1 Gbps.

For sure, there is pent up demand for mobile Internet, but there are many
inhibiting factors:

- Cost per bit in wireless networks is too high to keep up with (e.g. 
Cable or DSL) rates
- It is much more difficult to increase data rates on the air compared to the
wire
- Consumers do NOT understand the cellular data usage model and limitation on
usage
- There are multiple law suits on over-billing usage, network neutrality, user
data privacy
- Cellular value chain is not friendly to retail device model since it has been
optimized for phones sold through operator channels
- Mass market growth of the mobile Internet requires innovation on services and
creating a new paradigm for consumer access which is very different to today’s
operator model
- Cost per bit is even more important in developing countries due to low ARPU
required for mass- market adoption. 

Despite all these challenges, Internet is a major growth engine for our
economies.  There are studies that indicate a direct correlation between
broadband Internet access and GDP.  Therefore, necessity will drive
innovation and make mobile Internet happen in a big way.

What’s Needed for the Mobile Internet to Succeed

Alamouti believes the ingredients for Mobile Internet success include the
following:

- Ubiquitous Connectivity and Open Networks – any time, anywhere, any device or
application on any network
- Affordable flat-rate Charging & Flexible Billing Plans
- Device Retail Model that works for consumers
- Simple Roaming between carriers
- True Internet -not Mini-Internets
- Open and PC-like Mobile Computing Devices, e.g.  netbooks and MIDs
- Low-cost/Low Power PCs with embedded mobile broadband adaptors
- Low cost modems
- Sufficient backhaul capacity to support many multi-megabit subscribers

Siavash believes that the primary objective of mobile network operators should
be to deliver "ubiquitous, transparent access to the (broadband) Internet." The
first step in realizing the potential and power of the mobile Internet is to
make it truly open.  That is, the capability to use any device or
application on any network at any time.  The cellcos "walled garden"
approach must be broken for this to happen.  In a truly open network, you
should be able to use free Skype VoIP service or Slingbox features on your
mobile phone without blocking or additional charges from the mobile network
operator. 

Editors Note: We wonder how mobile operators will deal with the potential
voice revenue cannibalization by free Internet voice applications such as Skype
or Google Voice?

Mobile WiMAX is only a radio technology and by its own accord cannot break the
cellcos walled garden.  It is up to the cellular operators to use the
network in a way that will provide free access to the consumer. 
Nevertheless, the WiMAX Forum has been promoting open broadband access and has
been specifying technology ingredients that would allow the mobile operator to
create a new service paradigm and enable the retail distribution of devices.

The Way Forward for the Mobile Internet

Alamouti suggests that mobile operators need to revolutionize their services and
provide flexible service plans that would be affordable to everyone.  He
believes mobilization of the Internet would grow economies immensely.  In
his view, the mobile operator could take a percentage of additional revenues
that would justify their investment in 4G mobile networks and provide free and
open access to valuable and essential services to the consumer. 

In one scenario, mobile Internet access to government, education and health care
would be free, as those entities would pay the mobile operator a fixed rate for
access to their services.  In another scenario, textbooks and other
educational content could be accessed for free by registered public school
students via the mobile Internet.

Mobile operators should be providing network connectivity says Alamouti. 
The concept of the Application Service Providers (ASP’s) should be separated
from the cellular network operator.  New revenue sharing models need to be
worked out between these two entities.  They key to enabling these spiffy
new mobile Internet applications is for the network operator to collaborate with
the ASP to deliver the service and monetize the applications.  There is no
reason why Mobile Operators could not also provide applications as well but they
should not be the sole source as this will limit their potential for consumer
value and hence revenue.

In Part II of our interview with Siavash Alamouti, we will highlight the mobile
Internet applications and technologies necessary for 4G networks to be realized
on a large scale.

Siavash Alamouti, CTO, Intel’s Mobile Wireless Group

In addition to standards, Intel’s Mobile Wireless Group undertakes research
projects that are targeted at investigating new applications and use models
enable by wireless technologies.  One example is My WiFi -which enables
high speed peer-to-peer communications between devices using WiFi and future
technologies such as WiGig (an industry study group that is likely to be
proposed to IEEE 802.11) that promises to provide multi Gbps wireless
communications using 60 GHz unlicensed band.