By Eric Troyer (Part 1 in an 4-part series)
Mobile network operators (MNOs) have a problem. Given their current architecture, they face a significant gap between traffic growth projections and their ability to scale.
A similar gap occurred on the wired Internet about 14 years ago as data demands exploded. The problem isn’t (and wasn’t) just about speed to end user devices. Writes Glenn Fleishman in Ars Technica,
…speed isn’t actually the main reason why every carrier in the developed world is trying to extend the life of 3G networks by speeding them up, and build 4G networks as fast as equipment and financing is available. It’s all about congestion and capacity, not speed.
Enabling the mobile ecosystem to deliver high-performance, high-value, and clearly differentiated end-to-end mobile broadband solutions requires a more efficient and far more scalable reference architecture that makes it easier, faster and less expensive for MNOs to scale capacity. This blog series provides the elements of such an architecture.
Let’s look at the big picture. Mobile traffic is growing exponentially. Forecasts include:
- A 40.8 percent CAGR for mobile backhaul applications by 2014 (Heavy Reading)
- 55 percent year-over-year growth of the worldwide smartphone market in 2011, doubling again by 2015 (IDC)
- 44 billion cumulative mobile app downloads by 2016 (ABI Research)
- A 27.2 percent CAGR for the global machine-to-machine (M2M) wireless network services market5 from 2010 to 2014 (Technavio)
According to the Cisco Visual Networking Index:
- Global mobile data traffic will increase 26-fold between 2010 and 2015, growing at a CAGR of 92 percent and reaching 6.3 exabytes per month by 2015.
- The average smartphone will generate 1.3 GB of traffic per month in 2015, a 16-fold increase over the 2010 average of 79 MB per month.
- There will be nearly one mobile device per capita by 2015-more than 7.1 billion mobile-connected devices, including machine-to-machine modules.
- Two-thirds of the world’s mobile data traffic will be video by 2015.
Regional forecasts are equally impressive. According to ABI, wireless revenues surged in Latin America, with carriers enjoying 40.3 percent growth year-over-year-about double the worldwide average of 20.3 percent.
In Europe and Asia, which led the charge for messaging adoption over a decade ago, consumers have embraced advanced mobile data services as a way of life. In Italy, Telecom Italia delivered 15 times more mobile data traffic in 2010 than in 2007. China Unicom’s 3G system saw a 62 percent traffic boost in a single quarter, from Q1 to Q2 of 2010. And Europe’s TeliaSonera expects mobile data traffic to double each year for the next five years.
All this growth should be exciting news for MNOs, except that Ovum and other industry analysts predict that global Average Revenue Per User (ARPU) for mobile subscribers will continue to drop steadily through 2015. The decline, which started in 2010, is happening across developed and developing regions. For example, in the U.S., it will decline about $1 per year, from $49 to $44. During the same period in Africa, ARPU will decrease from a global low of $9.73 to an even lower $6.89.
These trends suggest that as subscriber growth levels off, MNO revenues will come under tremendous pressure unless they rely on M2M, advanced applications, and new monetization models-all of which will require large investments in bandwidth.
On the application side, MNOs have been grappling with latency issues, which lead to customer dissatisfaction. Most smartphone users don’t need analyst reports to validate the impact of this problem, but published stories and reports provide validation. In 2010, for example, a provider in Europe had to offer cash back to iPhone customers frustrated by a lack of 3G access. And many carriers are responding to rapid data growth by eliminating unlimited data plans. While such a move may be an act of survival for the MNOs, it won’t encourage customer loyalty until MNOs and service enablers collectively bring to market more sophisticated, tiered pricing structures that allow consumers to pay only for the applications they want.
In Part 2 of the series, we’ll examine the limitations of the current typical MNO infrastructure.