‘Wi-Fi First’ market update

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T EC H N O LO G Y B U S I N ES S R ES EAR C H , I N C .

Technology Business Research (TBR) Webinar Series Wi-Fi First: Wi-Fi poised to disrupt cellular model July 9, 2015

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2 TBR Webinar Series | 7.9.15 | www.tbri.com | ©2015 Technology Business Research Inc.

Chris Antlitz Telecom Senior Analyst

Email: [email protected] Twitter: @chrisNMP

Wi-Fi First: Wi-Fi poised to disrupt cellular model

mailto:[email protected]

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TBR’s Networking and Mobility Practice covers telecom operators and network vendors globally

NMP Overview

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Telecom Market Landscapes: Description

MARKET LANDSCAPE

Includes key findings, market size, customer adoption, operator positioning and strategies, geographic adoption, vendor positioning and strategies, and acquisition and alliance strategies and opportunities

Telecom Market Landscape Portfolio

SMALL CELL

5G

ALTERNATIVE NETWORK PROVIDERS

NFV

Wi-Fi is a subset of TBR’s research on the Alternative Network Providers market.

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Wi-Fi terminology is expanding as the ecosystem develops

Definitions

Term Definition

Wi-Fi A local area wireless networking technology that uses unlicensed spectrum

Wi-Fi Operator

A service provider that provides access to a Wi-Fi network to its subscribers

Wi-Fi First Prioritizing the use of Wi-Fi for voice, text and data, using cellular only as a backup for coverage when not in a Wi-Fi zone

Wi-Fi Only Using Wi-Fi exclusively for voice, text and data

Wi-Fi operators are a disruptive force to the traditional telecom business model, and they are considered alternative network providers because they aim to provide network access at a price significantly lower than traditional cellular services.

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The majority of households in the U.S. have Wi-Fi coverage.

Wi-Fi coverage is pervasive in the U.S., and these networks are being leveraged for significant data offload

Introduction: Setting the Stage

Note: This webinar focuses on the U.S. Wi-Fi market.

115 million+

Some Tier 1 U.S. cities, such as New York, have nearly ubiquitous Wi-Fi coverage.

Over 75% of all mobile traffic is generated indoors.

Most smartphone subscribers leverage Wi-Fi offload to reduce how much they draw off their cellular plan buckets.

Most highly trafficked locations have Wi-Fi:

• Hotels • Stadiums • Subways

• Airports • Chain restaurants

Most connected devices leverage Wi-Fi for connectivity:

• Tablets • e-readers

• Wearables • Monitors

Most commercial buildings in the U.S. have some Wi-Fi access.

75%

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Wi-Fi becomes a viable alternative to cellular

Business Models

Traditional Model: Cellular Only

Alternative Model: Wi-Fi First + Cellular or Wi-Fi Only

• Relatively expensive (licensed spectrum plus capex plus opex)

• Traffic monetized

• Optimized and seamless user experience

• Outdoor coverage is pervasive; indoor is challenged.

• Optimized traffic management

• Relatively inexpensive to own and operate (leverages unlicensed spectrum, Wi-Fi hotspots and backhaul; cost savings passed on to subscribers)

• Content, retail, ads and cellular monetized

• Improvements being made in handover and coordination are making service good enough in comparison to cellular.

• Outdoor coverage has big gaps for Wi-Fi only; indoor is pervasive.

• Access points can get overwhelmed.

• Wi-Fi is the lowest-cost, highest-impact way to deliver wireless connectivity.

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The economics of cellular are unsustainable compared to Wi-Fi

Economics of Wi-Fi versus Cellular

$44,900

$0

$10,000

$20,000

$30,000

$40,000

$50,000

AWS - 3 Spectrum Unlicensed (Wi-Fi) Spectrum

In $

Mill

ion

s

SPECTRUM COST COMPARISON TBR

Free

Source: TBR Data

$6,900

$600

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

RAN Wi-Fi

In $

Mill

ion

s

2014 U.S. ACCESS SPEND COMPARISON TBR

Source: TBR Data

Spectrum costs have been increasing relentlessly. Something has to give because operators are increasingly struggling to monetize these assets.

The cost per bit of Wi-Fi is vastly lower compared to cellular RAN.

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Wi-Fi operators can charge far less than cellular carriers for plans, saving individual consumers hundreds of dollars annually

Plan Pricing Comparison

Annual Plan Cost $711.48 $359.40 $177.36 $119.40 Free

Annual Cost Savings over Cellular

$0.00 $352.08 $534.12 $592.08 $711.48

$59.29

$29.95

$14.78 $9.95

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

Tier 1 U.S.Cellular

Operators

CablevisionNon-Internet

Sub

RepublicWireless

CablevisionInternet Sub

ScratchWireless

AR

PU

ARPU COMPARISON

Source: TBR Data

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Free

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CableWiFi Alliance

A cable consortium focused on building nationwide Wi-Fi footprint with 400,000 hot spots and counting; prepping for Wi-Fi voice and text service and leveraging as an incremental revenue driver and churn reducer

Freewheel

Wi-Fi Only offering introduced by Cablevision; unlimited free voice, text and data

Comcast

Comcast is aggressively deploying dual gateway SSID routers in preparation for its Wi-Fi First/Only service.

Wi-Fi First + Cellular model

Republic Wireless and others are eliminating the coverage gap by using cellular where necessary, but the majority (75%-plus) of traffic flows through a Wi-Fi network.

Google Sidewalk Labs

Converting old phone booths in New York into Wi-Fi hot spots and charging stations

Telecom Wi-Fi

Incumbent operators are disrupting themselves by offering their own Wi-Fi services (e.g., T-Mobile Wi-Fi Calling).

Wi-Fi ECOSYSTEM

2

1

4

6

3 5

1

2

3

4

5

6

The Wi-Fi ecosystem is dynamic and growing rapidly

Wi-Fi Ecosystem Key Developments

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Wi-Fi has some shortcomings that will need to be addressed before it can fully challenge cellular

Shortcomings of Wi-Fi

Wi-Fi stakeholders and standards bodies are focused on addressing Wi-Fi’s shortcomings.

Limited device selection

Consumers want choices.

Coverage gaps

Addressed using cellular as back up or deploying more access points

with coordination technology

Handover

Needs to be seamless; coordination currently

not optimized

Quality

Need to better manage the access point

Security

Needs to improve

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Cellular still has a future in a Wi-Fi First world

Future of Cellular

Cellular will become de facto fall back to Wi-Fi

Particularly in suburban and rural areas

Mission-critical use cases

Government, healthcare, large enterprise, etc.

M2M solutions

Connected car and medical devices

Cellular operators will continue to have a love-hate relationship with Wi-Fi. The technology poses a significant threat to the cellular business model, but helps reduce the cost per bit and enhances indoor coverage where cellular doesn’t penetrate well.

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Incumbent telecom operators will be blindsided by the Wi-Fi revolution if they don’t start preparing now

Implications for Incumbent Telecom Operators

Revenue will decline as subscribers defect to Wi-Fi plans.

Cash flow will decline because ARPUs will be in race to the bottom as operators try to stem subscriber losses.

Operators will need to bring new revenue streams to market to offset cannibalization of access business.

Access will become a commoditized sunk cost; the real value lies in value-added services with some room for a premium provider.

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Operators should leverage Wi-Fi to enhance their businesses while focusing on building revenue-generating businesses

Recommendations for Incumbent Telecom Operators

Prioritize network analytics to monetize cellular.

Leverage Wi-Fi to enhance indoor coverage and focus on selling premium service.

Promote network quality to retain subscribers.

Outsource network operations to reduce opex and stave off margin erosion.

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Disruption will hurt some vendors and help others; balance of power will shift from cellular-centric vendors to Wi-Fi-centric vendors

Implications for Network Vendors

High Risk

Wi-Fi is threat

Low Risk

Wi-Fi is opportunity

• Alcatel-Lucent

• Nokia Networks

• Ericsson

• Huawei

• ZTE

• Samsung

• Cisco

• HP (Aruba)

• Ruckus Wireless

• Motorola Solutions

• Arris

• Pace

• Aerohive Networks

• Aptilo Networks

• Other Wi-Fi vendors

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Vendors need to provide converged cellular-Wi-Fi solutions to customers while adapting businesses to be more services-oriented

Recommendations for Network Vendors

Build up value-added services portfolio to

help operators identify and implement new revenue-generating

businesses.

Promote LTE-LAA and related technologies to

leverage Wi-Fi spectrum and improve cellular coverage and quality.

Accelerate downsizing of “old” business and make room for new.

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Wi-Fi economics are superior to cellular and shortcomings will ultimately be addressed.

Cellular will still have a role to play in a Wi-Fi First world, but operators need to adapt.

Network vendors must transition with customers to Wi-Fi- centric world.

Wi-Fi disruption is at the doorstep and industry participants must recognize and adapt to this market transition

Conclusion

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Wi-Fi First: Wi-Fi poised to disrupt cellular model

James McIlroy Vice President of Sales Email: [email protected] Telephone: 603.929.1166

Twitter: @TBRinc SlideShare: www.slideshare.net/TBR_Market_Insight YouTube: www.youtube.com/user/TBRIChannel LinkedIn: www.linkedin.com/company/technology-business-research

Chris Antlitz Telecom Senior Analyst

Email: [email protected] Twitter: @chrisNMP Phone: 603.758.1850

Q&A


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• Alcatel-Lucent • Cisco Systems • Ericsson • HP Telecom & Mobility* • Huawei* • IBM Telecom & Mobility* • Juniper Networks • Microsoft Telecom & Mobility • Nokia Networks • Samsung Networks • ZTE*

• AT&T • Comcast • Sprint • T-Mobile USA • Time Warner Cable • Verizon

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Telecom Infrastructure Services Global Market Forecast**

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Market Research

• Alternative Network Providers Market Landscape* • Carrier Cloud Market Forecast** • 5G Market Landscape* • NFV Market Forecast** • NFV Market Landscape* • Small-cell Market Landscape* • Telecom Software Mediated Networks Customer Adoption Study* • Wi-Fi First Market Landscape*

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