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Wireless Broadband Futures
William LehrResearch Program on Internet & Telecoms Convergence
Massachusetts Institute of Technology
Center for eBusiness Research SeminarCambridge, MA
March 12, 2003
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Outline: Wireless Broadband FuturesWireless Broadband Internet3G and WiFi: Complements & SubstitutesWiFi business modelsRegulatory Policy Issues (Spectrum Management)
"Software Radio: Implications for Wireless Services, Industry Structure, and Public Policy," with Sharon Gillett and Fuencisla Merino
"Wireless Internet Access: 3G vs. WiFi?," with Lee McKnight, forthcoming Telecommunications Policy.
http://itc.mit.edu
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Wireless Broadband AccessTwo most important ICT phenomena of last 10 years:
Internet: data services for the massesWireless: mobile communications for masses
Now, merging…Broadband: performance, multimedia, “always on”Mobility: ubiquity, portability (nomadicity), flexibility• Enhanced services• Increased competition • Universal service
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Ubiquitous/pervasive computingChips in everything unaware, automaticNetworked wireless
Wireless/wireline integrationAlways on, anywhere accessible multimedia applications
Heterogeneous technology environmentLots of wireless technology/networksContinuing innovation & overlapping legacy networksInteroperability/interfaces focus, not uniform standardizationMultiprotocol support necessary (e.g., SDR)
Complex industry environmentMix of firm types, dynamic competitive environmentConvergence, liberalization, competition, & globalization
Vis
ion
of F
utur
eIm
plic
atio
nsWireless Broadband Internet Future
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Need Multiple Wireless NetworksBandwidth
Control: <10Kbps (monitoring, signaling)Real-time communications: < 100Kbps (telephone)Broadband: 10-100S Mbps (streaming video)
DistancePico (digital jewelry)LANWAN
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Who will build the wireless infrastructure?
CarrierCellular, CableCo, ILEC, Satellite
Who pays forfirst hop of access?
What technology?
Subsidized OtherFreeNets,CampusNets, GovNets, CorpNets
New TelcosNon-Telcos (PowerCo)End Users
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Lots of Wireless TechnologyAll along the RF spectrum
Microwave Satellite (geosync, LEO)MMDS, LMDSCellular 3GWLANs (e.g., WiFi)Free Space Optics, UWB, etc.
Lots of complementary technologySmart antennas, software radio, multi-user in formation theory, ad hoc networking, etc.
Licensed and Unlicensed (shared) spectrum use models
focus on these twoto highlight implications
for industry structure
Wireless Industry structure?
WLAN3G
Traditional Carrier ModelTop DownVertically IntegratedCentralized Control
Accommodates Alternative PlayersBottom UpLess Vertically IntegratedDistributed Control
End-user Equipment ModelEdge-centric
(Internet vision)
Service Provider ModelNetwork-centric
(Bell system redux?)
Substitutes or Complements? WLANs Disruptive technology?
WLAN3G
High (~10s Mbps)Low (~100s Kbps)Bandwidth
No, need to addYes, service model in place
Retail infrastructure
Data adding voiceVoice adding dataServices
UnlicensedLicensedSpectrum
Low (~$1k)High (~$50k)Deploy Cost
Local (100m)Ubiquitous (Km)Coverage
WiFi (802.11b), etc.
UMTS, CDMA-2000, etc.
Technology
3G status: most carriers implementing 2.5G with plans for 3GWiFi: rapid growth, still small installed base; Competitive value chain
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EquipmentService
service
Who controls services? Service provider Customers
Example? Telecom Services ComputerBusiness model? Invest in capacity and
lease access to consumers for monthly subscription
Sell boxes to consumers who replace when become obsolete
Where's network intelligence? Network Edge devices
Where's network CAPEX? Service provider End-userInnovation adoption process? Centralized Decentralized
Regulatory? Utility regulation Unregulated, Certification, Industry Standards
Different industry economics, institutional/regulatory history
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Status 3GCellular upgrading networks to add data services
2.5G (GPRS/1XRTT) 30-130kbps, not 2Mbps of 3GMB/Message pricing value-added serviceCoverage still being expanded
2G 2.5G 3GAT&T TDMA GSM/GPRS/EDGE W-CDMACingular TDMA/GSM GSM/GPRS/EDGE W-CDMANextel iDEN advanced iDENSprint CDMA cdma 1XRTT cdma2000T-Mobile GSM GPRS W-CDMAVerizon CDMA cdma 1XRTT cdma2000
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Status of WiFi: leading WLAN technology
$2.0B$1.8B$0.8BSales
10.87.02.6Shipments – Business use
5.22.60.4Shipments – Home use
2002e20012000
Source: Cahners In-Stat, June 2002
WiFi SalesGrowth rapid,
still small
Wireless Ethernet Compatibility Alliance (WECA) estimates $5B by 2005
T-Mobile, British Telecom, Wayport, Boingo, CingularService Providers
Microsoft, VeriSign, TeleSym, etc.Software
IBM, Proxim, Dell, Motorola, etc.Equipment
Intel, Agere, Philips, TI, Atheros, etc.Chips
WiFi Value Chain: Globally competitive rapid price declines…
4.8K hotspots (2002) 57K (2007) North America & Europe (Analysys)
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3G v. WiFi?Complements, yes
3G/WiFi integration• Hotspots for value-added services (multimedia)• Easier migration to 3G (GPRS+WLAN instead of W-CDMA)• Spectrum efficiency/re-use (e.g., withing-buildings)
Wireline/Wireless integration• Alternative technologies for last hop access
Substitutes, yesLast mile competition? (3G instead of DSL)
Wireline entry into wireless? (ILEC or overbuilder using WiFi)
Equipment replaces service provider bus model?• Is future of ICT more like computer industry or like telecom?
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WiFi Business ModelsEnterprise and Home WLANsCommunity Nets (Freenets, CampusNets, GovNets, MuniNets)
Cellular/WLAN integration“Raisins in the muffin” Extend coverage/capacity (within buildings)
PWLAN Service Providers (Boingo, Wayport) Aggregators (Boingo) “$695 hot spot in a box”Hot spot providers
Wireline broadband extension ILEC entry into wireless? (Residential resale of wireless)Wireless Fixed Local Loop
Wireless ISPs for rural/suburban areas
Equipment
Service provider
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Cellular/WLAN integration
Avaya/Proxim/Motorola:WiFi/Cellular roamingNokia: WiFi/GPRS integrationCometa Networks: JV of AT&T, IBM, Intel to provide wholesale WiFi hotspotsT-Mobile: Starbucks, etc. hotspot servicesNextel: iDEN and private WiFifor customersVerizon & Sprint focus on 1XRTT for nowLots of others: VoIP integration, security, Wireless IP switching, etc.
Different technologies to fill product space
Ubiquity: 3G (or, 2.5G)Bandwidth: WiFi Hot Spots
Cellular provider advantageAlready have retail/service modelDrive to bundle services, increase ARPUIf not, risk of cannibalization
It’s happening… Drivers…
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How Boingo sees it…
Source: PWLAN industry segmentation (Boingo website, http://www.boingo.com/wi-fi_industry_basics3_2.html)
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• Sprint is investor•1.2K hotspots worldwide
Boingo Business Model
Source: PWLAN industry segmentation (Boingo website)
• Joltage closes doors Feb2003• T-Mobile cuts fees: $49.99 $29.99, w/o MB restrictions
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Impact WiFi on Wireline Providers (no resale)Home WLAN complementary good to wireline broadband.
Increase demand for wireline BB (sell more? raise price?)Operating cost impact?• Transport costs/congestion increase • Customer service costs increase
WiFi for wireless fixed loopShare/extend wireline DSLDifferentiated service: lower price (quality) for shared fixed accessPlatform for mobile entry by wireline (competition with cellular?)
WiFi by competitor is substitute to wireline broadbandCellular, new carrier, or end-usersBest defense may be strong offense
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Impact WiFi on Wireline Providers (w/ resale)Revenue up/down?
No revenue sharing (“Freenets”) theft of service• (But may educate customers about BB)
Revenue sharing• Cannibalization of existing wireline or incremental subscribers?• Incremental roaming customer demand• (What is sharing model? How is billing/metering managed?)
Costs up/down?Equipment costs: customer pays for WiFi Traffic costs: usage up per fixed lineCustomer service costs: who responsible for?
Strategic implications for carrier of encouraing WiFiDoes wireline want to compete with cellular?
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WiFi ChallengesStandardization: 802.11b, a, g, …
Need multi-mode chipsets for compatibility. (802.11a/b, b/g available)
Other technologiesUWB, 3G, Bluetooth, ?? … WLAN only one approach
Power requirements (Battery)… general wireless BB problem
CAPEX to fund build-out. (only 8k hotspots today)Second mile costs (WiFi connects to wireline)Software -- middleware and application support
Security … not a WLAN-unique problemMobility & network management (e.g., Roaming)QoSService provisioning (authentication, billing)
Spectrum policy: Licensed vs. Unlicensed, Congestion management
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Impact of WiFi-like TechnologiesBroadband penetration enhancedExpanded service options: unlock potential of InternetIncreased broadband and/or wireless competition
Lower entry barriers• More technology options• Facilitate new business models/architectures
– CommunityNets (end-user subsidized)– NextGen Wireless Carriers, Wireless/wireline convergence &
competion– Ad hoc network alternatives, etc.
Equipment, not service• Viral growth• Convergence
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Slides Not Used
Back-up
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Residential WiFi Resale of Wireline BB
Additional Slides
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3Residential Broadband Resale
Reseller is first a customer, and second a distribution channel (assumption).
Typically, resale is pure commercial relationship
Small resellers are not generally profitable…Higher transaction cost for wholesale to contend with• Cost billing• Service risk• Sophistication (wholesale customer support required)
More likely asymmetric power relationship favors carrierWhy can’t carrier identify resale from non-resale traffic?
If it matters, then incentive to make observability feasible.
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4Does resale increase carrier profits?
Carrier revenue increased?Penetration up? Traffic increased?• Fixed lines sold or total share of market served?• Aggregate traffic or per line? How do patterns change?
Depends on pricing…could go either wayCarrier costs decreased?
Operating costs increase?• Traffic costs (increased peak?)• Customer service (what does “reseller” do?)
Capital costs increase?• Reseller customers require less capital (loops scarce? modem.)• Second-mile capacity for increased traffic
Strategic implications?Wireline entry platform into mobilityBest defense may be offense: co-opt the competitionImpact on brand.
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4Carrier revenue increases with resale?Resale increases share of market served
Home WLAN is complementary to BB DSL so enhances willingness-to-pay even without resale (all individual demands shift out)Resale allows sale to marginal subscribers (line sharing)Mobility users purely incremental
Cannibalization decreases overall sales DSL linesAggregate traffic increases
Presumably, but depends on equilibrium pricing
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4Cannibalization or incremental sales?
After resaleBefore resaleDSL subscribersDSL subscribers
Non-DSL subscribersDSL resellers
Fixed reseller customersNon-DSL subscribersOthers not in local market
Mobile resale customers
Average Price DSL line up or down?Average Usage per DSL line up or down?Congestion up?Reseller revenue upTotal revenue (profits) up or down?Total penetration up or down?
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5Simplified Demand Framework
Class 4: Low value, heavy useEarly adopters, studentsNapster
Class 3: Mass marketNot currently subscribers
Low WTP
Class 2: High value, heavy useRegular user. Day and perhaps night.Home office, maybe serverWeb, email, ftp
Class 1: High value, light useOccasional user. Mostly night.Web, email
High WTP
High QLow Q
xy
(1-x)y
x(1-y)
(1-x)(1-y)
*N total customers, Share x have high WTP, Share y low Q
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5Residential Resale Results
Class 4: Low value, heavy useEarly adopters, studentsNapster
Class 3: Mass marketNot currently subscribers
Low WTP
Class 2: High value, heavy useRegular user. Day and perhaps night.Home office, maybe serverWeb, email, ftp
Class 1: High value, light useOccasional user. Mostly night.Web, email
High WTP
High QLow Q
xy
(1-x)y
x(1-y)
(1-x)(1-y)
Cannibalization Risk(shift to resellers, or
resale customers)
Unaffected if congestion risk from resale
Resale Customers Reseller Providers
*N total customers, Share x have high WTP, Share y low Q
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4Operating cost increases?
Traffic increases: Costs go up, but how much?Underlying costs? Share of peak load.
• Resold may be off-peak so no real cost. • Traffic more bursty?
Second-mile rates for access provider?• Dedicated, capacity pricing: share of peak• Variable: more traffic, higher transport
QoS effect: how provisioned? Congestion impact.• Traffic pattern: is it off-peak?• Capacity expanded to accommodate => aggregation benefits• Capacity not expanded => congestion externality (diminished demand?)
Customer service: up or down?Shifted to reseller or does carrier need to address reseller’s WLAN problems?
Customer acquisition/billing costs: up or down?Reduced retail costs or loss of customer relationship?Who does billing?
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4Capital cost impact resale?
Access infrastructureCustomer owns last-mile infrastructure• Modem, Loop (are they scarce?), Install costs, ??
Second-mile costsExpand capacity for additional customers
Does resale entry make capital costs more scalable?Reduces sunk cost (real option effect)
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4Strategic implications of resale
Assume DSL provider allows WiFi resale, what are responses of:Cable provider (upstream more limited)Cellular provider (are these competitors?)Commerical WISP/WLAN providersSubsidized net providers
Implications for Customer controlInfrastructure planning flexibility• Lock-in to customer owned capital, WiFi• Forestall FTTH (?)
Encourage growth & penetration BB Whole industry gains from externality/learning impactIncentives to develop complementary goods
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4 Strategic implications of resaleImage/brand effects
Allow resale, then residential resellers are representatives of company.Pricing flexibility? • Increased: resellers expand effective pricing options
– Why is service provider pricing constrained?• Decreased: resale arbitrage risk
Churn increased/decreased?Increased: with resale, mobility among wireline services increased.Decreased: additional opportunities to bundle services
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Regulatory Policy for Wireless Broadband
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Regulatory Policy and Wireless1. Spectrum policy2. Universal service3. Competition Policy4. Infrastructure/Technology Policy5. Everything else: Privacy, Security, etc.
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Spectrum PolicyAllocate additional spectrum for commercial applications
Licensed & UnlicensedAuctions, but not as general revenue tax
Focus on market-based spectrum allocation/assignmentFlexible licensing rules: let private sector choose how to use spectrum and when to redeploy to other usesAllow overlay and underlay (e.g., UWB) rightsAllow market trading of rights
Reform certification rules to allow spectrum agile devices and smart wireless devices
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Universal serviceWireless extends options for coverage
WISPs for low-cost rural/urban accessWireless Broadband redefines
Who should contribute? What services should be eligible?Who/what should be subsidized?
Not just a wireless issue, but Digital Divide more generally.
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Competition PolicyFacilitate/encourage local WiFi networking…
CampusNets, GovNets, CommunityNets, BusNets, etc.Local econ development/community building initiativesHow? Info sharing & technical assistance, promote interconnection, demand aggregation for backhaul costs, financing, etc.
Local Service Providers licensed/allowed Building, Campus, Community
Impact on wireline/mobile carriers?Expanded WiFi expands market/demandIncreased competition facilitates deregulationPublic investment should not crowd out private
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Infrastructure/Technology PolicySupport international/industry standardization
Avoid dictating technology choicesStreamlined equipment certification rules
Mirror international rules for scope/scale economiesWireless-network friendly zoning
Antenna siting (e.g., access to roofs, rules for sharing power/wireline outside structure, etc.)Line-of-sight & rights-of-way access protection
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Everything else: Privacy, Security, etc.Privacy and Consumer Protection
Location aware wireless services pose new threatsSecurity
Emergency services (location rules?)Primary phone service (power required?)
mCommerce Business Rules and Regulationetc.
