3G as an alternative to home broadband?

 

In a desire to develop competition in broadband provision to the home, many have hoped that wireless might one day evolve sufficiently to become a viable alternative. But the technologists were generally sceptical. Wireless, they noted, did not have the capacity and tended to lag behind the speed of fixed connections. Previous attempts to deliver wireless broadband, from Ionica to the more recent UK Broadband, have all either failed, or remained small-scale activities. Yet suddenly, almost out of nowhere, 3G data card sales are rocketing and for many wireless does appear to be becoming a viable alternative to fixed line broadband. What is going on here?

 

The answer is that 3G is a viable alternative for some – in particular those with relatively low total data volumes and who do not want a fixed line to their home. On the data side most 3G cards have a limit to the data per month unlike home broadband which is typically unlimited (albeit with some “fair usage” clause). So, 3 are currently offering 5GBytes/month for £15 on contract with 10p/MByte additional charge if this limit is exceeded. That equates to around 160Mbytes/day. For downloading emails and web surfing that is probably plenty for most, but audio and video streaming could quickly eat through that (audio streaming at 100kbits/s equates to around 45Mbytes/hour, video streaming at 500kbits/s would use up the daily entitlement in 40 minutes). As the BBC iPlayer becomes ever more popular, many predict a rapid increase in the average data consumption to the home. (In passing, it is worth noting that 160Mbytes equates to around 1,800 voice call minutes per month. Current offers are £20 for 500 voice call minutes so data is being offered at around a quarter of the voice call price making VoIP attractive.)

 

The other question is whether the household wants to have a fixed phone line. If they decide they do, and pay the line rental, then the additional cost of broadband on this line is typically well below £15 and provides higher data rates, unlimited volumes and often mostly free calls (except to premium rate and overseas numbers). For such a household, mobile broadband is not particularly attractive (except as a way of accessing the network when on the move). However, many people do not want a phone line. Those who are renting, students and those who spend little time at home often do not want to feel tied to a fixed line. Such individuals already make use of mobile as their only means of voice communications and extending this to mobile data clearly looks sensible.

 

Finally, there is the question of network capacity. Cellular networks have enhanced their capacity with HSDPA which broadly enables higher data rates for those with good coverage while excluding those with very poor coverage. This makes it very difficult to analytically derive cell capacity. Instead, Qualcomm and others have modelled and measured typical scenarios and concluded that data rates in the region of 1.2 – 1.5Mbits/s per cell can be supported. So if all the data users tried to access their 160Mbytes between, say, 8pm and 10pm, the cell could, at best support around 8 subscribers per carrier. If voice traffic is also to be carried then this would be lower. Assuming around 10,000 cells covering the UK, each with 3 sectors, then the total subscriber numbers per operator per carrier would be in the region of 240,000. Of course, if users actually averaged less than their allotted allocation per day then more could be supported – as is likely the case. So perhaps up to a million users per operator might be feasible, especially if additional spectrum is acquired allowing more carriers to be deployed, giving perhaps as many as five million across all operators.

 

So we can conclude that cellular is not a viable replacement for broadband for all – it does not have the capacity for more than around 25% of UK households. It is also only attractive to a certain class of user who would typically not have a fixed line to the home and it may become less attractive if video streaming becomes the norm. But for a substantial subset of the market it looks ideal.

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The iPhone 3G is radical – but the business model is conventional

The new iPhone 3G, announced yesterday, looks like a very cool device.

But one of the more striking features from a business standpoint is that Apple appear to have reverted to a much more conventional business model than for previous versions.

 

iPhone 3G

When the original iPhone was launched, Apple managed to convince operators to enter into a revenue-sharing model, where they would take a proportion of the call revenues flowing to the operator. This required a very close relationship with the operator. The balancing factor in the deals was operator exclusivity for supplying the iPhone in a given territory. All of this ran counter to the prevailng industry trends, where the movement has been away from such approaches, with handset subsidies and operator locking gradually diminishing, and  revenue sharing almost unheard of, certainly in the case of handset manufacturers.

But with the release of the new device, reports suggest that Apple have reverted to a conventional hardware sale, leaving the operator to collect the revenues in the normal way. They also seem to be moving away from operator exclusivity. The technology may be revolutionary, but it seems that simple business deals work best for all concerned.

 Update: Interestingly, some reports have suggested that the net result is not necessarily favourable to operators, as the reduced retail price of the iPhone 3G requires operators to provide larger subsidies. I suspect operators ae smarter than that, and expect the device to drive take-up of data services and increased loyalty which which will provide a net positive effect.