November 22, 2010 – 4G: The Cure for the Common Cord

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4G technology is following a 10 year roadmap toward download speeds that will allow wireless carriers to successfully compete for broadband and video with traditional cable, satellite and telco operators.  With the added advantage of mobility, the ability to launch service to areas of up to 50 square miles with the investment of a single base station, and a flood of new spectrum likely to be made available over the next decade, 4G is the alternative that will make cord cutting the rule rather than the exception.  Meanwhile, the march toward true 4G performance will further enhance the appeal of portable computing platforms – e.g. tablets, smartphones and netbooks – and cloud applications, hastening the demise of the traditional PC

While the new services being touted by US carriers as “4G” may not meet the ITU definition as offering at least 100Mbps mobile download speeds, the >5Mbps speeds offered are a step function improvement vs. the previous generation, adding greatly to the utility of smartphones and tablets by giving them wide-area wireless performance comparable to what is typically realized by residential wired broadband users.  Moreover, these new services are a step forward on a long-term roadmap that is expected to bring speeds of 100Mbps to mobile users and up to 1Gbps for residential applications within the decade.  These speeds will be more than sufficient for wireless networks to compete directly for residential broadband and video, particularly given the Government’s intention to make 100’s of MHz in new spectrum available for commercial use

Sprint (WiMax) and T-Mobile (HSPA+) have ballyhooed their recently launched networks as 4G, although the roughly 5Mbps peak speeds available on these carriers is obviously short of the ITU definition of 100Mbps+ download speeds to mobile users and 1Gbps+ for semi-mobile users.  Verizon and AT&T are 6-12 months behind with their LTE networks, but will have advantage with 6-12 Mbps speeds, scale economies given the global dominance of the standard, and superior industry resources devoted to push LTE down its technical roadmap to true ITU 4G performance as quickly as possible

In 2011, these pre-4G networks are roughly a 4x improvement over 3G and will be a significant enabler in the likely success of portable devices – e.g. smartphones, tablets and netbooks – and cloud-based applications – e.g. streaming video, social networking, etc. – that rely on high speeds and fast response times.  However, as the technology progresses over the next decade through future upgrades toward achieving the ITU goals, new applications, such as HDTV for mobile AND residential consumers, will be enabled.  In particular, we believe residential wireless broadband – at speeds of 1 Gbps or more – could threaten the hegemony of wired broadband and hasten the demise of traditional channelized video

The long-term threat to wireline broadband will be amplified by new spectrum likely to be made available for commercial purposes.  This week, the US NTIA identified 115 MHz currently used for government purposes that could be made available within 5 years.  This is in addition to 300 MHz called out in the FCC’s National Broadband plan for the same timeframe, which included 120 MHz of prime 700 band spectrum currently licensed to TV broadcasters.  Finally, The NTIA notes nearly 2 GHz in further spectrum bands – some recommended for global broadband use by the ITU and some subject to agreement with neighboring nations – that could be made available on longer term basis.  While most of this spectrum is at higher frequencies with limitations for in-building penetration, it would be viable for line-of-sight residential broadband and cell site backhaul applications

We expect the combination of new spectrum, advancing technology, and government policy favoring competition to spur greater rivalry amongst wireless carriers and by these carriers against wired broadband operators.  The American market has the 2nd highest wireless prices amongst developed nations, we believe, due in part to the superior spectrum holdings of the dominant leaders Verizon and AT&T.  New spectrum auctions, which could more than double the spectrum allocated to commercial use, might enhance the viability of industry also-rans and/or attract powerful new entrants

We expect LTE, which was specified by the 3GPP organization, to be the predominant wide-area wireless technology world-wide, as both GSM/WCDMA and CDMA technologies will converge to it as a single standard.  The process by which the standard was established favored traditionally dominant wireless technology providers, with Qualcomm the biggest patent holder at 28%, followed by Interdigital (25%), Ericsson (15%) and Nokia (14%).  A further study by Informa suggests that 60% of Qualcomm and Nokia’s patents are likely to be deemed essential to the standard, compared to 33% for Ericsson and significantly less than that for Interdigital

We believe that the winners in 4G will likely come from patent licensors (e.g. Qualcomm), chip vendors (e.g. Qualcomm, Broadcom, ARM, etc.), tower companies (e.g. American Tower, Crown Castle, SBA, etc.), mobile software platforms (e.g. Google, Apple, etc.), and leading mobile applications (e.g. Apple, Google, Amazon, Facebook, etc.).   While the market for LTE network equipment is quite concentrated amongst Ericsson, Nokia Siemens Networks, Huawei and Alcatel-Lucent, the history of these companies and their inability to monetize similarly strong positions in 3G lead us to be cautious about their potential looking forward

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