WIRED AND WIRELESS NETWORKS: TWO WORLDS COMING TOGETHER

SUMMARY

Two key battles are being fought in today\'s telecoms world – for access to subscribers inside and outside of the building for voice and non-voice services.

Voice over IP will set the wired and wireless worlds on a collision course while at the same time providing opportunities for operators and vendors.

The first key battle is the "battle of the building." As mobile voice services have fallen in price and improved in coverage and quality, a trend of fixed to mobile substitution has favored mobile operators. This has enabled mobile operators to "steal" traffic that would have otherwise been carried over fixed networks.

Up until now, it has been impossible for fixed and cable operators to respond. However, the availability of high-speed wireless IP access, either via Wi-Fi or alternative broadband wireless solutions, and the maturity of VoIP, are changing this. Now fixed and cable operators will counter the threat of fixed to mobile substitution and start to grab traffic back from mobile operators – especially "inside and around the building."

The "battle of the bundle" is a second key battle for operators. Today\'s focus of cellular operators is on the rollout of 3G networks and on the development and marketing of multimedia services. However, these plans are under threat.

Cable and DSL operators offering a \'triple play\' of services – voice, video, and data over their broadband networks – are now posing a new set of competitive issues for mobile operators. The addition of a wireless element to wired operators\' arsenals will enable them to capture a larger portion of their residential and enterprise customers\' telecoms spend.

This wireless addition may be achieved through partnership with a mobile operator or through deployment of their own wireless network using Wi-Fi or alternative broadband wireless access solutions. Providing multiple services via a single operator can enable considerable economies – allowing wired operators to compete effectively against providers of separate services.

Networks which can deliver most cost-efficiently with differentiated IP services, will determine the winners. This is creating opportunities, and challenges, for established and emerging vendors and operators alike.

Convergence is not a new theme. Most telecoms industry participants speak of it. But there is no consensus on the degree of convergence and how fast it will happen, or even on what convergence really means. Will it take place at the network level, the device level or the services/service provider level?

Increasing wireless technology diversity, and the concern being wrought by changing regulatory and industrial policy, are fueling uncertainty.

"WIRED AND WIRELESS NETWORKS: TWO WORLDS COMING TOGETHER" analyzes

the nature and extent of convergence over the next 5-6 years and why it will happen. It demonstrates the potential influence of new technologies, regulation, and market behavior. It discusses plausible disruptive events and their effects on convergence.

It analyzes the implications for licensed and unlicensed wireless operators, wired operators (including cable TV and DSL), and their consumer and business customers.

Underlying this dynamic and complex environment is the inexorable trend toward All-IP transport protocols and packet-switched networks. Ultimately this will lead to all-packet fixed and wireless networks from the core all the way out to the access network. To some, the move toward All-IP networks is considered "true" convergence. For others, convergence is when circuit-switched cellular networks "talk" to other packet-switched wired and/or wireless networks.

Timing for the migration to All-IP networks is not the same for all operators. Legacy networks cannot be ignored, nor can the cost for operators to migrate to All-IP networks be dismissed. These dynamics will have a dramatic impact on the choices operators make, the timing of deploying IP networks, and the cost for delivering services. Not all operators or vendors will be able to compete on the same level.

Telecoms providers are fighting for ownership of customers.

Broadband and wired providers will not give up their core businesses. They "own" the data market today. They will fight to retain ownership as mobile providers enter the broadband data space. Mobile operators who have deployed CDMA2000 1x EV-DO are already addressing this market. As UMTS operators deploy HSDPA, they too will address high-speed data.

But cellular operators and technologies are not operating in a vacuum. The study analyzes alternative technology approaches which are being provided by such companies as Flarion (FDD, mobile broadband) and IP Wireless, and Navini and Arraycomm (TDD, portable broadband).

The impact of these alternative technology solutions may be greater than is commonly assumed.

All operators, regardless of type, will fight to retain "ownership of customers." There is a complex relationship between network access, service delivery, and end-user choice. With the advent of multi-mode handsets, there are potential revenue risks for mobile and wired operators. This could occur if handsets are able to connect to alternative networks outside of an operator\'s domain. It is possible, however, that through intelligence of the network, choices may be made for the end-user. From the end-user\'s perspective, determining factors may also be time, location, lifestyle, and cost.

The real battle will be over voice services. UMTS operators are rolling out networks which can deliver "cheaper mobile voice." Wired and broadband providers are offering free or very cheap VoIP services today. Mobile and alternative wireless providers are beginning to offer VoIP through early Push- to-Talk (PTT) and trials of VoIP.

Today, mobile operators benefit from a premium voice business. End-users like "free or cheap" and will have many choices with regard to voice. VoIP providers such as Skype and Vonage are disrupting the landscape. Mobile operators will feel the impact of these and other disruptive forces.

"WIRED AND WIRELESS NETWORKS: TWO WORLDS COMING TOGETHER" provides a framework upon which companies may make profit-driven decisions.

To illustrate the possible outcomes of these profound changes, the study presents three very different, yet equally plausible, scenarios for convergence.

STRUCTURE OF THE STUDY

Section 1 – Introduction

Section 2 defines convergence and discusses the various ways in which convergence could manifest itself.

Section 3 presents the model of market dynamics which underpins our analysis and it identifies the key drivers, enablers and barriers to convergence.

Section 4 analyzes the technologies that will influence the nature and speed of convergence, and evaluates their importance in influencing operator and vendor strategies. These include conventional cellular technologies, conventional fixed such as cable and DSL, and alternative broadband wireless technologies such as FLASH-OFDM and TDD-based solutions, Wi-Fi, and Wi-Max.

Section 5 explores the role that regulation and industrial policy will have in enabling, or possibly hindering, convergence. It examines how they will influence the nature and timing of convergence in different geographical markets.

Section 6 considers the importance of societal trends and consumer behavior in influencing convergence.

Section 7 examines the strategic implications of these technological, regulatory and market trends for the industry and explores the impact they will have on competition and industry structure. We introduce two key concepts – the "battle of the building" and the "battle of the bundle." Operators – fixed, broadband, or mobile – will fight these battles. Winners cannot yet be declared.

Section 8 presents three plausible, yet significantly different, scenarios of how the telecommunications industry(ies) may develop, given different outcomes for key influencing factors.

• Scenario 1 – Status Quo: Wired and mobile operators stick to their knitting
• Scenario 2 – Mobile Broadband Wins: Mobile operators gain traffic and revenues at the expense of wired operators
• Scenario 3 – Portable Broadband Wins: Wired operators gain traffic and revenues at the expense of mobile operators

Section 9 draws conclusions and provides guidance to enable industry players to best prepare themselves for an uncertain future – to profit from potential opportunities and avoid the risks posed by possible threats.

TABLE OF CONTENTS

EXECUTIVE SUMMARY

SECTION 1: INTRODUCTION

• Structure of the Report 16
• Summary & Conclusions 17

SECTION 2: DEFINING CONVERGENCE

• Service Convergence -- How Does the End-User Experience It? 19
• Service Provider Convergence -- Who Delivers It? 19
• Network Convergence -- How Is It Delivered? 20
• Vendor Convergence -- Who Enables Its Delivery? 20
• Summary & Conclusions 21

SECTION 3: MARKET DYNAMICS

• Technology 23
• Regulation 23
• Market Demand 23
• Operator Strategies 24
• Summary & Conclusions 24

SECTION 4: TECHNOLOGY DEVELOPMENTS: EVOLUTION OR REVOLUTION?

Conventional Wisdom -- The Evolution of Cellular Technologies 25

• The evolution of GSM radio access networks 27
  • GPRS 27
  • EDGE 27
  • W-CDMA FDD 28
  • HSDPA 29
  • W-CDMA TDD 30
• The evolution of CDMA radio access networks 30
  • CDMA2000 1x 31
  • CDMA2000 1X EV-DO 31
  • CDMA2000 1x EV-DV 32
• The trend toward all-IP architecture in cellular networks 33
  • IP Multimedia Subsystem (IMS) 33

Revolution -- Alternative Broadband Wireless Access Technologies 35

• Local area broadband wireless access systems 35
  • Wi-Fi (802.11b, 802.11a and 802.11g) 36
  • Bluetooth and UltraWideBand (UWB) 39
• Wide area broadband wireless access systems 41
  • Wi-Max (802.16) 42
  • MBWA (802.20) (mobile broadband wireless access) 45
  • Proprietary BWA Technologies 46
  • ArrayComm 47
  • Flarion Technologies 48
  • IPWireless 48
  • Navini Networks 50
  • The Future for Alternative BWA Systems 51
• Broadcast technologies 52

Putting Wireless in Context 54

• DSL Growth 54

VoIP and the Packetization of Networks 55

• VoIP -- the unstoppable force for change 56
  • Vonage 57
  • Skype 57
  • VoIP quality 58

Summary & Conclusions 60

SECTION 5: REGULATION AND INDUSTRIAL POLICY

• Mandating Technology for Licensed Spectrum 64
• "Regulation" or "Policing" of Unlicensed Spectrum 66
• Classification of Services 68
• Competition Law 70
• Summary & Conclusions 72

SECTION 6: MARKET DEMAND

• Societal and business trends 74
• Mobile or Convergent Services? 77
  • Voice services -- cash cow or sacred cow? 79
  • Data services -- bit pipe or smart pipe? 81
    • Messaging (email, IM, text, picture) 82
    • Content services (ringtones, music, games and video) 82
    • content downloads 83
    • streamed content 84
    • broadcast TV 85
    • Internet browsing/LAN access 86
    • pricing of Internet access services -- flat rate 87
    • Mobile video telephony 88
• Mobile or Convergent Devices? 89
  • Mobile phone evolution 90
    • Multi-mode handsets 91
    • PCMCIA/compact flash modems 92
    • Distributed vs integrated devices 92
    • Wired devices, e.g. TV, PC at home/office 94
• Summary & Conclusions 94

SECTION 7: STRATEGIC CHOICES AND IMPLICATIONS FOR INDUSTRY STRUCTURE

• Key Drivers and Enablers of Convergence 97
• The "Battle of the Building" 101
• The "Battle of the Bundle" 102
• Strategic Choices and Implications 104
  • Cellular operators 104
  • Wired telecoms operators 105
  • Cable operators and broadband ISPs 106
  • Network and device vendors 107
  • Others 109
• Summary & Conclusions 109

SECTION 8: SCENARIOS

• Status Quo: Wired and Mobile Operators Stick to Their Knitting 114
  • Technology developments 114
  • Regulation and industrial policy 115
  • Market demand 116
  • Operator strategies and industry structure 117
• Mobile Broadband Wins: Mobile Operators Gain Traffic and Revenues at theExpense of Wired Operators 118
  • Technology developments 118
  • Regulation and industrial policy 120
  • Market demand 120
  • Operator strategies and industry structure 121
• Portable Broadband Wins: Wired Operators Gain Traffic and Revenues at theExpense of Mobile Operators 122
  • Technology developments 122
  • Regulation and industrial policy 124
  • Market demand 124
  • Operator strategies and industry structure 126
• Summary & Conclusions 127

SECTION 9: CONCLUSION 130

GLOSSARY 131