Managing Growth and Profits in The Yottabyte Era Second Edition

2010
MANAGING GROWTH AND

PROFITS IN THE YOTTABYTE ERA
SECOND EDITION
CHETAN SHARMA
MANAGING GROWTH AND PROFITS IN THE YOTTABYTE ERA 2ND EDITION June, 2010
Table of Contents
Table of Contents ......................................................................................................................... 2
Executive Summary ...................................................................................................................... 3
The Arrival of the Yottabyte Era .................................................................................................. 4
Mobile Media Evolution ............................................................................................................... 4
Mobile Technology Evolution...................................................................................................... 6
Correlation of data traffic with data revenues ........................................................................ 7
The Mobile Data Tsunami ............................................................................................................ 9
The March Towards the Yottabyte Era .................................................................................... 12
Methodology ........................................................................................................................... 13
The Distribution of the Mobile Data Traffic .............................................................................. 14
Comparing Mobile Data Growth to Wireline ......................................................................... 15
Managing Growth and Profits in the Yottabyte Era .............................................................. 18
The need for a holistic approach to managing data ....................................................... 18
Role of Regulators ................................................................................................................... 21
The Case for Policy Management........................................................................................ 21
Faster HSPA+/LTE deployment .............................................................................................. 22
Data Offload - Femtocell/Wi-Fi/Core .................................................................................. 25
Congestion Management..................................................................................................... 25
Caching ................................................................................................................................ 26
Incentives to fill the troughs ............................................................................................... 26
Network Optimization............................................................................................................. 26
Adopt Broadcast Mobile Video............................................................................................ 27
Ecosystem needs to step up as well ........................................................................................ 28
New Business Models and Services .......................................................................................... 28
Conclusions ................................................................................................................................. 30
Acknowledgements ................................................................................................................... 31
About Chetan Sharma Consulting .......................................................................................... 31
About the Author ........................................................................................................................ 31
2 Table of Contents | © Copyright 2010,

All Rights Reserved. Copying without permission is prohibited.
Executive Summary
The year 2010 will be remembered for many milestones. One of them clearly will be the significant
migration from voice to data services and revenues. In Q1 2010, the number three operator in Japan -
Softbank Mobile reported 55% of its service revenues coming from data thus becoming the first major
operator1 to have more revenues from data services than from voice. Over the course of the rest of the
year, other operators like NTT DoCoMo will take this data leap as well.
US, the nation with the most mobile data service revenues went past $14 Billion in quarterly mobile data
revenues and is expected to go past the $50 Billion mark for the year in 2010. 2 The subscription
penetration in the US is well over 94%3 and the mobile data usage is on the rise.
While the rate of new subscription addition has slowed down, the pace of innovation is going very strong.
Just like Japan, other major economies will slowly transition from a voice-centric universe to the one
where voice is just another application on the all-IP network. Operators will make significant transition
from voice to data, from making calls to getting lost in applications and from voice communications to
multimedia communications. Helped by the ever expanding wireless broadband networks, and release of
hit devices every week, and the consumer’s insatiable appetite for information and content has brought us
to the surge of a data tsunami that will shake the industry to its core.
With everything moving to digital, information repositories across the web are almost doubling every day
moving rapidly to the yottabyte (YB) era.4 The information, the desire and the capability to consume
oodles of data is increasing exponentially. As a result the traffic – both wireline and wireless is also
increasing at a predictably fast rate.
In 2009, the global yearly mobile data traffic reached a new milestone – 1 Exabyte (EB) or 1 Million
Terabytes (TB). In the US, the data traffic is growing so fast that we are likely to exceed the 1 EB barrier in
2010. By 2016-17, the global yearly mobile data traffic is likely to exceed 1 Zettabyte (ZB) or 1000
Exabytes. How does the industry go about managing such growth in a profitable manner when the cost of
supporting such traffic will increase exponentially? Will the move to LTE offer some respite? 5
This paper is the second edition of the “Managing Profits and Growth in the Yottabyte Era” 6
research paper. It discusses the research and analysis done by Chetan Sharma Consulting on the growth
of mobile data traffic in over 45 countries (with a detailed look at the US market) and how the ecosystem
can apply some strategies to manage growth and profits.
We have built detailed models to estimate the rise of mobile data network traffic and to understand as to
how the margin per bit can be maintained. Over the course of the last year, we have worked with several
global players in the ecosystem to deploy effective strategies and solutions. This paper also draws from
this experience on the ground.
1
The two operators in Philippines - SMART and Globe have been garnering more revenues from data than voice
for a number of years but the relative revenue size is much smaller and most of the data revenues are from SMS.
Incidentally, for both the operators, the data % dropped below 50% in Q1 2010.
2
Source: US Wireless Data Market update Q1 2010, Chetan Sharma Consulting. It was also the first time any nation
exceeded the $10B mark in a quarter for mobile data revenues.
3
In fact, if we consider the demographics ages 5 and higher, we are at almost 100% penetration as of Q1 2010
4 12 15 18 21 24
For reference, 1 TB = 10 bytes, 1 PB = 10 bytes, 1 EB = 10 bytes, 1 ZB = 10 bytes, 1 YB = 10 bytes
5
For the purposes of this paper, we consider LTE/WiMAX as 4G technologies though they hasn’t been officially
designated as such.
6
The first edition of the paper is available at http://www.chetansharma.com/yottabyteera.com
3 Executive Summary | © Copyright 2010,
The Arrival of the Yottabyte Era

Mathematically, Yottabyte refers to a septillion or 1,000 billion terabytes. In 2006, IBM predicted that by
2010 the size of world’s codified information base will be doubling every 11 hours. 7 That’s beyond
astronomical - paving the way to the yottabyte era.8 When we were writing our Mobile Advertising book9
in 2007, we started thinking about yottabytes and what it means to have all this data, how will this be
accessed and understood.
What does that mean for information consumption and the resulting traffic? How do we extract
intelligence out of this data without jeopardizing the network or the storage? How do we do that on a per
user basis? How do we manage peaks and surges? How do we put the intelligence from the data back into
the system to empower the feedback loop in real-time? There are significant opportunities in how
yottabytes are going to be managed and understood. Rather than being overwhelmed by the data tsunami,
we should learn to tame the beast. As we wrote in the book, for analytics and intelligence, data should be
revered. But for the network, it needs to be managed.
It is inevitable that the business models and financial metrics will also undergo a significant transition as
a result of the growth in the mobile data segment. The pricing models, the customer acquisition strategies,
the metrics that Wall Street pays attention to will change in due course. Instead of focusing exclusively on
Average Revenue Per User (ARPU), we will start looking into Average Margin Per Subscription (AMPS),
Average Connections Per User (ACPU), Customer and Family Lifetime Value (FLTV) that maximizes
profits across all connections that a family or the user has. Instead of promoting family minutes, carriers
will promote family terabyte plans where one can bundle usage across multiple devices used by a family.
Operators around the world will have to focus on how to both profit from the deluge of data as well as
manage the surge in a cost-effective way that optimizes spectrum, financial, and the network resources.
Companies who plan early and navigate this complex maze will benefit while the unprepared will be left to
play catch-up. This also opens up the opportunity for the ecosystem to develop tools and technologies to
help carriers manage growth as well as use the data generated in an intelligent manner to enhance the
user experience.
Mobile Media Evolution

The era of instant on, always available broadband connectivity is altering the media landscape in
profound ways. Over the last 2-3 years, the consumption of digital media has evolved significantly. As
content is becoming digital and as devices are becoming more powerful and able, the mobile device is
playing a central role in how digital media is consumed around the world. The digital rush has helped
make mobile a $1.1 trillion (as of 2009) industry (Figure 1). As the demand for mobile content
consumption is increasing exponentially, service providers are rushing to enhance their infrastructure to
keep up.
7
The toxic terabyte, IBM Global Technology Services, 2006, http://www-
03.ibm.com/systems/resources/systems_storage_solutions_pdf_toxic_tb.pdf
8
By some measures we are probably already in the yottabyte space as the growth since the prediction was
originally made has been staggering
9
Mobile Advertising: Supercharge your brand in the exploding wireless market, Chetan Sharma, Joe Herzog, and
Victor Melfi, John Wiley, 2008. We wrote a section “Prepare for data everywhere – from gigabytes to yottabytes.”
Also see a paper written by Balasubramanium Venkitachalam of WPP titled “Your Guide to Profits: Insights through
Business Analytics available at http://www.wpp.com/WPP/marketing/reportsstudies/yourguidetoprofits.htm
4 The Arrival of the Yottabyte Era | © Copyright 2010,
Figure 1. Global Mobile Industry Revenue Distribution10
The percentage of revenues coming from data services are increasingly becoming a big part of the overall
service revenues of the operators. Globally, over 26% of the revenue now comes from data services (Figure
1).11
The main drivers for increased activity on the mobile devices are four-fold:
 better networks in the form of 3G/3.5G (and future upgrades to 4G+),

 higher processing power devices being available at mass-market prices around the world,
 consumers are not only consuming, but also producing content at an exponential pace,
 the opening up of the mobile ecosystem has attracted thousands of developers who are building
compelling applications and services for various mobile platforms.
Figure 2. Distribution of time spent on iPhone12

10
Source: Global Wireless Data Market Update 2009, Chetan Sharma Consulting, 2010
11
Source: Chetan Sharma Consulting, 2010 (as of Q4 2009)
http://chetansharma.com/globalmarketupdate2009.htm
12
Source: Chetan Sharma Consulting, 2010
5 Mobile Media Evolution | © Copyright 2010,
As such from the early days of ringtones and graphics, the mobile ecosystem has evolved to deliver more
rich content experiences such as high-fidelity and multi-user mobile games, very high quality video in the
form of multicast (though unicast is the one that is widespread), and social networking applications like
Facebook and Twitter. The consumption patterns have also decidedly changed with consumers spending
more time on the non-voice activities (Figure 2).
Additionally, the smartphone/superphone13 boom that followed the iPhone introduction in 2007 changed
the dynamics of the market and how consumers view their mobile devices. It is interesting to note that on
devices such as the iPhone, consumers spend less than 32% of their time on voice; rest is on other
applications and services.
Such a shift is also changing the service provider business models, how they run their business and plan
for future growth. Mobile media and data services are the only drivers for growth as voice revenues
decline (worldwide). Significant mobile data usage is also putting strain on the operator’s network and as
such they are forced to come up with data expansion (3.5/4G) and alternate (Wi-Fi/Femtocell) strategies
so that they can profitably stay ahead of the curve.
Also, the very definition of the mobile devices is changing. More and more consumer electronic devices
are being launched with a wireless data connection (Wi-Fi or Cellular). Devices such as iPad, Kindle, Nook
and others are changing the industry dynamics as well. Newer players are entering the marketplace and
the competitive landscape is being impacted in many ways. Apple’s appstore changed the way applications
found their way onto consumer’s handset. This made it easier and lucrative for a developer in a garage to
launch new applications. The impact of open development and application platforms is rearranging the
ecosystem in a profound way that is going to redistribute the revenues in the value chain.
While the opportunities to exploit mobile media remain strong, the ecosystem needs to worry about
meeting the expectations of the consumers. They have to invest in infrastructure, developer ecosystem,
and continuous flow of new and improved handsets to keep up with the growing interest. It is clear that as
digital media consumption grows; mobile will be the front and center of this evolution.
Mobile Technology Evolution

By the end of 2010, the total mobile subscriptions are expected to cross the 5 billion mark.14 The Cell
phone has clearly been the most adopted technology in the world. As it has moved from being a luxury to
a utility to a necessity, both the cellular network technology and the devices have evolved to meet the
growing demand and need for communications. From being used primarily for voice in the eighties and
nineties, consumers are now spending more time on their mobile devices on non-voice activities. Mobile
devices have become the gadget of choice for both increasing the productivity to save time and for
entertainment to kill time.
If we look at the technology evolution (Figure 3) over the last 30 years, the first generation or 1G was
analog. With the arrival of the GSM Global Standard we moved into the digital or the 2G era but phones
were still primarily voice communication devices with SMS based messaging starting to take off in various
parts of the world by mid-nineties. Towards the tail-end of the last decade, NTT DoCoMo launched i-
mode and defined mobile data. Soon, to meet capacity constraints and to take advantage of the promise of
data services, 3G was launched with UMTS and EV-DO. Over time, most major carriers around the
13
Superphones are devices such as the iPhone, Droid, Pre - devices with full browsers, superior media capability,
fast processor, etc. In the paper, the term is used primarily to segment the devices by traffic since they show
distinct difference from traditional smartphones. In a few years time, the distinction between all these categories
will diminish as it will be hard to find a “dumb” phone.
14
Source: Global Wireless Data Market update 2009, Chetan Sharma Consulting, 2010
http://chetansharma.com/globalmarketupdate2009.htm
6 Mobile Technology Evolution | © Copyright 2010,
world15 have some form of 3G up and running by 2010. WiMAX deployments started a couple of years ago
and now HSPA+ and LTE upgrades are in full swing in many regions.
Figure 3. Global Mobile Technology Evolution16

It should also be noted that each generation of the technology has a faster growth curve (compared to the
previous generation). Put another way, the time it takes to amass the first 100M subscriptions has been
shrinking with each evolution cycle. Another point that should be noted is that there is a significant
overlap between technologies. Launch of 4G doesn’t mean that 3G is going away anytime soon.
Each technology evolutionary step helps lower the cost of delivering the traffic. By using 4G, operators can
lower their per MB costs and if they can aggressively provide coverage and move the heavy usage
subscriptions to LTE, it will impact the bottom line.17
Correlation of data traffic with data revenues

Up until 2007-08, mobile data was a relatively small contributor to both the costs and the revenues for
majority of the operators. In fact the margins were fairly healthy and the overall traffic from data was a
small fraction of the overall network traffic. However, with the advent of the iPhone and other
superphones, the 3G/4G networks, and a flood of content; the mobile data traffic and the cost and
revenue from data started to ride on the hockey stick curve that we are witnessing today. In the US, in
2009, for the first time, mobile data traffic exceeded voice traffic (Figure 4). Even globally, during the last
couple of months of 2009, global data traffic went past the voice traffic.
15
China started their migration to 3G in Jan 2009 using TD-SCDMA, WCDMA and EV-DO paths while India will begin
deployment in 2010
16
17
The move to LTE will mean faster connection which means more usage and hence more traffic but if this traffic is
well managed as discussed later in the paper, the net of LTE deployment will be incremental cost savings.
However, LTE might not be the most prudent strategy for every operator. The motivation and the need for 4G
migration depends on a number of factors discussed on Page 22. LTE is also going to require substantial
investment and will include a backhaul upgrade which is generally the biggest congestion point in the network.
7 Correlation of data traffic with data revenues | © Copyright 2010,
Figure 4. US Mobile Traffic: Voice vs. Data (2004-10)18
50%
m
iu
Philippines
br
ili
Japan
qu
cE
ffi
ra
-T
40%
ue
en
Data as % of Services
v
Re
Australia
China
Revenues
Indonesia US UK
New Zealand
30% Singapore Hong Kong
Netherlands Germany
© Chetan Sharma Consulting, 2010

Italy Sweden
Switzerland
Mexico Malaysia France Portugal
20% Canada Denmark
Korea Finland
Russia Spain
Brazil South Africa

India
10% Argentina
20% 40% 60% 80% 100%

Data as % of Overall Network
Traffic
Figure 5. Relationship of data traffic with data revenues in various countries 19
18
19
8 Correlation of data traffic with data revenues | © Copyright 2010,
Figure 6. Vodafone Europe: Share of Traffic and Revenue by Data Services
This is obviously having an impact on the margins as the cost to support such a surge is not in equilibrium
with the revenues from such traffic and usage. We looked at the data consumption trends in over 45
countries (Figure 5) and, except for China, most nations (especially Western Europe and North America),
the ratio of % data traffic to % revenue is out of equilibrium that has direct impact on the margins. For
example, in the US, in 2007, data accounted for 17% of the revenues and 29% of the traffic. By 2011, the
data will account for 34% of the revenues but 90% of the traffic. 20 Similarly, for Vodafone Europe, the
data traffic % grew from 48% in 2008 to 77% in Q1 2010 while the corresponding data revenue % grew
from 24% to 28% (Figure 6).21
It is also clear that most of the operators will start falling in the 75%+ data traffic category and if they are
not careful, it can quickly become a big problem for user experience, competitiveness, and ultimately the
financial viability of data services. As a side note, the small Japanese operator Willcom who kicked off the
phenomenon of the“flat rate” for mobile data filed for bankruptcy in Q1 2010.
The Mobile Data Tsunami

It has become a cliché to say that the iPhone has changed everything. Apple’s iconic device has had a
profound impact on the ecosystem on several fronts. First, Apple again taught the industry the power of
simple user experience. Second, the appstore model has disrupted the traditional storefront model. Third,
once exposed and addicted to the mobile way of life, consumers are not looking back. Fourth, some form
of a flat data pricing is the norm for the new smartphones especially in the US market.22 Finally, all this
20
21
Source: Vodafone, 2010
22
Not all operators in all countries are a fan of the “all-you-can-eat” data pricing. While they are offering similar
devices and services, the pricing of data is based bandwidth consumption which is prudent in the long run. In the
US too, there are signs that the changes in the flat fee pricing are imminent
9 The Mobile Data Tsunami | © Copyright 2010,
means significant jump in network traffic. As the percentage of smartphone subscribers grows, so does
the traffic – by leaps and bound. Figure 7a shows data consumption in the leading markets.
Figure 7. a) Data consumption in some of the leading economies b) Data

consumption by device type23
The usage data from the iPhone, Android devices, and the iPad (Figure 7b) indicates that the data
consumption increased 50-100 times compared to the previous generation of devices. As such the per user
megabyte (MB) consumption is multiplying at an accelerated pace in almost every part of the world.
For example, in Hong Kong, the total data consumption increased 379% (from 2008) to 638 Terabytes.24
It is expected that the demand for data will continue its exponential trajectory. Operator Zain reported
500% increase in data consumption in second half of 2009.25 Verizon, US’s largest operator reported over
3500 TB/month traffic in 2008 which could explode to 4,000,000 TB/month by 2014. 26 T-Mobile USA
has indicated that their average mobile data consumption for Android devices is around 400 MB/mo.27 In
Norway, the mobile data traffic jumped 237% in 2009 with mobile broadband users consuming more than
1.2 GB/mo.28 In UK, the data traffic quadrupled in first half of 2009 compared to same time period in
2008 while the revenues declined.29
23
Source: a) Sweden, Hong Kong, and Denmark figures calculated from data published by the respective regulatory
authorities, US estimates are from Chetan Sharma Consulting, 2010. b) Chetan Sharma Consulting, 2010
24
Source: Key Statistics for Telecommunications in Hong Kong, Office of the Telecommunications Authority, Hong
Kong, April 2010
25
Source: http://bit.ly/952xEJ
26
Source: Dick Lynch, Verizon Wireless, 2009
27
Source: Robert Dotson, T-Mobile USA, 2010
28
The Norwegian Electronic Communications Services Market, Oct 2009
29
Ofcom, Mobile Revenue and Data Volumes, UK, 2010
Figure 8. Correlation of Speed/Latency with Consumption for Smartphones30

One of the reasons the consumption goes up with a newer generation of technology is that typically the
bandwidth capability and spectrum efficiency increases. Additionally, the latency also drops. So, most of
the times it is a 4x improvement in overall performance which leads to better user experience and if the
pricing is right will have a 2x impact on consumption with the introduction of each new network
technology (Figure 8).
There are two key factors behind congestion:
 The peak data usage

o Main culprits: data cards and embedded laptops followed by smart/superphones
 The signaling traffic
o Main culprits: smart- and superphones
In fact, signaling traffic is growing faster than the raw data traffic due to smartphones/superphones as
they are not very efficient with applications. The smartphone signaling is over 8x the data card signaling
traffic.31 And since signaling consumes over 50% of the available network resources and smartphone while
representing a small segment of the overall base disproportionately impact the network.
For the raw data usage, it is the peak capacity that causes congestion and not the “total capacity” though
it is a factor in CAPEX planning. Typically, in the urban areas, 15% of the cell sites manage 50% of the
traffic and as such the load is not evenly distributed in the network. 32
There are also two key congestion points in the network:
30
31
Source, Airvana, 2009
32
Source: NokiaSiemensNetwork, 2010
 Air interface - Some of the relief can be obtained by getting more spectrum, deploying more
cell-towers or upgrading to more spectrally efficient technology or offloading or using a set of
solutions described later in the paper.
 Backhaul traffic - Even if the air-interface is congestion free, the dilapidated T1/E1
infrastructure is just not cut out to handle modern day data traffic. As such, the backhaul needs to
be upgraded to microwave, fiber, or light networks (or a combination of the three) to have enough
capacity and data economics to make the data growth worthwhile for the operators.
The portfolio of solutions should address both peak data and signaling traffic to manage the networks
efficiently.
One should also appreciate the move towards providing wireless connectivity to all electronic devices from
cameras to security alarms to energy meters. In fact, Wireless World Research Forum (WWRF) forecasts 7
trillion wireless devices serving 7 billion people by 2017 33 which translates into 1000 radios per person.
Most will be in the form of sensors and tags that form the basis of ambient and context intelligence
around us to truly make mobile device a remote control of our lives.34 While this Always On Real-Time
Access (AORTA) environment provides for instant access to information and intelligence, it also creates a
mountain of data traffic that needs to be understood and managed.
The March Towards the Yottabyte Era

Consider average usage on a 3G iPhone: average session on NY Times - 0.5-1 MB, 10 min YouTube
streaming - 10-15 MB, 15 min radio streaming: 12-16 MB, average application downloads: 2-10 MB,
Average Facebook Sessions: 100-200 KB, etc. Eventually, they all add up to 0.5-1 GB of average data
traffic/user/month (see figure 9 for broadband speeds by application type). Similar trends can be found
on devices like the Droid, HD2, EVO, and the iPad. One can well imagine that with increasing population
of such devices and better bandwidths and devices, how the multiplier effect starts to take hold and move
from Tera- to Peta- to Exa- to Zetta-to Yottabytes.
Figure 9. Broadband speed requirements by application type
33
The WWRF Vision, Nigel Jefferies, WWRF, 2007
34
Mobile Advertising: Supercharge your brand in the exploding wireless market, Chetan Sharma, Joe Herzog, Victor
Melfi, 2008, John Wiley & Sons
12 The March Towards the Yottabyte Era | © Copyright 2010,
Methodology
To get a better understanding of the mobile data traffic growth in the US market, we built a bottoms-up
detailed model to estimate the current and future data traffic on the mobile networks in several countries
and studied traffic patterns in more detail in the US market.
One of the reasons we focused on the US market is that the US market has been ground zero for mobile
broadband and data consumption trends with the highest penetration of the smartphones and data
cards. With Verizon deploying LTE, AT&T and T-Mobile expanding the HSPA+ coverage, and Sprint and
Clearwire launching the WiMAX handsets, the equipment and the edge and core networks are being
tested to the limits in some instances which is leading to the rethinking of how mobile broadband is
managed and paid for. While Japan and Korea have significantly higher 3G penetration, it is the
smartphones, superphones, datacards, connected devices that can create high network congestion.
AT&T’s network has become a real-time research laboratory for Ericsson and others in understanding the
requirements for future generation network component design and architecture.
For each of the major US carriers, we looked at the traffic generated by the data customers (excluding
messaging traffic) across the four distinct segments of devices – feature phones, smart phones, super
phones, and data cards (including embedded devices). Then we analyzed the traffic generated by
messaging and added to the non-messaging data traffic to calculate the overall mobile data traffic growth
in the US market. We realized that only by looking at a very granular level can one fully grasp the various
factors that impact network traffic growth.
Thanks largely to the iconic devices like the iPhone and the mobile data cards, the mobile data growth
grew disproportionate to the revenues in 2008-9. In 2009, the mobile data revenues in the US market
grew by 33% but the mobile data traffic grew by over 200%. Similar trends are being observed in other
markets.
Additionally, the types of applications and services that are becoming available on the smartphones have
higher requirements for bandwidth compared to their earlier predecessors, for e.g. streaming audio might
only consume .2 Mbps/stream but an HD streaming video can consume upto 10 Mbps of capacity. As
such, the mobile data consumption per user/month is on the rise across the board. We expect the average
mobile data consumption to increase from less than 50 MB/user in 2009 to almost 3 GB by 2014.
Figure 10. Mobile Data Traffic Growth in the US market35
35
13 The March Towards the Yottabyte Era | © Copyright 2010,
Looking at the picture on a more granular level, the situation is even more challenging. In HongKong, the
data consumption grew 3.8 times in 2009.36 In TeliaSonera’s Nordic and Baltic region networks, traffic
increased 500% in 2008. AT&T Wireless noted that they have experienced 6500% data growth in the last
three years.37
The overall mobile data traffic in the US is expected to increase from over 500 Petabytes (PB) in 2009 to
40 Exabytes (EB) in 2014 or by over 70 times (Figure 10). The main driver for this growth will be the data
cards and the increasing population of the smartphones in the market.
This traffic can be managed and reduced by techniques discussed later in the paper like the introduction
of the Femtocells and the Wi-Fi hotspots to offload traffic in fixed locations or by active congestion
management and optimization. While LTE (or for that matter WiMAX) will help in reducing the cost of
the traffic, it will also increase MB consumed compared to its predecessor technologies like EV-DO and
HSDPA/HSPA, sometimes by 50-100%, thus neutralizing some the benefits.
The Distribution of the Mobile Data Traffic

As noted above, the data cards consume the most bandwidth on any major network in the western world.
At the end of 2009, data cards accounted for over 61% of the data traffic in the US (Figure 11) while super
phones were inching up with 27%. Though feature phones represented 75% of the device base, their
contribution to the data traffic was only 2% with rest being consumed by other smartphones (Figure 12).38
Messaging - the biggest revenue generating category accounting for over 45% of the revenue had less than
1% of the traffic. What happens when the % share of the data cards increases? What if 25% of the
subscriber base has a data card? What happens when phone-as-a-modem becomes more prominent or
phone acts as a network conduit for projection screens? Network planning will need to take into account
these scenarios.
Figure 11. Mobile Data Traffic Distribution by Device Type39

36
Source: Key Statistics for Telecom, Office of the Telecommunications Authority, Hong Kong, April 2010
37
Source: AT&T, 2010
38
This profile will obviously look different for developing countries which generally have lower smartphone and
data card penetration as of mid 2009
39
14 The Distribution of the Mobile Data Traffic | © Copyright 2010,
Further, only a small percentage of the users are consuming a large share of data.
Figure 12. Mobile Data Traffic Distribution by Device Type40
Mobile Data Growth Will (Also) Come from New

Sources
Most of the current discussion has been about traditional mobile devices, however, as we go into 2011 and
beyond, devices such as the iPad, pico projectors (embedded or external), modules in automobiles,
security devices, cameras and so on and so forth will start to create a category of their own. We estimate
that in 5 years time, such devices will account for 5-10%41 of the overall mobile data traffic in the US.42
The level of consumption will also be raised by embedded pico-projectors and devices that work in
concert with other screens like in an automobile. These devices will be all IP based and carrying just a
data subscription. In fact, we are likely to see “family data plans” or “multi device data plans (multiple
devices on a single data plan)” as early as later this year. Some of these new experiences will result in 5-10
times data consumption compared to today’s superphones. 43
Comparing Mobile Data Growth to Wireline

To better gauge how the mobile data growth is going to progress, it might be beneficial to take a look at
how the data consumption grew in the Wireline world. If we study the time-period 1996-2014 in the US,44
one will notice that the mobile evolution has lagged Wireline growth by approximately 8-9 years though
with each passing year, the gap is closing.
40
41
Traffic resulting from embedded picoprojectors is included in the device type traffic forecasts
42
43
The role of connected devices became apparent when in Q1 2010, AT&T and Verizon Wireless reported they
added more connected devices than postpaid subscriptions for the quarter.
44
This profile will look different in advanced broadband nations such as Japan and Korea which are significantly
ahead of the US in broadband penetration both in Wireline and wireless. Comparing broadband profiles of various
nations is outside the scope of this paper.
15 Comparing Mobile Data Growth to Wireline | © Copyright 2010,
As indicated in figure 13, when the penetration of broadband grew in Wireline, so did the number of
Petabytes consumed on a national basis for the US market. And the penetration grew with each
enhancement of the technology from ISDN to FTTH. During the early years of mobile broadband in the
US (2004-2009), the data consumption has followed similar patterns but with the advent of devices like
the iPhone and with the increased penetration of the data-cards, the traffic is rising faster than it did in
the Wireline world and we expect that by 2014, mobile data consumption will be less than 4 years behind
the Wireline data consumption.
While P2P (Peer-to-Peer) and video streaming have been the main reason Wireline consumption shot-up,
in the mobile world it has been the browser usage, video streaming, and apps on smartphones, netbooks,
smartbooks, laptops, and similar devices that is contributing to the bulk of data traffic followed by
streaming and application downloads.
Also, since the peak usage significantly increases the network expenditure, the key statistics that need to
be understood are around the applications that drive traffic during peak utilization, not necessarily the
applications that consume the most bandwidth across the entire traffic landscape. For example, P2P
applications might consume a significant amount of traffic but their relative percentage during peak
utilization might be smaller on a given network. As such, devoting too much time to P2P management
might not be that effective (though it needs to be tackled nevertheless).
So, as we try to understand mobile data consumption in the next decade, it will be worthwhile to keep an
eye on how things are evolving in the Wireline space and what solutions are working in managing the
traffic growth and can be adapted to the mobile environment.
16 Comparing Mobile Data Growth to Wireline | © Copyright 2010,

Figure 13. Broadband penetration and traffic for Wireline and Mobile data networks in the US (1996-2014)45
45
Source: Chetan Sharma Consulting. Data Sources: Wireline Traffic Data from Minnesota Internet Traffic Studies (MINTS) -
http://www.dtc.umn.edu/mints/igrowth.html. We took the mean of the yearly ranges (forecasted for year 2010). Wireline Broadband Household penetration
data from Pew Internet - http://www.pewinternet.org (forecasted beyond 2009). Mobile Data traffic – Chetan Sharma Consulting analysis. Mobile Broadband
Data Subscriber Penetration – Chetan Sharma Consulting analysis
Managing Growth and Profits in the Yottabyte Era
The need for a holistic approach to managing data
The growth in the network traffic can be quite injurious to the financial bottom line of the operator and to
the industry’s ability to maintain pace with the demand. Unless a long-term plan is put in place that
addresses and manages the traffic at a very granular level, the cost incurred due to an explosive demand
will become unsustainable by 2013. At that point the revenue being generated could fall below the cost of
sustaining such traffic. However, if the operators attack the problem using several different strategies (an
illustration in Figure 14), the growth can be managed and brought in line with the technology evolution
such that the industry can take advantage of the falling per MB costs.
Radio Access Network Core Network
Mobile Backhaul
© Chetan Sharma Consulting, 2010

Copper
2G
Core Network
Microwave
3G
Fiber RNC SGSN GGSN
4G
Light
Internet Services
Networks
Offloading Traffic
Optimization
Offloading Traffic
WiFi/FemtoCell Compression/Optimization
Compression/Optimization of Data Traffic
Policy Management
Figure 14. A representative framework for a holistic approach to managing data

growth46
Some of the strategies for managing network traffic growth are:
1. More Spectrum
2. Faster HSPA+/LTE deployment
3. Wi-Fi/Femto-Cell deployment
4. Upgrading Backhaul
5. Core network offload
6. Congestion Management
7. Network Optimization
8. Policy Management
9. Adopt Broadcast Mobile Video
46
Figure 15. Managing Network Traffic Costs (US)47

The eventual carrier strategy will depend on their particular situation which will differ on several fronts:
1. Spectrum position
2. 3G and 3.5G technology deployment lifecycle
3. Existing Broadband infrastructure investments
4. Network traffic and distribution of devices and traffic
5. Demographics and subscriber growth
6. Short-term and Long-term customer acquisition strategies in consumer and enterprise segments
7. Network Coverage and Pricing Plans
8. Competitive position
9. Financial resources
10. Multi-play position and strategy
11. Others
Depending on the carrier’s broadband deployment and their position in the market, different set of
solutions might be considered. For example, carriers who have just started to deploy 3G might want to
hold-off on 4G upgrades while others who are 5-7 years into the lifecycle might be more incented to move
to 4G. Some operators might not have the additional spectrum needed to operate parallel networks.
It is important to understand the importance of spectrum in the continued growth of mobile data services.
In countries where sufficient spectrum is not allocated for 4G and the related services or the spectrum is
not harmonized with the rest of the world or the spectrum caps are imposed, they will stand at a big
disadvantage.48 In 2010, the mobile broadband penetration will surpass the fixed penetration globally.
47
48
It will be difficult to get economies of scale that can help lower the price of equipment and services at a faster
pace. Developing countries are the ones who will get most impacted by non-harmonized allocation of frequencies.
19 Managing Growth and Profits in the Yottabyte Era | © Copyright 2010,
Countries that are behind the curve in spectrum allocation will lag behind as lack of spectrum will delay
the launch of broadband services.49
However, one shouldn’t just expect newer networks to take the load of the growing demand. One must
consider a combination of strategies to lower the overall cost of managing the mobile data network traffic.
Figure 15 shows the cumulative downward impact on the network data traffic costs by different strategies.
To have meaningful savings, operators will have to develop holistic strategies that take advantage of
multiple technologies and strategies over time. The ability to drive the cost/bit lower would become a
significant competitive advantage.
Dealing with the Spectrum Crisis

Spectrum is a finite resource and the demands being placed on the national spectrum are enormous if not
unrealistic. One doesn’t need to be a spectrum expert to determine that the majority of the spectrum has
been taken. What’s left is just reallocation of the spectrum. While the mobile data tsunami is occurring
right now, even the identification of available spectrum, its reallocation and assignment is often a long,
multi-year process. And while consumer data demands make a strong case for additional spectrum so do
other critical services like public safety, smart grid, telemedicine, military, and the likes. Additionally, the
cost of broadband deployment can limit the deployment in rural areas where the cost to support the
subscribers is relatively high.
It is apparent that to achieve next generation broadband speeds like 50-100 Mbps, new contiguous
spectrum is needed. We clearly need more spectrum and the process of procurement and harmonization
should start urgently. However, it will be a mistake if the dominant solution for the broadband capacity
crisis is procurement of more spectrum for the following reasons:
1. There isn't enough spectrum, especially the right spectrum

2. It takes 7-10 years to procure the spectrum for wireless use despite the sense of urgency
3. By focusing on spectrum only, we will be just postponing the current crisis
4. By giving out spectrum too soon, industry won't have the opportunity to learn to thrive within its
means and let new technology and business innovation show the way to handle the increased data
consumption
As such the industry and national interests will be best served if we take a look at alternate solutions in
parallel with the spectrum needs like shared used of spectrum and infrastructure or designing solutions
and architectures that don’t require additional spectrum or invent new technologies that manage the
rapid growth of data consumption without impacting consumer choice and user experience.
As we go about refining the plan and executing on the recommendations, the industry will need to keep a
few things in mind. First of all, the additional spectrum is not going to be the panacea for the mobile
broadband consumption, especially in the short-term. By the time the first batch of spectrum becomes
available, the consumption would have more than quadrupled, so the industry needs solutions for the
immediate future.
Next, the industry needs to figure out ways to build the infrastructure that is not utterly dependent on the
additional spectrum. So, we must invest in R&D that provides breakthroughs in using existing spectrum
more efficiently to provide more throughput as well as technologies and strategies that don’t require
Spectrum caps are also detrimental for mobile broadband growth as it limits the deployments. For example in
South America, most nations have put spectrum caps (e.g. Argentina 50 MHz, Brazil 80 MHz, etc.).
49
Full treatment of the impact of broadband on economies is beyond the scope of this paper. This subject is dealt
with in detail in “Wireless Broadband: Conflict and Convergence,” Vern Fotheringham and Chetan Sharma, John
Wiley & IEEE Press, 2008 in chapter “Broadband and the Information Society.”
additional spectrum like using the optical wireless broadband networks. 50 Also, the fiber penetration will
matter a lot as it can be used to off load a good majority of the mobile data traffic on an as needed basis.
Nations who have deeper fiber deployment will end up having a more robust mobile infrastructure in the
long run. Wireline and wireless should be considered part of the same “one” network.
Role of Regulators
The role of mobile broadband in a nations competitiveness is well established. Given that regulators are in
charge of two key aspects of the broadband plan - spectrum and market competitiveness, the way
regulators go about defining the priorities and policies for their country can have a profound impact on
the evolution of mobile broadband in that country. Each country of course sets its own goals and priorities
that suits its economy and players in the ecosystem. Regulators have to be careful to not “over-regulate”
or “under-regulate” as it can set the market back by a few years. In most of the major markets, regulators
have taken a proactive role in finding new spectrum for mobile broadband as well as introduce new
players to keep the market competitive. However, regulators will need to be ahead of the demand curves
as any regulatory action typically is very time consuming and by the time some ruling takes effect, it is
already too late. Regulators and political entities will do well to draft 10-25 year policies to address the
needs of the nation’s infrastructure.
The debate around being “open” also needs some direction. What does it really mean to lay claim to being
“open.” Should only the entities that are under the regulatory purview be scrutinized or should the
industry heavyweights be under the same microscope. In a “for-profit” industry, who decides what should
be opened up to preserve consumer choice and market competition? How far do the regulators go in
asserting an “open Internet?”
The Case for Policy Management

Consider these facts for a minute. In 2009, in AT&T’s network, approximately 3% of the smartphone user
base accounted for over 40% of the smartphone traffic.51 Similarly, in other regions, approximately 3-5%
of the users are consuming 60-75% of the traffic.52 If this consumption is taking place in off-peak hours
when the capacity is lying un-utilized, it is one thing but if it is impacting other users during peak-hours, it
is another. Operators who have managed the expectations, pricing, and policies well have had a better
time managing the growth from “hyper-users.” The performance of the network and the pricing for the
usage scales with demand. In countries where operators have a tiered pricing structure or have instituted
stricter policy controls, the average consumption is less than 25% compared to operators who have had an
unlimited pricing and policy structure on smartphones.53
There are multiple ways to institute a workable or “fair-use” policy
1. Pricing Tiers - User pays by the tier of consumption. For e.g. Telstra has 6 tiers for iPhone data
consumption from $5/5MB to $119/9GB.54
2. Unlimited to a limit - Users have unlimited access but after a certain threshold (for a given
month) the speed drops for rest of the month. For e.g. T-Mobile USA offered this to its user base
in April 2010 (the soft unlimited limit is 5GB).55
50
For a detailed treatment of this subject, please see - Role of Optical Wireless Broadband in the Evolving Mobile
Ecosystem, Chetan Sharma, 2010, http://chetansharma.com/opticalwirelessbroadband.htm
51
Source: Ralph De Vega, AT&T, Oct 2009
52
53
It should be noted that the data cards used to have unlimited usage plans as well but fairly quickly most
operators around the world instituted some limits, typically 5GB monthly.
54
http://www.telstra.com.au/mobile/phones/iphone/pricing.html. There are overage charges or one can upgrade
55
http://www.fiercewireless.com/story/t-mobile-drops-data-cap-5gb-plan/2010-04-27
3. Choose your speed and consumption limit - Users can chose the tiers by data speed and
total consumption for a given month e.g. Leap introduced the plans where users can chose
between $40 - 2.5GB/600kbps, $50 - 5GB/1.4Mbps, and $60 - 10GB/1.4Mbps.56
4. Max Ceiling - Users pay on a per bit/packet basis up to a maximum limit after which there is no
charge for extra usage. For e.g. Softbank Mobile in Japan as the iPhone data pricing from $11 to
$64 and there are grades of usage/pricing between the two pricing end-points but when the user
hits the $64 limit, there is no additional charge for rest of the month. They also send an alert if the
user exceeds a certain usage/pricing threshold.
5. By application usage - Pricing by applications for example, video streaming for certain
channels is included but for additional channels, the price of consumption goes up. This is
indirectly implemented in programs such as Vcast.
6. Buying additional bundles - Consumers can buy additional data bundles beyond the initial
fixed limit. For e.g. Vodafone customers have a 500MB limit on smartphones and non-contract
subscribers can purchase an additional 500MB bundles for £5 each or 50p/10MB.57
7. Quality of Service Tiers - This is an unchartered territory but with the advent of LTE, we are
likely to see some operators consider segmenting the pricing by QoS. The challenge is going to be
putting together the value proposition and a communication message that resonates well with the
consumers.
Policy management is by far the quickest way to manage data traffic since the implementation doesn’t
require hardware or software upgrades. It does require significant customer education in markets where
unlimited usage has been the norm until now. For example, had AT&T instituted a 1 GB/month limit
(which wouldn’t have impacted 90% of the smartphone users) on smartphones in 2009, its smartphone
traffic would have likely reduced by at least 30% and the overall traffic by over 17%.58
Faster HSPA+/LTE deployment

The primary driver for LTE is mobile data. As of mid-2010, several carriers have announced their LTE
deployment plans. TeliaSonera became the first operator to launch an LTE network. In the US, the two
large operators Verizon and AT&T have indicated rollouts by the end of 2010 with more aggressive
deployments in 2011 and beyond. If past experience is any indicator, it always takes more time to deploy
and perfect new technologies esp. by the first-movers.
56
http://www.fiercewireless.com/story/leap-experimenting-new-unlimited-broadband-plans/2010-04-28
57
http://gadgetmosster.com/?p=65
58
Source: Chetan Sharma Consulting, 2010. On June 2nd, 2010, AT&T announced new capped data pricing with
$15/200MB and $25/2GB pricing for smartphones (including iPad) http://bit.ly/9meqNc
Figure 16. LTE Subscriber growth forecast59
LTE is expected to lower the cost of per MB delivered by 50-60% (compared to preceding technologies if
you keep other things constant like the frequency band and amount of spectrum).60 However, these cost
savings can only be delivered if there is sufficient coverage so that the data traffic can be off-loaded to the
LTE network. Unless there is 80-90% coverage of the major metropolitan areas by 2012 (Figure 16), we
won’t see LTE making a big dent in the network costs as the traffic will continue to accelerate through
2013-14. In fact, in our conservative model, LTE might only provide 1-3% cost savings.61 If there is full
deployment (80-90% POP coverage) and if a good majority of the data card users can be off-loaded to the
LTE network, cost savings can be up to 30-40% by 2014.62 This requires faster time-table of LTE
deployment, device rollouts, and move towards an all-IP infrastructure.
Many operators like T-Mobile USA, Vodafone, Telefonica are really not rushing to deploy LTE. Instead
they are looking to use the efficiencies of HSPA+ (which is a software upgrade vs. a new and expensive
network layout for LTE) and backhaul fiber to get the net effective capacity benefits as a new deployment
of LTE would. Additionally, these operators are waiting for the LTE ecosystem to mature so that the
advantages of economies of scale can be had, some of the early technology kinks can be worked out and
there are ample LTE devices in the market to make a difference. However, in countries where LTE
networks are being introduced, HSPA only operators will be at a decidedly marketing disadvantage.
HSPA+/LTE will also help in managing the signaling load with the introduction of Continuous Packet
Connectivity which helps manage the resources more efficiently by reducing the “state” switches from idle
to active and vice-versa.
However, higher speeds are addictive. This has proven throughout history. Once users get used to faster
speeds, there is no going back63 and it can be used as a competitive advantage until the competition
catches up.
59
60
61
62
63
http://teliasonera.com/Global/Media/Cision/487480_EN_wkr0011.pdf
Upgrading Backhaul64
The backhaul investments consume up to 30% of OPEX of a typical operator. Depending on whether the
operator is leasing the bandwidth vs. owning it; the CAPEX can be more than double the backhaul OPEX.
To be both economically sound and technically prudent, the next generation of backhaul implementation
needs to have the following key characteristics:
Adaptive and Scalable Traffic growth patterns can be uncertain and difficult to plan for completely so
solutions need to be adaptive and can scale with demand on a short-notice without re-architecting or
significant new investment. The backhaul architecture should also accommodate different physical
infrastructure in various markets. On the business front, the solution should provide flexibility of either
leasing or owning the connection to the aggregation backhaul network. This helps in both scalability as
well ensure that the future enhancements can be easily accommodated.
Coexisting of solutions/Support for legacy Due to legacy issues, any new solution will need to
interface and work with the existing infrastructure to enable easy transition into the next generation
architecture. This allows for graceful upgrade and better control over CAPEX. Fiber and microwave are
both viable, and will coexist with other solutions for a long time.
Addresses CAPEX/OPEX restraints Operators are looking to work under restrained OPEX and
CAPEX requirements. The emergence of 4G and long term evolution (LTE) networks only compounds the
challenge of under-engineered backhaul networks. According to ABI Research, the global CAPEX for
cellular backhaul is expected to reach $23 billion by 2012 from $9B in 2009 and OPEX expenditures
reaching $6 billion in 2012 from just over $2B in 2009. The total cost of ownership (TCO) needs to be
manageable and should be proportional to demand.
Long-term solutions In 2009, to meet the demands of iPhone and other smartphones, AT&T deployed
100,000 additional T1/E1s.65 However, this clearly is not a good long-term solution. To be cost-effective
and future-prudent, operators will need to get ahead of the problem and architect their backhaul solutions
for the long-term. Postponing the problem till next quarter will get you only so far.
The backhaul bandwidth management is a multi-dimensional issue that involves legacy, time to market,
capacity, anticipated growth in demand, time to revenue, power consumption, OPEX, CAPEX, market and
competitive dynamics, spectrum, and the availability of technologies. Operators have to take all of these
into consideration as they plan for their current and future backhaul bandwidth needs.
For example, while fiber might look like a good option in some cases, there is a high upfront cost of laying
the fiber which can be as high as $100-200K/mile. Additionally, permits are needed and it can take 9-15
months for the whole project. Microwave has strong penetration but it requires licensing of spectrum,
right of way approvals, and despite the lower upfront cost (compared to fiber), it can still cost $20-
$40K/link. The need for spectrum licensing, RF analysis and roof leases can take up to 6-9 months. The
replacement cost of equipment is also quite high which can drive the overall TCO higher and thus needs to
be built into the OPEX budgets.
As we alluded to earlier in the paper, to be most cost-effective and future-prudent, operators will need to
adopt a hybrid approach that gives them the most flexibility in any given situation. In a saturated market,
operators compete at a market level, and hence require ability to scale and deploy bandwidth on demand.
It can be only done by using a toolbox approach of using technologies that best help fulfill the short-term
requirements while keeping the investment future-safe.
64
For a more in-depth treatment of the backhaul evolution, please see our paper “Role of Optical Wireless
Broadband in the Evolving Mobile Ecosystem” http://chetansharma.com/opticalwirelessbroadband.htm
65
http://ow.ly/167WTx
We will also see operators cooperating on sharing the 4G infrastructure and follow the lead of Bharti and
Sprint in outsourcing some of the operations to really focus on what they can compete well on.
Data Offload - Femtocell/Wi-Fi/Core

Over 60-80% of mobile data is consumed within the confines of a building, and most of the times, it is
within homes or workplaces. This provides an excellent opportunity to off-load data traffic to the Wireline
broadband connection and is especially important for the congested residential areas and for the heavy
users. The consumption patterns in such areas and for such users need to be well understood to devise
effective offloading strategies.66
In fact, it can be argued that in light of the data demand, wireline and wireless ought to be thought of as
one network and regulators and operators should be focused on getting as deep a fiber deployment as
possible.
By encouraging users to deploy femtocells – both Cellular and Wi-Fi (along with Wi-Fi hotspots and
corporate67 Wi-Fi access points), carriers will benefit in multiple ways, namely, getting into the home
media and communication management business and better indoor coverage (in addition to network cost
savings). If a majority of the data users were to deploy femtocells over the course of next 4-5 years, we can
expect lowering of the network traffic cost by at least 25-35% depending on the extent of the Femtocell
and Wi-Fi deployments.68
In fact, it might make sense to off load certain types of Internet traffic (browser, video, audio) right away
or at the core before the traffic hits the SGSN and GGSN. This reduces the cost of carrying the bit as well
as reduces the latency. Operators will also have to reassess their enterprise offload strategy that helps
them better manage their highly valued customers.
Carriers who are laying down their off-loading strategy now will be better prepared to handle the traffic
load that will start to accelerate further around 2011-12.
Congestion Management
The significant cost of managing a network is in the planning for “peak traffic capacity.” If this capacity
can be managed through policy, quality of service, and congestion management, the peak time traffic costs
can be lowered by 10-20% across the network. Only a small % of the users are typically consuming
majority of the data. Additionally, only a fraction of the users typically go over the monthly capped limits
(for example, the 5GB/month limit). If their network usage can be managed, the cost savings will be
meaningful.
Also, now is right time to start educating consumers about the “Quality of Service” and associated network
traffic performances. The earlier we start doing that, the better off we will be. Wireless spectrum is a finite
resource and it needs to be managed as such. It is reasonable to correlate Quality of Service with tiered
service plans especially for peak traffic hours.
Additionally, congestion management should also fine-tune traffic by application for example; the
streaming traffic is more sensitive to delays vs. an application download or a browsing session. A financial
transaction is more sensitive than a twitter update. As such, the network should have the ability to handle
traffic by priority and importance of the bits as assigned by the application provider, the carrier, and the
consumer (for some twitter update might be more important than a bank transfer going through).
66
For more discussion on data offload strategies, please see Bridgewater Systems whitepaper “Sharing the Load”
67
There could be interesting business models that can be developed that allow for significant offloading of traffic
within the corporate premises.
68
The debate over Net-Neutrality looms large in many countries especially in the US. This also means that
the regulators will have to play a more constructive role in assessing how network growth might occur and
what are the best ways to move the industry forward while preserving consumer interests at large.
Regulators will serve their nation better if they worry about the market competitiveness more than the
network management. Market forces have generally proven to be better guardians.
Caching
Like Wireline, users often consume similar content on wireless connection as well. Whether it is going to
the same websites or the blogs or downloading the same applications or P2P sharing or streaming the
same clips, the pattern remains the same. Wireless networks can benefit by using caching at various levels
in the network to offload the core network from repetitious transfer of same data. There are differences in
caching for Wireline vs. wireless for example, wireless sessions are usually shorter especially on
smartphones and featurephones, the content freshness is more stringent requirement in mobile, caching
capability of mobile devices is not as robust as Wireline, etc. As such, the caching technology will need to
take into account the specific state of affairs in a given market but overall caching will help in managing
the data traffic.
Incentives to fill the troughs

As we noted earlier, congestion management is about managing peaks to keep the incremental capacity
needs to the minimum. If consumer behavior can be changed through incentives and education to use
non-peak hours for bandwidth hungry applications and services, then the burden during peak hours can
be lowered, sometimes significantly. Several types of incentive schemes can be designed to help shape
consumer consumption patterns. This puts the emphasis back on Mbps (capacity) rather than MB
consumed.
Network Optimization
Compression and transcoding have been around since the mobile web was envisioned some 10-12 years
back. Whether it is WAP, full browser, applications, web services, video and communication sessions – all
can benefit from optimization on both ends, the device and the network. With full-browsers starting to
become quite popular, the data traffic per web page delivered has started to rise. Similarly, application-
based traffic is increasing but there are several opportunities for optimization from compressing and/or
transcoding individual objects within a frame, page, or stream to the use of device cache or network-end
points or content cache servers, data streams can be optimized. 69
Developers should be required to adhere to strict traffic requirements so as not to make their applications
overly chatty (unless they absolutely must). Operators should enable network APIs that can inform
applications of network state in real-time so that the traffic can be adapted in real-time.
69
Companies such as Bytemobile and Openwave provide solutions in this area
Figure 17. Increasing the throughput by optimizing mobile data at the transport
layer70
Over the last year, many new innovative optimization concepts (besides traditional caching and
optimization which have shown clear cost savings) have come to the market like TCP optimization that
helps in increasing the bandwidth and reducing the latency (see figure 17). This is especially beneficial
during congestion periods as such a solution can allow capacity recovery of 20-25%.71
Adopt Broadcast Mobile Video

Some 5 years ago, mobile video broke into the wireless landscape with a lot of promise but the uptake thus
far has been less than stellar. There are two main reasons for the disappointing performance a) quality
and b) pricing. While we have come a long ways from the 1-2fps video delivery services in the early days,
there are still quality issues with mobile video on the cellular network especially if you are trying to do live
video. As proven on Wireline, video is a huge driver for the traffic demand.
Over time, it is natural for this trend to follow on to the mobile world. According to the Cisco VNI Global
Mobile Data Traffic Forecast, video will be responsible for the majority of the traffic growth until 2014
accounting for 64% of the overall traffic.72 Already, there are a number of smartphones where 40-60% of
traffic is video. As more live video and video conferencing become the norm, we will need to have
strategies to optimize the ROI and monetize the content streams. However, doing live video entirely over
cellular doesn’t make sense for cost and performance reasons. Operators will have to evaluate mobile
broadcast technologies such as MediaFLO, DVB-H, iMB (Integrated Mobile Broadcast73, etc.). They take
the load off from the otherwise burdened cellular networks. Obviously, one must build a compelling value
proposition for broadcast mobile video for widespread adoption. Operators will still need to have an
optimization strategy for video on demand.
70
Source: Decreasing Network Congestion by Optimizing Mobile Data at the Transport Layer, Mobidia, 2010
71
Source: Mobidia Transport Optimization Test Report, 2010
72
http://www.cisco.com/en/US/netsol/ns827/networking_solutions_sub_solution.html
73
iMB is a 3GPP Release 8 technique that incorporates the broadcast mobile TV into the mobile network
infrastructure but uses separate TDD spectrum.
Ecosystem needs to step up as well

Operators often get blamed for the network congestion issues, however, the content and developer
ecosystem needs to step up to the plate as well. If the optimization is done at the source, benefits can be
enormous. For their part, Operators must enable and empower developers with network APIs that help
developers control their content flow to devices that benefits the user experience and the network. This
will be a win-win for all parties involved. Such APIs should be standardized across operators so developer
load is minimum. Operators should set up testing labs and provide simulation tools to developers so they
are more informed about the traffic load generated by their applications and are better prepared to
address data consumption issues. OEMs should consider providing caching framework and tools that help
migrate content during off peak hours. Only by working together can the ecosystem address the network
data issues in the long run.
New Business Models and Services

It should be noted that the low-cost bandwidth services (like SMS) might end up being the biggest
revenue generator. However, the network must be planned for traffic in aggregate and have enough
flexibility in the business models to help discover new revenue generating services.
It is quite apparent that the current business models74 and pricing schemes will be inadequate to maintain
the levels of current profitability. If the revenue equation stays flat with price pressure and the cost
equation is only going up (at accelerated rates), at a certain point in the time graph, the cost of delivering
data services overtakes the revenue being generated from them. So, new business models are needed that
take the bandwidth consumption into account to manage the traffic especially during peak times.
Figure 18. Reallocation of Consumer Spending (US) for Access services75
74
Some business models are only going to be new to certain countries. For example, the flat rate pricing
phenomenon is not widespread.
75
28 Ecosystem needs to step up as well | © Copyright 2010,
Operators typically have great intelligence on voice usage but for data, the infrastructure and efforts are
generally not on par. There is little understanding of what consumers are doing, which applications and
services they are tuned to at any given instant, forecasting traffic spikes, etc. As cost of supporting data
services exceeds the cost of managing voice services and as the revenues from data services become more
prominent than those from voice services, operators will have to pay much more attention to the specifics
at a very granular level and design business models and pricing plans per the trends and forecasts.
If we take a look at the spending habits of the US consumers on “access and communication services”
which includes the spending on Telephone, Cable, Internet, and Cell phones, the total “access” spending
over the course of last decade has been consistently around 4% of the total personal income per capita
(figure 18).
However, the share of each of the services has been changing steadily. Telephone used to have 65% share
of the spending but is going to be below 30% by end of 2010. Others have been climbing at the expense of
telephone revenues, especially the cellphones which since 2007 command the highest share. So, the
overall spending has stayed constant while there has been significant reallocation of spending. Similarly,
within cell phone services, data has gone from being less than 1% of the overall revenues to over 35% in
2010 and is going to be more than 50% of the overall revenue mix by early 2013.76
Mobile operators need to figure out how to manage these reallocation undercurrents and maintain the
overall life time value of the customer. It will come from re-architecting of the business and technology
practices as well through the introduction of new services.
There are practical limits to how much subscribers can talk. For example, in the US which is the most
talkative country on the planet in terms of MOU (Minutes of Use),77 voice traffic grew only 3.5% YOY in
2009.78 Same can’t be said of data traffic however, which grew over 180% during the same time-period.79
The voice side of the equation can be set free with unlimited plans as the incremental cost of adding
capacity is fairly low compared to the data side where the incremental cost to boost capacity is relatively
quite high. As the mobile networks add not only the subscribers but also the data-enabled devices
(including sensors and vertically focused devices) that can be connected to these networks, data side of
the equation will dwarf voice traffic very shortly (please see figure 4). This paradigm shift towards data is
altering the economics of the industry and the markets which are in tune with the shifts of time will be
able to respond better to the growing consumer expectations.
It should be noted that over the last 10 years there has been a gradual move from on-deck traffic to off-
deck traffic with on-deck accounting for very little traffic in most developed markets. So, operators will
have to rethink business models that are just based on selling bandwidth. They need to migrate to models
that are more based on value to the end customer and the ecosystem. In fact, it will be wise to figure out
the business models prior to the technology investments discussed in the previous section.
Network as a Platform
As we have discussed in the paper, the migration to data services is creating tremors in the ecosystem. The
business of access and service is fundamentally going through a transition, slower in some places than
others. Some operators have resigned to the fate of the being the wholesaler for the network and operate a
access network that others in the ecosystem can develop services and application on and yes, monetize
accordingly. However, operators should take a longer term view of the “opportunity” and view “network
as a platform” for innovation. At times, the innovative applications might come from the ecosystem but
the bigger role will be that of an “enabler” that helps the ecosystem to keep marching ahead at a fierce
76
Source: US Wireless Market Update, Q1 2010, Chetan Sharma Consulting, 2010
77
The US has more than twice the MOUs (at 839) of the highest ranked European country and double the MOUs of
ANY country with nearest being Canada at 435. Source: Merrill Lynch, “Global Wireless Matrix 3Q 2009.”
78
79
29 New Business Models and Services | © Copyright 2010,
pace. By focusing on building the access network as the platform, operators can build a long-term value
proposition and competitive advantage.
Conclusions
It is clearly a very exciting time in the mobile industry. The growth has been spectacular; its resilience a
model for other industries, and its promise is something that keeps entrepreneurs on their toes. Leading
operators are already seeing data revenues overtaking voice revenues for the first time. Gradually, rest of
the world will follow suit. However, this growth comes at with the cost of managing growth of data
consumption from billions of devices and trillions of sensors around us.
In the coming years, there will be two types of opportunities that will be created, one that take advantage
of the data being generated in a way that enhances the user experience and provides value and the other
in technologies that help manage the traffic data that will continue to grow exponentially.
To be able to stay ahead of the demand, significant planning needs to go in to deal with the bits and bytes
that are already exploding. New technical and business solutions will be needed to manage the growth and
profit from the services. Relying on only one solution won’t be an effective strategy to manage rising data
demand. A holistic approach to managing data traffic is needed and our analysis shows that the cost
structure can be reduced by more than half if a suite of solutions are deployed vs. a single dimensional
approach and thus bringing the hockey stick curves of data cost more in line with the revenues and thus
preserving the margins.
The decision making process within the operator organizations will need to be streamlined as well.
Operators should also consider creating a senior post which focuses on both the cost side and the solution
side so they can devise and institute a sustainable long-term policy and keep the margins healthy.
By introducing new business models and technology solutions such as femtocells, congestion
management, optimization, broadcast video, new types of devices and others, carriers can manage the
growth in the yottabyte era without a negative impact on their profits.
30 Conclusions | © Copyright 2010,

Acknowledgements
The author acknowledges assistance from Sunil Jain, Jeff Giard, Joanne Steinberg, Dr.
Mallik Tatipamula, Dr. Hugh Bradlow, and Sarla Sharma in reviewing the paper.
Disclaimer: Some of the companies mentioned in this paper are clients of Chetan Sharma
Consulting.
About Chetan Sharma Consulting

Chetan Sharma Consulting is one of the most respected management consulting and strategic advisory firm in the
mobile space. We are focused on evolving trends, emerging challenges and opportunities, new business models
and technology advances that will take our mobile communications industry to the next level. Our expertise is in
developing innovation-driven product and IP strategy for clients worldwide. Our clients range from small startups
with disruptive ideas to multinational conglomerates looking for an edge. We assist major brands formulate
winning, profitable, and sustainable strategies.
Chetan Sharma Consulting has significant experience and expertise in understanding mobile data traffic and
devising strategies to cope with the growth as well as benefit from it.
Please visit us at www.chetansharma.com
About the Author

Chetan Sharma is President of Chetan Sharma Consulting and is one of the leading strategists in the mobile
industry. Executives from wireless companies around the world seek his accurate predictions, independent
insights, and actionable recommendations. He has served as an advisor to senior executive management of several
Fortune 100 companies in the wireless space and is probably the only industry strategist who has advised each of
the top 6 global mobile data operators. Some of his clients include NTT DoCoMo, Disney, KTF, China Mobile,
Toyota, Comcast, Motorola, FedEx, Sony, Samsung, Alcatel Lucent, KDDI, Virgin Mobile, Sprint Nextel, Skype, AT&T
Wireless, Reuters, Juniper, Qualcomm, Comverse, Motricity, Reliance Infocomm, SAP, Merrill Lynch, Openwave,
Ricoh, American Express, and Hewlett-Packard.
Chetan is the author or co-author of five best-selling books on wireless including Mobile Advertising: Supercharge
your brand in the exploding wireless market and Wireless Broadband: Conflict and Convergence. His books have
been adopted in several corporate training programs and university courses at NYU, Stanford, and Tokyo
University. His research work is widely quoted in the industry. Chetan is interviewed frequently by leading
international media publications such as Time, New York Times, BBC, CNN, Wall Street Journal, Business Week,
Japan Media Review, Mobile Communications International, and GigaOM, and has appeared on NPR, BBN, WBBN,
and CNBC as a wireless data technology expert.
Chetan is an advisor to CEOs and CTOs of some of the leading wireless technology companies on product strategy
and Intellectual Property (IP) development, and serves on the advisory board of several companies. He is also one
of the most sought after IP strategist and expert witness in the wireless industry and has worked on and testified in
some of the most important cases in the industry such as Qualcomm vs. Broadcom, Samsung vs. Ericsson, Sprint
vs. Verizon, and Upaid vs. Satyam. Chetan is a senior member of IEEE, IEEE Communications Society, and IEEE
Computers Society. Chetan has Master of Science degree in Electrical Engineering from Kansas State University and
Bachelor of Science degree from the Indian Institute of Technology, Roorkee.
31 Acknowledgements | © Copyright 2010,


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MANAGING GROWTH AND

2 Table of Contents | © Copyright 2010,

The Arrival of the Yottabyte Era

Mobile Media Evolution

Figure 1. Global Mobile Industry Revenue Distribution10

 better networks in the form of 3G/3.5G (and future upgrades to 4G+),

Figure 2. Distribution of time spent on iPhone12

Mobile Technology Evolution

Figure 3. Global Mobile Technology Evolution16

Correlation of data traffic with data revenues

Figure 4. US Mobile Traffic: Voice vs. Data (2004-10)18

© Chetan Sharma Consulting, 2010

Brazil South Africa

20% 40% 60% 80% 100%

Figure 5. Relationship of data traffic with data revenues in various countries 19

Figure 6. Vodafone Europe: Share of Traffic and Revenue by Data Services

The Mobile Data Tsunami

Figure 7. a) Data consumption in some of the leading economies b) Data

Figure 8. Correlation of Speed/Latency with Consumption for Smartphones30

There are two key factors behind congestion:

 The peak data usage

There are also two key congestion points in the network:

The March Towards the Yottabyte Era

Figure 9. Broadband speed requirements by application type

Figure 10. Mobile Data Traffic Growth in the US market35

The Distribution of the Mobile Data Traffic

Figure 11. Mobile Data Traffic Distribution by Device Type39

Figure 12. Mobile Data Traffic Distribution by Device Type40

Mobile Data Growth Will (Also) Come from New

Comparing Mobile Data Growth to Wireline

16 Comparing Mobile Data Growth to Wireline | © Copyright 2010,

Radio Access Network Core Network

© Chetan Sharma Consulting, 2010

Fiber RNC SGSN GGSN

Compression/Optimization of Data Traffic

Figure 14. A representative framework for a holistic approach to managing data

Some of the strategies for managing network traffic growth are:

Figure 15. Managing Network Traffic Costs (US)47

Dealing with the Spectrum Crisis

1. There isn't enough spectrum, especially the right spectrum

The Case for Policy Management

There are multiple ways to institute a workable or “fair-use” policy

Faster HSPA+/LTE deployment

Figure 16. LTE Subscriber growth forecast59

Data Offload - Femtocell/Wi-Fi/Core

Incentives to fill the troughs

Adopt Broadcast Mobile Video

Ecosystem needs to step up as well

New Business Models and Services

Figure 18. Reallocation of Consumer Spending (US) for Access services75

30 Conclusions | © Copyright 2010,

About Chetan Sharma Consulting

Please visit us at www.chetansharma.com

About the Author

31 Acknowledgements | © Copyright 2010,

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