Good Times for 3G

3G technology has come of age: Data traffic volumes are skyrocketing, retail prices are falling, and revenues are on the rise. The mobile broadband era has not only arrived, it's here in style.

Underpinning the market are the High Speed Packet Access (HSPA) and EV-DO upgrades to 3G radio access networks. These technologies are enabling mass-market mobile broadband services and will provide a platform for application innovation for years to come. Even arch 3G-skeptic BlackBerry is planning an HSPA BlackBerry.

3G networks today can deliver end-user downlink speeds between 1 Mbit/s and 2 Mbit/s, with burst rates to 3 Mbit/s and even higher. And with a technology roadmap to Evolved HSPA – which promises lower latency and peak, per-sector data rates of up to 28 Mbit/s and later perhaps to 42 Mbit/s – it's now possible to talk about mobile as a genuine broadband service that can compete directly with wireline offerings.

In the same way that many consumers are cutting the cord on their voice communications, it's not implausible that users may start to eliminate their wired broadband entirely. With mobile operators marketing services as "mobile broadband," it's no surprise to see subscribers making that switch. The result is skyrocketing growth in 3G data traffic.

According to data from the latest Heavy Reading report, "Flat IP Architectures in Mobile Networks: From 3G to LTE," mobile data traffic volumes in 3G networks increased between four- and eightfold in 2007. This breaks down as follows:

  • For an operator with a relatively large amount of preexisting Release 99 traffic and without very competitive, flat-rate data plans, a three- to fourfold increase in data traffic in 2007 is typical. The main U.S. 3G operators (including EV-DO) are in this group.

  • For an operator without much preexisting Release 99 traffic and competitive flat-rate data plans, up to an eightfold increase in traffic is not uncommon.

Just as important as faster download speeds (probably more important) are lower prices. This is critical to subscriber uptake and has deep implications for operator profit margins.

In a sample of five progressive 3G operators in competitive markets, per-month pricing for mobile data declined an average of 57 percent in 2007, falling as low as $20 a month in some markets. Under the "get more for less" principle, operators have also started to include greater amounts of data in monthly packages while simultaneously cutting prices. Price per megabyte, for example, fell from an average of 5.7 cents in 2006 to just 1.6 cents in early 2008 – a decrease of 72 percent. Already several operators are at the 1 cent per megabyte price point.

There's also evidence that lower prices are stimulating demand and expanding the overall market. A halving of mobile broadband pricing in the U.K., for example, has seen the number of USB "dongles" sold quadruple between September 2007 and March 2008, with sales set to top 150,000 in the first quarter alone. More generally, data revenues are growing at around 40 percent to 50 percent a year in Western Europe and North America.

This interplay of surging traffic growth, lower unit prices, and the desire for profitable revenue growth has far-reaching implications for the way wireless networks will be deployed and managed in the future. And it sets operators a challenge: How can they offer lower prices without killing the business model?

The emergence of 3G HSPA technology, and soon next-generation LTE (a.k.a. 4G) radio access, is enabling a new class of mobile broadband service and generating traffic volumes that are simply unsustainable over classic, hierarchical network architectures originally designed for mobile voice and low-speed packet data.

To efficiently deliver mobile broadband services, operators require a network infrastructure that simultaneously provides lower costs, lower latency, and greater flexibility. The key to achieving this is the adoption of flat, all-IP mobile network architectures.

— Gabriel Brown, Senior Analyst, Heavy Reading
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