So is there a future for cellular networks as Wi-Fi technology and providers continue to expand? Here’s an inside look at the business and technology of Wi-Fi by Chris Antlitz, telecom senior analyst at Technology Business Research in the second of a two-part report. (Part One provides an overview of the Wi-Fi battlefield.)
HAMPTON, N.H. – Cellular still has a future in a Wi-Fi First world
Though Wi-Fi is expected to alter the mobile service landscape significantly over the next decade, cellular will still have a role to play. Cellular will likely become the de facto fallback to Wi-Fi, meaning that a user’s device will fall back to cellular whenever it is outside a Wi-Fi zone.
This hybrid model is called Wi-Fi First. This approach will be pervasive in rural and some suburban areas, where the economics of using cellular to provide access is more favorable compared to using Wi-Fi. For example, it is more cost-effective to have a cell tower blanketing rural areas compared to having mini Wi-Fi zones within that footprint. With that said, most of the Wi-Fi zones will be located in urban and most suburban markets. Cisco estimates over three-quarters of all mobile traffic is generated indoors, be it at a home or in a workplace setting. This augurs well for Wi-Fi replacing cellular because most of these locations are already covered with Wi-Fi.
This implies that up to one-quarter of all mobile traffic is outside of a Wi-Fi zone, which is space that may be best suited to leveraging cellular. Cellular will also be utilized for mission-critical use cases, such as healthcare and government solutions that require a high degree of security, mobility and reliability. Traditional telecom operators will continue to service these needs.
Cellular operators have a love-hate relationship with Wi-Fi
Though Wi-Fi poses a significant threat to cellular operators’ business models over the long term, these companies have been embracing Wi-Fi in their own way for years. Primarily leveraged as a data offload conduit, Wi-Fi has helped service providers ease bandwidth constraints on their cellular networks, particularly as smartphones became mainstream.
Some service providers are even deploying their own Wi-Fi networks to accelerate and encourage data offload, while others are taking it a step further and offering Voice over Wi-Fi, such as T-Mobile.
TBR envisions a world where cellular operators coexist with and compete against Wi-Fi. In some cases, cellular operators will lean even more heavily on Wi-Fi to improve their indoor coverage and provide supplementary outdoor capacity where there is congestion on the cellular network. Though this approach will help optimize network performance, it will not help these incumbent operators lower their cost structures to a point where they are price-competitive with pure Wi-Fi operators.
Balance of power shifting in vendor community
Network vendors face a significant long-term challenge from the balance of power shift from cellular to Wi-Fi. Network vendors derive the majority of their revenue from selling the pipes and software that enable cellular networks to function. As more emphasis is placed on Wi-Fi as the de facto access of choice for both operators and end users, network vendors will see lower demand for their cellular products.
Aggregate telecom-related capex will tip more toward Wi-Fi operators, which will be actively building out footprints and investing in middleware and back-office systems such as OSS and BSS to handle the influx of subscribers onto their platforms. Vendors that are best positioned to benefit from a Wi-Fi First world are Cisco, HP, Ruckus Wireless and Ericsson.
All of these vendors sell Wi-Fi infrastructure and solutions and are currently involved with Wi-Fi operators. Those vendors that are dependent on the “old” cellular model, which is driven by high capex and ARPU, will struggle the most and face declining revenues unless they evolve.
Wi-Fi offers the lowest-cost, highest-impact way to deliver connectivity. The ability to leverage unlicensed (free) spectrum, minimal backhaul requirements and the endemic footprint of hot spots across the U.S. makes Wi-Fi a considerable threat to cellular. Wi-Fi operators are jockeying for market position currently and trying to scale up by taking subscribers from cellular operators.
Though the market is in the early stages of development, the significant end-user and operator cost savings inherent in using Wi-Fi for all communications purposes, mixed with the improving technology on the back end, make Wi-Fi a viable and highly disruptive alternative to cellular.