Why USA is the leader of advanced wireless services and Europe has fallen behind?

Europe had been a pioneer of innovation and deployment in wireless communications for a dominant period in the history of this technology. From the first GSM standard to the first LTE network in Scandinavia, Europe led all the way. Till about 6 years ago, the European wireless market was at par or even better than the American market in certain aspects. But the scenario is changing now with the United States taking over as the leader of next-generation wireless services. Here are a couple of quick statistics to support this view. The GSM Association’s recent report estimated that 19% wireless connections in US would be on LTE by year end compared with 2% in the European Union. Wireless capital expenditure (CAPEX) has declined slightly in Europe over the past 6 years but has shot up more than 70% in US over the same period of time. While it is somewhat unfair to compare the whole continent with a single country, most of Europe has moved together when it comes to telecommunications. Many nations have common wireless operators who face similar challenges.

Let us first look at how USA became the frontrunner of the global mobile telecom industry. Avid telecom followers would remember that US was considered late to the 3G party. Till about 2007, 3G adoption in US was slow and only a few business users were tempted by the need to access data on their phones. Blackberry was considered the best in the industry. Mass market tablets were non-existent. All that started to change with the launch of the first Apple iPhone in mid-2007. Data usage exploded. With AT&T being the sole carrier of the device till early 2011, its data uptake shot up 8000% in 4 years. Accessing Facebook, GPS, sports scores, news, travel websites, restaurant reviews etc. while on the move became the cool thing. Google followed Apple with its open source Android operating system. By 2009, the market was flooded with Android powered phones from Samsung, HTC and Motorola. Apart from AT&T, Verizon, Sprint and T-Mobile jumped aboard the Android bandwagon and also started noticing a sharp rise in data hungry customers. To attract more subscribers initially, all of them offered unlimited data plans. Although data brought in additional revenue, the cost of offering data per bit was going up because of the additional capital and operational expenditure. The initial reaction was to boost network speeds in existing 3G networks. Thus, HSPA and HSPA+ (also referred to as 3.5G) technologies were deployed by AT&T and T-Mobile. Verizon Wireless had a different predicament. Their 3G version, EVDO Rev. A, topped out between download speeds of 3 and 4 Mbps in normal traffic conditions. This was slower than the WCDMA and HSPA data speeds provided by other operators. Given this constraint and the exploding smartphone market, Verizon’s best option was to embrace the next generation LTE technology. Timely auction of the 700 MHz spectrum in 2008 acted as a booster. After launching their first LTE network in December 2010, the operator rapidly deployed the technology all over US and now covers most areas of the country. Sprint put its money on WiMAX initially, but realized in a few years that LTE is the future and finally launched LTE last year. Despite being hammered by data demand from millions of iPhones, AT&T Wireless took its time to jump on to LTE. Their first LTE network came into operation 2 years ago. T-Mobile decided to squeeze the most juice out of its HSPA+ networks and launched LTE in March this year. All 4 carriers have LTE-Advanced on their roadmap in 2-3 years. Telcos have essentially learned the importance of both ‘first to market’ and ‘best to market.’ Subsidized handset availability served as another catalyst for the smartphone revolution in US. Personally, I am not a fan of 2 year service agreement with the provider, but it does make that latest phone more affordable. Increasing smartphone usage pushed the service providers towards LTE. The traditionally expensive cellphone service in US (with ARPUs among the highest in the world) played a major role in keeping the industry booming. And while customers want lower bills, they want faster speeds and increased capacity too. A direct implication of this approach is the quality of service in US that is widely considered to be among the best in the world.

A healthy, stable and encouraging regulatory environment goes a long way in deciding the quality of telecommunication services. The US regulator FCC and the government prioritized opening of more spectrum in order to promote advanced wireless services deployment all over the country. Mergers and acquisitions have also acted as shot in the arm for the industry. Japanese operator, Softbank acquired 80% of Sprint and Sprint completely acquired Clearwire. T-Mobile merged with MetroPCS and AT&T bought Leap Wireless. While smaller and local service providers still remain in operation, the recent M&A activity has made sure that 4 well-financed, stable and competitive service providers remain in the US industry.

Europe’s lackluster performance in the field of cutting-edge wireless technologies can be attributed to various factors. The recent financial meltdown across the continent gets part of the blame. While the American economy has substantially recovered, Europe has seen a prolonged economic struggle. Sovereign debt crisis and lack of faith in Euro have affected the growth and competitiveness across the continent in the past few years. Needless to say, the telecom sector has been adversely affected. Telcos have become risk averse and CAPEX in fresh wireless infrastructure like LTE has been sluggish. Bitter experiences of the past have also prevented large scale investments from the European telecom firms. Around the turn of the century at the height of tech bubble, many of them spent billions of dollars in buying 3G spectrum and in developing infrastructure for the technology. It left them with huge debts and telcos are still milking their 3G assets to recover that investment. Vodafone CEO Vittorio Colao called the 3G auctions in UK (in the year 2000) an aberration, that was not going to repeat itself. That auction raised about $35 billion for the government, while the 4G auction earlier this year in UK fetched only 10% of that, an amount much more reasonable and affordable for the bidders. Similarly, Germany raised a staggering $67 billion from their 3G auction, but the 4G airwaves fetched only $5.5 billion in 2010. The lesson had been learned and repeating the same mistake with LTE and 4G would have been suicidal. In fact, the Czech regulator canceled fourth generation spectrum auction earlier this year, since the high bids would have hampered the operator’s finances with the costs being passed on to the customer. The auction will be held again later this year and the idea is to encourage new players to enter the market.

Higher competition and lack of consolidation is another impediment. Europe has more than 100 mobile service providers spread across various regions but the European Commission’s antitrust policies have kept the market fragmented. Direct consequence of high competition is the lower ARPU. The GSMA report estimated the 2012 ARPU in Europe to be $38 as compared to $69 in US. The more money a service provider makes, the more it will invest in the latest technology. Consolidation brings in economies of scale. It must also be noted that many European governments have awarded airwaves for LTE services, but the telcos are taking their own time in bringing up LTE since the data market is still developing. This brings us to the discussion on consumer appetite. In my personal experience and I am sure many would agree, the mobile subscribers in US are hooked to their smartphones more than people from any other country. According to various estimates, they use five times more voice minutes and twice as much data compared to their European counterparts. This ties into the ARPU numbers mentioned earlier in this post. The telecom crash of early-2000s has surely taught the industry that if the demand is rising only slowly, where is the need to hurry on the infrastructure? Fragmented spectrum across various nations has exacerbated the operator’s troubles too. Telecom companies like Vodafone, Orange, T-Mobile and Telefonica provide mobile services in many areas and they would very much like a harmonized spectrum approach. The European Commission’s attempt to make 800 MHz the digital dividend spectrum across all EU member nations by this year is good in theory but difficult in implementation. It has been met with only limited success with many countries expressing inability to meet that policy requirement.

According to a Cisco report, wireless data speeds in US are on an average 75% faster than the corresponding speeds in the EU. In my recent travels across Europe, speed tests showed download speeds ranging anywhere from 1 to 5 Mbps depending on the country. These were essentially 3G and HSPA network speeds. Due to lack of LTE roaming, I could not experience the LTE speeds in Europe. Interacting with fellow telecom professionals in the continent, I was convinced that Europe has been slow to embrace LTE, although LTE deployment is now picking up pace in some European countries. One could argue that why compare a single country, US with the whole continent? And does it really matter, if consumers are not complaining? There is some logic to these arguments. But Europe can learn from America’s telecom industry. The European Commission has been sending encouraging signals towards introducing industry friendly reforms. If the merger of Telefonica’s O2 with the Dutch company KPN’s E-Plus in Germany is approved, it could set the tone for further M&As across Europe. Earlier this year, the continent’s telecom commission expressed willingness to create a unified telecoms market across Europe in order to foster cross border harmonization of the industry’s policies and spectrum. Any such move could face stiff resistance from different quarters with operators having diverse viewpoints especially on issues like free roaming. But where they do agree is that investing in LTE will keep the European economy globally competitive. Only time will tell how fast they can catch up with not just US, but also with other LTE leaders like South Korea and Japan. Maybe they will lead again once 5G comes along?

Voice over LTE (VoLTE)

According to the latest ‘Evolution to LTE’ report released by Global mobile Suppliers Associations (GSA), 113 commercial LTE networks are in operation in 51 countries around the world. By the end of next year, 209 LTE networks are expected to be deployed in 75 countries. LTE has been designed as a data-only IP technology. There is no inherent support for circuit switched voice. Since eventually, most operators will transform to LTE networks, the technology must incorporate voice. There are three popular options for providing voice services over LTE networks –

1. Circuit-Switched Fallback (CSFB) – Presently, CSFB is the most widely used solution for carrying voice over LTE networks but it is not a true voice over LTE implementation. It involves switching to a 2G or 3G connection before initiating and receiving a circuit switched voice call. Although the technology requires certain hardware infrastructure modifications and utilizes multiple network elements to accomplish the transition from data to voice and vice-versa, it remains a relatively cost-effective solution to provide voice in LTE. It also has the ability to carry text messages. CSFB will be prevalent in the industry for at least next few years but it cannot be a long-term strategy. It has certain disadvantages. Sudden data session suspension and call setup delays can lead to poor user experience. Femtocells are not supported. CSFB can be extended to the reasoning behind lack of support of simultaneous data and voice sessions on Verizon, Sprint and other CDMA networks. Verizon has widespread LTE coverage in USA. But when it comes to voice, the phones on their network switch to the legacy 2G or 3G CDMA connection which is not designed to handle simultaneous voice and data. An extra radio in the phone solves this problem and most Verizon LTE phones incorporate the required hardware to carry two connections. But some smartphone manufacturers like Apple are reluctant to incorporate that extra radio to sustain battery life and lower costs. AT&T’s legacy GSM and UMTS networks have no such issues. Voice and data sessions can co-exist on phones subscribed to their network. This is also one of the factors contributing to better iPhone sales on AT&T as compared to Verizon despite Verizon having a better overall network than AT&T.

2. Voice over LTE Generic Access (VoLGA) – VoLGA provides voice over LTE by taking advantage of the network operator’s incumbent 2G or 3G infrastructure. A Generic Access Network (GAN) adds WiFi as an access network to a 3G UMTS system. Through GAN, a dual mode device can access network services by using WiFi. VoLGA uses this idea of GAN and replaces WiFi with LTE. There are no modifications required to the 3G and LTE radio network or core. VoLGA Access Network Controller (VANC) acts as a gateway between the LTE and 3G circuit switched domain. Signalling and data packets are transported between the device and circuit-switched network by VANC in a transparent flow. VoLGA offers better call setup times as compared to CSFB and supports femtocells. VoLGA gained traction when Deutsche Telekom (DT) announced its support for the technology in 2010. But DT later dropped VoLGA in favor of CSFB and it will eventually migrate to voice over IMS in LTE networks. VoLGA is now considered dead despite being a less expensive means for providing voice services on LTE networks.

3. Voice over IMS – The IP Multimedia Subsystem (IMS) is the chosen long-term strategy for deploying VoLTE. CSFB and VoLGA are not actual VoLTE technologies, but they are considered as two technologies used to implement voice on LTE networks in the short-term. However, an IMS based LTE network is the real VoLTE. In 2010, the global association of mobile operators, GSMA, announced the ‘One Voice’ initiative which defined a minimum mandatory set of standards to achieve interoperable high quality IMS-based voice and SMS service over LTE networks. The goal of this initiative was to harmonize the implementation of voice and SMS services on LTE for leading operators and handset manufacturers. IMS is an IP-based network which is deployed by operators to provide a range of applications such as text, media and video on a single IP platform. IMS is based on the Session Initiation Protocol (SIP). The SIP server in IMS is also known as the Call Session Control Function (CSCF) server. It is used for voice call control and service delivery. In simple terms, the outcome of this VoLTE architecture is that the voice is transported as data flows inside the LTE data.  Thus IMS enables LTE to administer VoIP and high speed data service simultaneously. One important feature of VoLTE is implementation of Single Radio Voice Call Continuity (SRVCC). The concept of SRVCC requires that when a user moves outside the LTE coverage area, it should experience a smooth handover to another technology such as 3G/UMTS or 2G/GSM. IMS achieves this by switching the session to circuit-switched domain. Another vital aspect of VoLTE will be seamless roaming and interconnection with another providers’ network. Note that IMS is not a new technology. It was first developed around 2006 but lost momentum once the focus started shifting to LTE. Now LTE itself needs IMS’ support. Over the period of last year, IMS based VoLTE technology has emerged as the industry wide standard for providing voice services through LTE. Ericsson is the leader in VoLTE solutions closely followed by Alcatel-Lucent and Nokia Siemens Networks. But IMS based VoLTE is a complex system and large scale deployments are not expected anytime soon. However, early deployments have already commenced in some parts of the world. SK Telecom and LG U+ in South Korea launched VoLTE services earlier this year. MetroPCS, which was recently acquired by T-Mobile, is the first player in US to offer VoLTE services. Verizon and AT&T are expected to join the VoLTE bandwagon in the later half of 2013.

Financial instability and wide scale utilization of HSPA+ in different parts of the world has resulted in slow LTE deployment and adoption. VoLTE comes beyond that and for now CSFB seems sufficient. Over the top (OTT) services like Skype and Facetime (for Apple devices) have somewhat obviated the need to launch VoLTE urgently. If I can talk and see my family and friends in US and overseas by using the data plan or WiFi on my device, I would not care much about plain voice service. Having said that, we also understand that voice is still a major chunk of operators’ revenue. So with time, as most operators migrate to LTE, they will have to use IMS for voice unless some better alternative comes along. The IMS based architecture is broadly recognized as the permanent solution for carry voice over LTE networks.