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How the Big Four Internet Giants are addressing cellular network evolution

Internet GiantsWe may think that the major network operators or the three major RAN vendors are driving the strategy for cellular service for the next decade. But with so much activity and value switching to content, Apps and advertising, the big four Internet Giants all have a major stake. We look at what each has been doing and consider the implications.

By the big four, I meant Apple, Google, Facebook and Amazon. Some might want to include Microsoft, Cisco, Samsung or others, but I’ve kept it focussed.

Apple

Apple remains the largest mobile business by size and profitability, with $215 billion total annual revenues ($84 billion profit) dominating China Mobile ($96 Billion) and Verizon Wireless ($89 Billion).

iPhones are very much sought after devices, but pricey. While they have 40% market share in the US, its more like 13% worldwide. Don’t expect them to satisfy huge demand in India for example, where the Freedom 251 sells for just $4.

Apple have developed their own configurable SIM module which provides the option to choose your preferred network operator and configure everything remotely rather then having to plug in a specific SIM card. Some products have this embedded into the device itself, called an eSIM. The scheme was touted as likely to kill off the hardware SIM. But it has flopped so far with little take-up – it really needed all the network operators in each country to sign up.

This feature is still lurking and could re-emerge in the future in a different form. Possibilities include supporting standalone MulteFire or CBRS networks which would require their own SIM cards. Cable TV companies have been considering re-entering the market as MVNOs, complementing outdoor service from major networks with their own indoor small cells. iPhone support for new frequencies/modes is critical to ensure large scale adoption.

Apple typically don’t exhibit at the major cellular conferences and don’t reveal their long term strategy in advance. They’ve chosen to work in close partnership with network operators up to now which has been beneficial all round and I don’t see them about to make a break from that in the short term. But longer term, who knows.

Google

Rebranded as Alphabet Inc, this behemoth has invested in a diverse range of technologies (called Other Bets) from self-driving cars, drones to mobile phones. It’s primary income stream remains advertising which generates 89% ($76 Billion) annual revenue and around $20 billion in profit. They’ve sharpened up their financial discipline, with new CFO Ruth Porat insisting on full reporting of R&D project costs and each showing a path to profitability within five years. Alphabet spent $3.6 Billion on R&D in Q3 2016 alone (of which Other Bets lost $365 million). The business is urgent seeking to reinvent itself and diversify.

Google’s major contribution to the cellular industry has been Android, the free operating system for mobile phones which is embedded in almost every smartphone that’s not Apple. It’s enabled a thriving marketplace for Android Apps and driven down the cost of devices. They acquired Motorola’s handset division for $12.5 billion and sold it to Lenovo for $2.9 billion, keeping the patent portfolio. This meant it could again be seen as independent and not competing directly with other Android smartphone vendors.

One could argue that Google has had a similar effect on speeding up the pace of high speed fibre internet availability, kicking the industry into a more rapid rollout. Theiy had ambitious plans to bring the economies of scale that they’ve exploited in data centres to the internet access industry. Some of these strategies have paid off and been adopted by traditional networks. But for now, it’s become a lower priority.

Carol Wilson of Light Reading summarises the situation well – it can’t be called a failure, but don’t expect Google to become dominant. They current serve around 500,000 customers in specific neighbourhoods of the US and have downsized their operation and ambition.

More recently, Google has switched its emphasis to wireless service and specifically CBRS. This is a US scheme which shares spectrum at 3.5GHz using standard LTE. Google have developed their own centralised Spectrum Allocation Server (SAS) and are also believed to be working on an aggregation gateway so that they could operate a neutral host service.

For rural and remote areas, Google’s Project Loon has trialled balloons in the stratosphere to relay Internet to sparsely populated areas.

It remains to be seen how much of their upcoming strategy will provide new opportunities for partners (including small cell vendors), but I think they will kick start a thriving CBRS ecosystem. 

Facebook

Facebook is financially smaller than Apple or Google by revenue, with $24 Billion and profits of $12.5 Billion. But revenue is up 59% year on year and profits are up 114%. The growth is impressive and they are catching up Google fast.

Keen to bring basic internet service to as many people as possible, Facebook have encouraged network operators to provide free basic service to all – bringing the “freemium” model of internet software to that of cellular service. The idea is that many will like it so much they’ll choose to pay for faster/better service and thus make it a viable business case. Of course Facebook itself would be one of the basic services available for free.

Free Basics is now available in 53 countries, opening up service throughout Africa, Asia Pacific and LATAM. Full details available at Internet.org

OpenCellular is their other major project, aimed at providing an Open Source design for cellular basestations to be used to improve connectivity in the remotest areas of the world. Both hardware design and software source code are fully open. The company is working closely with the Telecom Infra Project (TIP) to create an active opensource community and trial the system. Leading network operators worldwide have signed up to that program. I see this being more relevant in lower cost/developing countries with sparse populations but not exclusively so.

Amazon

While we principally think of the company as the largest online retailer, it has grown a substantial global data centre business. Popular Internet services such as Netflix, Dropbox, Adobe, AirBnB all run on their infrastructure. AWS (Amazon Web Services) revenues in the past 12 months exceed $13 Billion (Amazon total revenue was $113 Billion in the same period). It’s also growing rapidly with an increase of 55% year on year.

Over 80% of all smartphone data traffic ends up in the cloud, so if it’s not going to Apple, Google, Facebook or Microsoft then it’s probably ending up on an Amazon server somewhere. One could expect much of the Internet of Things to interact with Amazon servers rather than one of their competitors.

AWS did speak on the Ericsson booth at Mobile World Congress last year. They are making a play to provide Cloud services for network operators as a cost saving exercise. I’d expect most operators to be very cautious about outsourcing in this way – their idea of the cloud is more about using their own datacentres. However these platforms are idea for neutral hosts and similar service providers, providing enormous scalability extremely cost effectively and on demand.

A significant milestone was gaining approval from the EU data protection authorities in March 2015. The Article 29 working party approved the AWS Data Protection Agreement, assuring compliance with EU data protection laws. Specifically, data stored in one country won’t be moved elsewhere.

I think we can expect to see more cellular operational applications, such as planning, monitoring and even billing make greater use of this technology. This will start with the smaller, independent organisations, probably first with neutral hosts and standalone/open source systems.

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