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Wireless Infrastructure Newsletter

The end of hardware as a mobile business October 14 2016

Exploding handsets aside, Ericsson’s crisis shows the need for all players to accelerate their shift towards software and services

It’s been another week of exploding smartphones, and the growing fall-out from the problems with Samsung’s Galaxy Note 7. Once a flagship product and a genuinely innovative design, the latest Note has turned into a nightmare. Samsung has halted production and the recall and refund process – and more importantly, the loss of future sales – may hit its profits to the tune of $5.3bn.

Of course, Samsung is a big enough company to weather this storm, despite the awful timing, just as its handset business seemed to be in recovery mode. This will likely see it redouble its efforts to shift revenue and profit to non-smartphone businesses like memory, processors and displays, and to try to boost its efforts in software.

The trouble is, while the company is having some success with services like mobile payments, the classic software/content model for a device maker is to use those services to drive additional usage, and upgrades, to the smartphones, by creating an optimized and highly usable experience. Apple is the star at this, and the failure of the new Note – whose pen interface can support some interesting applications – will be a blow to Samsung’s hardware/software hopes.

Google is also chasing that integrated device/services dream with its new Pixel smartphones, just when the model is set to decline. The ascendant players will not be the hardware/software providers, which lock users into a particular device or brand. They will be the web content and applications firms, which can create a differentiated and attractive user experience across a whole range of current and future gadgets.

Amazon is leading the way, because this is its natural territory – despite the Kindles and Fires and Echoes, it is not a device maker and those products exist purely to drive more usage of its content and stores. That also gives Amazon a whole different approach to margins compared to actual hardware manufacturers. As it hurls its rocks at Apple and Samsung – it new low cost music streaming service, tied into its Echo and Prime platforms, is the latest example – it is even more strange that Google, which could go head-to-head in this game, is being distracted by the old-fashioned world of devices.

It isn’t just the device end of the mobile market where the old guard are being squeezed out. Network vendors and operators are faced with painful adjustments too – Ericsson’s huge job cuts of last week were followed this week by news of 3,200 layoffs at Verizon.

Ericsson followed its cuts with a profit warning, turning its investors’ harsh scrutiny on its plan to restructure its business around new realities. Of course, it only has an interim CEO, and a strong new leader is badly needed, but it does have a well articulated roadmap laid out by ousted CEO Hans Vestberg, with a set of targeted growth businesses and a potentially game-changing alliance with Cisco.

However, those growth businesses – which include virtualization, cloud and media – delivered only about $60m of additional revenue in the second quarter, and account for only $1.2bn of sales in a total of $6.1bn. That total is falling (down by $460m in the quarter) and the new businesses are not expanding rapidly enough to fill the gap, hence the cost slashing and general pessimism.

The Cisco deal is not cutting in sufficiently quickly, in terms of sales, to reassure shareholders or many customers, while the new targeted businesses are not greenfield markets where Ericsson can make the rules as it used to do in mobile networks – most of them are already occupied by powerful and defensive companies from IBM and HPE to Amazon. Ericsson has neutralized the potential competition from Cisco and will make other partnerships – or perhaps the big merger it has always resisted really will be on the cards once a new CEO arrives.

Acting CEO and CFO Jan Frykhammar told Bloomberg, after the Q3 profit warning: “This is absolutely not the beginning of the end for Ericsson.” That is likely to be true, even if Ericsson ends up in a merger. After all, its death has been predicted before, most recently in 2003 when its spiralling fortunes were rescued by CEO Carl Henric Svanberg. There is still reason to hope that Ericsson’s next CEO could be as effective as Svanberg in turning the ship, but it will be a big job. As in 2003, the company is not just facing stepped-up competition or seasonal fluctuations – it is in the midst of a complete redefinition of its industry. A decade ago that was centered on the shift to the Internet; now it is about the convergence of telecoms and IT and the rise of the software-driven network and the cloud.

Like Google and Apple, the big RAN vendors are still over-preoccupied with hardware. Of course 5G is important, but the strings of tests and pre-5G announcements – Huawei and Vodafone are the latest to boast of a field trial of the ‘New Radio’, based on preliminary work in 3GPP – do not convince anyone that these companies are ready for the next phase of their industry. Tactile Internet, artificial intelligence, massive IoT, hosted and virtualized RANs, everything delivered from the cloud, network slicing – these will be the foundations of the next wave of mobile and web experiences and business models.

The hardware will need to evolve to support them but it will be an enabler not a business driver in its own right. If Samsung’s exploding phones push the company to step up its software and user experience efforts, it may prove a bonus in the end, and a shift which companies throughout the mobile value chain will need to make too.


Facebook's growth driven by mobile ad boom July 24 2014

Takes some share from Google as its firms up its business model, focusing on quality and differentiation

By Caroline Gabriel

In the two years since Facebook's IPO, the social networking giant has made significant progress in building a mobile business model. That public offering was blighted by uncertainty about how to turn its vast mobile traffic into gold, but its second quarter results show how far it has come in meeting the challenge. The growth in mobile advertising was credited as the primary factor in a 61% year-on-year leap in second quarter revenue, hitting $2.91bn, well ahead of analyst expectations.

Net income rose 137% on the year-ago quarter, to $791m or 30 cents a share. Profit excluding one-off items was 42 cents, well ahead of Wall Street forecasts.

Advertising and promotions on mobile devices now account for 62% of total advertising revenues, up from 59% a year earlier and almost nothing at the time of the IPO in May 2012. Facebook has been stoking the growth by introducing new options such as video and mobile-specific applications, as well as improving the quality of promotions and analytics.

"Facebook just has a better advertising offering now," Shyam Patil, an analyst at Wedbush Securities, told Bloomberg. "It's a higher return on investment for the advertiser and so they're able to pay more money, increasing Facebook's revenue, and much of that is on mobile." The average advert price has more than doubled over the past 12 months and Facebook is working on new value-added choices. Its Creative Labs initiative focuses on experimental apps and has already produced Paper, which makes a magazine-like experience for the social network, and Slingshot.

It is vital that advertising platforms focus on quality and differentiated options in mobile markets, because actual volume of ad impressions is significantly lower than on PCs, so higher fees are critical. Ad impressions for Facebook were down 25% year-on-year, because of the shift of usage towards mobile devices.

There are warning signs for Google here - the search giant is still driving its revenue growth via high volumes of online ads, while the average price of its adverts fell by 6%. That ratio may be hard to sustain as the shift to mobile usage continues, though of course, Google has massive mobile properties to leverage via Android, Chrome and its many search-related services. Facebook has also been diversifying its business, adding features which do not relate directly to social networking, and acquiring the WhatsApp messaging giant.

Facebook is expected to account for more than 22% of mobile advertising dollars worldwide this year, according to estimates by eMarketer, up from 5.4% in 2012. Google is expected to lose a little share, ending up with just over half the market, down from 52.6% in 2012, while Twitter could reach 3% this year.

"Our tools and the products we're building are working," said COO Sheryl Sandberg, adding that Facebook now has 1.5m advertisers - though the costs of supporting and expanding that platform, with a focus on mobile quality, are rising too. Overall expenses were up 22% year-on-year.

Facebook said it now has 1.32bn monthly active users, up from 1.28bn in the prior quarter, with 654m using the product daily on mobile phones. Revenue per user in the quarter was $2.24, up from $2 in the prior quarter and $1.60 a year earlier.

However, CEO Mark Zuckerberg said on a the analyst call that there is still plenty of work to do on mobile. US customers spend an average of 40 minutes a day on mobile Facebook, which is more than any other application, but is still a small proportion of their total time interacting with websites, computers, phones and TVs - nine hours a day.

"I really can't underscore this enough that we have a lot of work to do and we could take the cheap and easy approach and put ads in and do payments and make money in the short term, but we're not going to do that," he said. "We're going to take the time to do this in the way that is going to be right over multiple years."

That means making some long term bets, such as the recently concluded acquisition of virtual reality headset maker Oculus VR, which could contribute to next generation mobile and search user experiences. Zuckerberg added: "I cared really deeply about the 10-year arc of the company", and said he wants Facebook to "help define the next generation of computing".


Flurry may help Yahoo get results from mobile-first July 22 2014

Online firm still struggling to turn mobile strategy into tangible growth, buys analytics firm Flurry to aid the process

By Caroline Gabriel

Despite persistent rumors that Yahoo might acquire AOL, CEO Marissa Mayer has more sense, and is staying focused on buying useful mobile start-ups, rather than buying into the old myth that two rocks tied together can possibly float. Her latest prey is Flurry, the mobile advertising and analytics company, which the company hopes will accelerate results from its mobile-first strategy. It will be especially important to demonstrate such progress soon, given a recent disappointing quarterly results report.

While most investors have applauded Mayer's emphatic repositioning of the ageing internet firm around mobility, she can be criticized for a scattergun approach to M&A, snapping up a long list of standalone businesses, often with no significant integration opportunities. That has enriched the content and applications base, and is helping to build a more distinctive user experience, but in the era of big data and personalized ads and content, Yahoo needs to invest more heavily in the analytics which will tie all its purchases together, and help monetize them more effectively.

Flurry, a nine-year old company, started life as an apps developer but then moved into tracking mobile applications in order to support customers' big data and monetization activities. It monitors 500,000 apps and 1.4bn devices a month, and its software is present in an average of seven applications on each of those devices. Its platform is used by 8,000 publishers and 170,000 developers, who are able to gain insights into how their software is being used, and by whom, in order to enhance and monetize it.

This could give Yahoo the kind of analytics to help develop its goal of a streamlined advertising platform with heavy emphasis on personalization, thus tying together some of its other purchases (and enabling it to see which of its various apps are working best).

Interestingly, Mayer has also been talking recently about mobile search, an area where Google and Apple are battling to take the lead in redefining the experience around fine-grained personalization, voice and gesture interaction, and deep contextual awareness. Analytics engines like Flurry's could feed into similar activity at Yahoo, and Mayer recognizes that mobile search needs to be a new experience, and that the firm which captures users' imaginations, as Google did with desktop search, will have huge power in the next generation mobile world. She recently said in a briefing: "We really believe the mobile search experience to be completely different than that of traditional desktop search. There is a clear opportunity here and we are continuing to look at ways to deliver more innovative, more intuitive search experiences on mobile phones."

Financial details of the takeover were not revealed, though reports indicate Flurry went for a nine-figure sum. It has raised about $74m so far in funding and was considered an IPO candidate.

The latest acquisition came just days after Yahoo announced it would buy mobile video start-up RayV, whose technology improves the quality of video streamed to mobile and other online devices.

Since Mayer took over the CEOship nearly two years ago, she has created a new mobile organization and overseen the redesign of most of Yahoo's mobile services, such as Mail and Finance. The aim is to transform the company into a content and applications portal with a heavy focus on streamlining the smartphone web experience.

However, investors' patience is starting to wear thin as the big mobile-first vision fails to translate into quick, tangible impact on the overall business. Yahoo does not break out its mobile revenues, just insisting they are "meaningful", but that indicates that this activity, while strategic, remains a small percentage of the total. The company remains mainly reliant on conventional display advertising, but revenue from that business fell by 7% year-on-year in the second quarter, in results which generally disappointed Wall Street.

Tools like Flurry's may help to speed up progress in delivering results from the mobile strategy. "By joining Yahoo, Flurry will have resources to speed up the delivery of platforms that can help developers build better apps, reach the right users, and explore new revenue opportunities," Scott Burke, Yahoo's advertising technology chief, wrote in a blog post.

Flurry will also help with one of the key objectives set out by Mayer in her keynote address at this year's Consumer Electronics Show. She stressed that Yahoo was in the process of unifying tools to offer advertisers a streamlined and coherent platform, as well as focusing heavily on exclusive content and capabilities for consumers. "A common theme across a lot of what you've seen today is us simplifying our business," Mayer said in her speech. "Simplification has been a guiding force in our approach in reimagining our products, our advertising systems and our future plans."

Her challenge remains a significant one, given Yahoo's lateness in grasping the opportunities of mobile personalization and targeting. Although it has made a string of neat acquisitions - including paying $1bn for Tumblr - the history of the web indicates how difficult it is to differentiate on the basis of content and apps, which are highly susceptible to consumer fashion - there is always a 'next big thing', and Google is better resourced for M&A and product development.

A mobile apps arms race will benefit nobody but the lucky start-ups if the new consumer offerings are not closely tied into an appealing platform for advertisers and other commercial partners, and Google is well ahead in that respect. We can expect Yahoo's mobile shopping spree to continue, but perhaps with more focus on monetization. It has acquired over 30 firms in this process so far, handily listed by TechCrunch (http://techcrunch.com/2014/07/21/yahoo-is-buying-mobile-analytics-firm-flurry-for-north-of-200m/).


Three architectures combine for the new LTE June 30 2014

To meet mobile data demands in the second half of the decade, operators look to build two layers, with different base station types

By Caroline Gabriel

There is little room left for architectural debates in the wireless industry - in 2014, the answer is clear. The capacity requirements for wireless networks will be so great that there will be no room for either/or. Operators will be deploying combinations of many approaches on their cell sites, and in addition, making other, more fundamental shifts. Software will become as great a contributor to network capacity as additional hardware, via optimization and smart provisioning tools, while virtualization will be an important way to add density when hardware is reaching its limits.

Mobile data usage will rise by an estimated 12.5 times between 2013 and 2019, from a level Cisco calculated at 1.5 exabytes in 2013. These daunting capacity, coverage and data rate challenges mean traditional approaches will no longer suffice, and over 90% of operators have at least one brand new architecture in their five-year plan, while over one-third plan to use all the key new methods being studied in a new report from Maravedis-Rethink - small cell HetNet, virtualized RAN, new-wave distributed antenna and SuperMIMO - by 2019, somewhere in their systems. The report, Towards the hyper-dense network - the shape of the HetNet 2013-2019, surveyed about 150 mobile operators and found that capex in the period will not be driven primarily by conventional equipment, though the rise in volume roll-outs of LTE worldwide will be an important factor. Instead, there will be a significant shift in operator budgets towards new HetNet platforms, driven by advanced software, virtualization and new access points.

Overall, the operators' response to the capacity challenge is to adopt two layers (at least) of cells, macro for coverage and true mobility, and small cell for capacity and indoor services. A third layer may evolve at the end of the decade for the internet of things (IoT). The two layers underpin a typical three-stage 4G deployment, which most operators plan to follow - 1) coverage first, macro layer-only; 2) quick-fix capacity, often via WiFi or opportunistic small cells; 3) greater virtualization in parallel with a move to hyper-density.

In both the main layers, three architectures can be used, and will often be mixed and matched or even integrated, and run in unlicensed as well as licensed spectrum.

The three architectures are:

  • Homogeneous - self-contained macro or small cell base stations, with the baseband, antenna and radio in the same box or located at close quarters.
  • Distributed radio or virtualized RAN - where multiple radio/antenna units share a virtualized pool of baseband processing, which may be located on a nearby base station hotel or in the cloud. This evolves to Cloud-RAN.
  • Distributed antenna or DAS - where a baseband/RF unit feeds a number of antenna nodes distributed around a building or neighbourhood. Traditionally a large venue solution, smaller and more open approaches are being developed to target small cells.

The next wave of macro innovation is focused on virtualization, and antennas, with technologies such as massive MIMO and Active Antenna System (AAS). In addition, the macro layer will be boosted by the introduction of some key features of LTE-Advanced, such as carrier aggregation, eICIC and CoMP, which will make new dense architectures easier to roll out. These add up to a new wave often called 'Super Macro'.

The number of LTE or multimode macro base stations deployed will peak in 2015, about a year later than we had previously envisaged - continued growth will be driven by the rising interest in macro-first enhancements as well as emerging market roll-outs, which will usually focus on coverage first. After 2015, there will be a decline in the number of macro sites built out for LTE, and over the whole period, there will be a compound annual decline of 4% for base stations, though only 1.8% for macro sites overall because of the shift to software upgrades and virtualization.

Traditional homogeneous macro stations will be a tiny fraction of the market by 2019, while remote radio heads will feature in 25% of deployments still, just ahead of C-RAN. The other architecture to have a significant impact by then will be SuperMacro.

Although there will be a steady shift towards SingleRAN strategies (replacing legacy kit with new, flexible, multimode base stations), rather than overlays, there will be limited addition of brand new sites in the macro layer. Upgrading or overlaying existing sites will be the dominant approach to LTE build-out. All this activity will create an installed base of macro sites that will still top 5m in 2019, with the largest bases in Asia-Pacific and Europe, though there will also have been extensive decommissioning of sites because of new architectures, a shift of attention to the small cell under-layer, and RAN sharing.

Meanwhile, large-scale deployments of public access small cells are still in their infancy, but there is already talk of 'hyper-dense' networks to cope with hotspots of intense data usage. In total, the number of public access small cell sites - sites deployed in a separate layer (distinct spectrum from the macro layer and closer to the ground), and less than 200 meters in radius - will reach an installed base total of over 15m by 2019. These sites will be equipped with a variety of technologies including metrocells, WiFi, DAS and virtualized small cells. This is no longer a market which is only about one technology - self-contained metrocells - but about a combination of options to create data density where required. We have reduced our forecast for metrocells somewhat, but see increased addressable market for complementary technologies, driven by new types of operators including 'WiFi-first' players.

One of the significant shifts in the pattern of deployment, which we noted in our 2013 reports, has been intensifying operator focus on indoor deployment, often at the expense of outdoor. Outdoor dense roll-outs, especially of metrocells, have been pushed back by at least two years on average, while indoor build-out plans have remained unchanged or even been accelerated. The tipping point will be in 2016, when for the first time outdoor cells will be more than one-third of total deployments.

In regional terms, the small cells space is dominated by Asia-Pacific throughout the decade and this is one reason for the steadily increasing importance of TDD spectrum, as several Asian players, notably China Mobile, are TDD-led. However, most MNOs will deploy unpaired spectrum as a capacity option from year three or four of their LTE program - and it will often be focused on small cells, for which the short range of the primary TDD bands, 2.3GHz, 2.5/2.6GHz and 3.5GHz are well targeted.

The report models four alternative scenarios with different balances between the four equipment types, based on the range of possibilities which operators are outlining for their future roll-outs, and a series of variables including product delays/accelerations, emergence of standards, and cost patterns.

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