The UK is falling further and further behind as 4G LTE mobile networks roll out around the world. Have our telco giants left the door open for a new competitor to disrupt the market?
The fourth generation of cellular wireless networks will offer almost every compatible device in the world a big boost from the current 2G and 3G data speeds - equivalent to current fixed line broadband.
Think of 4G as a nationwide, high speed Wi-Fi hot spot, with better penetration than current mobile networks. The government has even touted it as the solution to the 'digital divide' as Ofcom pushes for 95%-98% rural coverage. It is a huge step for consumers, a huge opportunity for businesses and will affect the national economy top to bottom.
Theoretically, once the network matures, smartphones, tablets, TVs and laptops will all be able to connect to the internet at high speed, anywhere in the country, any time, free of routers and wires.
iPhones are already streaming video through programs such as Skype and Youtube
Much like any conventional network, 4G will necessitate a substantial amount of hard-line network backhaul once the data is off the airwaves. With the country's mobile networks running at about capacity, and about to be pushed further by the London 2012 Olympics, 4G would choke the networks as they currently stand.
While 4G tablets and smartphones are already being launched across the Atlantic and in Germany, the iPhone 5 and the iPad 3 are expected be the shot in the arm that 4G needs to go mainstream.
Unfortunately, endless bureaucratic delays have meant that the UK isn't expected to have 4G widely available until 2015. Labour's Shadow Secretary for Media, Helen Goodman, estimated that it is costing the economy £1m a day - and If the UK's networks aren't up before 2015, she estimates it will have cost the economy £1.5bn.
Brocade Communications Systems UK and Ireland country manager Marcus Jewell believes the spectrum auction delay may actually be a blessing in disguise. He believes very little of our telecommunications and network infrastructure is up to scratch and can barely handle the current hunger for mobile data.
For the telcos, shrinking margins on data mean much of the business focus goes to increasing current network efficiencies to get this data cost down - rather than looking at future technologies.
"[The telcos] are attempting to offload a lot of this data content and application content onto cheaper networks. They want [data] off their tier 1 networks. For example, off SDH and onto a much higher rated, denser Ethernet network, which is a lot cheaper to deploy," Jewell said.
Mervyn Kelly, EMEA marketing director at Ciena, agrees. 4G necessitates an ethernet backhaul, as it is the first network to send voice, data and video over an all IP structure, very different to current networks.
"The challenge here is absolute cost, versus cost per bit. Obviously bandwidth has gone through the roof, and will continue to do so, but the telcos' revenue hasn't. So there's a significant move away from E1 TDM to Ethernet, which is hugely cheaper, cost per bit."
"My gut tells me the 4G costs will be similar to 3G once the market matures, even though you have much higher bandwidth," he said.
So where does the UK sit?
"AT&T in the US is now dropping between 100mbits - 200mbits per base-station. The UK guys aren't anywhere near that, UK 3G is around 10-20-30Mbits aggregated - with an interface up to 100Mbits that's not used," said Kelly.
This also needs to be aggregated back into the network - our core networks desperately need attention as well.
"They are getting by with the existing 10 gigabit networks, but all are planning or in the process of moving to 100 gigabit, which should last them for a few years - depending on data uptake," said Kelly.
We are now in the absurd situation where Cabinet is warning UK businesses that internet access could crash completely during the 2012 Olympics. This is mostly due to the telcos' lacklustre attitude to keeping their networks updated.
Compared to the 3G builds a decade ago, the telcos are far more reticent, especially the big two - Telefonica's O2, and Vodafone. There is no incentive for UK or Europe telcos to rush to change unlike the US operators, who are using far more obsolete technology, says Lyn Cantor, president of Tektronix Communications.
"For example, 4G LTE gave Verizon Wireless the economies of scale it needed to drive down the escalating costs associated with the provision of data over its existing network infrastructure, which is based on CDMA," Cantor said.
"In Europe on the other hand you have a different environment where the operators have made a significant investment in 3G licenses and spectrum. Their networks are at an advanced stage and with the absence of a major LTE rollout in any of the European markets the operators are not under pressure to commit extensively to LTE. These economic factors combined with spectrum allocation by regulators will lead to a different rate of market expansion for LTE in the region," he added.
Much of the problem goes back a decade. The UK 3G radio spectrum auction reached £22bn; the German auction around £30bn. Around £100bn was spent on the continent as a whole, but the telcos got very little return on this huge investment.
This is often cited as one of the reasons for the Telecom's crash in 2001. Financially troubled, some went bankrupt, and some waited for years to begin rolling out services which never lived up to customer expectations. It's perhaps no surprise that they are less excited about 4G in the midst of a worldwide financial meltdown.
Ofcom predicts that the 4G auction will deliver benefits to the Government of just £2bn to £4bn this time round. Germany's recently completed 4G auction netted its government just €4.4bn (£3.7bn).
As Kelly puts it: "The old 'build it and they will come days' are well and truly gone for the UK telecoms industry."
Jewell believes these reasons will ensure that the incumbents will not be the first movers in the 4G space.
"What they will have to do is respond to whoever challenges the best with 4G, so my bet, is that you will see a disruptor launch 4G. Then you'll see the big boys respond to it. So you might be surprised who wins the licenses. There might be a company we've not heard of that wins those licenses," he said.
A green fields 4G build with a cheap backhaul network removes the legacy problem. It costs less and offers a huge price advantage. 2G/3G coverage can then be purchased wholesale from the incumbents as need be.
Jewell believes this will see a number of companies in the hosted space, as well as further possible interest from BRIC countries and non-traditional business groups, including a large amount of venture capital interest.
"My strong suspicion is that a new challenger will emerge, that will force them all to adapt very quickly. I think you may be surprised. I think you need to look at the companies with money. You may see some of the BRIC countries setting up UK telcos. Perhaps the Middle East, countries with sovereign wealth funds behind them," he said.
4G builds are already underway in the Middle East, as well as African countries such as Nigeria.
Kelly believes we may also see companies purchasing 4G spectrum to perform a wholesale service only, such as Lightsquared in the US. Lightsquared plans to spend $14bn to build its own private network and on sell 4G to communication service providers, cable TV operators, device manufacturers, and web content providers. It will not retail to consumers directly. As part of a deal with the US FCC, it also focuses on emergency services and to help smaller, regional wireless operators compete with the global giants - while also provide 4G service to rural areas.
The main barrier to entry for any new 4G retailers is branding - problems the 'second tier' of mobile operators, Orange, T-Mobile and Three have learned firsthand in the UK market over the past decade.
That's not to say the incumbents have been sitting on their hands entirely. Everything, Everywhere (owners of Orange and T-Mobile) in partnership with BT have begun their own 4G testing in Cornwall, and set aside £1.5bn over the next three years for 4G. O2 is also currently running a trial in London of 4G, accessible with 4G laptop dongles only. Vodafone is concentrating on its 4G build in Germany, and is currently mulling over buying the troubled Cable and Wireless, which would give Vodafone a significant global network to integrate with its mobile operations.
"I'm not suggesting for a minute that O2 and Vodafone will completely lose their dominance, they will prevail, but it will be a more competitive landscape," said Jewell.
Another expert who didn't want to be named disagreed. "I wouldn't be buying stock on those two companies [Vodafone and O2] through the 4G period. I don't think either one is going to come out of it very well."
Ofcom has also been rewriting the tender process repeatedly to ensure that new market participants get equal access to the auction, rather than the big bidders running rampant. O2 and Vodafone allege this has lead to favouritism to Everything, Everywhere and Hutchinson-Whampoa (owner of Three network).
Beyond the telcos, businesses operating in the networking space need to fundamentally rethink their network builds. Companies are massively underestimating the amount of data throughput and storage that they require already as tablets and smartphones churn through 3G data. Business plans are being torn up as quickly as they are written.
"The average 3 year technology cycles that most [companies] are budgeting for are out of capacity in 18 months. The harsh reality is that it just seems to be exponential growth and there doesn't seem to be any way of that abating at the moment," our source said.
4G will exacerbate the existing problem if companies don't start making long term plans for the 2013-2015 UK launch.
"The backend increase in bandwidth will be fourfold after 4G. Data centres will see an eight fold increase in data. Storage around 16 times - storage will be one of the big killers for any companies in this space," Jewell said.
2012 is predicted to be the year video conferencing takes off, and, combined with consumerisation, could be a killer. 92% of Fortune 500 companies are now testing tablets in their enterprise set-ups.
Mark Urban, senior director of WAN Optimisation Solutions at Bluecoat, used a current day example to illustrate the unpreparedness of most modern business networks in the face of consumerisation: "Imagine 20 employees using iPhones, and then Apple releases a software update - that's 20 users downloading 800MB updates simultaneously. That would crunch most current networks, let alone running video conferences on that scale."
Amongst the clients Urban has been advising "video is the number one influence on networking builds today."
Traditional video media will also be hit very hard, says Jewel, which is why Virgin and Sky have been aggressively pursuing internet TV and video on demand options, to compete with Netflix and Amazon's LoveFilm.
"Sky TV with all the movie packages is around £50. I maybe watch one movie every two months. With Netflix, why would I do that anymore? With Netflix, its £6 for as many movies as I want. As soon as I've got 4G, this can then be streamed to my iPad, iPhone, my Internet TV, or a Playstation/Xbox, at the same sped as current optical broadband," Jewell said.
While the quantity of consumption is one problem, the increased demand for richer content and higher quality will also hurt.
Netflix, BBC iPlayer and LoveFilm now stream 1280x720 (720p) HDTV at 5Mbit/s, 3.2Mbit/s and 2.5Mbit/s respectively. The Sony Playstation Store is already doing 1920x1080 (1080P). Under 4G, consumers would be able to access these feeds at their local cafe on their iPads during their lunch breaks, and on the train home from work.
Even YouTube has gone from 320x240 to full 1080P HD in just five years - and it's a free service. It is now experimenting with Ultra HD resolutions, such as 4K (4096x3072), a generation of video no TV can yet run, and most computers aren't even powerful enough to view.
"HDTV has 6x the information of standard TV. Then you hear about 3D images on iPads being made available and you're looking at 15 times the file size. This is incredibly rich media which people are now demanding. The networks won't cope," said Jewel.