Mallinson: Vodafone's C&WW deal shows that fixed-mobile convergence is increasing

Mobile operators are becoming increasingly dependent their fixed network counterparts. This is due to heavy and increasing traffic demands and shrinking cell sizes with mobile broadband.

After many years as one of the world's most mobile-focused telecoms companies, Vodafone is becoming more integrated with fixed communications via its bid to acquire Cable & Wireless Worldwide (C&WW) for £1.04 billion in cash. Vodafone bought out the minority shareholders in Germany's fixed network operator Arcor in 2008, following the acquisition of a majority stake with the hostile takeover of its mobile operator owner Mannesmann in 2000.

Whereas Vodafone has a 45 per cent stake in America's Verizon Wireless, its 55 per cent partner Verizon Communications is also a fixed network market leader. Elsewhere among its numerous national properties worldwide, Vodafone is typically without a major fixed network.

A decade or so ago, "pure play" mobile operator Vodafone was a stock market darling focused on a high-growth, high-margin market. In contrast, dominant fixed network operators were subject to regulation with price controls, vigorous competition from new entrants cherry-picking the most lucrative opportunities in international and long distance calling, and connecting large businesses in metropolitan centres. Other large incumbent phone companies including Deutsche Telekom, France Telecom and most other national phone companies were a defensive conglomeration of fixed and mobile communications. In fact, one popular view was that rather than there being synergies with common control of mobile and fixed operators, shareholder value could be maximized through mobile pure-play operators seek to maximise substitution of mobile for fixed calling at the expense of incumbent telephone companies.

Mobile broadband game changer

Independent mobile operators were always somewhat dependent on the fixed networks for backbone network connections, but could rely on regulated prices for these or self-provide microwave connections for backhaul to macro sites. Whereas T1 (1.5 Mbps) lines leased from local telcoms were most commonly used in the United states, higher prices for the equivalent E1 (2 Mbps) connections from national telcos in Europe encouraged mobile operators to plump for microwave solutions and self-provisioning.

Growth in mobile broadband is disrupting the economics for all telecoms operators. As the strategic and financial positions of fixed network operators have waned versus mobile operators with most people using mobiles for most of their calling, exponential mobile data traffic growth in backhaul and core networks is making mobile operators eager to increase control over spiralling costs of third parties providing backhaul and backbone services. Bloomberg has reported that Sanford C. Bernstein analysts believe Vodafone will avoid paying £200 million a year to use BT's fibre network in the UK by using the network acquired with C&WW instead.

With escalating demand for mobile broadband, not only will overall traffic levels increase, but the number of cell sites also needs to increase dramatically. Additional spectrum and improving radio technologies including LTE and MIMO will be insufficient to satisfy demand. Cell sizes need to be substantially reduced in order to reuse scarce spectrum to the fullest possible extent. With network traffic doubling every year for most of this decade, it will be necessary to increase cell site densities by a factor of 10 in urban areas.  This requires a corresponding increase in the number of backhaul connections. This increased capillarity, with transceivers placed on neighbouring lampposts and with distributed antenna systems, makes mobile networks look more and more like fixed networks. Fixed network operators are well positioned to provide these connections--with fibre preferable, whenever available--due to fibre's virtually infinite capacity. Mobile operators can readily exploit the fibre backbones that are already dimensioned for large traffic demands from fixed networks, but fibre is costly and slow to deploy to numerous separate locations which is why fibre-to-the-home is still such a rarity.

Backhaul topology and supply

Consequently, more spectrum-efficient and Capex-efficient point-to-multipoint microwave solutions are also essential. Pooling backhaul bandwidth with statistical among multiplexing among multiple sites provides the same kinds of improvements in spectrum utilisation that were achieved in the radio access network with migration from time division multiple access technologies such as GSM to CDMA-based technologies such as WCDMA. This is a topic I discussed with Everything Everywhere and Cambridge Broadband Networks in a recent webinar. The end-user price declines required to stimulate the continuing rapid growth in mobile data demand require most cost effective network technologies, topologies and supply end-to-end including mobile operator RANs and core networks, fixed operator backbones and backhaul from whomever is best-placed to implement and operate it.

Keith Mallinson is a leading industry expert, analyst and consultant. Solving business problems in wireless and mobile communications, he founded consulting firm WiseHarbor in 2007. WiseHarbor is publishing an annual update to its Extended Mobile Broadband Forecast in May 2011. The new forecast will include network equipment, devices and carrier services to 2025. Further details are available at: WiseHarbor on Twitter @WiseWarbor.