At the beginning of this decade, few people would consider cutting the cord and eliminating their land lines. But according to a National Health Interview Survey conducted by the CDC earlier this year, 21.1 percent of all homes are wireless only, and a full 45 percent of people ages 25-29 only have cell phones.
Meanwhile, 59 percent of adults now access the Internet wirelessly, from a laptop or mobile phone—that’s up from 51 percent in 2009. Less than half use their phones just to call people—taking pictures, sending texts, playing games, accessing the Internet and sending or receiving email are the activities rapidly dominating the mobile industry, says the Pew Research Center.
All of this is making life in the telecommunications industry very exciting. The recent entries of the iPad, iPhone 4, Droid X, the 4G network and a whole slew of “me-too” smartphones are why experts project the data traffic market to grow by 3,000 percent in the next five years; in 2009, business data service revenue was $34 billion and it’s already project to exceed $1 trillion in 2010.
Business has always driven demand for faster, better connections. Now more than ever, businesses of all sizes want—even fully expect—to have the world at their fingertips. This increasing demand, along with rumblings about regulation from the FCC and the government’s commitment to enlarging the broadband superhighway, is creating tremendous growth and change in the telecommunications industry.
Need for Speed
Last year’s conversion to digital television, as required by the FCC, was part of the federal government’s larger effort to create more space on the analog spectrum for wireless carriers. Also in 2009, the FCC began drafting its National Broadband Plan, a congressional mandate that would ensure every American has access to broadband capability, while ensuring affordability and maximizing the use of broadband to advance industry, consumer welfare and the efficiency and effectiveness of government. This mandate to expand bandwidth is expected by those in telecommunications to be the primary driver of change in the industry in the coming years.
“A typical cell phone carrier has 200-300 cell phone towers in Vegas. Each tower used to have tons of capacity when all you did was make a phone call, which typically only uses about 80K in bandwidth. Now they can handle much less because phones are doing a lot more,” explains Mike Ballard, CEO of 1Velocity, a telecommunications company providing private lines and Internet access.
However, as Ballard points out, more than 80 percent of commercial buildings and cell phone towers in the U.S. don’t have the capacity to handle the growing needs for bandwidth, despite the growing demand. If the biggest trend he sees is the growth in data services, this will result in telecommunications carriers working furiously to address the demand with innovative solutions. 1Velocity is doing this with fiber optics.
“1Velocity is the pioneer in the deployment of a ‘fiber-like’ radio spectrum called the millimeter-wave,” says Ballard. “In a nutshell, it allows for the highest capacity throughput of any spectrum available.”
1Velocity does this aerially; its metro Ethernet network is built entirely on rooftops—no trenches or poles. The result is a considerably faster connection speed.
Cox Communications Las Vegas is also in on the high-speed game.
“We rolled out, in December of 2009, 50MB service,” said Juergen Barbusca, manager of communications for the company. “This is over coaxial cable, not fiber, and it’s the fastest speed in Nevada. The reason we’re able to do that is that we’re seeing, in the cable industry, new broadband modem technology. It allows super fast speeds.”
Another player in the business broadband game is Sparkplug, a fixed wireless provider that owns and operates its own microwave, point-to-point network and offers wireless Internet, metro Ethernet, Virtual Private Network (VPN) and Voiceover Internet Protocol (VoIP) services. The exponential growth in recent years of VPN and VoIP—the transmission of voice communications via the Internet—is also a significant contributor to shrinking landline usage.
Sparkplug Las Vegas Market Manager Rick Stiles says, “Small business customers are taking advantage of business grade telecommunications service offerings that just a few years ago were reserved for the larger scale companies that had the capital to invest. Now, if you’ve got three phone lines, a fax line and an Internet connection, you qualify (and can afford) a business grade service offering. This is a fundamental change in the telecommunications industry.”
As business telecommunications evolves, the sweeping reforms proposed in the National Broadband Plan will affect every segment of the industry, says Kristin McMillan, Vice-President of State External Relations for the Western Region for CenturyLink, the fourth largest telecom company in the United States, providing voice, broadband and Internet services utilizing advanced fiber networks and about 7 million access lines.
“It’s really just a plan at this point, but it’s going to affect how we’re able to continue investing in broadband in America, and how we are fairly compensated so we can continue to invest,” says McMillan.
“Any time you change the fundamental rules of a given market or medium, you open up the doors to new innovations. These innovations typically come in the form of new products or services,” says Stiles. “We’re very excited to see legislation because it will mean growth in service offerings in both the public and private sectors of the wireless broadband market. It’s good for the broadband communications market, it’s good for small business, and I personally see it as driving both innovation and job creation.”
Head in the Clouds
Bandwidth is also an issue when it comes to cloud computing, another trend sweeping the industry. Cloud computing involves using the Internet for business computing and storage, holding data in a “cloud,” and eliminating the need for ever-increasing, on-site data storage capabilities.
“One thing we did here recently was to offer business customers the ability to store anywhere from two to 10GB of data online,” said Barbusca. “They can also purchase more space if they need to.”
While it eases the burden for businesses, the bandwidth needed to transmit data to and from the cloud will force telecom companies to upgrade their core network bandwidth.
The computing cloud is the basis of many telecommunications companies, like Telesphere. This provider of fully hosted voice and data services utilizes an Internet cloud to provide high-end IP-PBX services that once were only found at Fortune 500 companies and are now available to small and mid-sized businesses. “With us, there’s no need for the ‘brains in the closet’ PBX system,” says Michael Simmons, General Manager of Telesphere’s Las Vegas market. “In IPPBX, we send data packets rather than sending messages via copper.”
In 2002, says Simmons, traditional, physical PBX (public branch exchange) systems accounted for more than 85 percent of market revenue. It’s projected that in 2011, traditional PBX will only account for 5 percent or less. “Our phones are ringing like never before, just in the last eight months,” says Simmons. “Companies of all shapes and sizes are moving to an IP-based product…government especially, due to a mandate to go greener, so there’s a lot of government influx going to hosted telephony as well.”
According to CTIA, the International Association for the Wireless Telecommunications Industry, there are now more than 257 million data-capable mobile devices being used around the world. In May 2010, there were more than 240,000 apps available from seven different app stores, in seven different platforms. It’s projected that by the end of 2010, consumers will have spent $6.2 billion to download over 8 billion apps.
“What we’ve seen in the industry is a trend away from voice to data applications, and the dynamics of using less voice,” says Brian Danfield, Acting Regional President for the Southwest Region of Verizon Wireless. “We’re looking at text and mobile Web skyrocketing 160 percent in the last two years.”
In just the 10 years since Verizon Wireless entered the wireless market in Nevada, wireless penetration has jumped from 34 to 89 percent nationally. Currently, it’s on track to deliver the nation’s first 4G LTE (long-term evolution) network to customers in 25-30 markets, covering roughly 100 million Americans by year’s end.
In terms of business, he adds, Verizon has launched an Open Development Initiative to allow developers to come onto its network and develop specific apps for niche markets, such as machine-to-machine apps, allowing businesses to develop applications that are meaningful for their businesses.
“It’s an exciting time to be part of this,” says Southwest Regional Spokesperson Jenny Weaver for Verizon. “Consumer demand is huge for continued innovation for network capabilities and devices. We’ve invested over half a billion dollars in enhancing the network in Nevada to make sure we have the best 3G network and are ready to deploy the fourth generation network.”
The dawning of 4G LTE ushers in numerous advantages, including connections that are at least 10 times faster than on the 3G network, enhanced security and worldwide roaming.
It’s not just wireless carriers like Verizon that are benefitting from the proliferation of mobile usage and applications. For example, Simmons points out that it’s benefitting Telesphere in a positive way. “We’re very much involved in fixed-mobile conversions,” he says. “I can screen-pop a call and show customers information about who’s on the phone. I can give dial features from Outlook, for quick-to-dial ability. And I’d say a large trend coming down the pike will be the ability to switch from wi-fi to cell without interrupting a call, and vice-versa. So mobile applications are a big part of what we’re looking to do in the future.”
Regulations, Competition and Opportunity
At the federal level, a number of discussions are taking place that could have significant impact on innovation and competition within the telecommunications industry. Aside from the National Broadband Plan, a movement is afoot for the FCC to assert greater authority over broadband, which is being referred to as the “net neutrality” issue. The idea behind net neutrality is that phone and cable companies ought to treat all content equally, instead of collecting fees to deliver some content more quickly than others.
As Kristin McMillan of CenturyLink explains, the issue derives from a 2008 attempt by the FCC to sanction Comcast for hindering some peer-to-peer file sharing applications. Although the FCC failed in this attempt, the case has prompted discussion about whether it’s time to finally update the 1996 Telecommunications Act and formally acknowledge the FCC’s role when it comes to the Internet: Should it remain classified as an information service, be reclassified as a common carrier telecommunications service, or become regulated in what is being called a “Third Way,” in which the FCC asserts authority as with common carrier telecommunications, but decline many of those regulations?
“Network providers like CenturyLink view their role as making sure that all packets arrive at their intended destinations as quickly as possible to make the customer’s Internet experience robust,” says McMillan. “Most customers have choices and will not tolerate providers disparaging their traffic flow. Carriers have managed their networks for years to maintain that integrity and there have been few instances of any harm, as should be expected given the extent of competition and growth. Thus, the so-called ‘net neutrality’ issue (which is really a misnomer) has been viewed by many as a solution looking for a problem.”
McMillan says that she and others in the industry are concerned that regulation might negatively affect private sector investment in broadband infrastructure development, which has been one of the economy’s few bright spots, as well as potentially hinder the availability of services for customers.
Rick Stiles of Sparkplug indicates that such legislation, if it is eventually introduced formally, could have a significant financial impact on carriers. “If such legislation passes, the FCC could potentially require some or all of these providers to upgrade their networks to conform with the new ‘neutral’ access regulations. The Sparkplug network, by design, does not limit, restrict or slow down any traffic either to or from the Internet, so the regulations would leave us largely unaffected. But it will be interesting to see how this plays out, as it could bring a significant cost burden to the existing wire-line and cable-based ISPs,” he said.
Most agree that there’s plenty more discussion to be had on this matter before new regulations would likely be imposed. Instead, competition in the marketplace, innovation and the recessionary drive to save money seem to be the primary factors effecting change in the industry.
“Our customers are becoming far more educated in their business service offerings than they’ve ever been before,” says Stiles. “The more pressure that’s placed on Nevada businesses, the quicker you’ll see the educated and innovative companies grow and thrive. If you have the budget to enhance your business broadband services, there’s never been a better time.”