Cable AWS Deal Marks Strategic Shift to Wi-Fi

Glenn Britt, CEO, Time Warner Cable

Glenn Britt, CEO, Time Warner Cable

December 14, 2011 – Maybe, just maybe the leading cable companies have come up with a long-term wireless strategy they can execute cost effectively by playing to their strengths while neutralizing the perceived threats they’ve seen from the coming onslaught of 4G.

The linchpin to the strategy is a new use of Wi-Fi technology that has the potential to provide cable operators a large, mutually shared national footprint of fixed and mobile wireless operations across metro regions which can seamlessly integrate with services delivered by the big mobile carriers. The decisions of the three MSO partners in SpectrumCo LLC as well as Cox Communications to sell Verizon Wireless their Advanced Wireless Service spectrum as part of deals that include long-term partnerships with the mobile giant represent the first shoe to drop and likely the biggest since the arrangements serve both as a break with past strategies and as a foundation to the new approach.

The only publicly stated hint of what’s to come beyond the marketing and longer term MVNO (mobile virtual network operator) deal possibilities with Verizon was offered by Comcast Cable president Neil Smit, who said, “These agreements, together with our Wi-Fi plans, enable us to execute a comprehensive, long-term wireless strategy and expand our focus on providing mobility to our Xfinity services.”

Those Wi-Fi plans have yet to be spelled out and by all accounts are still in flux, but sources report steps already taken by various MSOs can be seen as the outlines to a larger national strategy that would exploit advanced cable-mounted Wi-Fi infrastructure to extend the reach of their broadband services across their metro footprints while allowing broadband customers of any given MSO to use the Wi-Fi connectivity of the others wherever they go. Depending on how aggressively they deploy new Wi-Fi systems that support mobile as well as fixed wireless connectivity to the cable broadband network and seamless handoff to 3G and LTE mobile networks, the operators would have the potential to keep subscribers on their own networks anywhere within the metro footprint while allowing them to jump to a mobile carrier network whenever those customers move out of reach of the Wi-Fi infrastructure.

On first learning of the $3.6 billion AWS spectrum sale to Verizon Wireless by Comcast, Time Warner Cable and Bright House Networks, Credit Suisse senior analyst Spencer Wang, in an appearance at the Media Innovations Summit in Santa Clara commented that perhaps the cable companies concluded that “Wi-Fi is a better technological solution.” It’s certainly a faster, more economical way to go, he added.

“I’m not sure what the motivation was right now for selling the AWS spectrum,” Wang said. “But I think the cable guys will ultimately have to find some kind of wireless solution. I think it’s just too important.”

Big Win for Verizon Wireless

While opinions varied as to what all this means for cable MSOs as they look for solid footing in wireless, Verizon Wireless was widely seen as a big winner in the deal with its expected acquisition, pending regulatory approval, of AWS B blocks of 20 MHz in 122 markets representing a population base of 259 million. Subsequently Verizon picked up additional 20 MHz AWS blocks in its $315-million deal with Cox, which is also subject to regulatory approval.  These purchases complement another share of AWS spectrum the carrier gained in the auction five years ago, comprising 20 MHz blocks that cover most of the eastern half of the country.

How all this spectrum in the RF region above 1700 MHz gets blended with the 10 MHz of spectrum at the 700 MHz tier that Verizon is now using to support rollout of LTE service remains to be seen. So far, experts report, Verizon’s LTE devices only support the 700 MHz tier, which means new devices will have to be ordered as the carrier implements AWS for LTE. Initially these spectrum tiers will operate separately with bandwidth allocations and end user access rates tied to the limits imposed by each. But within the next three years a new aggregation technology is expected to enable sharing of bandwidth across both tiers.

Real 4G as originally defined by the ITU was supposed to support individual access rates at 100 mbps, which is not an issue at this point, given the fact that today’s mobile devices are designed to work in the 10 mbps range. A year ago ITU conceded this reality by suggesting current generation LTE could be referred to as 4G even if it really wasn’t. Verizon’s LTE platform typically delivers service at 5-12 mbps, so the additional spectrum provides it room to add a lot of LTE customers without losing speed and possibly even to increase the speeds as it introduces the spectrum aggregation technology and a more advanced version of LTE in the years ahead.

As things stand, the proposed purchase, which must be approved by regulators, puts Verizon ahead of rival AT&T in the spectrum race. AT&T, with LTE launching on a thin 5 MHz slice of 700 MHz spectrum in some markets, 10 MHz in others, has AWS spectrum to build on but needs more, which was a big reason it went after T-Mobile. While the carrier hopes to pick up more 700 MHz spectrum in a proposed deal with Qualcomm, analysts say Verizon will end up with a clear advantage if the T-Mobile deal doesn’t go through.

LTE, opening the floodgates to video over mobile, will not be forgiving to spectrum-squeezed carriers. Indeed, even with its large 700 MHz footprint, Verizon may already have been hitting a wall at this early phase of LTE adoption, suggested Credit Suisse analyst Jonathan Chaplin in a recent note to investors. The carrrier’s deal with the cable companies “suggests [Verizon’s] needs are perhaps greater and more immediate than previously thought,” he said.

The Changing Cable Scenario

Notwithstanding the intense competition between cable companies and Verizon, the MSOs in the deal stressed the benefits of cooperation as the far more significant factor in their evolving relationship with the carrier. Time Warner Cable CEO Glenn Britt summed up the thinking, as conveyed in a blog by TWC director of digital communications Jeff Simmermon. Asked, “Why would we want to work together?” Britt replied in part:

“These agreements are with Verizon Wireless and relate to its wireless services. We’ll continue to compete vigorously against Verizon FiOS.

“By working with the leader in wireless services, we will be able to compete effectively with all wireless and landline competitors. This is a smart and efficient way for TWC to deliver a broad array of wireless services alongside our suite of video, HSD and voice products. It makes sense for our business and for our customers. We do not believe it is feasible to enter the wireless market as a free-standing new entrant.”

While the deal with Verizon gives the cable companies the option four years hence to become MVNO sellers of self-branded mobile service using the Verizon network, it’s far from clear how the cable industry as a whole or in various groupings will play in this highly unsettled market. For example, noted Ronny Haraldsvik, senior vice president and CMO at BelAir Networks, a leading supplier of advanced Wi-Fi systems, “Maybe one of them decides they want to go all the way into mobile cellular with an acquisition and becomes a potential MVNO seller to the others. Just because they sold off spectrum doesn’t mean they don’t want to play in mobile. Some will retrench, and some will be on the offensive.”

Indeed, while the cable companies in SpectrumCo have signaled they are through with trying to operate as resellers of the Clearwire spectrum, they as stakeholders in Clearwire Ventures still have a vested interest in that carrier’s success as a wholesaler of valuable infrastructure. And it just happens that T-Mobile, if it’s not to be purchased by AT&T, needs more spectrum if it is to remain a viable independent player or potential acquisition target in the 4G era.

Ergo, says one source, speaking on background, a cable company newly enriched with the AWS proceeds could buy out T-Mobile and then lower the net cost of wholesaling the needed extra spectrum by virtue of the stake it holds in Clearwire. “I wouldn’t rule anything out at this stage,” this executive says. “Clearwire is a spectrum bank that can be better leveraged than the cable guys have done so far with the right business model.”

The Wi-Fi Advantage

But no matter how or whether the MVNO/cellular acquisition side of the equation shakes out, MSOs will gain greater leverage over their fortunes in wireless to the extent they take advantage of the opportunity afforded by the integration of Wi-Fi access points on their broadband networks. A flurry of activity in recent months underscores how advanced Wi-Fi with support for mobile access and seamless handoff capabilities on both the cable broadband and licensed cellular sides of the market has emerged as the foundation for MSOs’ wireless strategies.

A case in point is Canadian MSO Shaw Communications, which has abandoned plans to build a cellular network and instead has begun trials of a Wi-Fi alternative using gear supplied by Cisco Systems in preparations for wide scale rollout in the spring. “Canadians’ use of smartphones and tablet devices has grown exponentially over the years, and more than ever, consumers are relying on Wi-Fi to explore the Internet, connect with loved ones and enjoy entertainment,” said Shaw president Peter Bissonnette. “Thanks to our collaboration with Cisco, Shaw’s Wi-Fi network will allow us to become the first service provider in Canada to deliver our secure, reliable and incredibly fast Internet in thousands of locations.”

Shaw’s move is part of an all-IP integration of fixed and wireless services on Cisco’ intelligent routing platform. The Cisco Service Provider Wi-Fi platform working with these routers allows service providers to offer scalable mobile Internet access similar to services from a cellular network, the companies said.

The pioneer in the use of such platforms on cable is Cablevision, which has been building out its Optimum Wi-Fi service over the past three years throughout its New York area footprint employing platforms supplied by both Cisco and BelAir Networks. As reported at the time (October 2008, p. 1) Cablevision’s multi-phase rollout plan envisioned getting to the point where enough access points were in place to provide saturation coverage for a mobile version of the Wi-Fi service.

Apparently that stage of expansion is close at hand. In May Cablevision COO Tom Rutledge told analysts that testing of the wireless phone service had begun with “devices that switch back and forth between cellular and Wi-Fi.” At about the same time, as reported by Light Reading, the company filed a trademark application for “Optimum Mobile” as the brand for “telecommunications services, namely wireless telephone services.” Also, as reported by Light Reading, Cablevision has signaled in an FCC filing opposing AT&T’s acquisition of T-Mobile that it sees the Deutsche Telekom subsidiary as a potential MVNO wholesale partner for an extension of the branded Wi-Fi based service beyond local boundaries.

These various steps illustrate the ways in which MSOs can use a mobile-capable advanced Wi-Fi platform to strengthen their business positions in an MVNO deal. To the extent their customers can stay on the cable network while traveling around locally there’s no need to use the wholesale carrier’s cellular network and, therefore, less cost involved to support the mobile side of the operator’s service, given that the lion’s share of usage would be on the operator’s network.

While the deal with Verizon offers a roadmap for future growth plans, the opportunity to deploy advanced Wi-Fi networks “with their vast fiber and broadband deployments in metro areas is much closer to their comfort zone technologically,” notes BelAir’s Ronny Haraldsvik. “And I think they’re realizing that building out that infrastructure gives them much greater bargaining power for future arrangements.”

Other MSOs are moving rapidly in this direction. Comcast a year ago announced launch
of Xfinity Wi-Fi service as a free perk for all Xfinity broadband customers throughout its greater Philadelphia, New Jersey and Delaware territories and now says it has over 20,000 hotpots in operation. Time Warner Cable is offering Wi-Fi in many areas including New York and Los Angeles.

Notably, TWC’s newly launched Wi-Fi service in Los Angeles, offered free to subscribers, is also available as an a la carte service to non-subscribers on an hourly, daily, weekly or monthly basis, with the monthly plan priced at $49.95. BelAir Networks is the supplier for TWC’s service in LA and New York.

Another facet of developments pointing to what’s taking shape in cable operator wireless strategies is the roaming deal forged last year among TWC, Comcast and Cablevision under which their subscribers in the Northeast can use whichever operators’ Wi-Fi access point that happen to be near at no cost. An expansion of roaming capabilities on a national scale would leverage roaming architecture specifications issued by CableLabs, under which a uniform mode of sign-in and authentication would simplify the mechanics of the offering for operators and subscribers alike.

Credit Suisse’s Spencer Wang suggested the industry could ensure wide coverage in areas where cable is either not present or an operator is not part of the deal by leveraging a wholesale provider like Boingo. Noting the global supplier was represented at a recent conference held by Wang’s group, he commented, “You kind of wonder if they’re a potential partner for the cable guys as a wholesale supplier.” Such a partnership could bring into play cable Wi-Fi deployments abroad under the CableLabs roaming system.

Wi-Fi Tech Advances

Indeed, Wi-Fi is becoming a hot button among operators worldwide. “One operator is contemplating deploying 500,000 to 700,000 access points over the next five years,” Haraldsvik said. “We’re looking at some very staggering RFPs right now. That’s why you can expect some very big companies like Ericsson and Alcatel-Lucent to be coming into this space in the near future.”

BelAir, as the leader along with Cisco in integrated solutions designed for carrier applications over public infrastructure, has kept up with the evolving scenario by delivering ever more products with the scaling and specific functionalities essential to various segment requirements, including those of the evolving cable strategy. For example, Haraldsvik said, the firm’s controller and management system can now manage up to 100,000 access points within a large metro deployment.

Seamless integration across fixed broadband, Wi-Fi and cellular platforms is now intrinsic to a variety of products designed for different types of network deployments, including the picocells used by cable operators, he said. “We’ve focused our internal efforts on better integration between macrocell licensed cellular service and Wi-Fi networks in very small packaging that makes the transition from one network to another a seamless, no-touch experience,” he noted.

The picocells also support backhaul capabilities for operators who want to provide that type of service as an added benefit for backhaul-depleted cellular partners. And to make all this doable in a way that’s an integral part of the operator’s back office system rather than as an over-the-top add-on service is essential. “We’re now on two operators’ systems that have been integrated into their billing networks,” Haraldsvik noted.

Handoff capabilities, of course, are dependent on agreements forged between the Wi-Fi and cellular providers, but there’s sufficient flexibility such that cable operators with MVNO deals like the one contemplated by the SpectrumCo group with Verizon can participate in roaming arrangements with other operators who have MVNO deals with different carriers. “Whether it’s CDMA or WCDMA based, we’ll work with core network providers to integrate their radio technologies into our small cell packaging,” Haraldsvik said.

Enabling this process to occur intelligently so that the user is obtaining the best experience available from one network or another is another capability now intrinsic to the BelAir platform. “Being able to say to someone on an access point that you’re better off on a licensed or an unlicensed link and to do that dynamically is no easy task,” Haraldsvik said.

Another capability now part of the platform which plays into the multi-operator roaming requirements on Wi-Fi is support for infrastructure integration in a region served by multiple operators. “Our platform is designed so that one network element can be shared by up to eight service providers,” Haraldsvik said. “Networks already in deployment have gone from five to ten to 15 thousand access points, and next year you’ll see expansions to where 100,000 network elements are in place across metro regions.”