Flat-rate price plans pose serious network challenges for operators, study says

Increased utilization of 3G networks, more so than the impending 4G requirements, is driving the need for higher capacity backhaul, according to a report released this week by ABI Research. Sprint changed the backhaul landscape when it followed Verizon, AT&T and T-Mobile in offering a flat-rate, all-you-can-eat service-pricing plan. Instead of just voice -- or voice and text messaging in the case of T-Mobile -- Sprint also threw in data, a “simply everything” wireless plan. The struggling carrier hopes to reduce its customer churn and attract new subscribers with the new offering, yet if successful, ABI warns, the net effect may prove taxing on Sprint’s backhaul.

Flat-rate plans essentially encourage unlimited use of SMS, MMS, email, Web browsing, as well as mobile TV, GPS services and anything else a handset has to offer. It is a known fact that increased use can flood the network, yet commonly held perception was that this would never happen. With the onslaught of unlimited pricing plans, ABI senior analyst Nadine Manjaro is no longer convinced.

“As the network increases, the utilization increases, and it will drive the backhaul demand,” Manjaro said. "It typically takes a few months to get the T1s installed and upload the service. If the operator didn’t plan for a specific area or specific market, then they might not be able to address the issue right away. Even if they are aware of it, it might take time to get the circuits ordered and turned up.”

As use of sites like YouTube, now available on all Web-enabled handsets, and other Internet sites continues to increase, this will have a growing impact on the network. Video applications – streaming, downloading and uploading – pose the biggest challenge by significantly increasing network utilization and reducing per-subscriber data rates and the number of subscribers able to access the network, the study said.

Carriers have long been addressing the backhaul burden issue – Manjaro is not denying that. Yet market dynamics are changing. More consumers, especially the younger generation, are buying smartphones and using them as PC replacements. This, coupled with the flat-rate option, might not be something carriers are prepared for. It is common practice for operators to oversubscribe the network, Manjaro said, with the expectation that average people will not use the full capacity of the backhaul. That may have been true in the past, but operators also are not experienced with offering unlimited data usage over their cellular networks.

“As users now become more savvy and start using more of these services, you can run into issues where they start saturating the network in terms of the capacity,” Manjaro said. “If the operator isn’t careful in planning for it and then they have a surge of users downloading videos and content from YouTube, that could create a problem for them and lead to degradation of other services.”
Outside of North America, carriers have been selling unlimited-access 3G data plans for years, yet the situation there is not much better. Reports indicate that two major Korean operators, SKT and KTF, are experiencing degraded voice quality offering video calls and global roaming on WCDMA networks. Due to email usage alone, whole networks in Europe have been known to go down for hours – often days when the usage became too taxing.
Sprint’s situation is more trying than that of both AT&T and Verizon, which own a lot of their own backhaul for resale. After splitting from Embarq, Sprint no longer has the local access that its competitors have. “Because they shifted to a pure wireless play, they are subjected to a lot of issues because they have to depend on other people for the transport,” Manjaro said. All things considered, however, she said that the flat-rate pricing plans should help Sprint in the long run.


“Operators want to drive utilization on the network, they want to increase users on the network to increase [average revenue per user], so they are trying to get everyone to use it,” she said. “Charging $99, that is going to increase the overall ARPU, but they also have to plan for it. In the past, their theory behind that is they are never going to use that much bandwidth and so they don’t have to worry about that. I’m afraid if they take that same approach to this, they could run into problems, and Sprint doesn’t need any more problems.”

A saving grace for Sprint and its competitors is that the unlimited-everything plans are primarily targeted at a niche market of premium users. Most traditional users of voice and data don’t spend nearly $100 on their monthly usage. In fact, only 0.5% of Verizon’s customers have calling plans priced more than $99 a month.
Furthermore, carriers have been working with a number of vendors to explore different backhaul scenarios and drive out costs associated with 4G technologies. The most popular alternatives have historically been microwave and Ethernet technology.

“The carriers have been looking overall at different alternatives and solutions over the years, but they have been slow to pick a solution,” Manjaro said. “One challenge is that no one solution fits all their different scenarios. There are areas they are near a cable company, so they can leverage the cable infrastructure for backhaul. There are areas where they are not, so they still have to rely on T1s. There are areas where they can’t use wireless. They have looked at backhaul for quite some time. It is just finding the right solution. There is no one size fits all.”

Thanks to the $99 flat rate plans, carriers are looking to drive out costs wherever they are able, in an effort to increase margins and lower opex. Backhaul is not the only logical place to look.

"As soon as you give away unlimited minutes, any cost is your enemy," said Clarke Ryan, GM-Wireless at vendor Sonus. According to Clarke, carriers like AT&T (beginning when it was Cingular) have used gateway Mobile Switching Centers (MSCs) to optimize wireless call routing, which, if not optimized, can tie up 20% to 30% of interoffice tie trunks. The next level of call control optimization is to deploy more centralized routing databases to further reduce switch loads. "This is a secret Cingular has been enjoying for a while," Ryan said.

Closer to the user, wireless carriers must get users off wireless spectrum and onto an IP-based backbone as quickly as possible, via femtocells and other edge devices. "If you can limit public air interfaces to 10 to 50 feet, and from there on in it’s a VoIP call, that gives carriers almost free incremental minutes to play with," Ryan said. "It's all a part of the flattening of the [wireless] network."