Bridging the Mobile Broadband Gap

Mobile broadband is no longer a “nice to have” for users worldwide, especially as mobile device usage explodes in all regions (just reference Cisco).  However while mobile broadband demand is undeniably ever on the rise, a divide persists between developed and developing countries, mainly as a result of deployment costs and business case issues.  And here, Universal Service Funds (USF) and satellite technology have a huge role to play.

ITU Data Highlights the Divide

According to the ITU/The Broadband Commission report, there gap between developed and developing countries (in terms of mobile subscriptions) is significant.  The “32” global average is influenced by the average penetration of developing countries, which stands at “21” compared to “84” for developed countries. Basically, this means there are more non-broadband subscribers in the globe compared to broadband subscribers. And this also means that there is a huge market waiting to be tapped to upgrade narrowband mobile subscribers to broadband mobile subscribers.

Status of Mobile Broadband: Geographical Distribution of Mobile Broadband Subscriptions by Region and Evolution of Mobile Broadband, 2007-2014

Source: ITU/The Broadband Commission Report: “The State of Broadband 2014 – Broadband for All”

Satellite wireless backhaul from a technology standpoint can bridge this gap or tap this large market, yet satellite platforms have been traditionally relegated to 2G and 2.5G services.  Satellite technology, which is arguably the best fit for covering large geographic areas of developing and impoverished countries has been and still supports basic mobile services including voice and texting or narrowband messaging.  Costs of satellite platforms have been prohibitive in terms of addressing the low ARPU levels that rural area customers of developing country markets can afford.  But consider terrestrial microwave and other solutions face the same hurdles.  Following pure market dynamics in bridging the gap obviously does not work and will likely remain so over the long term for all technology platforms.

Source: Report prepared for GSMA by Ladcomm Corporation, September 2014

Are USFs Part of the Solution?

So the key question is - How will 3G/4G services be enabled by regions that need it the most? Or how can this large market potential be realized?  Let’s take Sub Saharan Africa. Although satellite technology is available to provision fast broadband speeds, ARPU levels in rural areas do not justify investments by mobile telcos.  This situation has been pervasive for decades; however, the answer could lie in Universal Service Funds (USF).  We say could because these funds have been available for years, but the funds are not being spent. According a GSMA study (note the chart above), “19 of the 23 USFs covered contained more than US$400 million waiting to be disbursed. “

Contrast this with developed countries such as the United States where according to the FCC, Phase I of the Connect America Fund has authorized nearly $440 million in funding to serve over 1.66 million previously unserved individuals in 45 states and Puerto Rico. Phase II of the Connect America Fund aims to bring broadband service to Americans living in rural areas lacking broadband through a combination of wireline, fixed wireless and satellite technologies.  Moreover, in April 2015, the FCC offered the nation’s largest price cap telcos $1.7 billion annually for six years to bring broadband to parts of their service territories where broadband is not available currently.

3G via satellite has arrived, and satellite players within the mobile ecosystem are beginning to trial 4G/LTE systems as well.  Even better news is that next-generation programs such as O3b have been launched and other offerings such as Intelsat EpicNG will be launching soon as well.  These programs are aimed at providing services to Brownfield and Greenfield developing country markets where the need for mobile broadband connectivity should bridge or at least narrow the gap between developed and developing countries.

In its latest market research report, Wireless Backhaul via Satellite, 9^th Edition NSR forecasts satellite in-service units to move past 2G/2.5G installations by the 2019 timeframe.  By 2024, 3G/4G will be the dominant platform being served by satellite backhaul and even 5G solutions should be available to wireless telcos as well.  The value proposition or the “game change” being offered by HTS is to decrease the cost of Megahertz or Mbps, thereby dramatically improving the OPEX equation.

However, although the costs have and will continue to improve, ROI can only be maintained with a subsidy in place.  In other words, the move from 2G/2.5G to 3G/4G/5G can only happen in regions such as Sub Saharan Africa if USF is spent as part of a subsidy that allows for positive ROI.  HTS based purely on market dynamics is not enough to bridge the gap.

Bottom Line

Satellites have been relegated as the last resort for connecting users in rural, remote and far-flung areas.  The business case has not been supported or justified purely on commercial metrics due to the low ARPU level feature of these communities.  With next-generation satellite technologies that support lower cost structures, a business case is beginning to be built that generates reasonable ROI for wireless telcos to go into Greenfield markets as well as improve the service level of Brownfield or existing customers. 

However, the market dynamics and the economic outlook of poor rural populations will not change overnight and there are certainly other serious challenges being presented in terms of provisioning mobile broadband services to rural communities.  CAPEX, content generation, application requirements, equipment costs, rural electrification and other components that go into deploying a satellite service will continue to restrain investments and perhaps impact the mobile broadband gap at more pronounced levels.

Next-generation programs, specifically HTS solutions, will or should be part of the solution mix that leads to larger deployment of mobile broadband services to the less affluent citizens of developing countries. But that is still not enough as it is based on pure market dynamics. USF needs to be spent and invested by national governments on mobile programs via satellite in rural areas in order to dramatically bridge the broadband gap.  Moreover, should Universal Service Obligations (USO) incorporate satellite solutions, USF and USO combined should lead to a large technology and economic stimulus that can be part of beginning to bridge the mobile broadband gap. And that is partly how this huge market can be realized.