Verizon: In the game of 4G, spectrum trumps technology

Verizon Wireless(s vz)(s vod) has seen the future of cellular networking — and it doesn’t look much different from today. In a highly detailed, yet heavily redacted, filing with the Federal Communications Commission, Verizon claimed that the only possible way to create bandwidth-and capacity-intensive mobile broadband is to keep building big-tower macro-cellular networks. To do that it needs more spectrum, and if it doesn’t get that spectrum, Verizon stated, it will start running out of LTE capacity by 2013.
I’ll give Verizon this: it’s very meticulous. The filing, submitted late last week, is meant to justify Verizon’s $3.6 billion acquisition of the cable operators’ Advanced Wireless Service (AWS) spectrum, which would give Big Red a lot of room to grow its LTE network. But just to hammer the point home, Verizon ticked off all of the technologies and techniques that could boost network capacity without new spectrum – Wi-Fi, small cells, spectrum re-farming, cell-splitting – and explained exactly why each wouldn’t work. According to Bill Stone, executive director of network strategy, those technologies are either unavailable to Verizon or insufficient to provide the capacity it needs to feed its data-hungry customers.
What happens in 2013? In areas where Verizon only has 700 MHz, spectrum congestion will reach a point where customers’ data speeds will suffer, and it may no longer be able to maintain the 5-Mbps threshold it defines as 4G, Stone said. In areas where Verizon already owns AWS licenses, primarily in the eastern U.S., Verizon will have built more capacity, but even in those regions customers will see their service start to suffer by 2015, he said. Stone paints a pretty bleak picture:

As traffic volumes exceed the data threshold, some customers will experience decreases in speed and quality, depending on the mix of use occurring at that point. Most affected will be services like video streaming and real-time two-way video conferencing. For example, a customer who is streaming video or downloading a large file is more likely to notice increased jitter or longer buffering times, while a customer on a static web site may not notice a slower speed. The further data traffic exceeds the threshold, the more widespread and substantial the degradation in customers’ experience becomes. Even those customers who are not downloading information or otherwise not using speed -intensive services could experience slower speeds. Real-time applications will be impacted to a greater and greater extent as available bandwidth per user continues to decrease.

Let us at the airwaves

The answer to Verizon’s capacity ills has now become a common refrain among all U.S. wireless operators: give us more spectrum. Verizon isn’t wrong – all carriers will need more spectrum if we expect them to provide the big bandwidth-plentiful data networks of the future. But Verizon’s predictions on mobile data use seem particularly dire. While it claimed to have used detailed models to calculate those projections, all of that information has been redacted in the filing.

Verizon also appears to be hard-selling the FCC and its critics about the limitations of the technology to meet its capacity needs. Admittedly, some technologies, like small cells, are just emerging and will be difficult to deploy. But Wi-Fi is sitting there staring Verizon in the face, and it refuses to acknowledge its potential. In its filing, Verizon seems to conflate free public Wi-Fi available at Starbucks with the carrier-grade, high-performance Wi-Fi that AT&T and cable operators are using in outdoor capacity hotspots solely for the use of their customers.
But my biggest question is, if the capacity crunch is so bad, why is Verizon even bothering? With the SpectrumCo and Cox Communications deals, Verizon will get about 20 MHz of spectrum in major markets – that’s only enough to double its spectrum holdings out west and increase it by about 50 percent in the east. What happens in 2014 and 2016 when its customers suck up that capacity as well? Why is Verizon bothering to talk about connecting cars and karaoke machines? Why did it just start selling LTE as a home-broadband-replacement service? These aren’t the actions of an operator that will be squeezed for capacity in a year.

Why new technology isn’t good enough

In its filing, Verizon didn’t just dismiss the technical alternatives out of hand. The carrier spelled out all of the details:

  • Verizon is deploying small cells and believes in the heterogeneous network of the future. The idea behind hetnet is to create an underlay of high-capacity miniature cells under the big macro umbrella, which would enormously boost capacity in high-traffic areas. But Stone said small cells won’t be the antidote to future congestion problems. “This is because our projected growth in data LTE usage from YE 2013 to YE 2015 will far outstrip the added capacity made available by small cells,” Stone said in the filing.
  • Stone insisted that Wi-Fi as an offload technology simply wouldn’t work, despite its growing popularity among wireless operators. Verizon has deployed its own Wi-Fi access points in stadiums and other venues, but it has never embraced the idea of a large-scale hotspot rollout to augment its cellular network. “Given the company’s commitment to providing the highest possible quality and reliability of its services, Verizon Wireless has determined not to force customers onto Wi-Fi networks,” Stone said.
  • Splitting cells is the long-time practice of building denser networks, putting new towers up to boost the capacity of the network. But Stone claimed this was a highly inefficient means to add capacity. Locating and launching a new cell is expensive and adds little to the overall capacity of the network, while launching LTE over new spectrum effectively creates a new layer of capacity network-wide, Stone said.
  •  T-Mobile and possibly AT&T(s t) aim to harvest their current 2G networks for frequencies over which they can deploy new HSPA and LTE networks. But Verizon said it simply doesn’t have that option. Traffic on its 3G EV-DO network is simply too high (a lot of which might be explained by the 3G-only iPhone(s aapl)), and it will continue to increase even as Verizon moves more customers over to its new LTE networks, Stone said.

Launching new networks over new spectrum may be the cheapest and easiest way for Verizon to add new capacity, but it can’t be the only way. Otherwise mobile broadband is doomed. There’s only a finite amount of frequencies usable for the type of big cell macro-networks that Verizon is so fond of, and we’re quickly plowing through them. While AT&T claimed that spectrum was the only answer when it tried to buy T-Mobile, I at least give Verizon credit for actually exploring the technology alternatives. But it can’t truly be that pessimistic about the role of those network technologies in solving its capacity problems. Otherwise, what’s the point?