4G calling

Remember all the hype in Europe a few years ago about a next-generation mobile phone technology promising “near-DSL” data transmission speeds?

The technology, known by two abbreviations UMTS (Universal Mobile Telecommunications System) or 3G (third-generation), proved to be nearly as fast as molasses for surfing the Web. And, to be honest, many users today hardly notice the improved speeds of an enhanced version of the same technology with another tongue-twisting name – HSDPA (High-Speed Download Packet Access).

Coveted spectrum

Now the telecoms industry is telling us to fasten our seatbelts for another even faster mobile communications technology. And, like nearly all innovations in this sector, it is known by its abbreviation, LTE (Long-Term Evolution), or its more generic name 4G (four-generation).

Last week, Germany sold a range of frequencies that can be used for new 4G services. After 224 rounds of bidding over some six weeks, the country became the first in Europe to sell the coveted spectrum via an auction.

Germany's four existing operators purchased various chunks of spectrum for different prices in last week's auction. Vodafone paid 1.42 billion euros for 12 blocks, Telefonica's O2 1.38 billion euros for 11 blocks, Deutsche Telekom 1.3 billion euros for 10 blocks and Royal KPN's E-Plus 283.6 million euros for 8 blocks.

Although the auction's total revenue of nearly 4.4 billion euros was a welcome windfall for German state coffers, it fell far short of the 50 billion euros generated from the sale of 3G frequencies in 2000. It was also below analyst expectations; the accounting firm KMPG estimated that the auction would pull in 6-8 billion euros.

A key reason for the significantly lower bids was the line-up of contenders. There were no newcomers in Germany's 4G auction, as there were in its earlier 3G spectrum sale. Back then, two completely new players and two existing operators – all eager to grab a slice of the lucrative mobile phone market– helped push prices sky high. They placed top bids for spectrum they believed would allow them to “print money” – a phrase often used to describe the billions of euros Germany's first mobile phone operators, Deutsche Telekom and Vodafone, made from their 2G (second generation) digital cellular services.

It's worth noting that both newcomers later abandoned the market. And the billions of dollars invested in spectrum severely drained operators' budgets to buy, build and operate new 3G networks. Delays resulted. And, in the midst of this, the Internet bubble burst, putting even greater pressure on operators to watch their bottom line.

Another reason for the lower prices paid this time around is the bundle of regulations linked to the coveted 800 megahertz (MH) band, one of three bands sold in the auction. In an effort to expand broadband services to less populated areas, the German government has required operators buying 800 MHz frequencies to build wireless networks in rural areas before moving to cities. These regulations, according to Stefan Zehle, chief executive officer of Coleago Consulting in the United Kingdom, prompted potential newcomers to think twice about entering the German market.

Return on investment

“Mobile operators usually roll out networks in urban areas where there is the greatest density of population to maximize their return on invest,” Zehle said. Understandably, the value of the spectrum is lower, he added, if they have to invest in areas they regard as “marginal or even uneconomic.”

Under the regulations, operators must first build networks that cover 90 percent of the population in villages with a population of not more than 5,000 inhabitants. After they have achieved this coverage, they can enter the next phase. In phase two, for instance, they must extend coverage to towns from 5,000 to 20,000 inhabitants and in phase three in towns from 20,000 to 40,000. Only in phase four can they roll out service in big cities.

Spectrum is the life blood of the mobile industry, and many operators crave the 800 MHz band. Previously used for analog TV, the so-called “digital dividend” band has two big benefits: wider geographic coverage and greater in-building penetration.

Low frequencies allow radio signals to propagate further. As a result, fewer base stations are required. And that means less capital expenditure is required to provide coverage compared to higher frequencies, such as the 1.8 gigahertz (GHz), 2 GHz and 2.6 GHz, which were also sold in the German auction.

The lower frequency range also provides better in-building penetration. Such penetration is becoming increasingly important to operators as they strive to meet growing demand for mobile phone coverage deep inside office buildings and larger residential complexes. Although operators can deploy other technologies to amplify signals in buildings, especially those with heavy steel and concrete structures, they incur additional operating costs.

Technology neutral

O2 and Vodafone each spent 1.2 billion euros on the 800 MHz band, while Deutsche Telekom paid 1.15 billion euros. E-Plus failed to secure spectrum in this band.

The Dutch-owned company also appears to be the only mobile phone operator in Germany with no immediate 4G plans. Although licenses for the new spectrum are “technology neutral,” meaning operators are free to use them as they please, Deutsche Telekom, Vodafone and O2 have made their 4G intentions well known.

So why now the push to yet another next-generation mobile communications technology? Operators in Germany and across Europe no longer see sustainable growth in a strategy based heavily on traditional telephony. The future, they say, is data and services like high-speed Web surfing, social communities, video and even Internet-based voice and chat services like Skype. To deliver all these more efficiently, they need a new technology. Many of them believe LTE is the solution.

In a nutshell, the next-generation mobile network promises to deliver higher throughput, lower latency and larger bandwidth over a simple, flat architecture based on the Internet Protocol (IP) – all sorely missed in the first generations of digital cellular phones: GSM (Global System for Mobile Communications) and UMTS.

As for higher speeds, LTE has both a low and high mobility specification. The high mobility spec aims to provide service to users travelling at high speed on trains or highways between 60 kilometers per hour (km/h) to 250 km/h or more and supporting data rates up to about 100 megabit per second (Mbit/s). Low mobility delivers services in hotspots at data rates of 1 gigabit per second (Gbit/s). These are theoretical speeds. It remains to be seen what speeds operators actually offer. But users will experience a noticeable change regardless.

Latency, which is important in computer games and Web surfing, is another big service differentiator. Latency times with HSDPA are currently around 65 milliseconds, compared to about 20 milliseconds with DSL (Digital Subscriber Line) lines. LTE is targeting 10 milliseconds.

High expectations

In another effort to improve efficiency, new 4G networks will use smart antenna technology, known as Multiple Input-Multiple Output (MIMO). The technique boosts bandwidth and range by using multiple antennas at both the transmitter and receiver end to improve communication performance.

Another LTE innovation is a mouthful to speak – Orthogonal Frequency Division Multiplexing or OFDM. The technology has been integrated into LTE because it enables high data bandwidths to be transmitted efficiently while still providing a high degree of resilience to reflections and interference.

Critics of UMTS say one of the big reasons why the technology never fulfilled all its high expectations was that it lacked a “killer application.” Some experts believe LTE awaits the same fate unless it offers something special, like video.

Others beg to disagree. “I don't see video as a killer application in 4G,” said German telecoms expert Torsten Gerpott, a professor at the Mercator School of Management at the University of Duisburg Essen. “4G doesn't need a killer application.”

Gerpott and many other experts believe there is a general move toward what the industry now calls the “mobile Internet.” People at home and work want to use their mobile devices to access many of the same services, such as e-mail, Web surfing and video, at the same speeds and with the same latency as they do on their PCs. The iPhone has shown how an easy-to-use, Internet-enabled device can create demand for such mobile Internet services. And, most recently in the United States, it has also shown why operators need plenty of spectrum and a new technology to provide them.

Four German operators have just purchased the next-generation spectrum. And at least three of them are now betting on LTE to deliver the goods.

Author: John Blau
Editor: Sam Edmonds