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Why Wi-Fi Offload?

For years mobile subscribers have been used to mobile broadband at an affordable price, in many markets
even for a flat fee per month regardless of usage. That worked well until the beginning of the “iPhone era.”
According to the Cisco Visual Networking Index (VNI), the average smartphone traffic nearly tripled from 2010
to 2011 (now 150 MB/month) and the global mobile data traffic will increase 18-fold between 2011 and 2016.

Additionally, more and more devices such as laptops and tablets like the iPad come with mobile data
broadband capabilities built-in, as they are designed to download e.g. HD video from anywhere, at any time.
While some mobile operators urgently need a cost-effective way of satisfying customers’ ever-increasing
hunger for more bandwidth, this is not the only driver for Wi-Fi offload. As devices with built-in Wi-Fi perform
better in Wi-Fi networks (with speeds up to 300 Mbit/s) than in 3G/4G – especially indoors – mobile operators
need to be able to deliver a good Wi-Fi-based end-user experience. Furthermore, with more and more new
types of devices being designed specifically as “Wi-Fi only,” the operator can decrease churn and make
subscribers more “sticky” by offering
Wi-Fi offload can reduce cost
By offloading users from the 3G/4G network to Wi-Fi networks, mobile operators can add more capacity in an
affordable and flexible way. We have seen operators that have built Wi-Fi offload networks proactively in areas
with heavy mobile broadband usage such as universities – and reaped the rewards of reduced cost and lower
churn due to a better user experience.
Alternative offload solutions that only focus on bypassing the packet core gateways in the mobile core will only
decrease the load on these nodes and not offload the entire network including the Radio Access Network
(RAN). Using femtocells for offloading is a way of building the 3G radio network cost-effectively, but femtocells
do not provide an option of increasing the footprint quickly through partners the way that Wi-Fi does.
Additionally most Wi-Fi-enabled devices try to establish a Wi-Fi connection as the first choice whenever
available. Some applications can only be used on Wi-Fi. It is no surprise that carrier-class Wi-Fi has rapidly
gained interest and Wi-Fi offload has become a priority among mobile operators globally.

Three key aspects of Wi-Fi offload
There are three main aspects of Wi-Fi offload that need to be addressed in order for service providers to
benefit from offloading data traffic from 3G/LTE to Wi-Fi:

Building a Wi-Fi footprint that is adapted for offloading.

How to get devices to select Wi-Fi and automatically authenticate for a seamless user

How to interact with the mobile core for policies and charging.

For mobile operators fighting network congestion, Wi-Fi offloading has been an
unqualified success. In some high-traffic locations in Hong Kong, up to 80 percent of
the cellular data traffic is offloaded. In South Korea, KT Telecom has 62,000 hotspots
which are actively used for Wi-Fi offload of cellular traffic. The operator plans to add
45,000 more locations during 2011.

In the U.S., the Wi-Fi offload strongest proponent is AT&T (NYSE:T), with 25,000 Wi-Fi
locations. AT&T was the first operator in the U.S. to see the sudden increase in data
traffic in urban areas where adoption of the iPhone was the highest (most notably New
York and San Francisco) and, as a result, was the first that had to address systemic
network congestion--not just the occasional congestion that may be driven by a specific

An increasing number of mobile operators are looking at Wi-Fi offload to relieve
network congestion, keep costs under control, and improve the subscriber experience.
As in many public locations Wi-Fi access is free and most households and office
locations with smartphone users have Wi-Fi, offloading cellular traffic to these networks
is a low-hanging fruit. The marginal cost to both operator and subscriber is zero (there
is a cost to the operator that backhauls the Wi-Fi traffic, but so far Wi-Fi offload
represents a small fraction of the entire wireline network traffic, so this has not yet
surfaced as a major issue). All the operator needs to do is to nudge the subscriber
towards Wi-Fi--not a difficult task, since most subscribers know performance over Wi-Fi
is likely to be better than over 3G.

The other type of Wi-Fi offload--the one championed by SK Telecom and AT&T--is
fundamentally an extension of the operators radio access network (RAN) to include
hotspots directly managed by the operator. Wi-Fi hotspots are not designed to capture
most of the network-wide traffic, but rather to reduce the traffic load in areas where
the cellular infrastructure does not have enough capacity. As such, operators can
choose to deploy hotspots where (and when) they see congestion in their network.

While congested areas typically represent a small percentage of a nation-wide cellular
network, they are where many of the subscribers concentrate and where the need (and
value) of mobile data access is highest. At these locations, the Wi-Fi infrastructure can
carry the "low-margin bits," as Jeff Thompson, CEO of Towerstream, calls them--the
traffic from bandwidth-intensive applications like YouTube that generates limited
revenues to operators, but that has the potential to disrupt higher-margin services such
as voice over the macro cellular network.

Mobile operators that decide to offload to a Wi-Fi hotspot network specifically built for
this purpose have so far preferred to build and control their own networks. But is this
the most effective--in terms of cost, performance, and time-to-market--route to Wi-Fi
offload? Or should operators have some other company build them and operate the Wi-
Fi infrastructure on their behalf? And if doing so, would it make sense to share the
network with competing mobile operators--not on a roaming basis, but sharing the
infrastructure with them?

The obvious advantage in building and operating a network is that the operator has
complete control of it. As Wi-Fi uses license-exempt spectrum that is inherently shared
with whoever decides to use it at any given location, mobile operators cannot exert the
same level of control they have over the cellular RAN. Furthermore, the Wi-Fi
infrastructure is typically not integrated within the broader cellular network, and
operators have little visibility into what the subscribers experience is when they use Wi-
Fi or to manage the Wi-Fi traffic as they do (or can) with the cellular traffic.

The depth of expertise among mobile operators resides on large and complex macro
networks, not in Wi-Fi hotspots. Macro base stations are expensive and require lots of
expertise to deploy and, in most cases, dedicated real-estate assets (i.e., towers or
roof-top locations). Wi-Fi equipment is cheaper, faster, and easier to install, but the
number of installations is higher and getting access rights and backhaul to them may
require substantial effort and money.

The inherent lack of control over Wi-Fi networks and the fact that they are not
developed or operated as an integral part of the cellular networks makes Wi-Fi
offloading an ideal candidate for a wholesale or infrastructure-sharing model, in which
one mobile operator or third-party operator builds and operates a Wi-Fi network that
can be shared among operators, or in which one Wi-Fi operator builds and runs the
networks for a mobile operator.

Although mobile operators cannot use the Wi-Fi network as a differentiator from other
operators if they share the same network, they gain access to a much wider network
with higher capacity than they could if they built one on their own at a comparable
investment level, and do not have to risk to get distracted by the Wi-Fi network as they
try to upgrade 3G or deploy LTE.

To date, the success of infrastructure-sharing initiatives has been very limited in the
U.S., where operators do not seem to be under sufficient pressure to relinquish total
control over their networks (although Sprint Nextel's (NYSE:S) plans to develop 4G
network in partnership with LightSquared and Clearwire (NASDAQ:CLWR) seem to
indicate a more welcoming attitude towards infrastructure sharing). This makes a third-
party network for Wi-Fi offload a risky proposition, but nevertheless one that may gain
acceptance because the need of operators to act quickly to increase network capacity in
high traffic locations as their resources are more effectively aimed at their 4G networks.

Towerstream has launched an ambitious project to build a near-carrier-grade Wi-Fi
network (to the extent that this is possible using license-exempt spectrum) that mobile
operators can use for traffic offload. They decided to build the first network in
Manhattan (San Francisco is next), where they have 1,000 Wi-Fi locations, with a plan
to grow to 1,500. The next 500 locations will be chosen on the basis of "heat maps"
generated by social networking traffic, which is expected to be correlated with mobile
data traffic. The Manhattan network is currently in a trial stage, but we should expect
tenants in a few months' time.

It will be interesting to see how this project develops and what type of acceptance it
will gain among operators. There have been attempts at building Wi-Fi wholesale
networks in the past. In fact, AT&T's Wi-Fi network is mostly the result of the
acquisition of 20,000 hotspots from Wayport and the Starbucks network (previously
operated by T-Mobile USA) in 2008. Before 2008, Wayport was the wholesale provider
to AT&T. However the Wayport network was not built for Wi-Fi offload, but rather
around partnership with companies like McDonald's which facilitated access to a
nationwide network of well-recognized locations.

Towerstream approach and core advantages are distinctively different. The
Towerstream network is optimized for offload and covers mostly outdoor locations,
which pose a very different set of challenges than indoor locations such as Starbucks.
Not only equipment has to be protected differently if installed outdoors, but power and
backhaul connectivity may not be available or too expensive. Here Towerstream
advantage is that it has access to backhaul connectivity (Towerstream is an enterprise
wireless service provider in 12 cities in the U.S.) and has the experience in gaining
access to a wide-range of outdoor mounting assets.

As real estate access and backhaul are crucial to build the networks that mobile
operators need for offload, cable operators are also well positioned to address this
market as they can use strand-mounted equipment installed on assets they control (no
need to get deals with Starbucks) and use their own network for backhaul.

The success of a third-party business model can greatly expand the potential for Wi-Fi
offload to address congestion in cellular networks. But intriguingly it can also offer a
very good model for small cell deployments, where very similar real estate and backhaul
challenges exist and are tempering mobile operators' enthusiasm for emerging
heterogeneous topologies.