Mobile wireless capacity white paper.

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Performance Through Independent Research
Wireless
network
capacity
issues:
Threats
and
opportunities
EXECUTIVE SUMMARY: that clients will pay for, without clogging up
the network with unprofitable users.
The Problem with Mobile wireless:
While most operators are managing to
In simple terms, demand is outstripping grow their top line with mobile data,
supply, and costs per gigabyte are rising margins on mobile data have been under
faster than revenues. Supply is constrained severe pressure for operators. Mobile data
by physics. One single fiber optic cable has ARPUs are not delivering the same
more capacity than the entire RF spectrum. EBITDA margins as voice: this leads to a
significant share of customers being
To avoid mobile networks being overwhelmed unprofitable. The carrier choice of mobile
by a flood of data, these networks which data bundled plans has limited the market
support widely desired mobility applications, segmentation capacity of these operators.
[e.g. Apple I-pad 3] these networks capacity Examples: the price of data plans are
must be upgraded. Reliability and access are decreasing at a rate of 60 percent p.a. on
key to long term survival, as we witnessed average. Plus, individual users can place a
with Blackberry. However this is not just an IT huge strain on the network: 10% are
technical issue. It is fundamentally a responsible for 50% of the network data
business model issue. traffic – without contributing one cent more
in revenues. Actual revenues per megabyte
The business issue is how to capture traffic are decreasing at around 50% p.a. – a
Continued
on
Page
4
Capacity
constraint
is
at
Radio
Link
“Cloud” economics are pushing mobile network capacity constraints. Mobile devices have
memory and speed limitations that might prevent them from acting as media consumption
devices, were it not for cloud applications and services. Cloud applications and services
such as Netflix, YouTube, Pandora, and Spotify allow mobile users to overcome the
memory capacity and processing power limitations of mobile devices. A user with an 8 GB
smartphone who streams cloud video and music will consume more content over the course
of 2 years than can be stored on the device itself. A smartphone user adopting Netflix,
Pandora, and Facebook will generate more than twice the volume of traffic generated by a
smartphone user adopting only email and web applications

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A “Flood of Data” s being generated by the I-pad type applications.
In 2011, a fourth-generation (4G) connection generated 28 times more traffic on
average than a non-4G connection. Although 4G connections represent only 0.2 percent
of mobile connections today, they already account for 6 percent of mobile data traffic. Data
storage costs have also dropped, allowing for more “cloud” based solutions.
Units
used:
Tera
=
1012
Exta
=
1018
Zetta
=
1021

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The Mobile Network Through 2016 3
Mobile data traffic will reach the following milestones within the next five years.
• Monthly global mobile data traffic will surpass 10 exabytes in 2016.
• Over 100 million smartphone users will belong to the "gigabyte club" (over 1 GB per month) by
2012.
• The number of mobile-connected devices will exceed the world's population in 2012.
• The average mobile connection speed will surpass 1 Mbps in 2014.
• Due to increased usage on smartphones, handsets will exceed 50 percent of mobile data traffic
in 2014.
• Monthly global mobile data traffic will surpass 10 exabytes in 2016.
• Monthly mobile tablet traffic will surpass 1 exabyte per month in 2016.
• Tablets will exceed 10 percent of global mobile data traffic in 2016.
• China will exceed 10 percent of global mobile data traffic in 2016.

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trend expected to continue over the next few pacing within the overall mobile
years if radical action is not taken soon. broadband strategy will ensure
success and optimize the road to
The solutions…… ……………… ……? 4G business cases. Operators
need to focus on topics such as
1. Choice of spectrum and technology regional rollout priorities, fixed
upgrade path. Operators [carriers and substitution propositions, and
enterprise solution providers] need to further capacity extension
decide on the succession of technology strategies. For instance, reforming
upgrades that will best fit their current 1,800 MHz 2G spectrum could be a
data ~ corporate strategy and expected viable strategy to build additional
market demand for mobile broadband. LTE capacity networks, but this
Does the company already have a requires advance planning.
dominant technology and service Partnering opportunities could offer
position, or is it a value-for- money operators great value creation
price leader? What is the spectrum potential as well. Those operators
application plan and spectrum auction that pool spectrum based on
positioning in their arena, including network-sharing agreements will
reservation prices? And what reap a significant cost-to-serve
technology succession in spectrum advantage.
bands will align best with the expected
demand development? MOBILE WIRELESS CAPACITY AS AN
2. Given that the main constraint is now ECONOMIC OPPORTUNITY:
supply and not demand, the main issue
becomes the choice of tactical We have witnessed the collapse of
implementation and timing of network Blackberry, [RIMM] a casualty of “failed”
upgrades, be they 3G LTE, 4G or some supply side network management. All
other evolution. Only optimal tactical major participants in the carrier and
Continued
on
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Diagrammatic
representation
of
an
LTE
wireless
network
switched
into
a
PSTN.
It
only
supports
the
IP
protocol
for
voice
calls.
The LTE standard only supports packet
switching with its all-IP network. Voice calls in
GSM, UMTS and CDMA2000 are circuit
switched, so with the adoption of LTE, carriers
will have to re-engineer their voice call
network. Three different approaches sprang
up:
1.CSFB (Circuit Switched Fallback): In this
approach, LTE just provides data
services, and when a voice call is to be
initiated or received, it will fall back to
the CS domain. When using this
solution, operators just need to upgrade
the MSC instead of deploying the IMS,
and therefore, can provide services
quickly. However, the disadvantage is
longer call setup delay. The diagram above shows the increased
▪ SVLTE (Simultaneous Voice and LTE): In volume in wireless data capacity usage
this approach, the handset works from different mobile devices. A
simultaneously in the LTE and CS smartphone on average uses 35 x more
modes, with the LTE mode providing capacity than a regular cell phone. A
data services and the CS mode Tablet, on average uses 121 x more
providing the voice service. This is a capacity than a regular cell phone.
solution solely based on the handset,
which does not have special Demand for tablets and I–pad’s is
requirements on the network and does growing exponentially because these
not require the deployment of IMS tools are seen as the single most
either. The disadvantage of this solution important productivity tool [source
is that the phone can become expensive Information Week 8/2011, mobile device
with high power consumption. management and security survey of 323
business technology professionals].
VoLTE (Voice Over LTE): This approach is
based on the IP Multimedia Subsystem
network.

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enterprise areas are at risk, as are the BRCM, RFMD, as these suppliers to
dominant mobile device and application network capacity, along with Nokia Siemens,
suppliers. Alcatel Lucent, the Chinese manufacturer
Huwaei offer the most bang for our
The 4-G network will be an evolution of , investment buck. However this is a very
many different types of “internet protocol” complex transition and there are bound to
{IP} based networks. As can be seen in the be more RIMM type occurences for those
schematic on page 5, these networks are who are not able to build redundancies into
real evolutions of technologies and know their mobile broadband networks.
how, with the common objective of utilizing
Radio Frequency band-width more Examples of unpredictability of
efficiently. LTE evolution:
Any technology that allows a mobile network Operators initially deployed High Speed
greater service portability and Packet Access (HSPA) in 5 MHz + 5 MHz
interoperability will be utilized, using the IP radio channels. HSPA uses a 5 MHz radio
platform that has been made ubiquitous by channel, so this means one channel was for
Cisco Systems. With the proliferation of the base-station to mobile- user (forward)
mobile and portable devices, there is an direction and one channel was for the
imminent need for networks to allow all reverse direction. Based on a spectral
these devices to be connected efficiency of .5 bps/Hz, the HSPA initial
transparently, with the network providing deployments data capacity was 2.5 Mbps in
high-performance computing and delivering each sector17 and EV-DO in a 1.25 MHz
enhanced real-time video and multimedia. radio channel with the same spectral
This openness will broaden the range of efficiency had a data capacity of 600 kbps.
applications and services that can With improvements in radio technology, we
be shared, creating a highly enhanced expect a 50% increase in the capacity. But
mobile broadband experience. The one can see how small a number of
expansion of wireless presence will increase simultaneous YouTube viewers each at
the number of consumers who access and almost 1 Mbps can occupy the entire
rely on mobile networks, creating a need for bandwidth of the data channel, which really
greater economies of scale and lower cost puts a strain on network capacity.
per bit.
Looking forward to advanced technologies
While the net neutrality regulatory process such as LTE, capacity will be higher, but it
and business models of operators evolve, will still be extremely limited compared to
there is an unmet demand from consumers wireline capacity. Verizon Wireless’ LTE
for the highest quality and speeds. As network will operate in the 700 MHz band
wireless technologies aim to provide using 10 MHz radio channels. With a
experiences formerly only available through spectral efficiency of 1.5 bps/Hz, this
wired networks, the next few years will be delivers a sector throughput of 15 Mbps.
critical for operators and service providers to
plan future network deployments that will Meanwhile, there are about 1000
create an adaptable platform upon which subscribers in the US for every cell site,
will deploy the multitude of mobile-enabled which makes for an average of 333
devices and applications of the future. subscribers per sector. If 10% of them were
using the LTE data service, that would mean
We have focused on the manufacturers of 33 users for the 15 Mbps data channel.
the Radio Frequency chipsets, ARMH, Now, compare this with a subscriber of a

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Investing
in
the
pressure
points
in
the
LTE
system
wireline high-speed Internet service of 50 One network in the US that has
Mbps that is dedicated, and not shared. considerably more capacity is Clearwire’s
WiMAX network. This has been deployed
Asia's mobile networks are also getting more in 30 MHz of spectrum, which is
filled, rising from 54 percent utilization two considerably more than what any 3G
years ago to 62 percent in 2011. Western operator has deployed for data so far. As
European networks are getting less demand increases, Clearwire has
constrained, falling from 66 percent to 56 indicated it can make up to 120 MHz of
percent. Both regions will be well over 60 spectrum available. Whereas many 3G
percent within two years, however. Latin networks place caps of 5 Gbytes on
America's mobile networks will hit 85 percent monthly data usage, the Clearwire
average utilization within a year, according to network currently has no caps. Even the
the survey. Clearwire network, however, cannot
match the capacity of wireline access
The point is not that the wireless network networks that are fiber oriented (e.g., fiber
cannot deliver extremely valuable mobile to the home).
services, but that wireless capacity is
inherently
limited compared to wireline
capacity.
Cloud media applications and services such as Netflix, YouTube, Pandora, and Spotify
allow mobile users to overcome the memory capacity and processing power limitations of
mobile devices.

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INDIVIDUAL RECO MMENDATIONS:
Most of the suppliers to this exploding market As for Broadcom, it has been winning
are discounting the economic benefits of the some baseband share at Samsung this
market. As with many growth markets, the year. However, we believe the magnitude
early hype tends to push valuations into the of these share gains is fairly meaningful,
stratosphere. and likely underestimated by the Street.
Samsung seems to be pushing for
Nevertheless there are certain stocks which we massive smartphone shipment growth in
believe should be on a watch list for an 2012, forcing smartphones into as many
opportunity to buy on market sell offs. different price points as possible.
The best buy in the current market is Independent handset supply chain checks
Broadcom, followed by Cisco. Arm Holdings is suggest that Broadcom could supply
a buy, and since it is a very difficult stock to 30%-40% of Samsung’s smartphone
buy, it is best to buy on weakness. Ciena is basebands in 2012 (60M-80M units out of
also a long term buy. The upside on Ciena is Samsung’s 195M unit smartphone target),
not huge at moment, $20. plus some of Samsung’s non-smartphone
shipments (some portion of another
150M-170M handsets). This meaningful
Ciena is likely to see revenue rise faster than growth this year should help to stem the
the broader telecom landscape’s 3 to 5% rate impacts from Broadcom’s falling 2G
over the next three years, perhaps seeing baseband shipments to Nokia and
more like 11% pa. Samsung.
The move from traditional telco “SONET” ARMH’s smartphone and the tablet
gear to “dense wavelength division markets are larger than thought,
multiplexing,” or DWDM, fiber optic producing 10% greater earnings than
equipment — a move that’s been going on for expected for this year and next.
years now but seems finally to be happening
in earnest – should benefit Ciena, as it has ARM maintains the upper hand, in the
only 5% of the SONET market but 12% of the mobile market relative to its competitors
DWDM market. including Intel. After 31% growth in ARM’s
total chip unit volume in 2011, growth
If management can keep operating expense will cool to more like 16% for 2012 but
growth to just 2.2% over that three-year term, then it will resume 20% growth in 2013.
combined with a 2.5% expansion of its gross
profit margin, the company could see
operating margin widen to 8.5% in 2013 and
11.5% in 2014.

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COMPONENTS IN I-Pad 3 SUPPLIER
Dual Core ASX processor ARM Architecture, Samsung Fab
LCD Display Screen Samsung, LG
HSPA & LTE Baseband processors Qualcomm
MAC/Baseband/Radio/Bluetooth Broadcom BCM4330 802.11a/b/g/n
NETWORK OPERATORS IN US
AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ) will launch LTE-compatible
versions of the device in the United States. Analysts have said that Verizon, which has an
LTE network covering 200 million POPs, may be the largest carrier beneficiary of the new
device, though AT&T has been quick to point out that even though its LTE network covers
74 million POPs, customers can still drop back to its faster HSPA+21 network outside of
LTE coverage. Market research firm Gartner Inc. estimates 103.5 million tablets will be sold
in 2012, with Apple accounting for two- thirds of those, rising to 326.3 million in 2015, Apple
Share 46%
Source: FierceWireless-FierceWireless

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CONCLUSIONS:
The mobile-broadband industry is experiencing tremendous success, yet its very success is
undermining its ability to deliver a consistent, reliable trouble-free experience. As the
number of users increases with ever more demanding applications, it is inevitable that there
will be ever more cases in which the volume of traffic in different coverage areas exceeds
capacity, resulting in congested operation.
More efficient applications not only reduce the likelihood of congestion occurring in the first
place, but they also are inherently more resilient, since they require less time and data to
operate. They also reduce battery consumption, and most importantly for users, reduce
costs, especially with usage-based pricing plans.
Beyond user benefits, greater application efficiency results in significant savings for
operators including lower costs in the radio network, lower costs in backhaul, lower
infrastructure costs and the need for less new spectrum.
We think this environment is an opportunity to buy several of the LTE emerged
technologies, namely, ARMH, RFMD, CIEN, CSCO, BRCM.
GLOSSARY OF ACRONYMS:
GSM: Global System for Mobile Communications;
LTE- Long Term Evolution, [of 4-g networks from 3-g wireless networks];
HPSA: High Speed Packet Access
UE: Ultra Edit, a software text editor for Microsoft Windows;
MSC: Message Sequencing Chart;
IMS: IBM Information Management System;
SGSN: Serving a GPRS Service Node;
MME: Mobility Management Entity, System Architecture Evolution, core of 3GPP LTE;
GERAN: GSM EDGE Radio Access Network;
UTRAN: Universal Terrestrial Radio Access Network;
E-UTRAN: air interface of 3GPP's Long Term Evolution (LTE) upgrade path for mobile
networks.
Sources & References:
Cisco Networks White Paper – Global mobile data traffic: Forecast update 2011-2016;
Accelerate Technology Challenges in technology roll-out, 2012;
Infonetics 2011 White Paper, Research in optical equipment leaders;
Rysavy 2011 Mobile broadband capacity constraints;
Infonetics: The road to plain 4G survey excerpts 2011;
Net neutrality regulatory proposals, Rysavy Research;
Shifting the supply axis: The road to 4-G McKinsey White Paper;
Wireless design magazine: Testing LTE network, benefits and challenges;
Mobile broadband with HSPA and LTE – capacity and cost aspects, Nokia Siemens White
Paper;
Dragonwave: The Road to 4G is Easier with Microcellular Solutions;
Agilent: The road to 4G IMT Advanced LTE Advanced webinar;

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Gnostam LLC performance Graphs
Gnostam
was
established
February
4th
2004.
Since
inception
the
annualized
rate
for
return
for
a
client
portfolio
managed
by
Gnostam
LLC
has
returned
a
total
8.4%%
to
February
29th
2012.

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