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www.greenpacket.com
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Abstract
The advancement and growth of the Internet is causing network congestions across the globe due to heavy data consumption required by its applications. However, with different penetration levels and usage patterns, there is a contrast for network congestion in developed and emerging countries. The network congestion issue in developed nations is more acute although current network technologies are advanced but yet they are insufcient to cope with data requirements. The only way forward is to continue upgrading to faster networks with higher capacity, but this option requires heavy investment in terms of time, effort and money. What then is a more cost-effective alternative? This paper studies Hong Kong*, a densely populated country with one of the worlds fastest growing telecoms sector and a victim of network congestion. Greenpacket presents a case study on how a cellular operator can battle network congestion without burning a hole in the pocket.
*Hong Kong is selected as it is a small country with a huge population and easily comparable to any other major city in the world. The objective here is to help readers understand that network congestion as experienced by Hong Kong and proposed solution can be applied to most dense areas around the world.
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Contents
Network Congestion Phenomenon: Developed vs. Emerging Markets Getting to Know Hong Kongs Telecoms Market Issues Facing Hong Kongs Mobile Broadband Landscape Case Study Operator X, Hong Kong (HSPA+ Operator) Solve Your Network Congestion Woes Cost-Effectively Today! 01 04 08 12 16
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Developed Markets
Emerging Markets
Developed market Emerging market (more developed) Emerging market (least developed)
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Example A
Emerging Developed
56,594 377,835
7.2Mbps 7.2Mbps
Example B
Philippines
Emerging
300,000
2.0Mbps
38 million
On the other hand, in developed markets, users are more mature Internet users and therefore engage in heavy data usage that demands higher bandwidth. The Internet is relied upon beyond information gathering and communications. Instead, it is heavily used for entertainment, especially video content and applications. According to research rm Sandvine, users in North America and Europe are the highest consumers of YouTube videos, as shown in Figure 3.
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1.4% 4.6%
North America
45.1% 46.8%
2.1%
Source: Sandvine
Figure 3: YouTube minutes consumed by different regions worldwide
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Hong Kong is also one of the worlds leading developed nations, holding a GDP per capita of USD 31,849 in 2008, which is relatively higher compared to other countries (see Figure 5). One of the reasons for Hong Kongs high GDP levels can be associated with its high broadband penetration rate and vice versa.
30% Hong Kong South Korea 25% Canada Switzerland
Belgium
USA
10%
Hungary
UAE
$40,000
$50,000
$60,000
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Telecoms Background
Hong Kong has one of the most advanced and sophisticated telecommunications market in the world and this has been one of the driving factors in shaping this country as a leading business and nancial centre. Hong Kongs telecommunications sector has been liberalized to set a platform that is both pro-competition and pro-consumer. This objective provides a fair playing ground in the telecoms market and ensures consumers receive best-in-class services in terms of capacity, quality, coverage and speed. Ofce of the Telecommunications Authority (OFTA) is the governing statutory body responsible for regulating the industry. Strong governmental support, enormous connectivity infrastructure and geographical advantage of compact size have led to Hong Kongs successful Internet evolution. Figure 6 compares the broadband technology evolution of Hong Kong and the United States. It is evident that Hong Kong has been almost at par with United States which illustrates the formers impressive growth in the Internet and broadband arena over the past two decades.
2G Hong Kong 3G
HSUPA GSM PCS (GSM 1800) GPRS WCDMA/ EDGE HSDPA CDMA 2000 (EVDO) HSPA+
3.5G
United States
GSM
HSUPA
HSPA+
93
94
95
96
97
98
99
00
01
02
03
06
07
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09
Figure 6: Hong Kong and United States Internet and broadband evolution
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As far as broadband is concerned, the services are highly in use which explains Hong Kongs high broadband penetration rate. At 82%, Hong Kong is ranked among the top three markets with highest household broadband penetration rate (Figure 8) and fastest average Internet connection speed (Figure 9). Markets with Highest Broadband Penetration of Households
United States United Kingdom Taiwan Switzerland South Korea Netherlands Hong Kong France Canada Australia
52% 58% 65% 74% 76% 73% 79% 72% 82% 81% 54% 58% 59% 77% 74% 74% 69% 76% 93% 97% 2007 2012
14 12 10 8 6 4 2 0
11.7
8.6 7.6 7.2 6.2 6.1 5.3 5.2 5.2 5.1 3.8
Re pu bl ic
Ko re a
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Ko ng
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lan
tv
De nm
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Ja
Ro m
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Ho ng
Sw
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So ut
Ne t
To date, Hong Kong has 14 xed network operators (FNOs), ve mobile network operators (MNOs) and nine mobile virtual network operators (MVNOs). Such intense competition makes broadband services in this country very affordable. The combination of high penetration rate and affordable pricing formed an ideal platform for IPTV services which hit 1.2 million subscribers as of December 2009, again one of the highest in the world.
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Aside from IPTV, Hong Kong has a strong network of WiFi hotspots there were more than 8,900 public WiFi hotspots as of March 2010 and growing. An average Hong Kong Internet user spends more than 25 hours online per month, making it one of the most engaged Internet markets globally. Online communications, entertainment and social networking take up the highest share of minutes spent online (see Figure 10). Several interesting Internet usage behaviour includes the following: Instant messaging holds the highest share at 16% (October 2009), which is almost double the time spent by Asia Pacic region as a whole Entertainment is led by video-based applications led by YouTube and TVB.com Social networking is led by Facebook 5% of Internet minutes are spent on business and nance sites which reect the countrys business and nance focused economy. This rate is more than double of Asia Pacics share of time for this category Hong Kong Online Activities (% Share of Minutes)
16%
8%
5% 2% 2% 3% 4% 4%
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ii) Tremendous increase in data usage. Since the launch of HSDPA in 2006, subscriber count only increased 2.4 times but data consumption grew immensely by 80 times! Year 2009 2008 2007 2006 2005 2004 2003 2002 2.5G + 3G Customers 5,000,264 3,490,602 2,947,378 2,206,586 1,848,254 1,349,015 729,554 179,931 3G Customers 3,819,186 2,812,002 2,004,565 1,331,651 645,965 N/A N/A N/A Mobile Data Usage (Mbytes) 638,388, 712 133,145,730 32,301,563 9,076,723 4,603,736 2,330,444 247,262 42,029
2.4 times increase in subscriber count but 80 times growth in data.
Figure 12: Number of customers and mobile data usage in Hong Kong from 2002 2009
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Why is Hong Kong experiencing such a gigantic leap in data usage? Here are some reasons: a. Affordable broadband rates With the presence of 14 FNOs, ve MNOs, nine MVNOs and hundreds of other licensed ISPs, healthy competition exists and keeps broadband rates very affordable for the man on the street. As such, almost the entire active population of Hong Kong is able to afford a broadband connection and use data applications. Data card plans in Hong Kong range from USD 24 to USD 49 which is lower compared to similar plans in United States which range from USD 30 to USD 60. b. High usage of IPTV Television is loved for its rich visual and audio entertainment qualities. Delivering these qualities over Internet is a denite data gobbler. Hong Kong has 1.2 million IPTV subscribers which are among the highest in the world. c. High usage of smartphones Hong Kong consumers lead smartphone usage globally. Almost half (48%) of consumers in Hong Kong own a smartphone, which is more than double the global rate of 23% as shown in Figure 12. The smartphone is used to access Internet applications such as email, social networking and even blogging. In todays world of content and applications, social networking is king. This is obvious in Hong Kong whereby 30% of smartphone users regularly update their social pages compared to 12% globally. Smartphone penetration is approaching majority levels
% of mobile users with a Smartphone
*Covers Australia, Japan, Korea, Hong Kong, Malaysia, Singapore and Taiwan. 48 23 27 40
Global 2010
Source: www.cellular-news.com
Figure 13: Hong Kongs smartphone penetration rate exceeds global and Asian levels
d. High Public Transport Travel With the advantage of being geographically compact, Hong Kong has a highly developed transportation network. Over 90% of daily travels take place via public transport. This form of commutation gives subscribers time to enjoy Internet while on the go through their smartphones and other mobile devices.
Decreasing ARPU
Hong Kongs telecommunications landscape undergoes intense competition which leads to price wars that sets the ARPU on a downward scale. Figure 13 shows ARPU decreasing for several leading mobile network operators in Hong Kong since 2007.
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Aside from the price war, the decline in ARPU (Figure 14) can also be attributed to the stronger prepaid growth than postpaid (Figure 15). Although in the past, operators in Hong Kong received higher revenues through postpaid plans, prepaid services are gaining popularity as subscribers are more conscious of their commmunication and connectivity spend. Prepaid ARPU is undeniably much lower than postpaid. For example, in 2008, Hutchisons postpaid ARPU was almost nine times larger than prepaid ARPU1.
1Ovum
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42Mbps
36-40Mbps
21Mbps 15-18Mbps
Outdoor
Outdoor
Indoor
Outdoor
Indoor
Median Users
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3G Operator 1
3G Operator 2
1949.9
3G Operator 3
1950.1
3G Operator 4
1919.9 1920.3
1935.1
1964.9
1979.7 1980
TDD Spectrum
FDD Spectrum
Among these four operators, Greenpacket has selected Operator X* for this case study. Operator X is Hong Kongs leading operator and the rst to launch a HSPA+ 28.8Mbps. To deploy and operate a 28.8Mbps network, 5MHz frequency band is sufcient for data while the remaining 15MHz is reserved for voice and/or mobile TV (R99/MBMS). Bandwidth 5MHz 10MHz 20MHz HSPA+ Data Rate 42Mbps 84Mbps 168Mbps LTE Data Rate 37Mbps 73Mbps 150Mbps
Figure 18: HSPA+ vs LTE data rates corresponding to different bandwidth levels
Since Operator X (and the other operators) are investing huge sums of money into HSPA+, it is necessary to assume that they would most likely adopt the HSPA+ path in coming years which enables data rates of up to 168Mbps through four frequency carriers (20MHz spectrum). These data rates are equivalent to that of LTE as shown in Figure 17. *Name of this operator is withheld to protect its interests
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Expected Revenue
From the 45,000 additional subscribers Operator X expected to be acquired by end of 2010 at ARPU rate of HKD200/month, Operator X will gain a total revenue of HKD108 million/year (USD13.8 million/year). The question now is, is the expenditure of USD 24.4 million justied for an increase of 45,000 subscribers over a short period of six months? How much will Operator X need to spend over the next three years to improve its infrastructure and support subscriber growth? With ARPUs declining rate versus large network upgrade costs, how will Operator X sustain in the long term? From an ROI perspective, with the investment expenditure of USD 24.4 million for 415 sectors, Operator X faces an ROI period of one year and nine months. This duration is based on the average growth pattern of subscribers. However, as data usage per user continues to rise through the use of data intensive applications, Greenpacket believes that the ROI on required infrastructure upgrades can extend to two or three years. This is a very risky approach as technologies evolve at a fast pace and infrastructure normally changes every ve years, for example the evolution of from GSM-WCDMA-HSPA+ to LTE.
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Conclusion
In the age of growing intensive data usage, celullar operators in developed markets need an immediate and cost-effective way to manage their networks. The proliferation of smartphones and decreasing ARPU levels further add urgency to ensure network congestion does not pose a threat. One of the solutions to prevent network congestion is by ofoading data to alternative broadband networks, especially WiFi. Aside from balancing network bandwidth, WiFi is a good indoor solution and provides a much better reception compared to cellular networks.
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Test FTP download throughput, average of all locations Highest FTP download speed Lowest FTP download speed FTP download failures FTP download standard deviation across all eight locations Throughput test, loaded network (4 simultaneous clients) FTP upload throughput, average of all locations Test Webpage (ww.cnn.com) download time, average across all locations Microsoft Outlook download time (3 megabytes), all locations Micosoft Outlook over VPN upload time (8 megabytes), all locations
T-Mobile HotSpot 1,274kbps 1,396kbps 548kbps 1 in 18 tests (6% failure rate) 348kbps 367kbps 1,329kbps 6 sec 23 sec 16 sec
Verizon EVDO 310kbps 528kbps 51kbps 6 in 24 tests (25% failure rate) 162kbps 248kbps 100kbps 55 sec 122 sec 214 sec
Figure 19: Performance comparison of WiFi (T-Mobile HotSpot) vs. 3G (Verizon EVDO)
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Free Consultation
If you would like a free consultation on how you can start saving network cost through data ofoading, feel free to contact us at marketing.gp@greenpacket.com kindly quote the reference code, WP0810DL when you contact us). As part of the consultation, we will be happy to walk-through your networks TCO and determine how much savings you would gain by ofoading data.
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References
1. 2. 3. 4. 5. 2009 Global Broadband Phenomena by Sandvine Hong Kong: The Facts Telecommunications, Ofce of the Telecommunications Authority Wireless Network Assessment, EV-DO and Wi-Fi Hotspots by Rysavy Research & Quality in Motion (QIM) The importance of prepaid mobile increases in Hong Kong by Sherrie Huang, Ovum HSPA+ is here, what is next? by Qualcomm
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