After the decision to separate its online streaming and DVD-in-the mail services, Wall St. Cheat Sheet asked, “Is Netflix the new Research In Motion?”
Translation: Will Netflix be just the latest technology titan to suffer a parabolic plunge? We don’t know ourselves. Netflix’s streaming-DVD split is a reaction to the overwhelming popularity of its streaming service. CEO Reed Hastings is trying to avoid complacency and stay ahead of the curve. Maybe he is panicking. Maybe he’s a genius. But that is just the point: the digital curve these days is shifting and steepening faster than ever.
Which makes the government’s attempted damming of this digital river all the more harmful. Wireless spectrum is a central resource in the digital economy, and a chief enabler of services like Netflix. Yet Washington hogs the best airwaves – at last count the government owned 61%, the mobile service providers just 10%. So AT&T, its pipes bursting with iPhone and iPad traffic, tries to add capacity by merging with T-Mobile. Nope. The Department of Justice won’t allow that either.
Something, however, has got to give. New data from wireless infrastructure maker Ericsson shows that mobile data traffic jumped 130% in the first quarter of 2011 from 2010. Just four years ago, mobile data traffic was perhaps 1/15th of mobile voice traffic. Today, mobile data is likely three times voice. Credit Suisse, meanwhile, reports that U.S. mobile networks are running at 80% of capacity, meaning many network nodes are tapped out.
More mobile traffic drivers are on the way, like mass adoption of video chat apps and Apple’s imminent iCloud service. iCloud will create an environment of pervasive computing, where all your computers and devices are in continuous communication, integrating your digital life through a virtual presence in the cloud. No doubt too, software app downloads and the rich content they unleash will only grow. As of July, 425,000 distinct Apple apps had been downloaded 15 billion times on 200 million devices. The Android ecosystem of devices and apps has been growing even faster.
Perhaps the iCloud service in particular won’t succeed, but no doubt others like it will, not to mention all the apps and services we haven’t thought of. We do know that more bandwidth and connectivity will encourage more new ideas, and thus more traffic. In all, IDC estimates that by 2015 we will create or replicate around 8 zettabytes (8,000,000,000,000,000,000,000 bytes) of new data each year.
Big Data, in turn, will yield large economic benefits, from medical research to retail. The McKinsey Global Institute estimates that Big Data – the sophisticated exploitation of large sets of fine-grained information – could boost annual economic value in the U.S. health care sector by $300 billion. McKinsey thinks personal geolocation services could expand annual consumer surplus by $600 billion globally.
The wide array of Big Data techniques and services is crucially dependent on robust and capacious networks. U.S. service providers invested $26 billion in 2010 – and $232 billion over the last decade – on wireless infrastructure alone. Total info-tech investment in the U.S. last year was $488 billion. We’ll need more of the same to spur and accommodate Big Data, Cloud, Mobile, Netflix, and the rest. But without more spectrum, the whole enterprise of building the digital infrastructure could slow.
Picocells and femtocells – smaller network nodes that cover less area – can effectively expand capacity for some users by reusing existing wireless spectrum. These mini cells work together as HetNets (heterogeneous networks) and will be a central feature in the next decade of wireless expansion. But the new 4G mobile standard, called LTE, gets the biggest bang for the buck in wider spectrum bands. LTE also is by far the most powerful and flexible standard to manage the complexities and unlock the big potential of HetNets. So we see a virtuous complementarity: more, better spectrum will boost spectrum reuse efficiencies. In other words, spectrum reuse and more spectrum are not either-or alternatives but are mutually helpful and reinforcing.
We don’t know whether the new Netflix strategy will fly, whether iCloud will succeed, how HetNets will evolve, or exactly what the mobile ecosystem will look like. But in such an arena, we do know that maximum flexibility – and LOTS more spectrum – will give a beneficial tilt toward innovation and growth.
— Bret Swanson
