Deloitte predicts that in 2011 the volume of data uploaded or downloaded from portable devices via public Wi-Fi networks will grow at a much faster rate (25 – 50 percent) than the volume carried over cellular broadband networks. The bulk of this growth will be video data¹; Wi-Fi is likely to become the default network for video applications.

Wi-Fi’s increasing share of the mobile device data load will likely have a ripple effect in moderating the growth rate of cellular broadband traffic, potentially helping improve margins for mobile providers’ data services.

Trends that could contribute to increased use of Wi-Fi use include: proliferation of Wi-Fi hotspots, increased penetration of Wi-Fi chips in portable data devices, easier log-in procedures to access hotspots, partnerships between hotspot providers and mobile providers, growing awareness of Wi-Fi capabilities in existing devices, superior battery life in some contexts², and a steady shift toward tiered mobile data pricing³.

Cellular broadband will increasingly revolve around specific uses and the users that can take full advantage of the technology’s unique strengths -- wide-area coverage, mobility and integrated security⁴ -- and justify the cost premium. These specific uses include:

• users who need to send a file while actually moving⁵. (This differs from being “on the move”, which can include periods when the user is stationary, e.g., standing on a train platform, parked at a highway service station, or dining at a restaurant)

• relatively price-insensitive users (e.g., business users) who require a more secure connection)

• locations where public or private Wi-Fi connectivity is too congested and the user is willing to pay a premium for a better connection

• low-bandwidth applications such as e-mail or text-based updates to social networks

• geographic regions where it is not commercially viable to deploy a public Wi-Fi network, but where some users might still need a wireless data connection

Increased focus on these special situations could help boost margins for cellular broadband and reduce the disconnect between volumes carried and revenue generated.

Mobile data’s appeal as a like-for-like alternative to fixed broadband may recede if the equivalent fixed broadband offer is cheaper and / or offers higher performance. The number of households that have cut their fixed connectivity cord may reduce as some formerly mobile-only households revert back to fixed lines for broadband and voice access.

Wi-Fi’s growing appeal for on-the-move data is likely to be based not just on the growing base of Wi-Fi hotspots, but on the appropriateness of their location and pricing⁶. Based on recent growth rates, the number of public hotspots worldwide could increase by 20 percent in 2011, rising to over 400,000. In addition, some fixed broadband providers are enabling customers to use other customers’ Wi-Fi connections, creating networks with millions of hotspots⁷.

Meanwhile, the location of public hotspots is becoming more targeted to actual needs; users may no longer be required to seek out a specific restaurant or coffee chain in the hope of finding Wi-Fi⁸. Instead, Wi-Fi providers are likely to locate hotspots where people are known to need high speed data connections. Shopping centers could be designed from the ground up to incorporate Wi-Fi access⁹. Indeed some retailers might make it a standard policy to include Wi-Fi connectivity in their stores to encourage comparison shopping (see Prediction 17)¹⁰ . Photogenic tourist areas also could provide Wi-Fi hotspots to enable photographs to be distributed to friends and family within seconds¹¹. In addition, Wi-Fi may become increasingly available on trains and train platforms¹².

The proliferation of free hotspots¹³ and in some cases competitive Wi-Fi hot spot pricing -- should drive adoption. Sponsored Wi-Fi could become increasingly common as part of branded marketing initiatives¹⁴. Also, for some users, hotspot access will be bundled with another service such as broadband¹⁵.

As Wi-Fi networks expand and tiered pricing becomes increasingly pervasive, users will become accustomed to waiting until they are at a hotspot before streaming content or transferring large files. This will help limit the use of cellular broadband to specialized mobile applications.

Although cellular data traffic will likely continue to rise, the growth rate should moderate significantly from the levels seen in 2008-2010 when Wi-Fi was a less well known and less pervasive alternative.

The year 2011 will almost certainly see growing shipments of Wi-Fi only portable data devices -- such as eReaders, handheld game consoles, tablet computers, digital photo frames and even voice phones¹⁶ – largely due to their lower cost. 3G versions of eReaders cost up to a third more than Wi-Fi only models¹⁷; 3G tablets cost up to 20 per cent more than Wi-Fi only models. Customers who occasionally need access to cellular broadband can purchase a Mi-Fi device that converts a 3G signal into a usable Wi-Fi connection.

If a growing number of customers opt for Wi-Fi only devices, some manufacturers may decide not to produce 3G versions at all, particularly at the low end of the market. Other suppliers may limit their offerings to Wi-Fi only devices for technical reasons. For example, some video calling services might only be available when connected via Wi-Fi in order to reduce congestion on the cellular network¹⁸. To promote Wi-Fi use, manufacturers may start to bundle devices with subscriptions for a few free months of hotspot access.

Wi-Fi use – particularly for video applications -- will likely also be driven by the shift from all-you-can-eat mobile data plans to capped monthly usage, a move that is already being implemented by mobile providers around the world. With a 200 megabyte cap, just one hour of video streaming at 500 Kbit/s would eat up an entire month’s allowance.

The introduction of LTE networks -- as well as the ongoing upgrade of existing 3G networks to HSPA+ -- will boost the speeds available for cellular broadband. LTE offers higher spectral efficiency and is less prone to interference, but cells may be less ubiquitous and would therefore have higher contention and congestion. Meanwhile, Wi-Fi connections continue to get faster. The wireless link to a Wi-Fi router already exceeds 100 Mbit/s using the latest standard (802.11n)¹⁹. And the fixed networks that link Wi-Fi routers to the Internet are steadily improving²⁰. In the end, LTE is unlikely to compete with Wi-Fi hotspots – unless the latter are congested -- but would remain the clear choice for users requiring high speed data access beyond the reach of a Wi-Fi or fixed broadband connection.

Bottom line

Mobile providers should view Wi-Fi and cellular broadband as complementary and build out blended networks, or partner with Wi-Fi providers as appropriate. Mobile providers and device vendors should not view the new, more specialized role for cellular broadband as a failure or a defeat. Given the significant cost difference between carrying data over a fixed network versus a 3G cellular network, 3G-based broadband may never be competitive against Wi-Fi on a like-for-like basis for high bandwidth data services.

Indeed, mobile providers could benefit the most if cellular broadband use starts to focus on applications that actually take advantage of its unique strengths -- wide-area coverage, mobility and integrated security. Without such a shift, the current growth trend is expected to produce a 25-fold increase in mobile data with only a two-fold increase in revenues over the medium term, which appears to be unsustainable.

The battle between Wi-Fi and cellular broadband should not be seen as a zero-sum game: both can be winners. For example, a service for sharing photos on-the-go could use cellular broadband to immediately upload low resolution thumbnails, with the corresponding high resolution images being uploaded later from a Wi-Fi hotspot or fixed line connection.

In the face of convergence, mobile providers must think more broadly about the range of wireless and wireline technologies that people want to use, and then help their customers tap into the right mix. The idea is to make the entire connected experience as seamless as possible, while charging both business users and consumers an appropriate amount for the privilege of simplified access to a complex set of networks.

IT managers can help their companies keep costs in check by making it as easy as possible for users to log into Wi-Fi networks when available. This is especially important for users who access data while roaming; access to hotspots could represent a major cost saving.

Wi-Fi network providers need to be aware of Wi-Fi’s limitations, particularly the issue of radio interference. Wi-Fi shares unlicensed spectrum with a wide range of devices from microwave ovens to Bluetooth devices to wireless game controllers. Connection quality must be continually monitored to avoid network degradation. Wi-Fi providers must also create networks with sufficient capacity (particularly backhaul capacity) so the networks are not overwhelmed by the increasing volume of users and data traffic²¹.

¹See Figure 2: Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2009-2014, Cisco website, 9 February 2010: http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c11-520862.html

²For example battery life in some Wi-Fi only e-Readers is superior to equivalent mobile models.

³Vodafone pins future on tiered data pricing, services, Total Telecom, 9 November 2010: http://www.totaltele.com/view.aspx?ID=460094;T-Mobile USA promises better value-tiered pricing, Reuters UK edition, 2 November 2010:http://uk.reuters.com/article/idUKTRE6A132U20101102;IBM: Tiered mobile data pricing here to stay, Network World, 9 July 2010: http://www.networkworld.com/news/2010/070910-ibm-tiered-mobile-data-pricing.html;Verizon CEO confirms plans for tiered data pricing, engadget, 24 September 2010: http://www.engadget.com/2010/09/24/verizon-ceo-confirms-plans-for-tiered-data-pricing/

⁴Free public Wi-Fi hotspots are often unsecured so that users can get connected without needing to request a user id or password. Communications over unsecured connections can be made secure, for example by switching on a firewall, disabling file and printer sharing and encrypting data. Source: Mobile broadband or WiFi? You betcha, The Register, 29 January 2009: http://www.theregister.co.uk/2009/01/29/notebook_connectivity/page2.html

⁵It is worth noting that one Wi-Fi network operator, Cablevision, plans to deploy Wi-Fi connectivity along the entirety of a metropolitan railway line. See: Cablevision Tries To Extend WiFi Network To Trains, paidContent.org, 2 June 2010: http://paidcontent.org/article/419-cablevision-tries-to-extend-wifi-network-to-trains/

⁶For an example of growth and consolidation in the Wi-Fi hot spot market, see: Bitbuzz grabs majority of Ireland's public Wi-Fi market and eyes UK, Guardian, 25 November 2010: http://www.guardian.co.uk/technology/blog/2010/nov/25/irish-bitbuzz-wifi-public-startup

⁷For more information, see Fon website: http://corp.fon.com/en/this-is-fon/wifi-everywhere/

⁸In the US, Cablevision has deployed tens of thousands of hotspots at train stations, streets featuring shops and restaurants, public parks, and beaches. Source; Cablevision Ads Attack Slow 3G Networks, Light Reading, 10 June 2010: http://www.lightreading.com/document.asp?doc_id=193085&site=lr_cable

⁹Free Wi-Fi at Westfield London, http://uk.westfield.com/london/services/concierge/free-wifi

¹⁰Who's afraid of free WiFi? , The Globe and Mail, 18 November 2010: http://www.theglobeandmail.com/news/technology/duncan-stewart/whos-afraid-of-free-wifi/article1803347/

¹¹See: AT&T adds Wi-Fi hot zone to relieve Times Square congestion, Computerworld, 25 May 2010: http://www.computerworld.com/s/article/9177327/AT_T_adds_Wi_Fi_hot_zone_to_relieve_
Times_Square_congestion;AT&T Expands Wi-Fi Hot Zones to Take the Heat Off Its Network, GigaOM, 26 July 2010: http://gigaom.com/2010/07/26/att-expands-wi-fi-hot-zones-to-take-the-heat-off-its-network/

¹²For example, see: London Underground and BT to trial Wi-Fi at Charing Cross tube station, BT Press Release, 29 October 2010: http://www.btplc.com/news/articles/showarticle.cfm?articleid=%7Befb77907-6741-4f53-9b65-fd464785cb2d%7D;Great Scot! Wi-Fi on the Glasgow Subway, Metro Networking, 26 October 2010: http://www.reghardware.com/2010/10/26/the_cloud_wifi_underground_glasgow/

¹³In the US, the majority of public hotspots are now free. Source: JiWire Mobile Audience Insights Report, Q2 2010: http://www.jiwire.com/downloads/pdf/JiWire_MobileAudienceInsightsReport_Q32010.pdf;In 2010 Starbucks’ US started offering Wi-Fi for free. Source: Starbucks Website: http://www.starbucks.com/coffeehouse/wireless-internet;McDonalds offers free Wi-Fi in 11,000 restaurants in the US. Source: McDonalds website: http://www.mcdonalds.com/us/en/services/free_wifi.html

¹⁴For example, see: Skype provides free wifi access across the UK for Internet Week, The Telegraph, 8 November 2010: http://www.telegraph.co.uk/technology/news/8117427/Skype-provides-free-wifi-access-across-the-UK-for-Internet-Week.html;Free Airplane WiFi Is Google’s Holiday Gift To The Internet Obsessive, Taylor Buley blog on Forbes, 8 November 2010: http://blogs.forbes.com/taylorbuley/2010/11/08/free-airplane-wifi-is-googles-holiday-gift-to-the-internet-obsessive/?boxes=financechannelforbes;Google Gives Wi-Fi Away Free at 47 U.S. Airports for Holidays, PCWorld Blogs, 10 November 2010: http://www.pcworld.com/article/181807/google_gives_wifi_away_free_at_47_us_airports_for_
holidays.html

¹⁵For example, BT’s broadband customers have access to 1.6 million Wi-Fi hotspots around the world. Source: BT launches 'free' Wi-Fi mobile app, Guardian, 7 September 2010: http://www.guardian.co.uk/money/2010/sep/07/bt-wi-fi-mobile-app;Virgin Media mulls Wi-Fi network launch, marketingmagazine.co.uk, 23 November 2010: http://www.brandrepublic.com/news/1042388/virgin-media-mulls-wi-fi-network-launch/

¹⁶Cablevision Preps Network DVR, WiFi Phone, Light Reading, 25 February 2010: http://www.lightreading.com/document.asp?doc_id=188425&site=lr_cable

¹⁷Based on Kindle pricing as of 5 December 2010, see www.amazon.com and other national Amazon sites.

¹⁸Apple’s FaceTime service was only available via Wi-Fi as of November 2010. Source: Apple website: http://www.apple.com/iphone/features/facetime.html

¹⁹The long term target for Wi-Fi speeds is 1 Gigabit. Source: 802.11n: Ratified at Last, Wi-Fi Planet, 14 September 2009: http://www.wi-fiplanet.com/news/article.php/3838991/80211n-Ratified-at-Last.html;The upcoming standard, 802.11 ac may offer 1 Gbit/s. Source: 802.11ac Standard Will Bring Gigabit Speeds to WiFi, PCWorld, 9 December 2009: http://www.pcworld.com/article/184067/80211ac_standard_will_bring_gigabit_speeds_to_wifi.html

²⁰For example Verizon’s 150/35 Mbit/s service offers 100 Mbit/s download speeds via a Wi-Fi router. This service is based on an Actiontec broadband home router which includes 802.11n. Source: Verizon debuts 150/35 Mbps FiOS speed tier, FierceTelecom.com, 22 November 2010: http://www.fiercetelecom.com/story/verizon-debuts-15035-mbps-fios-speed-tier/2010-11-22

²¹For a view on the quality of Wi-Fi networks in the UK, see: Wi-Fi NotSpots: Massive failure rates revealed, Electricpig.co.uk, 19 November 2010: http://www.electricpig.co.uk/2010/11/19/wi-fi-notspots-massive-failure-rates-revealed/