How AT&T Will Deal with iPad Data Traffic

1Executive Summary

Today’s launch of the Apple iPad came with a big surprise to those of us following the sad story of the iPhone’s network issues: The new device will stick with AT&T as the cellular data provider (although it won’t be exclusive to AT&T) and will even offer an unlimited data plan for $30 a month, despite AT&T’s Ralph de laVega complaining last year that iPhone users were using too much data on their unlimited plans. Give users a larger screen and a faster processor and I’m pretty sure that data consumption is gonna keep on going up, which means AT&T’s network quality could keep on going down.

AT&T won the iPhone, but it didn’t deliver a great network initially, which meant the first iPhone surfed along at 2G EDGE speeds in the United States. A year later, AT&T had its 3G network in order, and the iPhone 3G was released along with the App Store. Then, the real drama began. Unhappy users — suffering from dropped calls and congested networks — pitched a fit, and AT&T has spent the last two years or so deepening its coverage, spending $19 billion on wireless network upgrades between the beginning of 2008 and the third quarter of 2009. We can argue forever about whether or not AT&T set sail with the iPhone in a leaky boat, how it should have started bailing the boat at the first signs of trouble, or if it should have set the iPhone free to sail with better networks — but that’s not going to change anything.

So, here’s what we can learn.

When cell phone companies talk about building out a network, their first goal is coverage. The second is deepening that coverage by adding more capacity as users need it. Despite all the flak AT&T has taken for crappy network coverage, the fact of the matter is that the carrier has dealt with a 5,000 percent increase in data usage over the last three years. Its experience beefing up network capacity offers a ton of knowledge for other carriers as they contemplate the tsunami of data that consumers are likely to bring to their networks in an era of connected devices and superphones. GSM operators should pay special attention, as the iPad isn’t locked to the AT&T network — it can roam onto other GSM-based networks, although it’s unclear what spectrum bands it will work over.

There are six main areas in which AT&T is working to improve capacity on its network, some of which other carriers have embraced or will embrace:

The airwaves

In early 2009, as the waves of negative publicity over dropped calls and poor network quality reached a fever pitch, AT&T started to detail its plans to migrate 3G users to the 850 MHz spectrum and in some places doubled up using the 1900 MHz block of spectrum for 3G too. In some densely populated cities, the available spectrum just isn’t enough to meet the demand for transferring bits over the airwaves. That’s a roadblock that appears insurmountable. However, AT&T can soon add more spectrum, such as the 700 MHz spectrum it purchased in 2008, which could help bolster those regions. AT&T picked up 227 licenses in the B block of regional licenses and paid $6.64 billion total in the auction. Verizon Wireless paid $4.74 billion for a majority of the C block spectrum, and forked out a total of $9.63 billion on spectrum licenses.

The network technology

AT&T is rolling out a different standard of wireless technology, called HSPA +, that will deliver download speeds of up to 7.2 Mbps and boost capacity. The carrier said at the beginning of this year that the software upgrades were complete and that it now has 10 phones including the iPhone 3G S that can actually take advantage of these faster speeds. Next up is LTE, which can deliver even faster speeds and offer more capacity, which AT&T will start to deploy in 2011. Meanwhile, the iPad, which ships in late March will have to hope the HSPA upgrades are good enough.

The towers

AT&T says it added 2,100 towers in 2009, which reduces the number of devices served by each cell site. In a footnote to an FCC filing on wireless innovation, AT&T said it would also deploy handsets with “smarter” radios that can use spectrum more efficiently. In the same FCC filing, AT&T also noted its plans to use software-defined radios at the base station at the towers that could allow HSPA networks to use both 850 MHz and 1900 MHz and even move to other frequencies in a crunch. That flexibility would help AT&T expand capacity by shifting the demand for certain types of traffic across all of its spectrum holdings if needed.

Alcatel-Lucent is close to announcing a pretty big breakthrough on the SDR front that will allow a base station to use different bands of spectrum to deliver a variety of technologies. Another company working on this is Vanu. The IEEE is also exploring software defined radios inside handsets.

The backhaul

The backhaul is where the bits coming in over the air meet the public Internet, and in some cases it’s also where the fire-hose-worth of data coming in over the air met a straw-sized pipe, which slowed everything down. AT&T has said it has added five times as much fiber backhaul in 2009 as it did in 2008, and it plans to add thousands of fiber backhaul links to its towers in 2010. AT&T doesn’t give out any more detail than that, though, citing competitive reasons. However, by the end of 2010, AT&T the expects majority of its mobile data traffic will be carried over the expanded fiber-based backhaul.

The safety valve

Wi-Fi has provided a convenient way to shunt people off the crowded 3G network; AT&T announced Monday that it had seen users connect to its Wi-Fi network four times more often in 2009 than in 2008. (AT&T will provide free hot-spot access for iPad users as well.) Now that AT&T has optimized phones to find nearby Wi-Fi hot spots and hop on those networks if they are available without involvement from the user, Wi-Fi offloading will become an even more helpful solution. However, wireless analyst Chetan Sharma estimates that only 10-20 percent of AT&T’s data traffic is offloaded to the carrier’s Wi-Fi network, making this safety valve more akin to unbuckling your belt after a big meal than to buying larger pants.

The fine print

According to its terms of service, AT&T can prohibit certain applications such as VoIP, watching movies recorded on a DVR, or P2P traffic in hopes of managing its data network (as well as its profits), but such things will likely become harder on a device like the iPad, because users may want to treat the larger device more like a computer and won’t accept restrictions they might on a phone. Plus, as the government seeks to establish rules governing how carriers prioritize traffic on wireless networks, AT&T may not be able to limit traffic on its 3G network without being forced to justify its actions to the government and consumers.

At the end of the day, AT&T has thrown a lot of money and technology at trying to keep ahead of the data tsunami engendered by the iPhone. It’s experience should act as a cautionary tale for other carriers about to get hit by superphones and iPad-like devices. Now that AT&T is bringing on the iPad, it may be time for it to take even more extreme measures. According to Sharma, average data card users consume about 2 GB per month, while folks with iPhones, Palm Pres and other superphones are using about 500 MB on average. He expects a device like the iPad to get users to consume about 1 GB to 2 GB per month. “When the experience is better, people just use it more,” Sharma said. And when people use more data, the networks suffer.

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