Cisco’s mobile VNI forecast (the shorthand for Visual Networking Index: Global Mobile Data Forecast), issued last week, is widely regarded as the leading source of information on how the mobile data market will evolve over the next five years. Policymakers including the FCC use it in their decisions about how to allocate wireless spectrum.
However, like every forecast, the VNI has its flaws — namely that it may overestimate the future demand for mobile data on cellular networks, while understating the need for additional unlicensed spectrum allocations.
Earlier predictions didn’t pan out
Last October, I wrote an article for GigaOm pointing out the dramatic slowdown in mobile data traffic seen in the CTIA’s semi-annual wireless industry survey and asking whether the supposed “spectrum crisis” was a myth. Of course, that didn’t go down well with some people, and CTIA executives lined up to proclaim that It is No Trick – There is a Spectrum Crisis, and asserting that “as Cisco’s data shows… there must be more spectrum to meet demands from consumers and businesses across the country.”
However, Cisco has now revealed its latest VNI mobile data forecast that instead of the originally projected 118 percent growth in North American mobile data traffic between December 2011 and December 2012, traffic grew by only 64 percent over that period – which is to say much slower than in 2011 and far below prior expectations.
So is that the end of the spectrum crisis? Not if you take Cisco’s projections of future growth at face value: They expect 10-fold growth in North American mobile data traffic between 2012 and 2017. Indeed, Cisco actually projects that growth in North American mobile data traffic will be even faster in 2013 (70 percent between December 2012 and December 2013) than the 64 percent it estimated for the last 12 months.
Conflicting data sources
There are reasons to be cautious about the weight that should be given to these forecasts. Cisco has retroactively revised its mobile data traffic estimates, reducing the total estimated global traffic in December 2011 by 13 percent (from 597PB/month in last year’s forecast to 520PB/month in the current model). This is largely due to 30 percent and 23 percent reductions in the European and Asia Pacific traffic estimates respectively, partially offset by a 14 percent increase in estimated North American mobile data traffic. The scale of these revisions indicates that there is considerable uncertainty in Cisco’s numbers, and highlights the difficulty of obtaining real traffic data from mobile network operators.
Nevertheless, at least in the U.S. we can attempt to validate Cisco’s numbers, given that CTIA’s mobile data traffic statistics are based on direct reporting by carriers accounting for 97 percent of wireless connections in the U.S.. In its latest forecast, Cisco estimates that mobile data traffic in the U.S. was 128PB/month in December 2011, and increased to 207PB/month by December 2012.
However, CTIA data indicates that 633PB were carried in the first six months of 2012, for an average of 105.5PB each month. Cisco’s estimate for the U.S. is clearly inconsistent with the CTIA statistics: It is hardly likely that monthly traffic declined significantly between December 2011 and June 2012, and equally implausible that total mobile data traffic in the U.S. then doubled in the second half of the year.
Based on the above analysis, it seems advisable to be rather cautious about the use of Cisco’s mobile data traffic statistics to make policy decisions about the U.S. wireless market structure. That has not been the case historically, with the FCC Chairman often citing Cisco’s projections to suggest that the “skeptics” about the so-called “looming spectrum crunch” were simply wrong. We now have a looming battle between advocates of making more unlicensed and shared spectrum available, and those insisting that all available spectrum (such as that freed up in the upcoming broadcast TV incentive auctions) must be auctioned.
But the most critical piece of data that should be used to inform this debate is how much mobile data traffic will be carried on traditional cellular networks, and how much will instead be able to use unlicensed Wi-Fi spectrum in the 2.4GHz, 5GHz and (potentially) the White Space frequency bands.
Offloading a crucial variable
In previous years Cisco’s forecasts substantially understated the impact of Wi-Fi “offloading” on mobile data traffic growth: Just last year, Cisco estimated that the proportion of data offloaded from smartphones and tablets in the U.S. would fall from 49 percent of their data usage in 2011 to 46 percent of their data usage in 2016. Instead, according to Cisco’s latest forecast, offload is already 60 percent of smartphone and tablet traffic.
Cisco remains relatively cautious about future use of Wi-Fi: the proportion of traffic offloaded from smartphones is only expected to grow by 1 percent per year between 2012 and 2017 – despite having expanded from 21 percent at the end of 2010 to 49 percent at the end of 2011 and as much as 59 percent today. If, instead, as much as 80 percent of traffic were “offloaded” (which is in line with the traffic split for current users of Cisco’s Data Meter application), then the amount of data traffic carried on cellular networks might be nearly halved. That’s a major difference in outlook from what Cisco is predicting.
When policymakers consider an appropriate balance between future allocations for licensed and unlicensed spectrum, let’s hope they take into account the likelihood that Cisco’s estimates of a 10-fold increase in U.S. mobile data traffic over the next five years may not be realized, whether because of an overestimate of recent traffic growth or an underestimate of future Wi-Fi offload. But given the challenges of dispelling the myth of the “spectrum crisis” (and the carrot of those supposed billions of dollars in auction revenues), I’m not holding my breath.
Tim Farrar is president of Telecom, Media and Finance Associates, a consulting and research firm in Menlo Park, Calif., which specializes in technical and financial analysis across the satellite and telecom sectors. Follow him on Twitter @TMFAssociates.
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