As mobile data demand spikes, can Wi-Fi come to 3G’s rescue?

IS IT OFFLOAD OR SOMETHING BETTER?

“We hear the term offload used a lot with Wi-Fi,” said Kelly Davis-Felner, marketing director for the Wi-Fi Alliance. “That makes it sound like a secondary network that you wouldn’t want to use. The fact is Wi-Fi has a higher bandwidth than 3G and more and more it’s located where people need that bandwidth.”

AT&T isn’t the only operator to use Wi-Fi to supplement 3G network capacity, Davis-Felner said, though it has been one of the most successful due to its seamless authentication of 3G devices to its hotspot networks. Other operators, however, get the benefit of customers logging their handsets into home and business Wi-Fi access points. The number of Wi-Fi embedded 3G devices is also increasing at a rapid clip. Last year, 25% of all Wi-Fi devices shipped were phones, according to the Alliance’s data. By 2015, the Alliance expects 95% of all smartphones to come with Wi-Fi radios.

To fully take advantage of Wi-Fi, though, the wireless industry needs to create a more seamless bridge between the two networks, Davis-Felner said. Customers wanting to quickly download their e-mail of check the weather forecast don’t want to go through lengthy registration processes or be forced to manually enter credit card data. The two industries need to work more closely together to create roaming agreements and develop micropayment business models, so more devices can access more hotspots. And where those roaming agreement are in place, authentication to the network needs to be automatic or single-step, Davis-Felner said. As a technology, Wi-Fi is capable of supporting all of those models—the backend infrastructure just needs to be put in place, he said.

“If I have an iPhone and I walk into an AT&T hotspot, I’m golden. But if I walk into the Austin airport it’s a different story,” Davis-Felner said. “The holy grail would be to create a cellular-like experience when moving between 3G and Wi-Fi. The easier we can make it the better off everybody will be.”

ABI Research found that 16% of all mobile data traffic today is diverted from the macro network onto Wi-Fi or femtocells, but the potential for these offload technologies is enormous. Almost half of all device data traffic will find its way to into home, business and public broadband connections bypassing 3G and 4G radio networks. That would appear to save operators considerable capacity investments. But ABI also points out that mobile data traffic is expected to increase 30 fold overall. Wi-Fi will take a significant burden off of mobile data networks, but those networks will still have to grow considerably.

What’s more, a bit transferred via Wi-Fi doesn’t always mean a bit removed from the 3G network. In-Stat’s Dickson said AT&T has told him that Wi-Fi offload has produced distinct improvements in 3G performance, but there isn’t a one-for-one trade off. Further, when presented with higher-bandwidth Wi-Fi, customers are doing things they often wouldn’t have attempted over a narrower 3G connection. When presented with a bigger pipe, customers are filling it, their consumption scaling to the bandwidth available. “If you build a hotspot network, you’re going to alleviate some 3G traffic, you’re also going to create more traffic,” Dickson said.

AT&T is already encouraging this kind of usage with its usage-based billing plans on 3G, which would tend to discourage customers from using bandwidth-intensive apps while in the macro network. Also AT&T and other operators limit certain applications to Wi-Fi further encouraging different usage patterns on the two different networks. Apple’s Facetime App, a peer-to-peer video chat application on the iPhone 4, works only over Wi-Fi, as does Blockbuster’s mobile movie download service, which is available on Android phones over the Verizon Wireless (NYSE:VZ, NYSE:VOD) and T-Mobile (NYSE:DT) networks.

There are practical reasons for not supporting either app on 3G, ranging from high-latency quality issues to the sheer volume of traffic video applications produce, but by offering these services over Wi-Fi operators aren’t taking traffic off of the 3G network. Instead they’re creating new categories of high-traffic services and giving them an outlet for them over Wi-Fi. Assuming these services will eventually migrate to their 4G networks, where bandwidth will be more plentiful and operational costs lower, operators might actually be using Wi-Fi to seed the market with the exact types of applications that will tax their 4G networks most in the future.

“Every time we have a gap or a delta between usage and capacity, someone finds a way of filling it,” said Chris Guttman-McCabe, vice president of regulatory affairs, for CTIA, the Wireless Association. “We talk a lot about a cutting the cord on wireline services today. Soon we’ll have a generation that has never even seen a cord.”