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Dominic Arena
Partner Since the first LTE commercial deployment two years ago, more than 50 operators have launched LTE networks. As initial results emerge, it is becoming clear that the LTE play is distinctive and an opportunity that mobile operators can leverage to improve their businesses in a variety of ways to boost both top and bottom line. In this perspective, Value Partners examines the top LTE operators by subscriber base, how they have positioned the technology especially in terms of tariff and devices and the key learnings from these early experiences.
Cheryl Lim
Senior Manager
Ishan Singhal
Consultant
Over the last 2 years, since TeliaSonera announced the worlds first LTE commercial deployment, more than 50 LTE networks have been launched around the world, with another 40 expected to be launched in the next 2-3 years.
LTE deployments planned and in-service at the end of 2011
Commercial LTE deployment Planned/In trial countries Top 10 LTE operators by subscriber base
LTE has already been commercially deployed by more than 50 operators... ...in more than 30 countries... ...with another 40 more countries planning to launch LTE services in next 2-3 years
NBN Co. to use 2.3GHz LTE for Regional & Remote Last Mile
While this might seem to be a rather rapid rollout pace, the ~50 LTE deployments represent only about 6% of the more than 800 MNOs operating around the world today and therefore it is still early days. It is nonetheless interesting to study LTE first movers results and how they are attempting to use this technology. Therefore, the focus of this study is to review the results so far, understand how LTE first movers are positioning the technology in terms of differentiation, tariff and device offerings and extract learnings from these early experiences that may be useful to operators currently planning to launch LTE.
Network coverage
50% population 30% population 20% population 14 metropolitan areas 1,500 municipalities at end of May 2011 1,800 rural areas Capital city, Seoul 161 cities around Sweden Financial district areas 8 metro cities
Deployment date
Dec 2010 Dec 2010 Sep 2011 Sep 2010 Dec 2010 Apr 2011 Jul 2011 Dec 2009 Jun 2011 Apr 2011
LTE band
700 MHz 1.5 GHz 700 MHz 1.7 GHz & 2.1 GHz 1.7 GHz 2.1 GHz 800 MHz 2.6 GHz 800 MHz 1.8 GHz 800 MHz LTE-A band 2.6 GHz 1.8 GHz 2.6 GHz N.A. 2.6 GHz
Verizon Wireless, US NTT Docomo, Japan Top LTE operators by subscriber base Selected Asian LTE operators AT&T, US Metro PCS, US Vodafone D2 , Germany T-Mobile, Germany SK Telecom, South Korea TeliaSonera, Sweden M1, Singapore Smart Communications, Philippines CSL, Hong Kong
This may seem low, however when compared to the 3G migration, where many countries experienced typical penetration rates of ~0.3% in the first year after launch and ~2.2% in the second year, all the first movers appear to be performing as or better than expected. Of course it still remains to be seen if LTE will enjoy a similar take-up inflection point in 3-4 years after launch, as it was seen in the 3G experience and highlighted below.
3G penetration in selected countries against years after launch
60%
3G penetration
Inflection point typically reached ~3 years after 3G launch when operator network roll-outs have reached meaningful coverage and 3G handsets have reached mass
South Africa (2004) Mauritius (2004) Seychelles (2006) Australia (2003) Indonesia (2006) Taiwan (2005) Argentina (2007)
40%
Brazil (2007) Chile (2007) France (2004) Italy (2003) Germany (2004) Spain (2004)
20%
0%
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Speed-based pricing monthly rate comparison of mobile internet plans for selected operators
Up to 7.2 Mbps NTT docomo
Flat-Rate Data Plans Value Standard JPY 3,780 14.4 Mbps, Unlimited download
Up to 14.4 Mbps
Up to 21.6 Mbps
58%
Above 50 Mbps
Xi Two-Year Data Plan FLAT JPY 5,985 75 Mbps, Unlimited download 44% Mobile Internet Flat 50.0 EUR 64.99 50 Mbps, 20GB limit
Vodafone D2
67%
40%
29%
Mobile Internet Flat Light 3.6 Mobile Internet Flat 7.2 EUR 24.99 EUR 14.99 7.2 Mbps, 5GB limit 3.6 Mbps, 1GB limit
Mobile Internet Flat 14.4 EUR 34.99* 14.4 Mbps, 7.5GB limit 38%
Mobile Internet Flat 21.6 EUR 44.99* 21.6 Mbps, 10GB limit 36%
T-Mobile
33% L Basic EUR 29.95 7.2 Mbps, 3GB limit** L Premium EUR 39.95 7.2 Mbps, 5GB limit** 152% Small SEK 99 <6 Mbps, 2GB limit
XXL XL EUR 74.95 EUR 54.95 21.6 Mbps, 10GB limit** 100 Mbps, 20GB limit** 40% Between SEK 249 5-20 Mbps, 10GB limit 100%
TeliaSonera
Total Large SEK 499 SEK 349 10-40 Mbps, 20GB limit 10-80 Mbps, 30GB limit
Speed-based pricing per GB charge comparison of mobile internet plans for selected operators
Up to 7.2 Mbps Vodafone D2
-67%
Up to 14.4 Mbps
-7%
Up to 21.6 Mbps
-4%
Above 50 Mbps
-18% Mobile Internet Flat 50.0 EUR 3.25 per GB 50 Mbps, 20GB limit
Mobile Internet Flat Light 3.6 Mobile Internet Flat 7.2 EUR 5.00 per GB EUR 14.99 per GB 7.2 Mbps, 5GB limit 3.6 Mbps, 1GB limit
Mobile Internet Flat 14.4 EUR 4.67 per GB* 14.4 Mbps, 7.5GB limit -31%
Mobile Internet Flat 21.6 EUR 4.50 per GB* 21.6 Mbps, 10GB limit
T-Mobile
-20% L Basic EUR 9.98 per GB 7.2 Mbps, 3GB limit** L Premium EUR 7.99 per GB 7.2 Mbps, 5GB limit** -50% Small SEK 50 per GB <6 Mbps, 2GB limit
-32% XXL XL EUR 3.75 per GB EUR 5.50 per GB 21.6 Mbps, 10GB limit** 100 Mbps, 20GB limit** -30% -33%
TeliaSonera
Total Large SEK 16.6 per GB SEK 17.5 per GB 10-40 Mbps, 20GB limit 10-80 Mbps, 30GB limit 3G monthly tariff plans 4G LTE monthly tariff plans % premium for 4G
Volume-based pricing monthly rate comparison of mobile internet plans for selected operators
Up to 100MB download limit Verizon Wireless
With personal email(3G/4G) With personal email and mobile hotspot (3G/4G) USD 10 75MB download USD 30 2GB download USD 50 4GB download USD 50 5GB download USD 70 7GB download USD 80 10GB download USD 100 12GB download
AT&T
3G USB modem data plan USD 60 5GB download -17% 4G USB modem data plan USD 50 5GB download
LTE access is purely dependent on device readiness and network coverage as no extra charges are levied by US operators for using LTE network
3G/4G monthly tariff plans % premium for 4G
3G
LTE
LTE
LTE 34 LTE 42 LTE 52 KRW 97 per MB KRW 60 per MB KRW 42 per MB 350MB limit 700MB limit 1.2GB limit
LTE 62 LTE 72 LTE 85 LTE 100 KRW 20 per MB KRW 14 per MB KRW 12 per MB KRW 10 per MB 3GB limit 5GB limit 7GB limit 10GB limit 3G monthly tariff plans 4G LTE monthly tariff plans
A minority group of operators notably the ones from the US are utilizing volume-based pricing and making no distinction between 3G and 4G (including LTE) networks, i.e., charging no premium to encourage 3G users to upgrade. In these cases, access to LTE speeds is purely dependent on whether the subscriber has an LTE-enabled device and whether LTE network coverage is available. An interesting point to note is that today AT&Ts 4G plans (i.e., HSPA+ and LTE) are ~17% cheaper than its 3G ones. This strategy, however, may have as much to say about the need for the operator to offload high-usage customers from its 3G network which has in the recent past experienced some widely reported performance issues than about LTE itself. In terms of LTE mobile handset plans, SK Telecom is the only example among the first movers to have a comprehensive mobile handset offering. The interesting point to note here is that SK Telecom prices LTE at a similar level to its 3G; however, LTE plans are all data-capped while the 3G plans are mostly unlimited. In our view this points to a strategy of margin enhancement; i.e., attempting to temper the unlimited usage culture prior to mass take up of the LTE platform which enables far higher data consumption potential, and therefore cost to the operator.
Tablets
3 Android models 2 Android models 3 Android models None None 1 Android model 1 Android model None
Netbooks
2 models None None None None None None None
Others
Mobile hotspots 2 models None Mobile hotspot 1 model None LTE modem (fixed) 1 model LTE modem (fixed) 1 model Mobile hotspot 2 model None
Verizon Wireless, US NTT Docomo, Japan AT&T, US Metro PCS, US Vodafone D2, Germany T-Mobile, Germany SK Telecom, South Korea TeliaSonera, Sweden
Source: Informa, press reports, operator websites, IHS, LTE Maps, Value Partners analysis.
LTE smartphone prices at Verizon Wireless and AT&T range from US$0 to US$299.99 with a two-year contract exactly the same price range for their 3G smartphones, indicating that LTE handsets are not being sold at a premium in an attempt to encourage migration from 3G to the more data-efficient LTE platform. In terms of tablet offerings, both operators offer a range of 5 tablets, out of which 3 are LTE-enabled (the non-LTE models being the Apple iPad and another Android model), indicating an LTE emphasis in tablets. The other notable development is Vodafone D2s fixed broadband offering via LTE, which is positioned as a direct substitute to its current DSL offering. It reportedly plans to migrate all its DSL customers (which it currently wholesales from Deutsche Telecom at a high cost of ~EUR 500m a year) to LTE, as well as to broadcast Vodafone TV via LTE. One of the notable highlights in the LTE device line-up, due to their absence, is that of Apple and BlackBerry devices (handsets and tablets). However it has recently been reported that the Apple iPad 3 may include an LTE version to run on Verizon Wireless and AT&T networks around March 2012.
In addition, smartphones and tablets are emerging as key LTE device offerings at price points similar to 3G devices (with notable exceptions of Apple devices to date), which means that quality of experience (QoE) could be the key competitive lever.
Conclusions
Value Partners believes that new entrants can learn a lot from the initial experience of the LTE first movers. A close look at their current LTE strategy, portfolio and propositions will provide useful insights to new entrants in terms of both LTE pricing and device offering. Even at this early stage, distinctive characteristics of the LTE play are becoming clearly discernible. What we have demonstrated is that LTE is typically positioned as a premium service targeting users with advanced mobile data needs, while at the same time showing its commercial potential as a fixed broadband substitute. LTE operators offer high-speed data plans up to 100Mbps and price these services at similar to low premium levels to existing 3G plans. Though slightly more expensive per absolute package, LTE offers better value to its consumers on the basis of per GB data pricing, which will suit premium early adopters. Unlike 3G however, LTE devices are likely to become affordable much sooner. Tablets, along with smartphones, are likely to be a key consumption device. LTE take-up may be much more dependent on operators holistic commercial decisions, and therefore competitive dynamics, than technological barriers such as device availability. More importantly, LTE is an opportunity for operators to make changes to their business model to address the great margin squeeze; changes that could both boost their top line and make a material difference to their bottom line. Therefore, such as is the case with each technology evolution, operators should define an holistic approach to mobile broadband across 3G and 4G in order to get the most out of the LTE opportunity.