Over the last 2 years, since TeliaSonera announced the world’s 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 - Learnings from first movers
Since the first LTE commercial deployment two years ago, more than 50 ope-rators 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 sub-scriber base, how they have positioned the technology – especially in terms of tariff and devices – and the key learnings from these early experiences.
Dominic Arena Partner Cheryl Lim Senior Manager Ishan Singhal Consultant
LTE deployments planned and in-service at the end of 2011
• 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 Commercial LTE deployment
Planned/In trial countries
Top 10 LTE operators by subscriber base Source: Press reports, LTE Maps, operator websites.
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.
The results so far
In terms of subscriber base, Verizon Wireless in the US and NTT Docomo in Japan have the largest subscriber base, having signed up more than 4 million and 1.5 million subscribers respectively. These represent ~4% and ~3% of their total subscriber base respectively, which is an impressive result compared to the other first movers who have ~0.2% - 1% LTE as a percentage of their total subscriber base on average.
Top LTE operators by subscriber base and in Asia
Operator LTE Subscribers in ‘000 LTE subs as % of total subs Network coverage Deployment date LTE band
Verizon Wireless, US 4,051 3.7% 50% population Dec 2010 700 MHz
NTT Docomo, Japan 1,465 2.5% 30% population Dec 2010 1.5 GHz
AT&T, US 414 0.4% 20% population Sep 2011 700 MHz1.7 GHz & 2.1 GHz
Metro PCS, US 110 1.1% 14 metropolitan areas Sep 2010 1.7 GHz2.1 GHz
Vodafone D2 , Germany 78 0.2% 1,500 municipalities at end of May 2011 Dec 2010 800 MHz2.6 GHz
T-Mobile, Germany 66 0.2% 1,800 rural areas Apr 2011 800 MHz1.8 GHz
SK Telecom, South Korea 55 0.2% Capital city, Seoul Jul 2011 800 MHzLTE-A band
TeliaSonera, Sweden 30 0.5% 161 cities around Sweden Dec 2009 2.6 GHz
M1, Singapore 5.1 0.2% Financial district areas Jun 2011 1.8 GHz2.6 GHz
Smart Communications,
Philippines 4.7 0.01% 8 metro cities Apr 2011 N.A.
CSL, Hong Kong 3.2 0.1% Selected urban areas Nov 2010 2.6 GHz
Source: Informa, press reports, LTE Maps, Value Partners Analysis.
To p L TE o pe ra to rs b y s ub sc rib er b as e Se le ct ed A sia n LT E o pe ra to rs
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 ap-pear 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.
LTE offering and tariff structure
Among the LTE first movers, the most popular approach has been to position LTE as a premium extension to current mobile internet offerings, i.e., new LTE plans offer up to 50Mbps – 100Mbps and are priced at least ~40% higher than the most expensive 3G plan. Although seemingly expensive, the LTE tariffs are consistent with consumer expectations and do not represent an excessive premium for higher speeds.
Furthermore, from the standpoint of the per GB charge, the LTE plans are actually cheaper – around 30% che-aper per GB than the highest 3G plan in fact. This pricing reflects the high-usage target segmentation for LTE in this early stage, and is quite consistent with market expectations in our view. The relatively small gap in per GB charging relative to 3G also shows that operators are not being overly generous with data caps/allowances and this may be telling of things to come.
3G penetration in selected countries against years after launch
0% 20% 40% 60%
Yr1 Yr2 Yr3 Yr4 Yr5 Yr6
3G penetration
Year after 3G launch Average 3G penetration in Yr 1: 0.3% Average 3G penetration in Yr 2: 2.2%
• 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) Brazil (2007) Chile (2007) France (2004) Italy (2003) Germany (2004) Spain (2004)
Source: Operator websites, IHS, Value Partners analysis. Up to 7.2 Mbps Up to 7.2 Mbps NTT docomo Vodafone D2 T-Mobile TeliaSonera Up to 14.4 Mbps Up to 14.4 Mbps Up to 21.6 Mbps Up to 21.6 Mbps Above 50 Mbps Above 50 Mbps 100% 152% 40% Small SEK 99 <6 Mbps, 2GB limit Between SEK 249 5-20 Mbps, 10GB limit Large SEK 349 10-40 Mbps, 20GB limit Total SEK 499 10-80 Mbps, 30GB limit 36% 38% 33% L Basic EUR 29.95 7.2 Mbps, 3GB limit** L Premium EUR 39.95 7.2 Mbps, 5GB limit** XL EUR 54.95 21.6 Mbps, 10GB limit** XXL EUR 74.95 100 Mbps, 20GB limit** 44% 29% 40% 67% Mobile Internet Flat Light 3.6
EUR 14.99
3.6 Mbps, 1GB limit
Mobile Internet Flat 7.2 EUR 24.99
7.2 Mbps, 5GB limit
Mobile Internet Flat 14.4 EUR 34.99*
14.4 Mbps, 7.5GB limit
Mobile Internet Flat 21.6 EUR 44.99*
21.6 Mbps, 10GB limit
Mobile Internet Flat 50.0 EUR 64.99
50 Mbps, 20GB limit
58%
Flat-Rate Data Plans Value Standard JPY 3,780
14.4 Mbps, Unlimited download
Xi Two-Year Data Plan FLAT JPY 5,985
75 Mbps, Unlimited download Speed-based pricing – monthly rate comparison of mobile internet plans for selected operators
Speed-based pricing – per GB charge comparison of mobile internet plans for selected operators
* LTE hardware provided ** Speed throttling once download limit is reached 3G monthly tariff plans 4G LTE monthly tariff plans % premium for 4G Vodafone D2 T-Mobile TeliaSonera -50% -30% -33% Small SEK 50 per GB <6 Mbps, 2GB limit Between SEK 24.9 per GB 5-20 Mbps, 10GB limit Large SEK 17.5 per GB 10-40 Mbps, 20GB limit Total SEK 16.6 per GB 10-80 Mbps, 30GB limit -32% -31% -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** XL EUR 5.50 per GB 21.6 Mbps, 10GB limit** XXL EUR 3.75 per GB 100 Mbps, 20GB limit** -18% -4% -7% -67% Mobile Internet Flat Light 3.6
EUR 14.99 per GB
3.6 Mbps, 1GB limit
Mobile Internet Flat 7.2 EUR 5.00 per GB
7.2 Mbps, 5GB limit
Mobile Internet Flat 14.4 EUR 4.67 per GB*
14.4 Mbps, 7.5GB limit
Mobile Internet Flat 21.6 EUR 4.50 per GB*
21.6 Mbps, 10GB limit
Mobile Internet Flat 50.0 EUR 3.25 per GB
Source: Operator websites, IHS, Value Partners analysis. Up to 500MB
download limit Up to 2GB download limit Up to 5GB download limit Above 7GB download limit
Comparison of mobile phone plans for SK Telecom
Tariff plans on absolute basis Tariff plans on GB basis All in One 34 KRW 34,000 100MB limit 3G LTE All in One 44 KRW 44,000 500MB limit LTE 52 KRW 52,000 1.2GB limit LTE 34 KRW 34,000 350MB limit All in One 54 KRW 54,000 unlimited All in One 64 KRW 64,000 unlimited LTE 72 KRW 72,000 5GB limit LTE 62 KRW 62,000 3GB limit LTE 42 KRW 42,000 700MB limit All in One 79 KRW 79,000 unlimited All in One 94 KRW 94,000 unlimited LTE 100 KRW 100,000 10GB limit LTE 85 KRW 85,000 7GB limit All in One 34 KRW 340 per MB 100MB limit 3G LTE All in One 44 KRW 88 per MB 500MB limit LTE 52 KRW 42 per MB 1.2GB limit LTE 34 KRW 97 per MB 350MB limit LTE 72 KRW 14 per MB 5GB limit LTE 62 KRW 20 per MB 3GB limit LTE 42 KRW 60 per MB 700MB limit LTE 100 KRW 10 per MB 10GB limit LTE 85 KRW 12 per MB 7GB limit All other plans are unlimited
All other plans are unlimited
3G monthly tariff plans 4G LTE monthly tariff plans Up to 100MB
download limit Up to 4GB download limit Up to 8GB download limit Above 8GB download limit
Volume-based pricing – monthly rate comparison of mobile internet plans for selected operators
Verizon Wireless AT&T -17% USD 10 75MB download With personal email(3G/4G) With personal email and mobile hotspot (3G/4G) USD 30 2GB download USD 50 4GB download USD 50 5GB download
3G USB modem data plan USD 60 5GB download USD 70 7GB download USD 80 10GB download USD 100 12GB download
3G/4G monthly tariff plans % premium for 4G 3G monthly tariff plans
4G LTE monthly tariff plans 4G USB modem data plan
USD 50
5GB download No distinction made
between networks; subscribers may access both 3G and 4G
LTE access is purely dependent on device readiness and network coverage as no extra charges are levied by US operators for using LTE network
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&T’s 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 com-prehensive 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.
LTE device offerings
The LTE devices offered by the first movers are surprisingly varied. Apart from USB modems and personal mobile hotspots, many of the first movers already offer a range of smartphones, tablets and LTE modems (for provision of fixed broadband via LTE).
LTE device offerings of first mover LTE operators
Operator USB modems Handsets Tablets Netbooks Others
Verizon Wireless, US 2 models 12 smartphone models 3 Android models 2 models Mobile hotspots2 models
NTT Docomo, Japan 3 models 4 smartphone models 2 Android models None None
AT&T, US 2 models 9 smartphone models 3 Android models None Mobile hotspot 1 model
Metro PCS, US None 3 smartphone models None None None
Vodafone D2, Germany 2 models None None None LTE modem (fixed) 1 model
T-Mobile, Germany 1 model None 1 Android model None LTE modem (fixed) 1 model
SK Telecom, South Korea 1 model 7 smartphone models 1 Android model None Mobile hotspot 2 model
TeliaSonera, Sweden 1 model None None None None
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 D2’s 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.
Key learnings from first movers
While it is still early days for LTE, there are useful learnings and interesting insights for mobile operators who are planning or considering an LTE launch. Here we offer some key takeaways from our analysis of the LTE first movers.
LTE take-up remains low even for the most successful operators which means LTE’s role in relieving network congestion/data off-load could be limited in the short-term (however looking back at 3G, the early LTE take up curve is similar).
Secondly, most first mover operators position LTE as:
• an extension to current mobile data offerings at a reasonable premium per package (but cheaper per GB) – i.e. aimed at high usage users;
• an opportunity to make changes to their businesses, e.g., to migrate from previous unlimited plans, as replacement for fixed broadband (i.e. DSL), to offer IPTV, etc.
In addition, smartphones and tablets are emerging as key LTE device offerings at price points similar to 3G de-vices (with notable exceptions of Apple dede-vices 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 ad-vanced 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 com-mercial 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.
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