New LTE networks are now being announced so frequently that the technology has recently been called "the fastest developing system in the history of mobile telecommunications," according to the GSA. LTE technology opens up a whole new range of service possibilities and, as networks become available over the next few years we are sure to see new, innovative offerings that we cannot even imagine right now at the start of 2011. After all, smartphones and all their accompanying services and apps which we now take for granted were not on the market five years ago! In this article, Juniper Research looks ahead to the impact that the "step function" leap in mobile broadband bandwidth will have on the revenue models that mobile operators offer their customers.
New broadband service and revenue opportunities
LTE networks will support new applications that businesses and consumers can only access today through high-speed wireline networks. In addition to faster e-mail, Internet access and better quality video services, LTE users will be able to take applications they are accustomed to using at home or in the office with them on the move. MNOs (mobile network operators) however vary in their views as to whether the technological advantages of LTE will serve as the catalyst for the introduction of new data enabled devices and services or whether they will simply provide capacity relief for heavily loaded network hotspots.
According to our forecasts at Juniper Research, some 300m users globally will benefit from LTE services by 2015--around 1 in 5 in developed nations such as the UK, the US and Japan. In our research, we found that business users will be the prime target market, certainly in the early years of LTE. This is certainly borne out by announcements from Verizon Wireless, which is targeting more than 60 commercial airports as part of the largest LTE network rollout worldwide to date.
Tariff decisions needed
The 300m LTE users are forecast by Juniper Research to generate worldwide service revenues that will grow quickly once networks are launched, reaching $100 billion by 2014. These revenues will be driven by laptops, smartphones, netbooks and a variety of other devices including consumer electronics that have up until now not been connected.
Paradoxically several operators are ending flat rate tariffs even for existing HSDPA mobile broadband services owing to the demands placed on their networks, whilst at the same time the number and variety of connected data-hungry devices is multiplying. Tablets are a recent example. Single users who own several devices are commonplace, but the only certainty is that we will all have more over the coming years. Whilst Juniper found in its research that 90% of respondents questioned believe that today's pricing models will have to change, there is a lack of consensus about the structure of new pricing models.
The future of flat rate tariffs: primary research
Juniper garnered first hand, original insight from 32 players in the LTE market including network vendors, solution or sub-system vendors, consultancies and operators/service providers on a range of highly topical LTE industry issues.
The overwhelming majority of respondents believed that flat rate data tariffs will not continue in a 4G world. Whilst the rollout of LTE networks and services is not the primary influencing factor, equally our view is that LTE will only serve to accelerate the decline of flat rate data plans. Our view is confirmed by the results of our interviews, but, maybe surprisingly, the view of the market is not unanimous, as shown below:
Will Flat Rate Data Tariffs Continue in a 4G World? (Yes/No %) - Juniper Research Interview Responses
New Pricing Models Will Emerge
The scope for different types of pricing model is infinite. Our research though showed that there are a relatively small number of frontrunners as shown below.
New Pricing Models Ranking (%) - Juniper Research Interview Responses
The Real Question?
With such a range of different types of pricing, the question becomes more about to the ability of network operators to communicate the tariffs in ways that are easy for their customers to understand.
At the simpler end of the tariff range, network operators are experimenting with tiered pricing and data caps, but consumers struggle to understand them. The question "What exactly is a megabyte?" has been posed around the industry and the average user will not know the how this translates into mobile internet usage. How much does a movie use? How much is used when downloading a music track? One quote summed up the situation and this comes from an industry user : "I look at my own bill where I have eight connections! Nowadays you need a PhD to shop around for the cheapest tariff!"
So, yes, it's early days with only a small number of operational networks, but the message is twofold:
Firstly, the only clear conclusion is that tariffs will continue to change, with the variety ever-increasing. Secondly, the onus will be on network operators to communicate clearly with mobile users--possibly clearer than ever before. After all, at least with an "all you can eat" tariff, users know how much they can use their devices for the subscription they pay!
Howard Wilcox is a senior analyst with Juniper Research. Juniper Research specialises in identifying and appraising new high growth market sectors within the mobile ecosystem. Juniper's report ‘4G LTE Revenue Opportunities: Business Models, Scenarios and Operator Strategies 2010-2015' examines the LTE opportunity, evaluating three revenue model scenarios based on a variety of premium and tiered pricing and user take-up assumptions. The report includes an extensive five year forecasting suite covering enterprise and consumer subscribers and the full conclusions of Juniper's comprehensive research survey on hot LTE topics.