All eyes on LTE's early movers

It's been over two years now since TeliaSonera announced the world's first LTE commercial deployment. Since that time, more than 50 LTE networks have been launched around the world, with another 300 planned for launch in the next two to three years.
(To put the latter number in perspective, consider that at the start of this year, only 40 new deployments had been announced in the same timeframe.) Almost half of all the operators in the world are going to have LTE networks by 2015.
Naturally, operators committed to launching LTE in the next few years are interested in the experience of the first-movers - not just in terms of the technical challenges involved, but also how to bring LTE services to market, how successful they've been so far, the challenges they've faced and what they've learned in the process.
We have examined the positioning strategies of the top LTE operators by subscriber base over the last two years, and have documented some key trends in LTE service deployments.
For a start, LTE penetration trend is consistent with that for 3G, with most operators at 0.2-4% subscriber penetration in the initial two years.
Also, LTE services are typically marketed at roughly a 40% markup over the most expensive 3G plan as a premium speed offering with a lower price per GB, aimed at high-end users. That said, for some operators - notably in the US - there is no differentiation between LTE or 3G plans. LTE access is based on device and coverage availability and data plans are tiered by volume.
We've also observed that most operators have positioned LTE as an opportunity to change their business models - e.g., to migrate from unlimited plans to tiered service packages, or to market LTE as a replacement for fixed broadband (i.e. DSL), to offer IPTV, etc. However, offloading and replacement objectives have not yet been met due to the low take up of LTE.
And in terms of devices, we've seen various LTE devices offered, ranging from smartphones and tablets to dongles and mobile hotspots. Smartphones and tablets are seen to be key drivers for LTE as they are likely to become affordable much sooner than they did during the 3G era.
That's the story up to 2012. As the next wave of LTE operators gear up for launch, they will be taking those lessons to heart, but that doesn't mean they will be able to simply copy old strategies and replicate the success stories. They will be confronted with their own challenges and opportunities, from spectrum and TD-LTE to VoLTE and M2M.
In terms of subscriber base, Verizon Wireless is still the undisputed global leader in LTE. (see chart: Top LTE operators by subscriber base) The US remains the biggest market for LTE with all three LTE operators ranking high on the chart.
Verizon's success over its counterparts can be attributed to its wide coverage, strong LTE marketing with no LTE premium and the sheer number of devices - Verizon has 20 LTE smartphones and half as many LTE tablets on offer, more than any other operator.
Success stories
Rogers has also done well in the Canadian market by increasing its LTE penetration from 0.2 to 6.4% in half a year, making Canada one of the bigger LTE markets.
The most noticeable success story on the chart is Korea. SK Telecom has unseated NTT DoCoMo from second place, and the Korean market seems to be growing rapidly with strong penetration rates of 5% to 20%. Koreans have once again shown themselves to be a data hungry market as even late LTE entrant KT has managed to grab over 860,000 LTE subscribers in just half a year. Possible reasons for success of LTE in Korea include a moderately strong device offering (five to 12 smartphones for each operator), comprehensive LTE plans priced closely to 3G plans and - most importantly - it's the only country where all three operators can claim nationwide LTE coverage.
One notable feat is how Russian operator Yota transformed 300,000 Wimax subscribers in Moscow, the bulk of its subscriber base, into LTE users overnight. This is part of its move to comply with the regulator requirements to convert all its subscribers to LTE by September. Yota has moved from being a Wimax poster child to sole LTE wholesaler in Russia in just slightly over half a year, as it felt that LTE had a better ecosystem compared with Wimax 2.
European counterparts like Germany and the Nordic countries seem to be experiencing much slower growth despite being early adopters and having continual network upgrades. This may be due to the pricing premium placed on LTE, which has restricted LTE growth only to the high-end segments. However, there are indications that European markets with fierce LTE competition are seeing prices come down on a per-GB basis (see sidebar, "The case for speed-based pricing").
Package innovation
Top LTE operators by subscriber baseAmong the LTE first-movers, the most typical approach has been to position LTE as a premium extension to their current mobile internet offering. Although seemingly expensive, the LTE tariffs are consistent with consumer expectations and do not represent an excessive premium for higher speeds.
The alternative approach used mainly by the US operators has been to use volume-based pricing with no differentiation between 3G or LTE. Access to LTE speeds is purely dependent on the subscriber device and network coverage.
Recently, Verizon has once again shown itself to be the LTE leader by pioneering a new form of pricing. Termed "Share everything", Verizon offers users one unlimited voice and text plan, but with a shared data cap for all devices of the same user but charging additional tariffs per device. This move seems to recognize that data is the future and in the coming "internet of things", data usage and multiple devices will be the drivers for operator revenues.
In terms of comparing network coverage and the spectrum bands used, we have made two key observations.
One: very fast network rollouts are possible, notably in Korea where all three operators have achieved nationwide coverage. And two: nine of the top ten operators do not use the 2.6-GHz band for LTE, with most favoring 1800-MHz or 1.7/2.1-GHz (AWS) bands.
Key learnings
Interestingly, the Swedish operators - TeliaSonera and Tele2 - who started deployment on 2.6-GHz have added 800 MHz, and 800/1800 MHz, respectively. Both their network coverage areas have reached around 60%.
While it is still early days for LTE, the US - and to some extent Korea - have moved to a more mature stage for LTE as their LTE coverage and subscriber base increases. Key lesson taken from them is that the number of devices, network coverage/spectrum bands and most importantly affordable LTE plans are keys to increasing LTE subscriber penetration quickly. Positioning LTE as a premium offering seems to have limited growth for the European counterparts despite them being early adopters of LTE.
Being the most mature LTE market, the US has started to move to the next phase for LTE - the heralding of data and the internet of things. Recognizing that data and connected devices will be the next drivers for operator revenues, Verizon has abandoned the voice/text model and has tiered its pricing based on these two drivers. Whether this move will be effective or not remains to be seen as most other operator markets have not reached this stage.
New entrants can learn from the initial experience of the LTE first movers. A close look at their current LTE plans will provide useful insights to new entrants in terms of both LTE pricing and device offering. Certain effects of LTE positioning have also been observed, and it is up to operators to decide which route they would like to follow.
Unlike 3G, 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' commercial decisions like plan pricing - and therefore competitive dynamics - rather than technological barriers such as device availability.
More importantly, LTE is an opportunity for operators to make changes to their business; changes that could either boost their top line or make a material difference to their bottom line. For example, LTE plans are all data-capped while the 3G plans are mostly unlimited.
The other lesson for operators is one of the deployment profile including spectrum choice, FDD/TDD technology and competitive dynamics. With increasingly fast network rollout speeds and increasing availability of devices but fragmented deployment profiles, LTE can be highly disruptive when strategically positioned and rolled out. Operators must be ready to react to such a challenge.
One key determinant to meeting this challenge is the choice of spectrum bands for deployment vis-à-vis the competition, as LTE is proving quite fragmented in the range of bands in which it is being deployed globally - around eight at last count (700, 800, 1500, 1700, 1800, 2100, 2300 and 2600 MHz).
What's next
The LTE landscape is certainly evolving extremely quickly and also gaining momentum as it does. Only very recently, we have seen some major announcements that could further impact the development of LTE rollouts.
For example, VoLTE has now arrived in the Korean market. In early August SK Telecom launched its "HD Voice" service with a VoLTE-compatible Samsung Galaxy S3, and is offering firmware upgrades for existing Galaxy S3 LTE users.
In India, meanwhile, Reliance Infotel confirmed its nationwide TD-LTE play with a contract awarded to Samsung for its Mumbai circle. In Australia, Telstra has announced a massive A$1.3 billion ($1.35 billion) investment in LTE 1800-MHz for FY2013. And all three Singaporean telcos have confirmed LTE rollouts this year with StarHub announcing it will refarm its 1800-MHz band for LTE.
It will be interesting to see how these and other announcements will affect the mobile landscape and LTE take-up, what pricing and tariffs operators will adopt, and what lessons they will be able to teach the next wave of operators evolving to LTE.
Dominic Arena is the managing director of Value Partners Management Consulting in Singapore and heads the TMT practice for Southeast Asia.
Cheryl Lim is a senior engagement manager in Value Partners Singapore who specializes in commercial and spectrum strategy development for the TMT sector.
Oh Sing Kiat and Annabel Tio are consultants with Value Partners Singapore.
Side bar 1: Wi-Fi offload falls short of expectations: survey
One key element for LTE going forward is going to be the role of Wi-Fi as a small-cell offload strategy. A number of operators are already including Wi-Fi in their overall 4G infrastructure strategies to lighten the load on their RANs, as they're keen to make use of both the 40 MHz of free, unlicensed spectrum available in most markets and the relative ubiquity of embedded Wi-Fi in smart devices.
But even though Wi-Fi offload is now included in the majority of infrastructure strategy plans, today's carrier-grade solutions do not fully meet operators' needs, according to a recent operator survey from Ovum on Wi-Fi offloading.
The survey findings indicate that many operators are still looking for features not currently available on a large scale. For example, over half expect session continuity when moving between Wi-Fi and cellular networks, while over 90% are also looking for a device-based policy solution that would select the best network (3G/4G/Wi-Fi) based on cost, performance, and other policy-driven features.
One key challenge operators face in integrating Wi-Fi with their mobile broadband offering has been from the access side. Operators may be bundling Wi-Fi services in with their fixed and mobile broadband packages as a supplemental connectivity option, but from a customer experience point of view, there's no question which is the easier service to access, and which one roams much more easily.
That's set to change with the recent launch of PassPoint, the Wi-Fi Alliance spec formerly known as Hotspot 2.0, which gives devices the ability to discover hotspots that the consumer can use, and it authenticates and connects them automatically (with WPA2-level security). The Wi-Fi Alliance has already released the first batch of Passpoint certified devices.
However, Ovum's survey indicates that although most respondents thought Automatic Network Discovery and Selection Function (ANDSF) and Hotspot 2.0 were important, only a small minority said they would deploy those solutions prior to their full standardization, even if the vendor said they were fully compliant with the standard.
"What compliance actually means appears to be a big issue here," said Daryl Schoolar, Ovum's principal analyst for network infrastructure telecoms. "For example, most respondents answered "Don't know' when it came to their willingness to deploy pre-standardized compliant solutions. Greater information on what compliance actually means could reduce the number of "don't know' responses."
-John C. Tanner 
Side bar 2: The case for speed-based pricing
Fierce competition between operators in select European markets are generating some of the lowest 4G data tariffs in the world (in terms of per-GB costs) as they adopt speed-based pricing models that could serve as a template for LTE operators worldwide.
That's according to a recent study from Wireless Intelligence, which claims that 4G/LTE data costs $2.50 per GB on average in Europe, around half the global average of $4.86.
Wireless Intelligence identifies Sweden as the most competitive LTE market in Europe, where all four of the country's mobile operators have launched LTE. According to the study, a Swedish 4G data contract can cost as little as $0.63 per GB per month (at both Tele2 and 3 Sweden). By comparison, the best value 4G data tariff at the world's largest LTE operator, Verizon Wireless, works out at $7.50 per GB.
Wireless Intelligence analyst Calum Dewar adds that over 90% of European LTE operators struggling with overloaded networks have taken the opportunity to phase out unlimited data deals across all of their mobile broadband offerings in favor of speed-based offerings tied to data allowances in an effort to more effectively monetize mobile data.
For example, at 7.2 Mbps, a 10GB monthly allowance costs $23 on average, rising to $44 for an 80-Mbps LTE service (compared to $35 and $70, respectively, for unlimited plans). Calculated at a per GB level, the average cost per GB at 7.2 Mbps is $6.20, dropping to around $1.15 per GB at 80 Mbps.
"This new mobile broadband tariff model, which operators have developed in line with the rationalization of their device portfolios, allows data to be priced on a quality of service basis for the first time, with operators offering mobile broadband packages at a range of differently-priced download speeds - as many as six in the case of Vodafone and TMN in Portugal," says Dewar.
This approach allows operators to manage their network capacity in a more revenue efficient way, and further enhance profitability by charging a premium for the highest speeds, Dewar adds.

"We expect this pricing model to spread from Europe to the rest of the world, as more operators deploy LTE and 4G competition ramps up across the globe," he says.

-John C. Tanner