Analysys Mason: With LTE, operators are cautious about data consumption

LTE mobile broadband services are available in seven countries in Western Europe and are due to be launched in six more countries during 2012. Operators are experimenting with marketing strategies and pricing models for this nascent market. However, some pricing decisions reflect operators' concerns about a significant increase in data consumption and may act as a barrier to entry for particular customer segments. Analysys Mason has compiled a comprehensive set of mobile broadband (non-handset) pricing metrics for USB modem and SIM-only packages in these countries and has published the information in the new Mobile broadband pricing in Western Europe: benchmarking tool.

Operators are charging a high premium for LTE packages
LTE mobile broadband services are available in seven countries in Western Europe: Austria, Denmark, Finland, Germany, Norway, Portugal and Sweden. Prices for entry-level LTE subscriptions vary widely between countries. The cheapest offer comes from TeliaSonera in Denmark; DKK49 (€6.6) per month (data allowance of 20 GB, download speed of up to 80Mbps and minimum contract period of 6 months). Telekom Deutschland (T-Mobile) and Vodafone Deutschland in Germany offer the most expensive plans at €69.95 per month (30 GB, 100Mbps, 24 months) and €9.99 (20 GB, 50Mbps, 24 months) respectively.

Overall, 55 per cent of LTE mobile broadband contract subscriptions are priced above €45 per month. This is well above the ARPU for large-screen mobile broadband services, which declined by 3 per cent per year for the last two years in the countries where operators have launched LTE, to €19 per month in 2012. LTE mobile broadband services are also priced at a premium compared with fixed broadband--the median monthly access charge for fixed broadband subscriptions in LTE countries is €39.80. Comparatively high prices for LTE packages act as a major barrier to entry for consumers. Our pricing analysis indicates that operators are aiming the service at the small number of high-end mobile customers, and positioning it as an alternative to fixed broadband rather than as an alternative to existing mobile broadband services.

Understanding the value of unlimited data allowances
A number of operators are offering entry-level LTE packages with data caps below 10 GB, which is unlikely to attract high-end users and will not really enable entry-level subscribers to gain much benefit from the LTE experience. The median data allowance for LTE contract offers in Western Europe of 27.5 GB gives users a reasonable volume of data, bearing in mind that the mean consumption for ADSL users in Western Europe was 15-20 GB in 2011.

Consumer demand for higher download speeds raises questions for operators about the constraints of network congestion versus the attraction of offering high-speed access to rich media content. Hence, the advent of LTE has reignited discussions about unlimited data allowances. Almost 70 per cent of LTE contract plans in Western Europe are advertised as unlimited offers. Truly unlimited LTE plans are available--such as those from DNA and Elisa in Finland, each starting at €19.8 per month--but operators apply a data cap or throttling to most "unlimited" plans as part of their fair-use policy. The median data volume allowed in unlimited contracts before a data cap or throttling is applied, is 20 GB. This gives only 5 GB more than the median volume for openly limited LTE plans. The "unlimited" label comes at a high price; median monthly access charge for unlimited packages that apply a fair-use policy is €50, while openly limited contract subscriptions are priced at a median of €38 per month.

LTE connections one third of 3G connections by 2017
Nine more operators are expected to launch LTE services in 2012, making LTE commercially available in another six countries in Western Europe. According to Analysys Mason's core forecasts, the number of LTE mobile broadband connections in Western Europe will increase substantially in the next five years, from one million connections in 2012, to about 21 million in 2016, and we expect LTE connections to account for about one-third of the number of 3G connections by the end of 2016. To drive early adoption, LTE operators should consider offering a trial period to potential customers. This would give customers the option to try higher LTE speeds without commitment, while allowing operators to monitor traffic and eventually provide more closely targeted LTE tariffs.

Ronan de Renesse is the lead analyst for Analysys Mason's Mobile Content and Applications and Mobile Broadband programmes. His primary areas of specialisation include rich media applications and services on mobile, application store forecasting, mobile broadband, tablets and smartphone adoption.