Now is an exciting time for Everything Everywhere (EE) as the…operator works out how it can best ensure a successful LTE launch and create a strong and sustainable position in the UK mobile market.
At the moment the operator, the combined UK arms of France Telecom and Deutsche Telekom, is finalizing its LTE prices ahead of the October 30 announcement. It will be focused on how best to balance some important and related goals: increase revenues to make a return on 4G investments; add as many high value subscribers to the network as possible; and define its newly-launched brand (“EE”) while enhancing brand equity.
The operator has already laid the foundation for its LTE launch by offering some of the most popular high-end smartphones in the market that happen to be “4G ready”, and it has built out what is expected to be a high level of LTE coverage in sixteen large UK cities.
Lessons from other LTE markets
EE has the luxury of being able to look at how LTE operators in other markets have priced and positioned services to see what has worked and what hasn’t. Pricing strategies have so far fallen into two camps: charge a clear premium for LTE over 3G, or price LTE on a par with 3G. Although some operators, such as DoCoMo in Japan, are charging a slight premium over 3G, the “slight premium” approach is in a minority next to the “clear premium” and “no premium” approaches and is gradually but inexorably becoming “no premium” as LTE competition develops for these operators.
To date, 4G pricing and marketing strategies have been determined by the quality and coverage of LTE networks in the context of operators’ broader strategic objectives. Some operators, most notably in the Nordic markets, priced LTE at launch at a premium of as much as 50% over their 3G tariffs. Early LTE marketing closely resembled early 3G marketing: targeted at tech-savvy early adopters by highlighting technical capabilities in isolation rather than the actual end-user experience. Despite being the first to see LTE networks, the technology has yet to gain as much traction in the Nordic markets as it has in markets where LTE was priced at little or no premium at launch.
Other operators, most notably in the US, launched LTE by charging the same amount for LTE access as they did 3G, with the only premium on the amount the LTE device would cost to buy over a 3G device. US operators aggressively marketed the technology and highlighted several core concepts in their messages, backed up by solid coverage and a good range of devices: LTE offers better quality of experience over 3G though faster speeds. The result of this approach: the US is by far the largest LTE market in the world.
Launching LTE and charging no premium for access over 3G by focusing on enhanced experience has seen operators sign up more LTE users than operators that have charged a significant premium. That’s no to say that the “no premium” operators haven’t been able to charge any premium for LTE. Operators have seen success in offering LTE access for the same price as 3G with small per month download allowances (e.g. 500-MB or 1-GB), and then offer larger per month GB (e.g. 2-GB plus) allowances only on LTE. In this way, operators have been able to offer LTE to the whole valuable postpaid mobile broadband user base, and also charge a premium for users who want high per month download rates.
In terms of branding, operators are often unclear about if and how they can (re)-position in their markets when they have launched LTE. EE will want to make sure it hits the right note with this, especially as it has the luxury of both a blank sheet of paper in the UK public’s mind as well as the largest mobile user base in the UK thanks to its Orange/ T-Mobile legacy.
With the migration from 2G to 3G, operators were in a position to offer something wholly new: mobile broadband. With LTE, by contrast, the most successful LTE marketing campaigns have focused simply and clearly on how LTE offers a better and enhanced mobile broadband experience. Perhaps surprisingly, offering a better experience by offering faster mobile broadband speeds has chimed with consumers as much as offering more room and comfort in first class does for premium air passengers.
Danger in EE’s 4G lead
Because of EE’s unique spectrum situation, it has a lead of at least six month over rivals with LTE. It will be tempting to charge a premium over 3G price plans and get the most it can out of the highest spending mobile users in the UK, the so called “creaming” or “skimming” approach. But given that EE’s rivals will launch LTE in only around six months time, this would be a mistake. EE’s strong 3G rivals are sure to price LTE extremely competitively to sign-up a broad base of users when they launch. When this happens EE will still have the advantage of an optimized and more widespread network, but it will struggle to maintain a clear premium because of it.
Charging a high premium for LTE over 3G will mean that EE will miss out on signing up as many mid-to-high ARPU users of rival networks as it would if it didn’t charge a premium. This would result in a significant lost opportunity for EE to lock-in these valuable (let’s call them “low-end premium”) users to lengthy 24 month contracts.
If entry-level LTE is too expensive, many valuable UK consumers that don’t use lots of mobile data but still pay £30 (€37) or more on their monthly bills will switch-off from what EE is doing. EE can encourage lower-spending postpaid mobile broadband users to sign up for more expensive tariffs by offering higher device subsidies only on higher-priced (£40+) price plans, thereby ensuring that it doesn’t sign up unprofitable low-spending postpaid users.
EE has a unique and one-off opportunity to position in the UK market by offering the best mobile broadband experience to a broad base of premium monthly mobile broadband subscribers. If it adopts this approach, EE will lay the foundations for a profitable and sustainable business by focusing on offering the best mobile broadband network to the most profitable users in any mobile market: postpaid mobile broadband users.
Paul Lambert is editor of Global Mobile and the Mobile Operator Intelligence Centre