After being positioned as the next big technology platform, LTE's promise of providing new revenue streams at non-prohibitive costs has remained largely unfulfilled. According to a study by Arete Research, the expected gains from LTE have yet to materialize.
[S]ince the LTE hype started three years ago, deployment has been slow and sparse, handset rollouts are only just beginning in volumes and the “revolution” and “transformation” that was expected to take place in the market has been delayed by many practical technical challenges, as well as business model questions.
LTE deployment is fueled largely by market-specific reasons, notably spectrum and the sophistication of the user base. In markets where there have been actual rollouts, operators are adopting LTE by moving to single radio access networks (RANs), mainly as a way to make more efficient use of their limited spectrum and to limit the overall opex costs of their networks. Single RAN makes moving to LTE cheaper and easier, and obviates the need for a grand overlay strategy.
Operators that were initially excited about the prospects for LTE have take their time in rethinking strategies, resetting pricing structures and ending unlimited plans. While LTE promised better use of spectrum and, in effect, room for more revenue-generating offerings, handsets supporting the technology have been slow to hit the market. Currently available LTE-enabled devices remain confined to high price tiers
LTE was initially promoted as a platform that would allow operators to engage in “new business models” based on faster data speeds, similar to how 3G was positioned several years ago. Its main selling points were lower latency, enabling faster loading of websites and videos, and faster peak data speeds for better media streaming.
Operators could only capitalize on these benefits, however, if there were enough handsets available in the market to bring such perks to consumers. At this point, the LTE promise for operators could only materialize and hit its full potential when prices of chipsets and consumer electronic devices supporting the technology fall sharply, something that is more likely to come in 2013 or beyond.
During the past two years of so-called “commercial availability” of LTE, it has accomplished little. For one, support for voice services was being handled via existing 2G/3G networks on circuit switched fallback and not wireless VoIP, resulting in added costs for operators. For another, HSPA+ continued to give LTE a run for its money, offering similar technical performance and spectral efficiency. LTE needs at least 20-MHz for optimum performance, while HSPA+ required only 10-MHz, which more operators currently have.
LTE, likewise, suffered from uneven spectrum allocation, with 27 countries in Asia having more than 11 bands being considered for LTE use. This diversity in frequency band combinations across different regions will adversely affect LTE roaming, once available.
Real world experience
Despite the obstacles, a number of operators worldwide still took the plunge and launched LTE in their respective countries. The roadblocks, however, continued to hinder them from undertaking massive rollouts.
Although a recognized LTE pioneer, Verizon initially saw delays in rollouts despite deployment in the favorable lower-frequency 700-MHz band. Its LTE coverage remains largely urban, with claims that it had reached around 175 million points of presence (PoP) by end-2011 and could hit 285 million PoPs by end-2013. The operator now has around two million LTE subscribers, using the service via USB modems and high-end devices from HTC, Samsung and Motorola. Traffic is still mostly carried on Verizon's CDMA network, using dual-mode devices.
While AT&T rolled out LTE in select markets, lack of spectrum hampered planned widespread rollouts. In Asia Indosat, on the other hand, identified a “lack of more clean spectrum” as a hindrance to mass deployments.
Vodafone also has limited rollouts, but due mostly to regulatory issues. In Germany, for example, license conditions compelled it to cover “not-spots” or missionary areas, which could add to costs without adding to revenues. Wider LTE rollouts are not expected until mid- or late 2012.
Hong Kong's CSL, while already offering LTE, is still struggling to get devices and has yet to offer handsets. Like LTE-enabled devices, LTE terminals are still too expensive for many operators to roll out. According to Telenor, LTE is only good for enhancing capacity, considering that LTE terminals would only reach cost parity with HSPA when LTE penetration reaches 50%.
With committed LTE deployments happening almost at a snail's pace, vendors were now feeling the pinch. While the market was seen growing by 5% to 10% last year, Ericsson and Huawei were the only two vendors generating returns above their capital costs.
Alcatel-Lucent and NEC, both facing a lack of resources, look poised to pursue tenders on a highly selective basis. Both also appear to be facing serious financial constraints and might need to restructure. The entry of Samsung into the picture makes matters even worse for the struggling vendors.
With costs escalating, the vendor world could be facing a period of de facto consolidation, in an effort to bring to market the best possible technologies amid limited revenues. Until operators start to really pursue their LTE commitments, the vendor community cannot turn to LTE to bring it back to the growth path.