LTE won't cure all ills
As mobile operators continue to battle amidst recessions, price wars and data storms, LTE is the most commonly cited remedy. To listen to recent carrier earnings calls, it would seem that 4G networks – still embryonic in most countries – will be a cure for all ills.
China Mobile suffers a poor quarter but reassures investors with promises of accelerated investment in TD-LTE. France Telecom/Orange, deeply challenged by the price war sparked by Free Mobile, promises that its 4G roll-out will put everything right.
And so it goes on – and operators are in danger of falling back into their old habits, of relying on faster networks, per se, for redemption, rather than on delivering innovative services on top of those networks.
Are LTE trailblazers profiting yet?
Strong services, personalization and flexible pricing are the hallmarks of carrier competitiveness, as seen at a small handful of operators. These may be significantly easier to deliver on LTE – because of its capacity and, more importantly, its data-driven, IP-based nature – but they are not reliant on 4G. And many 4G carriers are very far from implementing this important set of changes.
The usual Asian powerhouses are a long way down the road, and some, notably SK Telecom, are starting to reap the rewards with higher ARPU – though only where they deliver innovative services. In such a data-hungry market as South Korea, the largest cellco has seen slides in its ARPU and profits despite huge investment in networks and services, but has begun to see a rebound partly down to 4G, but equally importantly to its SK Planet web services. And of course the LTE roll-out continues to weigh on profits, which were down 54% year-on-year in its most recently reported quarter, to December.
Similarly, Verizon is seeing steady LTE adoption, but how far is this helping its top line results? It certainly moves users to a more efficient network with a lower cost of data delivery, and whose superior customer experience may boost retention. It will also encourage far higher data usage, as already seen among the early adopters – 28% of the carrier‟s postpaid base were on LTE as of the end of Q1, but they accounted for 54% of data traffic.
It is not yet clear exactly how Verizon will convert that into revenue and profit. With AT&T snapping at its heels, it does not dare charge an obvious premium for 4G, and has to rely, instead, on using the move to LTE to introduce new approaches to pricing. Its Share Everything plans, initially criticized for being too complicated, have proved popular because they allow several devices to tap into one pool of megabytes and minutes. But they appear to be the key positive top line driver in Q1, and they are not confined to LTE.
So while LTE is clearly vital to cellcos' ability to deliver new services at lower costs and to di-ferentiate themselves, it is far from an instant panacea for the woes of the mobile sector. 4G-based upticks can be slow to materialize, as the UK‟s only LTE operator, EE, revealed in its own first quarter figures.
China Mobile turns to TD-LTE to meet challenges
Round the world, China Mobile also needs action from its regulator, particularly to enable it to convert its massive “trial” TD-LTE networks to full commercial status, which will help it accelerate expansion and add new services. Its key weapon to fight against stagnating financial reults is to invest more heavily in 4G, to improve its competitive position against rivals China Unicom and China Telecom, and reduce reliance on its unsatisfactory TD-SCDMA 3G infra-structure.
The company recently said it would boost its investment in LTE networks by nearly 50% this year, helping to drive total capex up to over $7 billion for 2013. It reiterated this promise as it posted its smallest profit increase for the past three quarters, for Q113. Net profit was almost flat at 27.9 billion yean ($4.5 billion), compared to 27.8 billion a year ago, though revenues were up 5.7% to 134.7 billion yuan and the operator added 26.4 million 3G users, talking its 3G base to 114.4 million (this includes the “trial” TD-LTE users). However, high value subscribers remain a small part of Mobile's total base, despite its heavy investments – just 16% of a total of over 700m.
The cellco is expected to mount a tender for 20 billion yuan ($3.2 billion) worth of TD-LTE equipment in May, in preparation for expanding its 4G trials. Overall, it plans to invest 41.7 billion yuan ($7 billion) in 4G this year, part of a far larger $30 billion capex budget for 2013, up sharply from $19.7 billion in 2012.
For 4G, it will install 200,000 LTE-enabled macro base stations, mainly in the 1.9-GHz band, and extending coverage to more than 100 cities. In some cities, it will have to use 2.3-GHz or 2.6-GHz. It will implement a mixture of macrocells and small cells. The former total will rise to 390,000 by the end of 2014 (it has 350,000 3G base stations and 600,000 GSM sites, though many will be overlaid for 4G).
It is working with Alcatel-Lucent on Cloud-RAN and metrocell developments, though other vendors are also participating in these trials, and the actual contracts will certainly be distributed among several vendors, usually with a slant towards local favorites Huawei and ZTE. ALU announced the TD-LTE flavour of its lightRadio metrocell unit (called Metro Radio) at this year's Mobile World Congress.
Mobile will be somewhat limited in its 4G potential until it can get official licences, and its chairman, Xi Guohua, this week urged China's government to issue those before year end. Until this happens, the huge trial networks are not officially sanctioned for commercial use.
Disruptive trends to continue
Ongoing trends such as disruptive new entrants and MVNOs with low cost bases, and consumer reluctance to pay more for data, will continue, LTE or no LTE. Smart operators need to add value, cut subsidy bills and divert competitive attention away from simple headline pricing and ARPU. Better quality of service, personalized (not necessarily cheaper) tariff plans, new applications like mobile wallets – all these may help.
Most European cellcos are not yet moving quickly. Only TeliaSonera has announced a shared data plan on LTE, for instance, despite the visible and rapid impact such tactics have made over the water on Verizon. Carriers must beware of repeating 3G mistakes by expecting a faster network to solve all their problems, without tying that to creative, customer-focused thinking on services and pricing.