Salanave: The (lack of) LTE impetus in Europe

Europe will be even later to join the LTE party than it was for 3G. Things had started well as Scandinavia once again led the way with the first LTE commercial launch worldwide by TeliaSonera in December 2009 in Sweden.

However, since then and despite some activity in other Scandinavian countries like Denmark, Norway and Finland, none of the largest Western European markets have really so far seen any noteworthy LTE deployment except for Germany's innovative but niche use of LTE for fixed wireless broadband access in rural areas. Meanwhile, other pioneers like NTT DoCoMo in Japan, SK Telecom in South Korea and Verizon Wireless in the United States are now aggressively expanding their LTE network coverage and commercial service and are well on their way to have more than 5 per cent of their subscriber base on LTE by the end of 2012

The lukewarm interest expressed by many Western European operators reflects the lack of immediate impetus and a complex business case.

What is the business case for LTE?
A closer look at the commercial strategies of the first carriers which have commercially launched LTE shows two distinct approaches:

  • Operators that promote LTE at a premium over 3G: Some propose more expensive LTE plans with higher speeds and similar or more restrictive traffic allowances (like DoCoMo or SK Telecom). Others offer more expensive LTE plans with higher traffic allowances than 3G plans (like TeliaSonera). More creative premium strategies include offering  LTE smartphone plans priced like 3G but with higher data allowances and less voice minutes (like Rogers in Canada)
  • Operators that offer LTE as a non-premium extension of 3G: By pricing LTE+3G plans like 3G only plans, Verizon and AT&T Mobility are competing aggressively for LTE early adopters' market share but also giving incentives to subscribers who use a lot of data to migrate to the "less crowded" LTE infrastructure where available.

These strategies highlight that unlike for 3G, few operators will seek to monetize the new service at a significant premium to early adopters. In the longer term, most operators expect limited incremental data revenue over 3G on a per subscriber basis.

So the business case for LTE resides elsewhere: in avoiding mechanically inflating network costs resulting from the mobile data surge. This cost containment is seen as all the more imperative that high-margin voice revenues erode and are (only partly) replaced by lower margin data revenues and that the mobile data surge may likely be in front of us (smartphone penetration is only 40 per cent to 50 per cent in the largest European countries according to Comscore). Furthermore, the network cost inflation could be exponential: according to some estimates, a (fairly conservative) 15x increase in mobile data traffic in the next five years would require 5 to 7 x more HSPA cell sites in dense urban areas for a typical Western European operator.

But there are short-term cost-efficient technology alternatives to LTE for containing new site requirements, including micro and pico 3G cells, offloading through Wi-Fi access points (and to lesser extent, wireline-connected femtocells), which most European operators are actively considering. The French market hints to what large scale Wi-Fi offloading could look like: SFR and Free Mobile have now activated EAP-SIM automatic offloading on more than four million Wi-Fi residential gateways each.

The other major benefit of LTE, higher spectral efficiency is certainly a long-term cost saver but will have limited impact in the short term and for most advanced networks. A January 2011 report by Ofcom shows that initial LTE deployments will deliver a 1.2x improvement over the latest HSPA+ deployments and a long-term 4x to 5x average improvement as new LTE technical features such as carrier aggregation are enabled.

What lies ahead

For all those uncertainties, Western Europe won't stay completely on the sidelines. Most Western European operators will deploy some LTE on a small scale primarily for the purpose of experimenting new mobile data management techniques.

Sticking to this cautious approach and overcoming the "Fear of Missing Out" syndrome could bring more merits than drawbacks to the European telecoms industry. Infrastructure equipment and end-user device costs will decrease slowly because of LTE spectrum fragmentation across Asia and North America, international roaming won't happen for at least five years. More importantly, containing the LTE distraction could enable European mobile operators to focus their attention more than their peers on the true strategic imperatives ahead: reengineering their business model and reinventing their innovation model. Their investors are likely to support this strategic discipline as long as the operators can demonstrate the tangible results of their business model reengineering efforts.

Julien Salanave is a telecoms entrepreneur and innovation enthusiast. He is the founder of Upnext Research, a mobile innovation scouting & prototyping boutique with offices in North America, Western Europe and  Asia. You can read some of his insights on emerging developments in the mobile industry at and on Twitter @juliensalanave.