It is already clear from the US experience that operators will not boost ARPU simply by launching LTE services, particularly as competition intensifies. LTE will be more about cost efficiency than revenue uplift.
From a competitive perspective, Verizon’s major advantage over its competitors will be coverage. However, it must also contend with the potential disadvantage that its network will be slower than other players in the market. Its 5–12Mbps average downlink speed offers little advantage over T-Mobile’s current HSPA+ network, and this will be even less when T-Mobile adopts dual-carrier HSPA from 2011.
We have had a number of conversations with operators from around the world that assume that launching LTE will provide them with a boost to their mobile broadband ARPU. However, evidence from the US strongly undermines this argument. While it is true that an operator with early-mover advantage can charge a premium for LTE, that premium erodes rapidly as more competition enters the market.
In addition, LTE uptake will be limited at first so any ARPU boost from LTE will have a minimal impact on overall mobile broadband ARPU. As most customers will still be using 3G services, ARPU from 3G will continue to have the greatest impact on overall mobile broadband ARPU. By the time a company’s LTE business is large enough to influence overall ARPU, the price premium will be long gone. Therefore, cost efficiencies must be at the center of operators’ business plans.
In the US, Verizon Wireless offers two tiers of pricing: $50 per month for 5GB or $80 for 10GB, with both plans offered on a two-year contract. Verizon stated at the press conference that its larger data allowance package is expected to be the most popular.
The two USB modems available at launch will retail for $100, and more devices are scheduled to be announced at the International Consumer Electronics Show (CES) in 2011. Verizon’s LTE plans are $10 cheaper than its 3G-only plans that offer the same amount of data.
Verizon’s pricing is not aggressive compared to other 4G services. The other LTE player in the US, Metro PCS, charges $55 per month, offering unlimited voice (over CDMA), texts, and data through a handset. Sprint (using mobile Wimax) charges $60 per month, which includes unlimited 4G data and 5GB over 3G.
Unlimited 4G-only data is $50 per month. T-Mobile has also joined the fray, marketing its HSPA+ network as 4G. It offers 5GB of data for $50 per month, which is reduced to $40 for existing customers.
T-Mobile’s rivals are making a lot of noise about it marketing its HSPA+ services as 4G. However, they should be wary of hypocrisy as technically, LTE and mobile Wimax are not 4G either (as defined by the International Telecommunication Union).
In fact, T-Mobile’s HSPA+ network compares very favorably with its rivals’ networks. Currently, T-Mobile offers theoretical peak download speeds of 21Mbps, which compares well with the 10Mbps peak offered by Sprint. Sprint’s average download speed of 3–6Mbps is slower than Verizon’s average speed of 5–12Mbps. In 2011, T-Mobile plans to upgrade its network to dual-carrier HSPA+, which will enable it to offer theoretical throughput of 42Mbps.
The reason that LTE speeds in the US are far slower than those in markets such as Sweden is because of channel bandwidth. In the US, Verizon is using a 10MHz block of FDD spectrum, which offers lower throughput than the 20MHz blocks used in Sweden.
Causes aside, it is clear that in a competitive environment, speed is easy for operators to communicate and for users to understand. As such, T-Mobile’s somewhat cheeky marketing ploy should not be underestimated as to the end user, the performance looks inviting.
Verizon’s key network differentiator will be its coverage advantage, which comes as a result of using lower frequency spectrum. At launch, Verizon’s LTE services will reach 38 cities and 60 airports, covering 110 million people. This is less than T-Mobile, which promises to cover 200 million people in 100 metropolitan areas by the end of 2010.
However, Verizon has an aggressive deployment plan to cover its entire 3G footprint by the end of 2013. However, it must move quickly and meet this deadline or it will risk others soaking up demand.
Verizon’s LTE launch is the first large-scale commercial LTE launch in the world. We believe that the last two years must have been challenging for Verizon’s LTE vendors, given the relative immaturity of the technology and Verizon’s ambitious rollout plan. The selected vendors will have learned a lot from this work and will have been able to optimize their solutions by fixing the issues that emerged during implementation.
We believe that Verizon’s LTE RAN suppliers, Ericsson and Alcatel-Lucent, will have benefited most. Due to the scale of Verizon’s network coverage, both Ericsson and Alcatel-Lucent can proclaim themselves as the largest suppliers, by volume, of active LTE base transceiver stations.
The rollout of Verizon’s LTE network is especially important for Alcatel-Lucent as without this deal (and the one with AT&T) the outlook for the company’s global LTE strategy would have been dire.