Verizon Wireless (NYSE:VZ) last week made official what many industry watchers had been waiting for: the carrier is now deploying LTE in its AWS spectrum, boosting its network capacity in key markets. Other carriers late this year and into next year plan to follow suit as they finish their initial macro LTE buildouts and boost capacity through carrier aggregation (as AT&T Mobility (NYSE:T) expects to do), by using new airwaves (as Sprint (NYSE:S) will do with Clearwire's 2.5 GHz spectrum) or by creating wider channels using their existing spectrum (as T-Mobile US (NYSE:TMUS) plans to do).
This shift in focus from coverage to capacity is necessary and expected, and it portends a wider evolution: LTE networks are about to get a lot more complex. That process likely will not be apparent to consumers and probably won't be marketed to them, but carriers will have an opportunity to take advantage of their LTE network architectures to improve the customer experience—and potentially make more money off consumers along the way.
What's driving this? Part of it is simply meeting the demands on the network (Verizon just reported that 64 percent of its data traffic now goes over LTE). Another aspect is the push toward LTE Advanced, which is a set of standards and specifications all carriers will be moving toward with greater urgency next year. The most widely discussed feature is carrier aggregation, which melds together disparate bands of spectrum to create wider channels. However, while carrier aggregation has gotten a lot of hype, there are other, less heralded LTE Advanced features that will help improve customer experience, not just provide more speed.
One is coordinated multi-point (CoMP) transmission, which improves performance at the cell edge, and another is enhanced inter-cell interference coordination (eICIC), which will allow small cells and big macrocells to coexist in the same spectrum. As these features are implemented, both will give LTE users more reliable, consistent performance.
Ultimately, any carrier CEO or CMO will tell you that performance is what matters. Verizon Communications CFO Fran Shammo said as much last week, when he dismissed reports about Verizon's unloaded AWS spectrum in New York City allowing 80 Mbps downlink speeds, or answered questions about how many AWS sites Verizon will have online this year (the plan is for 5,000). "To me, it's kind of irrelevant how many cells sites have what, it all comes down to the quality of the network, the reliability and the consistent performance of that network," he said on the company's third-quarter earnings call, according to a Seeking Alpha transcript.
Carriers will be making these "under the hood" enhancements to their networks over the next few months, but consumers likely will never hear about them, and probably don't care. "In the next couple of years it's going to be speed and coverage," Tolaga Research analyst Phil Marshall said. "[Carriers have] trained the consumer and the end user to evaluate the networks in terms of those categories."
How can carriers use these network enhancements to their advantage? Current Analysis analyst (and FierceWireless contributor) Peter Jarich suggested that carriers can work with their OSS/BSS vendors to identify their most loyal and highest-spending customers and target them with offers that guarantee a certain quality of experience or just let them know that their experience is improving because of changes the company is making to the LTE network. Jarich noted that this probably "helps keep those customers you have and hold onto higher value customers" but doesn't necessarily bring in new revenue.
556 Ventures analyst William Ho said that this kind of marketing will be tailored by each carrier for their specific customer bases, and based on their spectrum holdings. For example, he said, T-Mobile, which uses higher-band spectrum 1700 MHz for LTE that does not penetrate buildings as well as Verizon and AT&T's 700 MHz spectrum, will likely want its customers to know that (through tools like COMP and eICIC) their LTE experience will be getting better. And T-Mobile customers will likely warm to that message. All of this assumes these techniques actually deliver the promised benefits.
And therein is the key to understanding how LTE network advancements will impact customers and carrier revenues. As Ho noted, organic postpaid subscriber growth has plateaued. The next frontier is getting customers to add multiple devices to shared data plans, or signing them up for connected car or home services. A customer is only going to sign up for those things, he said, if they are happy with their carrier.
Adding capacity and LTE Advanced features will make architecting networks a more complex job. Carriers likely won't trumpet these advancements in their marketing, other than to tout speed and reliability. But the door is open for them to improve their LTE networks and then use those improvements as a gateway to future revenue growth.--Phil