Entner: LTE and the U.S. - Consumers are king

Roger Entner Recon Analytics

Roger Entner

A few days ago, a short report from the GSMA's Wireless Intelligence (WI) group intimated that prices for LTE wireless data are lower in Europe than they are in the United States. WI attributes the lower prices to more competition in Europe, pointing to the fact that multiple LTE networks are competing against each other. At face value, WI's point on price appears valid; however, when observed a bit closer, the conclusion does not ring true.

The fatal flaw is that it does not take into account the basic tenet of economics that a "price" is established at the point where supply and demand are at equilibrium. Higher demand for LTE in the U.S. than in Europe, combined with a more limited spectrum inventory to support LTE in the U.S. may well bedevil American consumer advocates until the FCC opens the spectrum spigot.

Consumers in the United States are the undisputed world leaders in their usage of smartphones and consumption of wireless data services. Consider the following: In Sweden the market leader, TeliaSonera, has 170,000 customers on LTE, or 3 percent of TeliaSonera's subscribers. By comparison, more than 15 million customers, are on LTE networks with coverage that exceeds the entire territory of Sweden several times over. Verizon Wireless, one of the seven operators that are offering LTE in the U.S. already, has more LTE customers than the rest of the world combined and more than 35 percent of its data traffic is on LTE. Whereas the operators in Europe and indeed the rest of the world are lowering their wireless data prices to attract more customers to their largely empty LTE networks, American consumer demand for LTE is extremely strong.

As a general economic matter, lower demand and lower usage leads to lower prices, while higher demand and higher usage leads to higher prices. Further, in the U.S. where demand is very high and the spectrum resources to support the demand are constrained, prices will be impacted. 

 

USA

Germany

France

Spain

UK

Italy

South Korea

Subscribers in millions

322.8

109.8

63.2

57.3

75.7

91.2

51.8

Spectrum Assigned in MHz

409.5*

615

375

625

375

270

270

Potentially Usable Spectrum in Pipeline in MHz

50

Recently auctioned 350

250

59.6 and recently auctioned 250

310

250

120

MHz/million subscribers

1.3

5.6

5.9

10.9

4.9

3.0

5.2

* Figure includes AWS‐1, 700 MHz spectrum not yet in use and 55.5 MHz of spectrum at 2.5GHz

Source: 4G Americas, Bank of America Merrill Lynch, regulatory and company websites, press reports and Recon Analytics

As one can see in the table above, United States mobile operators are facing a significantly more constrained supply of spectrum suitable to support wireless data as compared to their foreign counterparts. When we normalize the spectrum available per person, the United States consumer is by far in the worst position. It has per person, only one-third of the spectrum available than Italy where demand for wireless data is comparatively weak. 

Other countries have assigned three to eight times as much spectrum per person to satisfy the demand for data. Consider the impact on service prices if the FCC really opened up the spectrum spigot. When spectrum was still plentiful in the United States, the wireless operators competed prices to the lowest in the industrialized world. The same competitive forces are at play with regard to wireless data pricing, but could take hold faster and more intensely if more spectrum were put into the marketplace and regulators allowed secondary markets to work more quickly and effectively. Bravo to the FCC for making 30 MHz of WCS spectrum useable for supporting wireless broadband. More and faster decisions like that will go a long way to accelerating the downward price trajectory for LTE based wireless services.

Roger Entner is the Founder and Analyst at Recon Analytics. He received an Honorary Doctor of Science from Heriot-Watt University. Recon Analytics specializes in fact-based research and the analysis of disparate data sources to provide unprecedented insights into the world of telecommunications. Follow Roger on Twitter @rogerentner

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