C Spire Wireless' announcement last week that it will deploy LTE in 20 markets in Mississippi in September brought some clarity to the company's LTE plans. At the same time it also sparked questions about how C Spire and other, smaller carrier plan to keep up with the nation's Tier 1 operators in the race to LTE.
Smaller carriers must overcome a handful of tough hurdles to get their LTE networks off the ground and remain competitive with the likes of Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T), which have already carved out substantial leads in LTE network coverage and device selection. These challenges stretch across marketing, pricing, devices and roaming.
In some ways, these challenges are same ones smaller carriers dealt with in the move from analog to digital, and from 2G to 3G. However, because of the lead Verizon and AT&T have with LTE, and because almost every major carrier is moving to the technology at the same time, these challenges have been exacerbated.
Here are the main topics that smaller carriers--including U.S. Cellular and Cricket provider Leap Wireless (NASDAQ:LEAP)--will have to deal with as they roll out LTE:
Marketing: Some carriers, like flat-rate player MetroPCS (NASDAQ:PCS), are moving to LTE largely because LTE is more efficient and will allow them to support more customers for less money. However, a big part of the migration to LTE is undoubtedly about simply keeping up with the larger players. "In a saturated, postpaid world you have to stay in with the big guys because of marketing and technology," said Current Analysis analyst William Ho. "You can't really say, 'We're behind.'"
Smaller carriers will likely play to their strengths in their marketing, arguing they have a better sense of their local customer base and are more focused on the customer experience. The problem is that larger carriers are undoubtedly going to push LTE into these smaller markets, which will force small carriers to compete on price. And since Verizon and AT&T are not charging extra for LTE service, smaller carriers probably won't be able to either--which likely will make their buildouts that much more difficult to pay for.
Devices: Device selection and pricing is another major issue. If smaller carriers begin selling an LTE handset six months after a larger carrier does, that phone will have to be competitively priced, Ho points out. Indeed, some carriers are already working to bring down the cost of LTE phones. By the second half of the year, MetroPCS expects to offer LTE smartphones that range from $99 to $149 as part of the company's "LTE for all" marketing strategy.
Still, LTE device selection among smaller carriers will likely lag the selection available at larger carriers. This may be especially true for companies that are operating in the Lower A Block of the 700 MHz band, including C Spire and U.S. Cellular. They have argued that without interoperability requirements across the entire 700 MHz band, chipset and device vendors will cater more to Verizon and AT&T's needs. However, it appears U.S. Cellular is working to mitigate that issue--the carrier expects to launch at least five to seven LTE devices this year, including its first, the Samsung GalaxyTab 10.1, in the next few weeks.
Network engineering: Another major challenge facing smaller carriers is actually getting their LTE networks deployed and then maintaining them. Any time a carrier transitions to a new technology there is a great deal to learn, especially in how to optimize the air interface, explained Tolaga Research analyst Phil Marshall. Smaller carriers are likely to get less attention from the equipment vendors than larger carriers, and there is a limited amount of engineers who can actually understand LTE and help carriers. For that reason, he advised smaller carriers be "aggressive in marketing and conservative in technical strategy." Leap plans to deploy LTE across roughly two-thirds of its current network footprint over the next two to three years. It plans to cover around 25 million POPs with LTE by the end of 2012. U.S. Cellular plans to cover 54 percent of its current customer base with LTE by the end of this year.
Roaming: Probably the biggest challenge facing smaller carriers is the lack of LTE roaming. Verizon and AT&T are likely to finish their LTE buildouts before they strike roaming agreements (meaning, the deals likely wouldn't happen until late 2013 or early 2014). "They're basically islands because there's no roaming," Ho said of the smaller carriers. At some point, the larger carriers may find roaming will boost their revenues, but that time certainly isn't now. Still, some steps are being taken to alleviate the problem. Leap, for example, just inked a five-year wholesale deal to use Clearwire's (NASDAQ:CLWR) forthcoming TD-LTE network, which may help broaden Leap's footprint in 2013. And T-Mobile USA threw its support behind 700 MHz interoperability, in part because such rules would make it easier for T-Mobile to roam onto the 700 MHz networks of Verizon and AT&T (T-Mobile plans to build LTE on its AWS 1700 MHz spectrum.)
It seems clear that smaller carriers face many challenges as they move to deploy LTE. Some of them are endemic to the industry and will only be overcome with time. Some will require diligent work with vendor partners. Others, especially roaming, can potentially be surmounted via regulation from the FCC. At this point though, I don't envy the executives in charge of rolling out LTE at these smaller carriers. --Phil