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A strong year for LTE adoption

TMT Telecommunications Predictions 2013

Deloitte | Telecommunications | TMT Predictions 2013More than 200 operators in 75 countries will have launched an LTE network by the end of 2013, Deloitte predicts1. By year-end LTE subscriptions should exceed 200 million, a 17-fold increase in just two years2. About 300 LTE devices (smartphones, tablets and dongles) should be available by year-end, including a range of sub-$100 smartphones. However, it will be a year of momentum for LTE, rather than completion: at the end of 2013 the vast majority of 1.9 billion smartphone customers are likely still to use 3G and 2.5G devices.

LTE was launched in Sweden in 20093. Growth has since been steady but slow, with the exception of the United States, Canada, Japan and South Korea, which have seen faster take up4. In most countries where LTE has launched, 3G and its variants, such as HSPA, have remained the dominant networks. As of January 2012, there were just 12 million LTE customers, compared to more than a billion 3G subscribers5. By mid-2012, over half of LTE devices had been sold in just one market – the United States6. By January 2013, the number of LTE subscribers might have risen to more than 60 million and by year end subscriber numbers may surpass 200 million7.

Device availability should increase rapidly. At the end of 2011, only 27 LTE-enabled smartphones and 11 tablets were available8 .One year later, over 150 models of smartphones and 50 tablets were on the market9. By the end of 2013, an additional 150 smartphones and tablets may have been launched. These will include a small but growing range of LTE handsets aimed at the pre-pay market, and priced at under $100: as of January 2013, fewer than ten sub-$100 LTE handsets models will be available. By year end, that number is likely to triple. The range of sub-$100 handsets is significant as it makes LTE accessible to a significant target audience.

Through 2013, there are likely to be tens of millions of LTE device owners not on an LTE tariff, as well as numerous individuals on an LTE tariff who do not have an LTE phone. In 2013, at least fifty million LTE devices are likely to be sold to individuals whose carrier does not have an LTE service, or whose available LTE frequencies are not supported on that device, or to subscribers who do not want to subscribe to LTE10. These fifty million will augment the existing base of tens of millions of LTE-ready devices that may never be used on an LTE network.

The cost of LTE chipsets, which has a significant impact on the retail price of LTE devices, should continue to fall in 2013. The incremental cost of adding LTE to one of the first LTE-enabled smartphones was estimated to be about $4011. At year-end 2012, the incremental cost of adding LTE to a chipset is likely to be in the region of $10 and in the range of $5 - $10 range by mid-201412.

Realized (as opposed to advertised) LTE speeds should remain significantly faster (three times faster or more) than equivalent 3G networks. However, as LTE networks attract more users, speeds may decline from 20-30 Mbit/s to about 10 Mbit/s or less13. Operators are likely to balance their networks so that LTE performance remains differentiated from 3G speeds. For some carriers, up to half of data traffic is expected to be carried over LTE networks by the end of 201314. In some markets HSPA speeds may exceed LTE speeds, but in many cases this will be temporary: in the medium term, LTE should be faster than HSPA, because providing equivalent speeds on HSPA requires two to three times more spectrum. At the beginning of 2012, actual average LTE speeds recorded in the United States were three to seven times faster than 3G15.

Usage of complementary networks (principally Wi-Fi) may be little affected by LTE. While LTE is faster and lower cost per gigabyte (GB) than 3G, it is likely to remain more expensive in countries with mature fixed network infrastructures. In home and office contexts, it will be slower than fixed broadband networks accessed through Wi-Fi routers16. Deployment of LTE small cells improves indoor coverage, but there is not always a business case for this17. In most case users may gravitate to the fastest, most reliable and best-priced wireless network available: they are unlikely to debate the technical merits of LTE picocells versus Wi-Fi. They will leave such discussions to engineers, and those debates are likely to persist through 2013 and beyond18.

In most markets, LTE network coverage is likely to focus on cities, where the majority of calls are made, traffic generated and revenues earned. In some markets, operators may be required to build out rural LTE coverage as a condition of obtaining a license19.

The migration of speed-seeking data users to 4G may be accompanied by a rise in the volume of voice calls on legacy 2G and 3G networks. As data traffic migrates to LTE from 3G networks, the latter’s capacity is likely to get freed up, enabling higher call quality, with a lower likelihood of calls dropping. Although technology permits voice calls to be carried over the LTE network (VoLTE), they are likely to be offered in only a handful of markets, supported by at most a few dozen handsets20.

In the long term, data usage by LTE customers should remain higher than by 3G customers. In 2012, networks reported LTE customer data usage was between 50 percent and 900 percent higher than 3G customer usage21. Again some of this was likely to have been due to 3G customers moving their relatively high data usage to LTE networks, and some caused by increased data usage triggered by the availability of higher speeds and larger data caps22.

LTE customers are likely to generate significantly higher average revenue per user (ARPU) than 3G customers. That is because of selection effect, where an operator’s higher spending customers migrate or are migrated to LTE tariffs, and consumers being willing to pay a premium for higher speeds23.

By the end of 2013 or 2014 revenues from subscribers on LTE tariff plans may have reached about 10 percent of global mobile service revenues, with three to four percent of the total subscriber base24. However this does not necessarily mean that LTE networks will generate a tenth of all revenues. To illustrate, the majority of voice calls made over LTE handsets in 2013 are likely to be carried over 2G or 3G networks; LTE handsets on LTE tariffs will still use 3G and 2G if LTE networks are not available.

While LTE networks will be fast enough to support video downloads, in most markets LTE will be used only occasionally for video download, due principally to the cost of serving that capacity and/or data costs to the end-user. LTE is more efficient in carrying data than 3G networks over a given amount of radio spectrum, meaning that the cost to the operator of carrying a gigabyte (GB) of data on an LTE network should be several factors lower than for 3G. Despite LTE’s superior spectral efficiency, it is still likely to cost about $5 to $10 for a mobile operator to carry 1GB of data, sufficient for about one to two hours of high definition (HD) video streaming or two to four hours of standard definition video25.

Some carriers may price LTE at under $5 per gigabyte in 2013, but this will tend to be to encourage usage. As they fill up, mature LTE networks are likely to see significantly higher pricing. As of Q4 2012, research found a range of $0.66 to $5.50 per GB26. The former operator at the lower end of the range had five percent of its customer base on LTE, while the latter had about 16 percent of its customer base on LTE27.

While LTE is unlikely to be able to deliver live, uninterrupted TV to a bus or train full of commuters on their way to work at an affordable price28 this does not mean that LTE is inadequate; it is just not suited to this type of application.

At the end of the day, LTE isn’t the reinvention of cellular. It is not the transformational shift that was seen in the move from essentially voice-only 2G technology to voice and data 3G technology. It does not require the effort and cost in educating of the customer base that 3G entailed. It delivers more data, faster and often cheaper – characteristics which many are likely to find appealing and it is likely to encourage them to use mobile for more data applications, and more often, than was the case with 3G. Browsing a website should be faster and more pleasurable. Photos captured on a device may be shared at a higher resolution than with 3G, simply because the upload for a larger file takes less time. For business users, e-mail is still likely to remain a key application, but sending and receiving e-mails with bulky attachments should be an easier experience, and as such is likely to be attempted (and accomplished) more often.

Bottom line

A key question for operators across the globe remains how to encourage demand for LTE, both initially and over time. Two of the key levers are pricing and marketing.

Carriers need to price LTE services, initially and over time, to encourage customers to take advantage of the newly built network while ensuring a return on their investment. One approach is likely to be shared data plans. The two dominant US operators offer multi-device shared data plans. Subscribers pay a fixed monthly fee for LTE access to a bucket of data which is shared across LTE-enabled devices, principally smartphones, tablets and laptops. This appears to be successful in driving rapid LTE adoption29. If successful, some consumers may even consider dropping their fixed broadband subscription30.

As the LTE base grows, carriers need to have a plan for pre-pay. In many markets pre-pay dominates in terms of subscriber numbers, so offering LTE handsets at prices applicable to the market likely to be a significant driver of adoption makes sense. In pre-pay markets such as India and Russia, where LTE is currently available, sub-$100 LTE handsets could encourage faster adoption. When LTE services become available in China – the world’s largest smartphone market– sub-$100 handsets could be a critical factor in uptake31.

In terms of marketing, a key question is how best to differentiate 3G and 4G. Operators need to strike a balance between underwhelming and over-selling, as there may not be any single new killer app in 4G which 3G cannot deliver. What will differ markedly, however, is user experience, and as a result duration and intensity of usage.

Content companies are likely to be excited about the possibilities for distributing via faster LTE networks. However they should be realistic as to what is possible. LTE will be faster than 3G, but network access may too expensive for bandwidth hungry applications, and bandwidth is finite. Sending video over LTE is technically possible but may not be the best use of LTE, particularly when alternatives such as Wi-Fi are available.

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1 The GSA forecasts that 209 LTE commercial networks will be available by the end of 2013. Up to 10 operators may have launched the next iteration of LTE Release 8, also known as LTE advanced. LTE Release 8 can support up to 300Mbit/s in a 20MHz channel with 4x4 MIMO or by using 2 carriers of 20MHz, i.e. 40MHz of spectrum, but using a 2x2 MIMO. LTE Advanced Release 10 can support over 1Gbit/s with at least four aggregated carriers of 20MHz each (and up to 100MHz of spectrum) using a 4x4 MIMO. Sources: Evolution to LTE Report, Global Mobile Suppliers Association, 2 November 2012. See: http://www.gsacom.com/downloads/pdf/GSA_Evolution_to_LTE_report_011112.php4 (requires subscription to read the full article); Russia Gets LTE-Advanced, Telecom Weekly, 24 October 2012. See: http://www.lightreading.com/document.asp?doc_id=226310

2 Source: Rapid Advance of LTE Spurs Convergence of Electronic Products, IHS iSuppli, 29 August 2012. See: http://www.isuppli.com/Mobile-and-Wireless-Communications/News/Pages/Rapid-Advanceof-LTE-Spurs-Convergence-of-Electronic-Products.aspx

3 Source: TeliaSonera first in the world with 4G services, TeliaSonera, 14 December 2009. See: http://www.teliasonera.com/en/newsroom/press-releases/2009/12/teliasonera-first-in-the-world-with-4g-services/

4 Source: LTE: What happened and what's next, Telecom Asia, 12 September 2012. See: http://www.telecomasia.net/content/lte-what-happened-and-whats-next?page=0%2C1

5 Sources: LTE subscriber base reaches 12 million at the end of 2011, Fierce Wireless, 13 March 2012, see: http://www.fiercewireless.com/press-releases/lte-subscriber-base-reaches-12-million-end-2011; Global 3G connections reach 1B, says industry group, Telecom Asia, 27 January 2012, see: http://www.telecomasia.net/content/global-3g-connections-reach-1b-says-industry-group

6 According to Canalys, as of the end of Q2 2012, there were almost 17 million LTE-enabled smartphones shipped in United States, which account for almost 60 percent of all LTE-enabled smartphones shipped worldwide.

7 Source: Rapid Advance of LTE Spurs Convergence of Electronic Products, IHS iSuppli, 29 August 2012. See : http://www.isuppli.com/Mobile-and-Wireless-Communications/News/Pages/Rapid-Advanceof-LTE-Spurs-Convergence-of-Electronic-Products.aspx

8 Source: Status of the LTE Ecosystem, Global Mobile Suppliers Association, 28 October 2011. See : http://www.gsacom.com/downloads/pdf/GSA_197_LTE_devices_Form_Factors.php4 (requires subscription to read the full article)

9 Source: Status of the LTE Ecosystem, Global Mobile Suppliers Association, 23 November 2012. See: http://www.gsacom.com/downloads/pdf/gsa_lte_ecosystem_report_231112.php4 (requires subscription to read the full article)

10 The vast majority of LTE chipsets support only four to five of the eight main bands on which LTE networks are run globally: in North America, 700/800 and 1700/1900 MHz are used; 2500 MHz in South America; 800, 900, 1800, 2600 MHz in Europe; 1800 and 2600 MHz in Asia; and 1800 MHz in Australia. In some cases LTE support may come included as part of an integrated chipset that combines various capabilities including LTE. However the LTE capability may only be effective if combined with other hardware parts such as signal amplifier and filter. Upgrading the radio hardware on a smartphone is very unusual so such devices, while supporting LTE, are very unlikely to be ever used on an LTE network due to the upgrade cost. Source: Nexus 4 Features Hidden LTE Chip, International Business Times, 26 November 2012. See: http://www.ibtimes.com/nexus-4-features-hidden-lte-chip-footage-explains-how-activate-4g-lgs-new-handset-videos-900174. For more information on LTE frequency bands Source: LTE (telecommunication), Wikipedia, 29 November 2012. See: http://en.wikipedia.org/wiki/LTE_(telecommunication)#Frequency_bands

11 Source: Teardown of HTC ThunderBolt Provides Insights on Rumored LTE iPhone, IHS iSuppli, 8 July 2011. See: http://www.isuppli.com/Teardowns/News/Pages/Teardown-of-HTC-ThunderBolt-Provides-Insights-on-Rumored-LTE-iPhone.aspx

12 The incremental cost of adding LTE is likely to vary by type of chipset. Variables include the number of frequencies supported and additional technologies supported on that chipset, such as GPS and GLONASS. High-end phones are likely to include high-end, complex chipsets, offering support for multiple technologies. For vendors, the ability to have one phone that works in most markets can have a marked impact on economies of scale. For further information on pricing dynamics; Source: Samsung reduces its LTE chip cost by half, CNET, 6 February 2012. See: http://www.cnet.com/8301-17918_1-57372289-85/samsung-reduces-its-lte-chip-cost-by-half/. The iPhone 5’s baseband chip and RF transceiver cost $34 as compared to $23.5 for the non-LTE iPhone 4S. Source: Many iPhone 5 Components Change, But Most Suppliers Remain the Same, Teardown Reveals, IHS iSuppli, 25 September 2012. See: http://www.isuppli.com/Teardowns/News/pages/Many-iPhone-5-Components-Change-But-Most-Suppliers-Remain-the-Same-Teardown-Reveals.aspx

13 Bharti Airtel which has garnered 4,000 4G customers 6 months after launch is expecting 4G speeds to reduce from the 10-30 Mbit/s achieved currently to 10 Mbit/s after 30 percent utilization. Source:

Airtel sees 3G handset prices falling 30% by next year, Daily News & Analysis, 21 September 2012. See: http://www.dnaindia.com/money/report_airtel-sees-3g-handset-prices-falling-30pct-by-next-year_1743305

14 For example, as of October 2012, the 12 percent of Verizon’s contract subscribers that had an LTE handset generated 35 percent of all its data traffic. Deloitte expects that in a few months, 4G traffic will increase to 50 percent of the total. Source: Verizon: 35% of data traffic now rides over LTE, GigaOM, 9 October 2012. See: http://gigaom.com/mobile/verizon-35-of-data-traffic-now-rides-over-lte/

15 Source: 3G and 4G Wireless Speed Showdown: Which Networks Are Fastest?, PC World, 16 April 2012. See: http://www.pcworld.com/article/253808/3g_and_4g_wireless_speed_showdown_which_networks_are_fastest_.html

16 Fixed broadband speeds are often in the tens of Mbit/s sometimes in the hundreds of Mbit/s. For a view on the UK: UK average broadband speed faster, Ofcom reveals, BBC, 15 August 2012. See: http://www.bbc.co.uk/news/technology-19267090; Virgin Broadband speeds going up from today, CNET UK, 9 October 2012. See: http://crave.cnet.co.uk/software/virgin-broadband-speeds-going-up-from-today-50009426/  

17 Source: DOCOMO Develops World’s First Small-cell Base Station for 3G and LTE, NTT Docomo Press Release, 16 November 2012. See: http://www.nttdocomo.com/pr/2012/001620.html

18 Source: Carrier WiFi Offload, Wireless 20/20, March 2012. See: http://www.wireless2020.com/docs/CarrierWiFiOffloadWhitePaper03202012.pdf

19 Source: Analysis: Germany rolls-out LTE to rural areas, Wireless Intelligence, 2 June 2011. See: https://wirelessintelligence.com/analysis/2011/06/germany-rolls-out-lte-to-rural-areas/283/

20 Voice over LTE services launched for the first time in 2012. A few operators only offered VoLTE in 2012 including Metro PCS in the US, and SK Telecom in Korea. Source: MetroPCS Claims World's First Voice-over-LTE Service, PC World, 7 August 2012. See: http://www.pcworld.com/article/260557/metropcs_claims_worlds_first_voiceoverlte_service.html; Source: World’s first Voice over LTE launches in Korea; US stuck with 3G calls, Ars Technica, 7 August 2012. See: http://arstechnica.com/information-technology/2012/08/worlds-first-voice-over-lte-launches-in-korea-us-stuck-with-3g-calls/

21 Source: LTE users consume significantly more mobile data when services are priced and marketed in the right way, Telecoms.com, 14 November 2012. See: http://www.telecoms.com/53073/lte-users-consume-significantly-more-mobile-data-when-services-are-priced-and-marketed-in-the-right-way/

22 Data usage may still be constrained by data caps on LTE data packages, which from Deloitte’s research do not appear much different to 3G data caps

23 One analyst has projected that LTE ARPUs will peak in 2012 at $88 per month. Estimates for 2013 are for ARPU to be lower but still much higher than the industry average at $70. ARPU is forecast to decline thereafter as the base swells. Sources: Mind Commerce Reveals LTE Basic Service ARPU to Begin Decline in 2013, PRWeb, 28 May 2012: http://www.prweb.com/releases/2012/5/prweb9536982.htm; Global LTE ARPU, Mind Commerce, 28 March 2012: http://mindcommerce.files.wordpress.com/2012/03/lte_subscriber_arpu.jpg;

24 Source: 4G LTE Revenues Projected to Exceed $100bn Globally in 2014, Despite Uncertainty about New Data Plans, Juniper Research, November 2010. See: http://www.juniperresearch.com/viewpressrelease.php?pr=213_%22.

25 A 45 minute show on the BBC’s iPlayer formatted for a smartphone is 240MB in SD and 465MB in HD. Not all services have the same degree of compression, hence the range used for more information. Sources: BBC iPlayer: http://www.bbc.co.uk/iplayer/ ; Mobile broadband usage guide: what can you get for your gigabyte?, BroadbandGenie, June 2012: http://www.broadbandgenie.co.uk/mobilebroadband/help/mobile-broadband-usage-guide-what-can-you-get-for-your-gigabyte

26 Tele 2 Sweden offers 80GB data package for 349 SEK($53)/month, with one GB on the LTE network priced at $0.66. Source: Tele 2: http://4g.tele2.se/. Verizon Wireless charges $5.5 per GB of LTE data. Source: Americans Paying More for LTE Service, The New York Times, 15 October 2012. See: http://www.nytimes.com/2012/10/15/technology/americans-paying-more-for-lte-service.html?_r=0

27 At end of Q2 2012, Tele 2 which prices one GB of LTE data at $0.66 had 70,000 LTE subscribers, equivalent to less than five percent of its customer base of 3.8 million. Sources: Interim Report, Tele2 AB, 30 June 2012: http://www.tele2.com/T2_Q2_2012_ENG_final.pdf; Tele2 grows sales 10%, EBITDA drops 3%; LTE gains 70,000 users, TeleGeography, 19 July 2012: http://www.telegeography.com/products/commsupdate/articles/2012/07/19/tele2-grows-sales-10-ebitda-drops-3-lte-gains-70000-users/. The best value 4G data tariff at the world’s largest LTE operator Verizon Wireless charged $5.50 per GB. As of Q3 2012, Verizon had a customer base of 14.9 million LTE subscribers, equivalent to 16 percent of its customer base of 95.9 million. Source: 3rd Quarter 2012 Earnings Results, Verizon, 18 October 2012: http://www22.verizon.com/idc/groups/public/documents/adacct/3q12_earnings_release_slides.pdf;

28 This is not merely due to the marginal price per GB of data. The technology behind LTE is quite good at providing very fast speeds to a number of users across a cell. But if too many users are in a concentrated area (like a bus or train), the speed throughput in that very narrow segment (as seen from the cell tower) will drop sharply. Further, having those users all watching high speed video while moving at 50-100 kilometers per hour could create severe hand-off discontinuities. Finally, depending on the bus or train, the amount of steel in the carriage might prevent (depending on which band is being used) the LTE signal from penetrating at a high speed modulation rate, once again causing realized speeds to drop over 90 percent.

29 For example, both Verizon and AT&T see strong uptake of their shared plans, which were introduced as an alternative to the all-you-can-eat plans. Sources: Verizon subscribers give 'Share Everything' plans a boost, CNET, 18 October 2012. See: http://news.cnet.com/8301-1035_3-57535137-94/verizon-subscribers-give-share-everything-plans-a-boost/ Source: AT&T Activates 4.7M iPhones, Signs Up 2M for Shared Data, PC Mag, 24 October 2012. See: http://www.pcmag.com/article2/0,2817,2411344,00.asp

30 Source: Japanese youth dumping fiber lines for LTE, GigaOM, 21 November 2012. See: http://gigaom.com/2012/11/21/japanese-youth-dumping-fiber-lines-for-lte/

31 Source: China speeds up its LTE schedule, could issue permits 'within a year', Engadget, 11 September 2012. See: http://www.engadget.com/2012/09/11/china-speeds-up-lte-schedule/

 

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