informa 4g strategy 26-11-2013

4G Strategy: Successfuloperators show how LTE can

improve KPIsPaul Lambert

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www.informatandm.com 2013 Informa Telecoms & Media

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ContentsContributing analysts........................................................................................................1

4G strategy: Successful LTE operators show that increasing usage is key to improvingKPIs..................................................................................................................................... 2

4G strategy: Successful operators show how LTE can improve KPIs.............................. 4

Fig. 1 Global, LTE subscriptions by region, 3Q11-3Q13............................................................................................................... 4

Fig. 2: Global, number of LTE networks by region, 2Q13............................................................................................................5

Fig. 3: Top 10 countries worldwide by 4G penetration, 2Q13...................................................................................................5

Fig. 4: Top 20 LTE operators worldwide, by subscriptions, 2Q13............................................................................................. 6

Fig. 5: Key drivers for LTE networks launches and subs uptake...............................................................................................6

Fig. 6: LTE devices launched in 2013, by LTE mode, as at 2Q13.............................................................................................. 7

Fig. 7: Leading LTE operators, pricing approach............................................................................................................................. 8

Fig. 8: Netcom (TeliaSonera Norway), evolution of LTE price plans: Oct-10, Apr-11, Apr-12 and Sep-13.............. 9

Fig. 9: UK, Vodafone and EE monthly plans, Sep-13.................................................................................................................... 9

Fig. 10: US, AT&T and Verizon Wireless, each advertising that they offer the best 4G network............................ 11

Fig. 11: Vodacom scaling the network and device availability......................................................................................... 11

Fig. 12: EE expanding the network and the range of devices and evolving its pricing strategy......................... 12

Fig. 13: Verizon Wireless KPIs, 3Q11-2Q13.....................................................................................................................................13

Fig. 14: LTE-only service announcements, up to 3Q13..............................................................................................................14

Fig. 14: LTE-only service announcements, up to 3Q13 (cont.)............................................................................................... 15

Fig. 15: EE, 4G marketing, 3Q13..........................................................................................................................................................15

Fig. 16: Selected VoLTE deployments and plans, end-Sept 2013...........................................................................................16

Fig. 17: Global, LTE subscriptions, by region, 2013-2018......................................................................................................... 17

Fig. 18: LTE subscriptions in selected countries, 2013-2018................................................................................................... 17

Fig. 19: Selected LTE roaming launches/ plans, Nov-13............................................................................................................18

4G strategy: Emerging Asia operators market LTE to high-end users but need toevolve pricing models to make a return on investment.............................................. 21

Fig. 1: Asia Pacific, 3G as % of total subscriptions, key markets, 3Q12............................................................................. 22

Fig. 2: Asia Pacific, in-service and planned LTE networks, emerging markets................................................................22

Fig. 3: Bharti Airtel, Smart, Globe, LTE subscriptions, 2Q12 and 3Q12..............................................................................23

Fig. 4: India, LTE (Bharti Airtel) and DSL/FTTH (BSNL) price comparison.........................................................................23

Fig. 5: Bharti Airtel India, LTE and 3G pricing comparison.....................................................................................................24

Fig. 6: Bharti Airtel, per-megabyte premium, 3G vs. LTE......................................................................................................... 25

Fig. 7: Philippines, Smart and Globe LTE and 3G pricing, Dec-12........................................................................................ 25

Fig. 8: Globe and Smart, per-megabyte premium, 3G vs. LTE................................................................................................26

Fig. 9: Bharti Airtel and Globe Telecom, additional LTE data-plan comparison............................................................26

Fig. 10: LTE Logos and branding..........................................................................................................................................................27

Fig. 11: LTE devices offered by Bharti Airtel, Globe and Smart..............................................................................................27

Fig. 12: Globe Telecoms LTE-smartphone portfolio....................................................................................................................27

Fig. 13: Bharti Airtels LTE value-added services...........................................................................................................................28

Fig. 14: Asia Pacific, key LTE networks launched in/planned for 2013..............................................................................28

Fig. 15: 2G-prepaid-to-LTE-postpaid migration plan................................................................................................................. 29

Fig. 16: LTE subscription forecast by region, 2013-2017..........................................................................................................30

Fig. 17: Asia Pacific, LTE subscriptions by country, 2013-2017............................................................................................. 30


4G strategy: AT&T focuses on LTE-network quality and coverage in competition forUS 4G leadership.............................................................................................................33

Fig. 1: Data-speed comparison by data protocol......................................................................................................................... 33

Fig. 2: US, average monthly data traffic, Dec-09 to Dec-12....................................................................................................34

Fig. 3: US, smartphone penetration by operator, 1Q11-1Q13............................................................................................... 34

Fig. 4: AT&T, WCDMA and LTE as % of total subsciptions...................................................................................................... 35

Fig. 5: US, LTE-plan comparison, unlimited talk, text and 2GB of data with iPhone 5...............................................37

Fig. 6: Example of AT&T marketing...................................................................................................................................................37

Fig. 7: AT&T, subscription trend by technology, 2Q11-1Q13..................................................................................................38

Fig. 8: AT&T LTE SWOT analysis.......................................................................................................................................................... 39

4G strategy: EE makes the most of its first-mover advantage to show how LTE canimprove KPIs.................................................................................................................... 41

Fig. 1: Comparison of EE's 24-month pricing plans....................................................................................................................43

Fig. 2: UK operators 4G price comparison, Oct-13...................................................................................................................... 43

Fig. 3: EE 4G network marketing, Oct-13........................................................................................................................................ 44

Fig. 4: EE KPIs 2Q12-2Q13......................................................................................................................................................................45

4G strategy: Etisalat sees 4G smartphones as chief tool for preserving a high-valueedge, but revenue increase is a tough prospect........................................................... 48

Fig. 1: UAE, smartphone penetration, 1Q11-1Q13..................................................................................................................... 49

Fig. 2: UAE, operator postpaid market share, 1Q13................................................................................................................... 50

Fig. 3: Etisalat UAE, mobile coverage by technology..................................................................................................................51

Fig. 4: Operator 4G dongle stand-alone prices..............................................................................................................................51

Fig. 5: Etisalat, Du, monthly data pricing, per gigabyte...........................................................................................................52

Fig. 6: Etisalat iPhone 5 pricing........................................................................................................................................................... 52

Fig. 7: Etisalat 4G subscriptions, 4Q11-1Q13................................................................................................................................ 53

Fig. 8: Etisalat LTE SWOT analysis...................................................................................................................................................... 53

4G strategy: Sprint supercharges LTE with launch of Spark tri-band services as USraces to LTE-Advanced.....................................................................................................56

Fig. 1: Sprint Spark marketing.............................................................................................................................................................. 56

Fig. 2: Sprint's enhanced spectrum position...................................................................................................................................57

4G strategy: Verizon Wireless rides aggressive LTE strategy to stellar results butneeds to innovate to retain US and global leadership................................................. 59

Fig. 1: US, mobile broadband subs as % of total mobile subs, 1Q11-4Q12...................................................................... 60

Fig. 2: US, smartphone connections and penetration, 2011-2017...................................................................................... 60

Fig. 3: Verizons four strategic network platforms...................................................................................................................... 61

Fig 4: Verizons LTE business model................................................................................................................................................... 62

Fig. 5: Verizon Share Everything plans............................................................................................................................................. 63

Fig. 6: Verizon's LTE marketing.............................................................................................................................................................64

Fig. 7: Verizon Wireless selected service changes, Nov-09 to Apr-13.................................................................................. 65

Fig. 8: Verizon Wireless subs by technology, Dec-10 to Jun-13............................................................................................. 66

Fig. 9: US, LTE subs by operator, Dec-10 to Jun-13 (mil.)..........................................................................................................66

Fig. 10: Global, top 15 LTE operators by subscription count, end-Jun 13......................................................................... 67

Fig. 11: US, market share of top four mobile operators, 2009-2012...................................................................................67

Fig. 12: US, monthly ARPU of top four mobile operators, 3Q10-2Q13..............................................................................68

Fig. 13: Verizon Wireless selected results, 2010-2012................................................................................................................68


Fig. 14: Verizon Wireless LTE SWOT analysis.................................................................................................................................68

4G strategy: Vodafones pricing puts faith in the value of premium content ............ 71

UK, Vodafone and EE monthly plans, Aug-13.............................................................................................................................. 71

4G strategy: Global momentum to LTE accelerates as successful strategiesemerge............................................................................................................................. 73

Fig. 1: Why is now the right time to deploy LTE?........................................................................................................................ 74

Fig. 2: How can operators best differentiate LTE from 3G? (Please choose two options)........................................... 74

Fig. 3: Which service or application is driving/ will drive the greatest volume of traffic on LTE networks?(Please choose one option)......................................................................................................................................................................75

Fig. 4: If you have launched LTE, what increase in ARPU are you seeing when a subscriber migrates toLTE?.....................................................................................................................................................................................................................75

Fig. 5: If you have launched LTE, what average increase in LTE data usage are you seeing compared with3G?......................................................................................................................................................................................................................76

Fig. 6: What variant of LTE do you intend to deploy?...............................................................................................................76

Fig. 7: Which spectrum bands do you intend to use to deploy LTE? (Tick any that apply)....................................... 77

Fig. 8: In your view, what is the likely future role of Wi-Fi for operators deploying LTE in the next two to threeyears?.................................................................................................................................................................................................................77

Fig. 9: What percentage price premium do you think is right for LTE?.............................................................................78

Fig. 10: Do you plan to offer any 4G-only content free over LTE to encourage uptake?............................................78

Fig. 11: When do you expect LTE-Advanced to be deployed?................................................................................................ 78

Fig. 12: When do you plan to go live with VoLTE services?.....................................................................................................79

Fig. 13: Do you think its possible to charge a premium for LTE voice?.............................................................................79

Fig. 14: When do you expect LTE small cells to be deployed?................................................................................................80

Fig. 15: Where do you expect widespread commercial public-area LTE small cells to be deployed first?............80

Fig. 16: Operators are better prepared to offer roaming services across LTE networks in 2013 compared with2012................................................................................................................................................................................................................... 81

Fig. 17: What do you see are the main barriers to LTE roaming?........................................................................................81

Fig. 18: Do you plan to extend 2G/3G roaming agreements to 4G, or strike new agreements?............................82

Fig. 19: A hubbing approach is better for LTE roaming compared with a bilateral approach.................................82

www.informatandm.com 2013 Informa Telecoms & Media 1

Contributing analysts26 July 2013Informa Telecoms & Media

Anubhuti Belgaonkar, Senior Analyst

Ismail Patel, Research Analyst

Kristin Paulin, Senior Analyst

Mike Roberts, Principal Analyst


4G strategy: Successful LTE operatorsshow that increasing usage is key toimproving KPIs31 October 2013Paul Lambert

Evidence from the market indicates that successful 4G operators have approached LTE-network launches initially as a platform to enhance the mobile broadband experience ratherthan to generate new revenues by charging more for access to the network. By enhancingthe end-user experience of accessing the Internet on the go without charging more for access,successful LTE operators are seeing that people use Internet services while mobile more thanthey did over 3G. Because of this increase in usage, operators are seeing improvements in KPIs.

This approach is quite different from the way the majority of operators approached 3G:charge more for access because 3G is a more advanced network that can do more things. Itwasnt until compelling 3G smartphones were launched starting in 2007 that 3G really tookoff in terms of people actually using the networks to access the Internet. And as more 3Gsmartphones came to the market, operators began aligning their pricing strategies with end-user expectations to the point where price was no longer a barrier to using 3G.

Before the first 4G launch in 2009, there was a tacit consensus that operators would be able tocharge more for accessing the Internet over 4G than 3G. Some operators pursued this strategyand found that the market was unwilling to pay a significant premium for 4G over 3G. WhenVerizon, AT&T and SKT evolved their 4G pricing to bring it line with 3G pricing, their LTEsubscription rates increased significantly, because the market response to the enhanced 4Gexperience was overwhelmingly positive. As a result, they saw a variety of effects: Consumerswere willing to sign up for plans with higher monthly data allowances, and people used the4G network more. Consequently, operators found that their KPIs improved.

What is it about LTE that causes more use of the Internet and Internet services on the go?Operators have shown that the enhanced speed of 4G over 3G, along with latency, are enoughto encourage users to spend more time accessing the Internet and doing more things whileon it than they did when they had 3G. This is by itself leading to KPI improvements.

Another crucial element in using LTE to improve KPIs is 4G-network capacity and howit affects what is probably the most important factor in determining an operators LTEsubscription take-up: pricing. Operators can offer more data with 4G for the same amount ofmoney they did with 3G because of the capacity benefits of 4G over 3G, and this is encouragingusers to access the Internet on the go more than they did with 3G.

Successful LTE operators are showing that if 4G access is priced in the right way and at theright level, users will consume more data, which operators are then in a position to monetize.So what is the right pricing approach? Analyzing the most successful LTE operators, commonapproaches emerge:

Using LTE to improve the mobile broadband experience. Not charging a premium for 4G access. Increasing the overall value in 4G subscriptions, so users get more than they would

with a comparable 3G subscription.

The impact this approach has had on KPIs is detailed in the report, but here are a fewhighlights:

SKT is seeing an almost 50% increase in monthly data usage on LTE compared with 3G,with the respective figures standing at 1.6GB and 1.1GB at end-June 2013.

AT&T has 35% of its postpaid smartphone base using LTE-capable devices, and theoperators smartphone data usage per device increased as much as 50% year-on-year inthe 12 months to end-2Q13, causing wireless data revenues to increase 19.8% year-on-year. The increased usage helped improve its total postpaid ARPU 1.8% year-on-year.

EE has found that subscribers who have moved to 4G show an increase in ARPU ofabout 10%.


EE says that nearly half of its 4G users say they browse the Web more on 4G than 3G,and over one in three say they download apps, use GPS services and access social mediamore with 4G than they did with 3G.

Although LTE has had a positive effect on some operators KPIs, its important to point out thatLTE isnt a magic bullet to solve all operators problems. But even in an extremely competitivemarket such as Japan, LTE operator DoCoMo has been able to outperform the overall marketin some key metrics by pursuing a successful LTE strategy.

Because in essence, and certainly from the end-users point of view, 4G offers an improvedmobile broadband experience compared with 3G, operators first need to work out how toincorporate 4G into their mobile broadband strategies. This means that before launching4G, operators have to identify and target users who will most likely benefit from 3G-to-4G migration. At the same time, because LTE offers an enhanced end-user experience,operators have an opportunity when they launch LTE to improve their competitive positioningin the valuable midrange-to-high-end section of the overall market if they can effectivelycommunicate to the market the benefits of 4G. By being successful in targeting both existingand new users, many LTE operators have shown improvements in ARPU and churn.

Global 4G momentum is accelerating: Over 80% of the operators responding to InformaTelecoms & Medias survey on LTE-launch strategies said they believe there is a viable businesscase to launch LTE today, and one-third of respondents said they plan to launch LTE this year.This indicates that now is the time for operators to assess their 4G strategies in the context ofemerging best practice for using LTE to improve KPIs.


4G strategy: Successful operatorsshow how LTE can improve KPIs21 October 2013Paul Lambert

Executive summary

Pricing remains the single most important factor in determining LTE subscriptionuptake. Now that the most sought-after devices are LTE-enabled, and in the majorspectrum bands, device availability is no longer hampering LTE uptake, especially indeveloped markets.

The most successful LTE operators in terms of subscriptions currently dont chargemore for accessing their 4G network than they do the 3G network. Some that havecharged a premium for 4G access at launch have subsequently moved these prices inline with 3G pricing and seen much greater success in signing up 4G users.

Successful 4G operators have shown there is no secret to profitably launching 4G.Speed and the overall perception that 4G offers a tangibly enhanced experience over3G has been proved to be enough for operators to profitably grow their 4G subscriptionnumbers.

In emerging markets, operators are pursuing the 4G-price-premium strategy moreaggressively than in developed markets. Operators in these markets should considerhow likely strong subscription uptake will be in light of experience in markets wherethis approach has already been tested.

New services are gradually being rolled out over LTE and evidence to date shows thatbundling content and value-added services into 4G subscriptions can both encourageusers to migrate to 4G and then toward using larger monthly data amounts oncesigned up to a low monthly 4GB price plan. To develop a content strategy, operatorsneed to define what segments of the market they are targeting with the content, andhow that fits in with their overall brand positioning.

Market status

While the rollout of LTE networks remains sporadic from a global perspective, increasingoperator commitment to the technology and end-user interest in 4G services, whenpositioned in the right way, resulted in a 223% year-on-year increase in global LTEsubscriptions to end-3Q13 (see fig. 1). North America continues to lead LTE subscriptionnumbers, driven by the early LTE network launches by AT&T Wireless and Verizon Wireless,while operator commitment in developed and developing Asia Pacific means that this regioncomes in second place with a year-on-year subscription growth to end-3Q13 as strong as wasexperienced in North America.

Fig. 1 Global, LTE subscriptions by region, 3Q11-3Q13


Western Europe has the largest number of LTE networks (see fig. 2). Europe no longer lags otherregions in terms of LTE subscription numbers as it did after a mixture of regulatory delaysin awarding spectrum and relative lack of operator commitment caused LTE launch delaysin many markets in the region. In other regions, such as Africa and emerging Asia, ongoingdelays to LTE launches can be expected, not least because 3G networks are meeting demandfor data in countries in these regions, combined with regulatory delays.

Fig. 2: Global, number of LTE networks by region, 2Q13

South Korea is by far the most-penetrated country in terms of LTE subscriptions (see fig. 3), aresult of commitment to the technology by each of the major operators, combined with strongdevice portfolios and not charging a premium for 4G access.

Fig. 3: Top 10 countries worldwide by 4G penetration, 2Q13

However, it is the US operator Verizon Wireless that is the leading 4G operator by subscriptionnumbers (see fig. 4), because it is one of the largest operators in the world and has beenextremely aggressive in rolling out its LTE network and pricing services at the same level as 3G.


Fig. 4: Top 20 LTE operators worldwide, by subscriptions, 2Q13

Regardless of region or market, however, a combination of key factors is driving LTE networklaunches and subs uptake (see fig. 5).

Fig. 5: Key drivers for LTE networks launches and subs uptake

Crucially, device availability is no longer a barrier to LTE uptake. Not only are the most sought-after smartphones from leading vendors Apple and Samsung LTE-enabled, along with a widerange of LTE-capable devices from other vendors, these models are increasingly available in arange of modes, ensuring they can be launched in multiple markets (see fig. 6).


Fig. 6: LTE devices launched in 2013, by LTE mode, as at 2Q13

Market dynamics

How are LTE operators differentiating and competing?Pricing remains the single most important factor in determining LTE subscription uptake.Now that the most sought-after devices are LTE-enabled, and are in the major spectrum bands,device availability is no longer hampering LTE uptake, especially in developed markets. Whenlaunching LTE, operators have an opportunity to redefine their position in the market: Theycan use LTE to reposition in the market around:

A new pricing strategy compared with 3G. Evolving the brand (potentially in conjunction with the new pricing strategy) to re-

position in the market. Addressing specific audiences with content delivered over 4G networks. Using LTE to address new markets (e.g., fixed-broadband segments).

Closely related to this, LTE operators are differentiating from each other and competing inthese main ways:

Pricing and overall value offered as part of the 4G subscription. Quality of the network and network coverage. Bundling value-added services/ exclusive content with 4G subscriptions

PricingWhether operators charge a premium or not is the single most important lever in determiningthe rate of LTE subscription uptake. The most successful LTE operators in terms of subscriptionscurrently dont charge more for accessing their 4G network than they do the 3G network.Some, including DoCoMo in Japan, which charged a premium for 4G access at launchsubsequently moved these prices in line with 3G pricing (see fig. 7).


Fig. 7: Leading LTE operators, pricing approach

Nordic operators, particularly TeliaSonera and Telenor, were among the first in the world tolaunch LTE, in 2009. When they launched with limited coverage and without smartphones,they charged LTE at a significant premium over 3G. This approach mirrored operators 3Gpricing strategies by trying to generate new revenues from the newly-introduced technology.However, as 3G services evolved, operators brought 3G pricing in line with 2G voice pricing,charging a premium for data access only. Similarly, as 4G networks evolved, the majority ofoperators have brought 4G pricing broadly in line with 3G and, where premiums have beencharged, these have reduced considerably since the initial launch premiums. For example,after an initial period of charging a premium for LTE by NTT DoCoMo in Japan, 2Q12-3Q12 wasthe tipping point for DoCoMos LTE service it cut its LTE fees for select smartphone servicesto curb the outflow of customers due to the threat of price competition from rivals. DoCoMocut the monthly fee of its LTE service by about 1,000 (US$12.64) from 5,985 for up to 7GBof data a month.

US operator Verizon has shown that pricing is the single most important thing an operator hasto get right to ensure that subscribers will take LTE. At launch, Verizon opted not to charge apremium for LTE, but tried to encourage the heaviest users to take out the more expensive LTEprice plans which offer more monthly data. While this was successful at launch in terms ofdriving LTE subs uptake, Verizon, like DoCoMo and Telekom in Germany, evolved this approachover time to bring LTE pricing to parity with 3G. Verizon went against received opinion thatoperators should charge a premium for LTE as the Nordic operators had done, resulting inanemic uptake and didnt charge users more for accessing the 4G network than it would the3G network.

By comparison, TeliaSonera-owned Netcom in Norway has changed its 4G pricing strategyconsiderably since launching services. The operator has moved from charging a high premiumfor 4G access and large or unlimited amounts of data to charging less for smaller amounts ofdata, which means charging more per MB of data offered (see fig. 8).


Fig. 8: Netcom (TeliaSonera Norway), evolution of LTE price plans: Oct-10, Apr-11, Apr-12 andSep-13

Netcoms 4G pricing evolution shows how operators can move away from offering unlimiteddata, something which well see is essential operators that opt for this charging approach do.

Is a 4G pricing premium justifiable and sustainable?When an operator is first to launch LTE in its market, it has the opportunity to price 4G ata premium to maximize revenues from the relatively price-inelastic segments of the marketprepared to pay more for the enhanced end-user experience LTE provides soon after thenetworks launch. While the most successful LTE operators by subscription numbers eitherdecided against this approach at launch or turned away from it if they did opt for a premium,some operators are trying to sustain a 4G pricing premium over 3G: O2 UK, EE and VodafoneUK each charge more for 4G access over 3G by bundling exclusive content into 4G price plans.

For about three quarters, EE was the only operator in the UK offering 4G services. It hassucceeded in educating the market about what 4G is and what its advantages are over 3G. Ithad 550,000 4G users at end-June 2013, charging a modest premium about 5 (US$8) overits 3G tariffs. EE wasnt the only UK operator trying to charge 4G at a premium: Vodafonesentry-level two-year postpaid 4G plan 34 a month for 2GB of data costs 30.7% more thanEEs entry-level plan, at 26 a month for 500MB, although EEs 2GB-a-month tariff costs 20.6%more than Vodafones, at 41 (see fig. 9).

Fig. 9: UK, Vodafone and EE monthly plans, Sep-13

Vodafones approach to pricing sports and music content suggests that it believes UK users arewilling to pay 5-10 a month to access their favorite content. The success of such a bold andinnovative approach relies heavily on providing an excellent experience for users accessingthe content over 4G.


In emerging markets, operators are pursuing the 4G-price-premium strategy moreaggressively than in developed markets. Operators in emerging Asia for instance, arepositioning LTE as a high-end data service aimed predominantly at high-ARPU users willingto pay a premium for enhanced data-transmission speeds. In these markets, even entry-levelLTE is priced at a premium to 3G, with operators using high bundled data limits in conjunctionwith higher speeds to encourage high-ARPU users to sign up to LTE services.

Bundling value-added services/ exclusive content with 4G subscriptionsSome operators are using LTE as a platform to bundle content and or value-added servicesinto the 4G subscription either to differentiate from rivals, to justify a premium over 3Gsubscriptions or to encourage users to consume more data. Bundling premium content into4G subscriptions but making access to the services come out of monthly data allowances (likeVodafone UK) is also a way to increase data usage. However, evidence from some markets todate suggests that operators are increasing overall data usage by bundling content into 4Gsubscriptions even when they dont deduct access from monthly allowances:

SKT in South Korea: SKT doesnt charge for VoLTE access, which it launched in August2012, the first operator in the world to do so. Neither does SKT charge for richmessaging access, it bundles Joyn access into 4G subscriptions. Moreover, data usageassociated with Joyn messaging is also be free, including messages sent from Joyndevices to non-Joyn devices (smartphones and feature phones), which will be deliveredas SMS messages. The operator has also launched Btv mobile, an IPTV service with550,000 paid subscribers, which began offering a full HD (1080p resolution) videostreaming service, again for the first time in the world, from early July. Full HD videostreaming requires a speed of 2Mbps or above, which is supported by the LTE-Anetwork which also doesnt consume the monthly data allowance.

EE in the UK: Like SKT, EE is focused not just on launching a 4G network, but addingvalue to its 4G price plans to further differentiate from 3G price plans. The operatoroffers one free film download a week (that doesnt consume mobile data allowance).Phone back-up is another value-added service EE bundles into subscriptions, withdifferent levels of back-up for different levels of subscription. These services havehelped to justify the premium over 3G, and also to differentiate EE from rivals.

Vodafone UK: Vodafone 4G customers get free access to Spotify Premium for sixmonths offering more than 20 million songs or Sky Sports Mobile, enabling themto view up to 150 hours of content a month, including Premier League soccer games.Users on the most expensive two-year contracts (57 and 62 a month) will continueto receive the content after the promotional period. Other users can take Sky SportsMobile for 5 a month and Spotify Premium for 10 a month. The mobile data that isconsumed using these services comes out of users monthly allowances.

Some operators have already detailed plans for using LTE as a platform for premium contentand/ or value-added services:

NTT DoCoMo in Japan: DoCoMo plans to use LTE to enhance the end-user experienceof its portfolio of proprietary services. The operators goal is to move away from beinga telco to offering advanced mobile services in new areas such as education andhealthcare.

Telstra in Australia: Telstra plans to deploy a mobile-capable CDN to improve itsability to offer multiscreen services and as a platform to attract the enterprise segmentlooking to deliver content.

O2 in Germany: O2 is working with cable providers Kabel Deutschland, Kabel Baden-Wrttemburg and Unitymedia to offer TV, Internet and fixed and mobile telephone ina single package to customers.

Operators compete on network quality and coverageAs mobile users consume more data to access Internet services, operators are competingon offering the best quality access to these services. In multi-operator LTE markets, there isincreasing focus on network quality in terms of speed and consistency of experience whichis causing operators to increasingly emphasize the experience users will have on their 4Gnetworks. Even more than with 3G, operators are using third-party testing to make andvalidate claims about offering the best end-user experience in the market (see fig. 10).


Fig. 10: US, AT&T and Verizon Wireless, each advertising that they offer the best 4G network

As LTE-Advanced technologies become more widespread in the market, operators will evolvetheir LTE positioning based on the enhancements LTE-Advanced brings to the overall LTEexperience. SKT is already promoting its technology leadership: It is using its LTE networkas a foundation to build a differentiated position based on quality and competitively-pricedservices to differentiate from aggressive rivals. SKT launched the worlds first LTE-Advanced(LTE-A) service in June with peak data speeds of up to 150Mbps, twice as fast as LTE. SKTs LTE-A pricing is the same as its existing LTE price plans, no extra costs are associated with it.

LTE network and device strategy scaling availabilityHow operators launch and expand their LTE network is, along with pricing, a key determiningfactor for how many LTE subscribers they sign up as the network becomes available to morepeople. Operators typically launch LTE in areas of high existing mobile broadband demand usually major urban areas and then expand to more cities before rolling out to rural areas.The exception to this approach to date has been when licenses have rural obligations, forinstance in Germany. Vodacom in South Africa shows how, at launch, an operator targetedLTE at a clearly-defined segment of its user base before expanding availability as the networkexpanded (see fig. 11).

Fig. 11: Vodacom scaling the network and device availability


South Africa-based Smile Telecoms launched commercial LTE services at 800MHz in Tanzania the first operator to do so in Africa after a soft launch in June 2012. Before expandingto a broad range of mobile users, the LTE service was initially available on prepaid plansand positioned as a fixed-broadband replacement service aimed at SMEs, households andindividual users via integrated LTE/Wi-Fi routers, USB dongles and LTE MiFi routers. Smilesinitial LTE coverage was in Dar es Salaam and the operator plans to extend coverage across thecountry in a phased approach over the next two years.

Similarly, EE launched LTE in major metropolitan areas in the UK with a small selection ofsmartphones, and then expanded the network to other parts of the country while addingmore devices and gradually reducing its prices (see fig. 12).

Fig. 12: EE expanding the network and the range of devices and evolving its pricing strategy

Impact of LTE on KPIs early days, positive signsUltimately, a successful LTE strategy can only mean one thing improved KPIs. Although LTEoperators havent universally improved their KPIs following launch of services, there is ampleand growing evidence that LTE, if launched in the right way, improves key subscriber metrics:

SKT is seeing an almost 50% increase in monthly data usage on LTE compared with 3G,with the respective figures standing at 1.6GB and 1.1GB at end-June 2013.

SKT indicates that 39% of LTE use on its network is for multimedia services, comparedwith 30% on 3G.

In the seven years to 1Q12, SK Telecoms ARPU fell 20% from KRW40,000 (US$37) toKRW32,000. After its LTE launch, ARPU began rising in 2Q12, standing at KRW50,100in 4Q12.

After an ARPU increase of 3.6% in 2012, SK Telecom is expected to raise ARPU by 8%this year, erasing half the 20% seven-year ARPU loss in just two years.

Since launch, Rogers has seen an 80% increase in wireless Internet usage year-on-year. AT&T has 35% of its postpaid smartphone base using LTE-capable devices and

smartphone data usage per device has increased as much as 50% year-on-year toend-2Q13, causing wireless data revenues to increase 19.8% year-on-year. This helpedimprove its total postpaid ARPU by 1.8% year-on-year.

EE has found that existing subscribers who have moved to 4G show an increase inARPU of about 10%.

A third of Verizon Wirelesss retail postpaid connections now have a 4G device, and asmuch as 59% of its total data traffic is now on its 4G network.

Vodafone UK reached 100,000 LTE customers in the seven weeks since putting the newtariffs on sale, and just five weeks after the network went live; this level of growth isin line with that of rival operator EE just after its own 4G launch late last year.

With the exception of EE, each of these operators is pricing 4G the same as 3G. What theseoperators are seeing is that LTE users are generating more data traffic and so pay for more databundles in their subscriptions. Moreover, successful LTE operators are often increasing theamount of overall value they bundle into LTE subscriptions (e.g., premium content), therebyencouraging more usage. 4G has also provided operators with a new opportunity to migratesubscribers onto postpaid mobile broadband subscriptions through intensified marketingactivities that, when successful, have captured consumers imaginations.


Operators have also used 4G launches to simplify their tariff structures often moving to data-centric pricing and sometimes offering data bundles that can be used across devices. That said,not all successful LTE operators are seeing KPI improvement this is because of other market-specific reasons, mainly price competition, which has been the case in Japan.

Verizon shows that a successful LTE launch can lead to improve KPIs, however, in particular interms of higher ARPU, stable churn and a higher operating income (see fig. 13).

Fig. 13: Verizon Wireless KPIs, 3Q11-2Q13

Impact of LTE on end-user behaviorThere is growing evidence that LTE is causing an increase in usage, simply becauseof improved end-user experience encourages greater use. Telenor Norway is seeing 4Gcustomers download three to five times more megabytes via their mobile on a monthly basisthan a 3G user, which the operator attributes to the higher speeds of 4G. In a survey releasedin September, EE found that since launching 4G:

Two in three people are using the mobile Internet over 4G at least an hour a day, with23% staying online with their 4G mobile devices more than three hours a day.

Nearly 50% say they browse the Web more on 4G than 3G, and over one in three saythey download apps, use GPS services and access social media more with 4G than theydid with 3G.

43% say they use fewer or no public Wi-Fi hotspots since having 4G. 23% say they use their home broadband less since moving to 4G. A third of UK 4G users stream more content over 4, than they did on 3G, with BBC

iPlayer, Netflix and Sky Go the favorite TV services and tablets driving 60% more videostreaming on smartphones.

EE shows that, launched in the right way, 4G can bring about higher usage and improved KPIs.EEs strategy of charging a modest premium over 3G (even at launch when it was the only 4Goperator in the market), in conjunction with an overall offering that increases perceived valueto the end user, has been a clear success in the UK market. This strategy has been replicatedby Vodafone, which, like EE, is justifying a slight premium over 3G tariffs on increasing theoverall value to the end user in comparison with its 3G tariffs.

Another key lesson EEs 4G pricing highlights is how important it is not to offer unlimiteddata. Operators 4G experience with data shows that offering specific amounts of data inthe range of 500MB-5GB increases the perceived value of the data. It encourages users tomigrate to higher monthly amounts, effectively monetizing usage.

Operators also need to plan an effective 2G/ 3G to 4G migration strategy. Which segments ofits existing user base does an operator want to migrate to 4G? How quickly? How simple canan operator make it for an existing subscriber to change to a 4G price plan?

In terms of the impact of LTE on operators fixed subscriptions, integrated operators arestill successfully charging separately for LTE and fixed broadband. This is the case even foroperators that have recently added fixed to their overall portfolio, such as EE. Although fixed-mobile broadband substitution is not yet a widespread phenomenon, LTE is changing end-user behavior, with LTE a viable alternative to fixed, especially Wi-Fi, access.

LTE-only servicesLTE-only services are at the very beginning of their evolution. These examples are the first, andpoint to just some of the ways that operators will exploit the unique benefits of LTE:

South Korean cellular operators, LG U+, SK Telecom and KT, are targeting mobile gamesto drive their LTE markets.


Operators are beginning to offer content that is only available over 4G, e.g., the UKoperators EE (film) and Vodafone (sports and music streaming).

Sprint is examining how LTE can be used to optimize mobile video delivery. RCS launches by Metro PCS and operators in South Korea over LTE. Ericssons partnerships with operators on using LTE for broadcast (including Telia,

Verizon and Telstra).

The key thing is that operator-commitment is there and the emerging partnership mentalitywill ensure LTE-only services proliferate. Automotive services using LTE are one major areapoised for the mass market.

Although LTE-only services are in their infancy, the number of operators committing to themis steadily increasing, with a wide range of different types of services being deployed on LTE-only networks (see fig. 14).

Fig. 14: LTE-only service announcements, up to 3Q13


Fig. 14: LTE-only service announcements, up to 3Q13 (cont.)

LTE marketing using technology to enhance the brandLTE operators are using the enhanced qualities of the technology to improve their overallbrand positioning, mainly around the concepts of speed and quality, and, to a lesser extent,technology leadership. EE, as the first operator in the market to launch the technology, haspositioned its marketing around each of these concepts in a campaign specifically focused onexplaining the benefits of 4G (see fig. 15).

Fig. 15: EE, 4G marketing, 3Q13

Like other operators, EEs 4G website marketing is a mix of communicating the idea ofenhanced performance, in conjunction with short videos that demonstrate the tangiblebenefits of 4G over 3G.

Market development

To date, the LTE market has mainly been characterized by network build-out and findingthe right pricing strategy to match consumer expectations. Some operators have alreadysucceeded in this, although they continue to evolve their strategies as new entrants come tothe market and consumer behavior changes. As more operators launch LTE, competition willfocus more and more on network quality especially for higher-ARPU subscribers. As thishappens, price competition will intensify. Moreover, operators will increasingly compete on


the overall value they offer 4G users. Value to the end user will be not just network quality, butwhat content is bundled into 4G subscriptions and what other telecoms services (e.g., inclusiveWi-Fi) users receive as part of their subscription.

As 4G competition increases, what will determine LTE success? The idea of true 4G will increasingly become a differentiator among 4G operators. As

such, network quality on data and voice has never been more important and more ofa differentiating factor between operators. Operators are winning and losing the mostvaluable subscribers on network quality: speed and coverage.

The most successful 4G operators that have faced competition arent charging apremium for 4G access but are still seeing an improvement in KPIs by using 4G to buoypricing levels by offering enhanced value and quality.

Operators that have managed to charge a premium are operators that havent facedany, or much, 4G competition. Also, they have only charged a small premium to 3G thathas been justified by increasing the overall value offered.

As 4G competition increases, the operators best placed are those that have the bestnetwork quality, offer the most relevant handset line-up and can offer a select buthighly relevant range of services (that will vary market-by-market).

Evidence from 4G launches to date suggest that those operators that pursue best-in-class network quality and position marketing around it will succeed in winning andretaining the most valuable subscribers.

Operators need to plan an effective 2G/ 3G to 4G migration strategy. Which segmentsof its existing user base does an operator want to migrate to 4G? How quickly? Howsimple can an operator make it for an existing subscriber to change to a 4G price plan?

Voice strategy in the context of LTEThere have been sporadic deployments of voice over LTE (VoLTE) to date, with just a fewoperators building on the worlds first VoLTE launch, by SKT, in August 2012 (see fig. 16). This isbecause operators have a technology solution to voice in the LTE context that routes voice callsover 2G/ 3G networks when the call is set up: CSFB for GSM operators and SVLTE for CDMAoperators.

Fig. 16: Selected VoLTE deployments and plans, end-Sept 2013

Because the majority of operators dont have 100% LTE population coverage, a VoLTE callhas to shift to another network to maintain the voice call connection. Operators that havechosen to offer VoLTE services without near-100% LTE population coverage have pursueddifferent solutions to ensuring voice call continuity, including deploying SRVCC (Single RadioVoice Call Continuity), a technology that migrates an LTE VoIP call to a circuit-switched voicecall over 2G/ 3G networks. As leading LTE operators near 100% population coverage, VoLTEdeployments will accelerate.

ForecastsInforma Telecoms & Media forecasts that the global total of LTE subscriptions will rise from188.6 million at the end of 2013 to 1.3 billion by the end of 2018, a compound annual growthrate (CAGR) of 44%. Although North America will account for the largest share in 2013, it willbe overtaken by Asia Pacific in 2014, and will grow at the lowest CAGR at 23% of all theregions. In contrast, Asia Pacifics LTE subscription base will grow at a CAGR of 52% over theforecast period and, by the end of 2018, almost half of the worlds LTE subscriptions will be inthis region (see fig. 17).


Fig. 17: Global, LTE subscriptions, by region, 2013-2018

Informas individual country forecasts indicate that the US will remain the largest market forLTE throughout the forecast period, rising from 89.8 million LTE subscriptions at the end of2013 to 242.1 million at the end of 2018, a CAGR of 22%.

However, it is in the major Asian markets with the largest populations that dramatic growthwill be seen explaining why this region becomes by far the largest LTE market over theforecast period. Indias LTE subscription base is forecast to grow at a CAGR of 311% and Chinasat a CAGR of 150% between the end of 2013 and the end of 2018. By 2018, China and India bethe second- and third-largest LTE markets (see fig. 18).

Fig. 18: LTE subscriptions in selected countries, 2013-2018

LTE roamingAlthough LTE roaming is still in the initial phase of deployment, some operators have alreadyimplemented bilateral LTE roaming (see fig. 19).


Fig. 19: Selected LTE roaming launches/ plans, Nov-13

Next year will see a steady increase in the number of LTE roaming agreements as operatorslook to increase data usage among consumer and enterprise roamers. Operators are stillexperimenting with the best ways to price data roaming. How they price LTE data roamingwill be the key factor that will determine the extent of LTE roaming take-up, in particularamong the price-sensitive consumer segment.

Conclusions and recommendations

ConclusionsVerizon and SKT are among the most successful established LTE operators in terms ofsubscription numbers and other relevant KPIs. EE in the UK has shown how an operator canuse 4G to re-invigorate its position in the market and in the process improve its KPIs.

These are the common links between successful LTE operators:

Dont charge a significant premium for LTE: Operators that have successfully chargeda premium for LTE have done so by making the premium small and clearly justifiable,and at a level the target market will accept.

Build out a network with good coverage in key cities/ areas first, then expand to othermajor cities/ urban areas then out to rural areas.

Offer a compelling device portfolio at different price points. Communicate the value of LTE emphasizing speed in conjunction with enhanced

quality has proved to be enough. Use LTE to evolve the brand through emphasizing the enhanced experience LTE offers. Increase the overall value in the LTE subscription: premium content, enhanced voice

and messaging services have been proved to improve KPIs.


Unsuccessful 4G operators have pursued one or more of the following strategies:

Charged a high and unjustifiable premium for 4G. Havent effectively communicated the benefits of 4G over 3G. Offered a limited device line-up. Havent provisioned the network with devices to offer a genuine 4G experience. Havent aligned marketing with network rollout. Failed to clearly identify which segments of the market they are aiming 4G at. Have a weak 2G/ 3G-to-4G migration strategy for existing users.

Recommendations

4G can improve KPIs if launched in the right way this means aligning each element of the strategy tospecific segments of the market that 4G is targeted at4G pricing, device strategy, network coverage, 2G/ 3G-to-4G migration strategy and marketingeach need to be carefully focused and aligned on the specific segments of the overall market.Operators must move away from unlimited pricing because it devalues access to the network.Successful 4G operators have priced 4G access at circa 500MB 5GB, which has been met withend-user acceptance. In terms of 2G/ 3G-to-4G migration, operators need to develop a strategythat balances increased revenues with end-user willingness to migrate.

LTE network launches should be just one part of an overall strategy to increase data usage, in conjunctionwith pricing and content4G has shown to bring about increased data usage because of the enhanced end-userexperience it offers. Operators should design their pricing strategy and overall contentstrategy to encourage more data usage, which will encourage users to move up to data plansthat offer more data. Evidence from markets such as South Korea and the UK indicates thatincreasing the overall amount of content/ number of services bundled into LTE subscriptionswill encourage uses to consume more data much more successfully, rather than charging foraccess to specific services.

4G operators must focus on the network to win and retain the most-valuable customersIts never been more the case that operators can successfully differentiate from rivals byoffering the best-quality mobile broadband experience and, increasingly, on the overall valuethey offer the end user. Successful 4G operators have shown that they can effectively use thenetwork to define a quality/ premium position in the market even when they dont actuallycharge a premium for 4G access.

Experience to date shows that pricing 4G at a premium, or offering unlimited data, are not effectivestrategies to profitably increase LTE subscription uptakeOperators that have launched LTE at a premium have to justify this strategy by offering atangible increased value to the end user. Faster download/ upload speeds arent enough tojustify a premium on 4G over 3G for all but the highest-spending price inelastic mobile users and at the very early stages of 4G rollout. Operators need to add more value to justify apremium whether through exclusive content or bundling access to more services, such as Wi-Fi or broadband access.

Operators in developing markets need to carefully assess why they are launching LTE and decide when isthe right time to launchIs the 3G network coping with the demand for data? Are there specific opportunities 4G willenable an operator to target that cant be realized with 3G? What segments of the market will4G be targeted at most profitably? Will these segments be prepared to pay a premium for a 4Gdevice when network coverage is patchy? How much tangible first-mover advantage can anoperator gain by being first to market? These are some of the questions particularly pertinentto emerging market operators assessing their 4G strategy.

Operators should look to partner with companies in adjacent sectors to maximize the value of the networkNew services are gradually being rolled out over LTE and evidence to date shows that bundlingcontent and value-added services into 4G subscriptions can encourage users to migrate to 4Gand then move toward using higher monthly data amounts once signed up to a low monthly4GB price plan. To develop a content strategy, operators need to define what segments ofthe market they are targeting with the content and how it fits in with their overall brandpositioning.


VoLTE is here and LTE operators need to work out their deployment strategiesDespite the early-running on VoLTE from operators in South Korea, operators in the rest ofthe world are justifiably in wait-and-see mode as far as VoLTE is concerned. Importantquestions still hang over the technology, such as the technical considerations about how toenable CS fallback, including how to monetize the service. These are questions mean that, atthe moment, operators rightly feel they have no need to answer through experimentationwith their own deployments.

Joyn is also a major undecided potential for operators: Do they commit to this and if sowhat effect will it have on other voice/ messaging services? Consumer acceptance of IP voiceand rich messaging services from OTT players mean there is a considerable opportunity foroperators to take back market share for core voice and messaging revenues. The benefits ofVoLTE and rich messaging lie in creating new operator-defined communities rather than inthe default telco go-it-alone mentality. Operators should carefully assess how they can cometogether to use VoLTE to create new operator-defined rich-voice/ messaging communities andgrow the addressable market, rather than fight for the crumbs of their own subscription bases.


4G strategy: Emerging Asia operatorsmarket LTE to high-end users but needto evolve pricing models to make areturn on investment05 March 2013Anubhuti Belgaonkar

Executive summary

Operators in emerging Asia are positioning LTE as a high-end data service aimedpredominantly at high-ARPU users willing to pay a premium for enhanced data-transmission speeds.

Even entry-level LTE is priced at a premium to 3G, with operators using high bundleddata limits in conjunction with higher speeds to encourage high-ARPU users to signup to LTE services.

In terms of branding, operators have launched new campaigns with LTE logosintegrated with their own brand to leverage the strength of their brands while keepingmarketing expenses low.

The early LTE operators in the region will need to evolve their pricing strategies toexpand their LTE user bases. Experience from other markets shows that operators thatdont charge a significant premium for LTE have been the most successful in signingup new users.

Operators in emerging markets should aim to use LTE to increase the overall number ofpostpaid data users rather than to generate LTE revenues. To do this, operators needto isolate segments of their prepaid user bases they can target for 2G-to-LTE migrationby offering service plans at attractive prices that encourage usage, leveraging theenhanced capacity characteristics of LTE over 3G.

Experience from other markets, with both 3G and LTE, shows that operators with thebest-quality networks can gain a clear competitive advantage over rivals. Operatorsthat have rapidly expanded their LTE networks after launch have also been the mostsuccessful in signing up new users. Because of the challenges to doing this in ruralareas and the likely returns on investment on LTE in these typically low-ARPU areas,operators in emerging markets should instead focus on building widespread LTEnetworks in major urban centers with excellent capacity, at least in the first phases ofrollout.

LTE operators in emerging Asia will, if they execute their launches well, put pressure onrivals to launch their own LTE services. Experience from more-developed LTE marketsshows that once an operator starts gaining traction with LTE subscriptions, it becomesimperative for rivals to follow suit to prevent that operator from taking a strong leadamong high-end users.

Emerging markets in Asia Pacific will see some new LTE-network launches in 2013. SriLankan operators Dialog Axiata and Mobitel announced on Dec. 31, 2012, that their LTEservices were up and running. Maxis Malaysia launched LTE on Jan. 1, 2013, in someparts of the Klang Valley region, and this year is likely to see many other launches fromother 2600MHz licensees. However, emerging-market LTE launches will be patchy,with the majority of leading operators in these markets likely to launch LTE in 2014,with smaller operators adopting a wait and see approach.

Market status

Although Asia Pacific is the leading region in terms of the rate of LTE subscription take-up,because of early LTE launches in South Korea and Japan, the migration to LTE among emergingmarkets in the region has, as expected, been comparatively slow. The main reason is thatemerging markets are not as ready for high-speed data services as more-developed markets,with 3G serving the needs of the relatively small percentage of the market that is regularlyusing mobile data. The number of 3G subscriptions is relatively low as a percentage of 2Gsubscriptions in the majority of markets in the region (see fig. 1).


Fig. 1: Asia Pacific, 3G as % of total subscriptions, key markets, 3Q12

LTE launches have also been delayed because most countries have yet to release LTE-readyspectrum, often because governments are still unclear about which spectrum band to allocatefor LTE. Analog-to-digital-TV migration has also affected the launch timelines, since the slowmigration has led to delays in the availability of digital-dividend spectrum. Moreover, incountries where 3G services have yet to take off, such as Vietnam, regulators are reluctantto give the go-ahead to LTE because of the difficulty many operators in the region are havingbreaking even on their 3G investments.

Four markets in Asia Pacific have seen early LTE launches (see fig. 2).

Fig. 2: Asia Pacific, in-service and planned LTE networks, emerging markets

Despite the challenge of making a return on their investment in mobile broadband networks,operators in two key emerging markets in the region India and the Philippines launchedLTE services in 2012. Although Smart Philippines has been upgrading and trialing LTE since2011, Indias Bharti Airtel was the first to launch commercial LTE services, in April 2012. But ithad just 3,890 LTE subscribers at end-September 2012 (see fig. 3). Current LTE deployments inthese markets focus on urban centers, and none of the operators in these countries that havelaunched LTE have announced plans to expand offerings to rural markets in the near future.


Fig. 3: Bharti Airtel, Smart, Globe, LTE subscriptions, 2Q12 and 3Q12

Targeting fixed-broadband users

Operators in India and the Philippines are marketing LTE services primarily to high-endsubscribers, a group that inevitably includes fixed-broadband users in urban markets. The LTEspeeds offered by these mobile operators, via USB modems, are typically much higher thanthe fixed-broadband alternatives, giving them a clear advantage in terms of performance. Toattract fixed-broadband users, operators are promoting the superior speeds and the mobilityadvantage of LTE among high-end users. And the increasing user affinity for smart devices,compared with their desire for traditional PCs and laptops, is helping operators target LTE atthe broadband market in general. LTE is priced aggressively compared with fixed broadband,though typically with much lower monthly data allowances (see fig. 4).

Fig. 4: India, LTE (Bharti Airtel) and DSL/FTTH (BSNL) price comparison

The LTE plans offered by Bharti Airtel provide speeds up to 40Mbps, compared with entry-level speeds of just 2Mbps offered by BSNL with its FTTH plan and of 16Mbps with its xDSLplan. Although the costs per megabyte for entry-level LTE and FTTH plans are similar, the xDSLplan offers significantly more data, resulting in the lowest cost-per-megabyte of the planscompared. LTE entry-level and high-end plans are significantly cheaper on a monthly basisthan xDSL and FTTH plans.

However, unlike developed markets, such as Japan, where LTE has had a direct impact onthe number of fixed-broadband users, emerging countries are unlikely to see significant LTE-driven cord-cutting in terms of subscriptions in the near term, largely because of the limitedavailability of high-speed next-generation fixed-broadband services to begin with.

Market dynamics

The LTE strategies of Bharti Airtel, Smart and Globe are similar in terms of the marketsegments they are targeting and the premium they charge for accessing higher speeds.The operators are positioning LTE as a premium data service designed to provide qualityconnectivity to higher-value users willing to pay additional data charges for higher downloadand upload speeds. The three operators are only offering data services, focusing on data cards,and do not offer voice-based services to their users on the LTE network.


The operators have begun developing a clear strategy for differentiating LTE networks from 3Gin terms of exclusive service or content offerings: Bharti Airtel is focusing on exclusive contentfor its LTE users, whereas the Filipino operators are exploring technology and device strategies.

LTE pricing strategiesAlthough basic service pricing, measured as cost per megabyte, is considerably lower than 3Gpricing, the monthly cost of bundles is significantly higher, because services are aimed largelyat high-end data users, with plans bundling much larger chunks of data limits compared with3G plans.

IndiaBharti Airtels LTE pricing strategy is clearly aimed at high-monthly-data users. The entry-levelLTE plan offers 6GB of data for US$18.40 a month, compared with US$13.80 for a 4GB 3Gplan and US$27.70 for a 10GB 3G plan. In terms of a comparable monthly gigabyte allowance,Bharti offers 9GB of LTE data for US$25.80, compared with 10GB of 3G data for US$27.70 (seefig. 5). This shows that Bharti has what can be termed a conservatively aggressive approachto signing up LTE customers, given the premium it is charging for just 1GB of monthly dataon a 3G plan.

Fig. 5: Bharti Airtel India, LTE and 3G pricing comparison

Bharti Airtels cost per megabyte is lower for LTE services than for comparable 3G services(see fig. 6). For instance, an entry-level LTE plan costs US$0.003 per megabyte, compared withUS$0.006 per megabyte for an entry-level 3G plan. Similarly, the high-end LTE plan costs US$0.002 per megabyte, compared with US$0.003 for 3G. Although the lower cost per megabyteof LTE data is not likely to be a significant deciding factor for subscribers looking at LTE, it willenable operators to aggressively push 2G/3G-to-LTE migration because of the lower amountit costs them to carry data over LTE networks compared with 2G/3G.


Fig. 6: Bharti Airtel, per-megabyte premium, 3G vs. LTE

In terms of overall package pricing, LTE is considerably more expensive on a monthly basis,though data bundles come with a much higher proportion of free data. Bharti Airtels entry-level plan includes 6GB data for a monthly commitment of US$18.40, while the high-end plancosts US$55.30 a month with a 30GB data-download limit, three times the volume bundledwith the high-end 3G data plan, which costs US$27.70.

Bharti Airtel offers LTE services for both prepaid and postpaid users, but the plans are identicaland have no lock-in period. Although it is offering a special limited-period price for the LTEdongle, the devices are sold without subsidy and cost about INR8,000 (US$150) for bothprepaid and postpaid users. This again indicates that Bharti is adopting a conservativelyaggressive approach to signing up LTE users across its entire base, not just postpaid users.

PhilippinesThe Filipino operators offer LTE as a postpaid service with a two-year lock-in period. Bothoperators bundle the LTE USB dongle free of charge, a feature made possible by the longcontract lock-in. The operators LTE pricing strategies clearly have similar goals: to sign uphigh-monthly-gigabyte users to LTE, keeping 3G for low-monthly-data users (see fig. 7).

Fig. 7: Philippines, Smart and Globe LTE and 3G pricing, Dec-12

Smarts two LTE plans offer standard download speeds up to 42Mbps, with the pricing varyingbased on the amount of data in the bundle. Globe, on the other hand, offers differentiatedpricing based on both download speed and bundled data. Its entry-level plan offers 28Mbpsaccess speed, though users can increase it to 42Mbps by paying an extra PHP300 (US$7.35)a month.

There is a significant disparity in cost per megabyte between LTE and 3G services (see fig. 8):Smarts entry-level LTE plan costs 91.4% less than its entry-level 3G plan, whereas Globes LTEplan costs 92.6% less. For high-end plans, the difference declines somewhat, with the LTE plansof both Globe and Smart over 66% cheaper than corresponding 3G plans.


Fig. 8: Globe and Smart, per-megabyte premium, 3G vs. LTE

Like Bharti Airtel, in terms of monthly commitment the entry-level LTE plans are even moreexpensive than the high-end 3G options. In Smarts case the disparity is about 76%, while inGlobes case it is just over 260%.

Additional data-usage managementGiven that the LTE service aims to target heavy data users in both India and the Philippines, theoperators are offering add-on data-usage plans that users can subscribe to once their monthlydata-bundle limit is exhausted (see fig. 9).

Fig. 9: Bharti Airtel and Globe Telecom, additional LTE data-plan comparison

Globe and Smart are offering introductory promotions of unlimited browsing to attract newusers but plan to offer new add-on plans. Globe has already announced its pricing, while Smarthas not yet made its pricing public.

Bharti Airtel is also offering an LTE version of Smartbytes, a 3G plan that provides add-on datafor users who exhaust the monthly limit on their existing plans. The cost per megabyte forthese plans is slightly higher than the cost per megabyte for regular LTE plans but providesa cushion to avoid bill shock. In Globes case, the cost per megabyte for add-on plans is lowerand provides users an incentive to increase data usage even beyond the bundled limit.

Branding differentiationLike the majority of operators in other markets, with the exception of DoCoMo in Japan,Bharti Airtel, Smart and Globe have not launched distinct brands to market their LTE servicesbut have instead initiated new campaigns with LTE logos integrated with their own brand,highlighting both the 4G and LTE aspects (see fig. 10). Using existing brands enablesoperators to leverage the strength of their brands while keeping marketing expenses low.


Fig. 10: LTE Logos and branding

Device strategyBecause of the limited availability and high cost of LTE handsets, as well as the absence of anyLTE-based voice services, the three operators LTE strategies are to focus mainly on LTE dongles.Each operator launched LTE with a USB data dongle and a Wi-Fi sharing device (see fig. 11).But Globe was the first to launch LTE-compatible smartphones in the Philippines, soon afterthe launch of its LTE service (see fig. 12).

Fig. 11: LTE devices offered by Bharti Airtel, Globe and Smart

Fig. 12: Globe Telecoms LTE-smartphone portfolio

Service positioningBharti Airtel offers LTE-only content in a bid to encourage take-up of services, offeringexclusive services for its LTE users (see fig. 13).


Fig. 13: Bharti Airtels LTE value-added services

For instance, it offers 35 HD movies in collaboration with Bigflix, a movies-on-demand service,with free access to 10 movies in the first month, followed by INR149 a month for unlimitedaccess.

Globe and Smart are focusing on offering plain-vanilla data access to their users, thoughInforma Telecoms & Media does expect them to offer exclusive content and services for theirLTE users in 2013 to differentiate their offers. In the meantime, Smart has chosen to highlightits triband LTE network, which enables it to cater to a larger geographic market and in thefuture to a wider range of compatible handsets.

Market development

Emerging markets in Asia Pacific will see some new LTE-network launches in 2013, thoughthe pace and number are likely to be significantly lower than their developed counterparts.

New marketsA number of emerging markets in Asia Pacific are expected to see commercial LTE launchesin 2013 (see fig. 14).

Fig. 14: Asia Pacific, key LTE networks launched in/planned for 2013

Operators must implement effective LTE-migration strategies

With several LTE launches planned for 2013, emerging-market operators will need to startoutlining a clear strategy to drive service adoption, especially in light of the low 3G-subscription levels in markets in the region. Limiting themselves to targeting postpaid usersmight be futile in these predominantly prepaid markets. Instead, operators should considermigrating high-end prepaid data users to entry-level LTE postpaid plans to maximize the LTEopportunity (see fig. 15).


Fig. 15: 2G-prepaid-to-LTE-postpaid migration plan

SmartphonesThe availability of compatible smartphones will play a key role in driving the take-up of LTEservices in emerging Asia Pacific markets. Penetration of PCs and laptops is low in thesecountries, limiting the potential of dongle-based LTE services. Take-up of smart devices, onthe other hand, is increasing rapidly, even in developing markets, and this is expected to driveservice take-up.

VoLTEAlthough emerging-market operators are looking at LTE as a data/broadband service, theywould also have to offer voice service to improve the customer experience. 3G voice offloadis likely to be another reason to offer VoLTE, as operators look to manage 2G- and 3G-networkcongestion. Whatever the individual reasons might be, operators in emerging countries willhave to adopt VoLTE services in the near future, and it will become a key parameter indetermining the value of their LTE offerings.

VoLTE services will also enable operators to offer new voice-based services, such as HD voiceand voice conferencing, helping them offset the decline in traditional voice revenues.

Subscription forecastInforma forecasts that Asia Pacific will account for the largest percentage of LTE subscriptionsfrom 2014 onward. The launch of LTE services in China will play a key role, with the countryexpected to have 144 million LTE subscriptions at end-2017 (see fig. 16).


Fig. 16: LTE subscription forecast by region, 2013-2017

The global LTE-subscription count is expected to reach 940.2 million by end-2017, of whichChina and India are likely to account for about 26.7% (see fig. 17).

Fig. 17: Asia Pacific, LTE subscriptions by country, 2013-2017

Conclusions and recommendations

Conclusions

LTE services are targeting high-end data usersLTE services in India and the Philippines, where the availability of next-generation fixed-broadband services is poor, are being marketed almost exclusively to high-end subscribers as asubstitute for high-speed fixed-line broadband services. The new services are targeted at high-value heavy data users who are willing to pay a premium for service availability, improvedservice quality and mobility. The plans are designed with this in mind and all operators areincluding significantly more data in these plans than in 3G plans, though Bharti Airtel is themost aggressive in targeting midrange data users with attractively priced LTE plans, whetherprepaid or postpaid.

Smartphones key to driving service take-upA limited selection of LTE-compatible smartphones and their steep pricing, in the context ofthe overall markets, is a key challenge to driving the take-up of LTE services. Although LTEdongles are offered by the operators, and are even subsidized to some extent, the fact thatthe majority of mobile data usage is via smartphones in emerging markets will be a severenear- and mid-term factor limiting the popularity of LTE services. Operators will need to focuson offering a strong LTE-smartphone portfolio to ensure wider adoption of the service whileavoiding the heavy-subsidies route.


Focus on urban markets continuesThe LTE networks deployed by emerging-market players focus on urban centers. This is theright approach, given the pricing and premium associated with the positioning of LTE servicesin these countries. It is unlikely that the deployments would be expanded to cover ruralmarkets in the medium term. Operators are instead likely to expand their 3G coverage tosemiurban and rural markets while keeping LTE as a premium service for urban areas withhigh demand for data services and high customer willingness to pay a premium for servicequality.

LTE price competition will accelerateAlthough the sample size for LTE services in emerging Asian markets is small for now, thecompetitive offers launched by the Filipino operators provide a view of the price competitionthat is likely with LTE services.

Recommendations

Operators need to adopt more-innovative pricingOperators will have to introduce lower-priced LTE services before mass-market adoptiontakes place. Despite the high-end target segment, offering the LTE experience with smallamounts of data per month can help encourage take-up, since even many high-end usersmight not be willing to subscribe to expensive and data-heavy services without first tryingthem out. Moreover, as the competition increases, operators will also have to move beyondjust a basic volume/pricing game to offer more innovative services to differentiate their LTEoffers. They could look at examples of innovative pricing from developed-market peers, suchas NTT DoCoMo, which charges customers who add a second LTE device to their original LTEsubscription a reduced amount, driving LTE usage and revenues.

Offer attractive additional data plans for high-end customersThere is a stark contrast between the Indian and Filipino operators when it comes to the priceof data for users who have reached their monthly bundled limit. Globes cost per megabytefor add-on usage is lower than the calculated cost per megabyte of bundled data, whichworks as a good strategy to encourage even higher usage among its subscribers. Bharti Airtel,on the other hand, charges more per megabyte for add-on usage. Such pricing discouragesheavy users from going beyond their bundled data, limiting the services revenue-generatingpotential.

Provide value-added servicesBuilding a clear value proposition for LTE is essential for the growth of LTE services. Operatorsneed to highlight the quality differences between 3G and LTE so that end-users understandthe perceptible value of the service. A key part of this will be offering exclusive LTE servicesto attract new users and retain existing ones. Services might focus on exclusive content, suchas that provided by CSL in Hong Kong, or on voice-based services, such as the VoLTE serviceoffered by the South Korean operators.

Hone the marketing message to increase LTE take-upLTE operators must decide which segments of the market they are targeting for LTE anddetermine marketing messages that clearly communicate to those users the benefits of LTE.Operators in markets that have launched LTE successfully have clearly highlighted the speedadvantages LTE offers over 3G, an advantage that has been well received by a broad base ofusers. Although communicating speed advantages can be a challenge, what has proved to besuccessful is communicating how much faster LTE is over 3G in the context of using popularservices, such as downloading or streaming media.

Define a clear and profitable 2G/3G-to-LTE migration strategyOperators need to determine which of their users they can most profitably migrate to LTE. LTEis not for every user, and operators shouldnt fall into the trap of aiming for LTE-subscriptiongrowth for the sake of it. Rather, operators need to isolate their most profitable users andfind ways through existing CRM channels to migrate them to more-valuable LTE plans. Morevaluable to the operator should mean offering LTE plans with little or no additional cost to theend-user to ensure longer contract tie-ins, such as over 24 months. This will be a challengefor operators with predominantly prepaid user bases, but operators need to carefully segmentprepaid users and target those who would most benefit from an LTE plan. LTE can be a wayto significantly increase the number of postpaid users an operator has rather than a way togenerate LTE revenues.

Expand coverage outside major urban centersAlthough operators are focusing on deployment in urban centers, its essential to expandcoverage to other areas to drive LTE take-up in all markets over the longer terms. Emerging-


market players are likely to use 3G to cater to relatively price-sensitive semiurban and ruralmarkets while using LTE to cater to affluent subscribers in urban areas. However, such astrategy will restrict the services potential over the long haul, since rural markets account fora substantial portion of the population in most of these countries, and there is a good businesscase to be made for using LTE in these areas because of the lack of fixed broadband options.

Smartphone subsidies will help drive subscription growth but must be well-targetedOperator-driven device subsidies are rare in emerging Asia Pacific markets because of thepredominantly prepaid base, which makes it almost impossible for an operator to ensure thatsubscribers taking advantage of the subsidy will remain on its network for the entire lock-in period. However, for LTE services, the high-end user base represents a viable segment forsuch deals, potentially in conjunction with handset-financing approaches that are gainingpopularity in some markets in Europe. The premium charged for LTE services compared with3G can be justified by offering heavily subsidized LTE handsets. This will not just increasesmartphone penetration but also drive usage, since LTE ac

informa 4g strategy 26-11-2013

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