Global Telecom Insider

Transcription

1 Vol. 3, No. 2, December 2011 Pyramid Research Global Telecom Insider Is LTE Another Building Block for Fixed-Mobile Substitution? TABLE OF CONTENTS INTRODUCTION 2 LTE AND MOBILE BROADBAND UPTAKE 4 A. Operators without fixed networks: LTE to substitute 5 B. Operators with fixed networks: LTE to complement 7 MARKET DETAIL 10 Vodafone (Germany) 10 TeliaSonera (Sweden) 11 Cyfrowy Polsat (Poland) 12 NTT DoCoMo (Japan) 13 SK Telecom (South Korea) 14 CONCLUSIONS 16 Key findings 16 Recommendations 16 RELATED RESOURCES 17 HIGHLIGHTS Fixed services in every region are losing ground fast to mobile services, with mobile data capturing an increasingly substantial share of total telecom revenue. Adoption of LTE technology will accelerate because mobile operators need to address the growing mobile data consumption, and fixed operators need to expand their network coverage, which could position LTE as an alternative to fixed broadband in many cases. An increasing number of mobile operators are coming together and establishing joint ventures to either challenge fixed incumbents or to share frequencies. Fixed operators are deploying LTE to complement their fixed broadband footprint in places where deploying fixed network isn t commercially viable. In rural areas, LTE is the long-awaited alternative to DSL. Pay-TV operators, in particular satellite players, are launching LTE services to gain a foothold in the data provision market. PYRAMID RESEARCH 2011 ID# 1077

2 Household penetration (%) Introduction Across the world, an ever growing number of households are becoming mobile-only households. This is having a strong impact on fixed-line telephony. According to our estimates, global narrowband line penetration of households decreased from 45% in 2007 to 37% in 2011, and it will decline to 27% by 2016 (see Exhibit 1). This is resulting in an erosion of fixed voice revenue, as Voice over IP (VoIP) isn t able to compensate for lost voice revenue. Exhibit 1: Main line (narrowband) household penetration, by regions, 2007, 2011 and % 80% 60% 40% 20% 0% Global AME AP WE LA CEE NA % 26% 38% 41% 51% 53% 97% % 23% 33% 33% 46% 49% 89% % 18% 24% 21% 36% 41% 52% Source: Pyramid Research Global Fixed Forecast Q As Exhibit 2 shows, fixed services in every region are losing ground fast to mobile services, with mobile data capturing an increasingly substantial share of total telecom revenue. This is especially true because mobile voice service is maturing quickly and mobile voice penetration is reaching saturation levels in a majority of markets globally, including many emerging markets. PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 2

3 Revenue (US$m) Exhibit 2: Fixed and mobile global service revenue evolution, ,000,000 1,800,000 1,600,000 1,400,000 Fixed Voice Mobile Voice Fixed Internet Revenue Mobile Data Revenue 1,200,000 1,000, , , , , Source: Pyramid Research Global Fixed and Mobile Forecast Q The expected growth in mobile data adoption is driven by insatiable consumer hunger and demand for broadband access on the go. This is fueled by an increasingly sophisticated ecosystem that feeds the market with both sophisticated and cheap devices and an increasing array of data-hungry applications. Faced with booming data traffic and a growing portion of their revenue coming from data, operators are increasingly turning to LTE in order to respond to the increased demand and traffic. We believe that LTE s role will move beyond addressing mobile operators need to accommodate the growing mobile data consumption. Mobile operators will very likely position LTE-based mobile broadband as an alternative to ADSL-based broadband subscriptions. Fixed operators will also increasingly leverage LTE in order to expand their network coverage, especially in rural areas, and to potentially compete with mobile operators. Satellite operators could also benefit from LTE technology and leverage it to gain a foothold into the multiplay market by bundling it with TV services. This report analyzes the LTE deployments up to date. We look at the mobile operators rationale for rolling out LTE services, going beyond their need to address the growing need for fast speed data access. We compare fixed and mobile technologies speed performance, and we assess the cases in which LTE can play a substitute role to fixed broadband. Next we discuss LTE deployment by German fixed network operators in rural areas where LTE becomes an extension of their fixed networks. Then we look how LTE in urban areas is priced compared with ADSL. We then outline how satellite TV providers are making use of LTE in their quest to become multiplay operators. Case studies from Vodafone Germany, TeliaSonera Sweden, Cyfrowy Polsat, NTT DoCoMo and SK Telecom provide insight into how LTE rollouts are currently being managed and planned. PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 3

4 Population (%) LTE and mobile broadband uptake The introduction of 3G technology over the past few years has kick-started the mobile broadband segment. On a global level, we expect 3.2% mobile broadband penetration of population as of year-end The introduction of LTE will further strengthen mobile broadband uptake, and we expect broadband service penetration to reach 9.2% of the population worldwide in 2016, equivalent to 674m subscriptions (see Exhibit 3). Western Europe will remain at the forefront of mobile broadband adoption, with an estimated 25% of the population connected via data cards/dongles in 2016, followed by Central & Eastern Europe (15%), North America (13%) and Latin America. Exhibit 3: Mobile broadband penetration, by region, 2007, 2011 and % AP AME CEE WE LA NA GLOBAL 25% 20% 15% 10% 5% 0% Source: Pyramid Research Global Mobile Forecast Q While 3G will continue to play a major role in small-screen connectivity (smartphones mostly), we believe that LTE will find its sweet spot in mobile broadband access for PCs, and we expect it to remain the main area of focus for LTE until In 2016, we forecast there will be almost 200m PC and hotspot LTE connections, equivalent to 33% of all LTE subscriptions. This will be equivalent to 29% of all PC mobile broadband subscriptions at this time (see our upcoming report: LTE Devices and Applications). PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 4

5 A. Operators without fixed networks: LTE to substitute An increasing number of mobile operators are keen to jump on the LTE bandwagon. Mobile operator LTE plans are directed at both their mobile and fixed competitors. Operators are deploying LTE mainly to gain additional capacity and higher throughput (see Exhibit 4). This has been the classic approach with high-capacity mobile networks (3G). However, LTE has an added benefit that takes it beyond the convenience of mobility: LTE s peak speed positions it well compared with a number of fixed broadband technologies. LTE networks are designed to support speeds of up to 100Mbps (similar to DOCSIS 3.0 and FTTH). At its launch event in December 2009 in Stockholm, TeliaSonera presented download speeds of more than 40Mbps. In August 2010, NSN measured TeliaSonera s network performance, with peak data rates increasing to 102Mbps downlink and 40Mbps uplink. Such speeds and low latency give operators a vast array of opportunities with regard to services and applications they can launch over the network. It also allows them to compete with other mobile operators and fixed operators offering lower-speed Internet services such as WiMAX or low-end ADSL. Exhibit 4: Mobile and fixed technologies performance comparison Technology Upload peak rate Download peak rate Latency Spectrum (MHz) GSM/GPRS/EDGE 56Kbps 118Kbps 114Kbps 236Kbps 500ms 300ms 900/1800 W-CDMA 384Kbps 384Kbps (2Mbps) 250ms 900/1800/2100/2600 HSPA 5.7Mbps 14Mbps ~70ms DD/900/2100/2600 HSPA+ 11.5Mbps ~28Mbps (42Mbps) ~30ms DD/900/2100/2600 WiMAX IEEE e 70Mbps 70Mbps 134Mbps ~50ms 2600/3500 LTE ~75Mbps ~150Mbps ~10ms DD/900/1800/2100/2600 LTE Advanced >500Mbps >1Gbps <5ms IMT ADSL 640Kbps 12 Mbps Up to 1.1MHz ADSL 2+ 1Mbps 24Mbps VDSL 16Mbps 52Mbps Up to 12MHz DOCSIS Mbps 160Mbps FTTH Satellite 100Mbps 4 Mbps ms Sources: Pyramid Research, EU, UMTS Forum PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 5

6 An increasing number of mobile operators are coming together and establishing joint ventures to either challenge fixed incumbents or to share frequencies. Tele2 and Telenor Sweden have established a joint venture to roll out a common LTE network and have challenged TeliaSonera s offering through unlimited data usage on their LTE networks, targeting the fixed incumbent s fixed DSL customer base. The two Swedish mobile operators share 900MHz spectrum for GSM and 2.6GHz for LTE, deploying LTE services in urban and rural areas. The joint venture and cooperation between the two operators have helped them achieve positive results. They have reported that network sharing has allowed them to improve spectral efficiency, enhance network coverage and reduce operation costs. Similarly, mobile operators in Russia are coming together for LTE rollouts. In December 2011, Yota and MegaFon announced an agreement on joint development of an LTE network. Under the agreement, MegaFon will be able to provide 4G LTE services using Yota's equipment, and Yota will be able to use MegaFon's network infrastructure for LTE rollout. Upon LTE service launch in December 2011, Yota announced that technical integration with MegaFon has already taken place. These early developments point out that partnerships and cooperation will be key in the development of the technology. We believe that operators will very likely focus on joint rollouts of LTE networks in rural areas in order to fill the gap and compensate for the scarcity of fixed broadband services there (see our related Insider, Coopetition Replaces Competition as Telcos Aim to Cut Costs and Grow Revenue Streams). This is already the case in the US. In December 2011, the US regional carrier Pioneer Cellular concluded testing of its new LTE network, planned to be commercially launched in Oklahoma in This is part of Verizon's LTE in Rural America initiative, whereby Verizon partners with operators in rural areas where it doesn't have a strong network presence itself. The regional company builds infrastructure and hardware, while Verizon shares access to its 700MHz LTE network. Verizon users get to take advantage of the new coverage, and customers of the regional carrier gain access to Verizon's nationwide LTE network in return. Pioneer is one of 13 participants in the program, with nearly 2.6m people in 10 states serviced by the partner companies. Using mobile broadband as an alternative to fixed subscriptions is already a well-established trend in a number of CEE markets. According to Ericsson s Consumer Lab study, Poles use mobile broadband mostly at home (74%) and in the office (64%), making mobile broadband a viable alternative to fixed networks. The use of mobile broadband in Poland can be described as a nomadic because users will carry a mobile dongle and/or notebook with them from work to their homes. These users are mostly located in the suburbs, which gives mobile operators a good target base for their LTE rollouts. In Russia, mobile broadband already has emerged as a substitute for fixed access, especially in rural areas. Due to the country s vast size, fixed operators are concentrating their FTTB network rollouts on main cities, and areas that they deem will bring ROI relatively quickly. This leaves out large parts of the country where mobile operators can establish their presence. MegaFon, for example, reported that more than 40% of the data card modems it has sold will be used for access in the home. We believe that LTE-based mobile broadband can be a viable alternative to fixed access in a number of African countries as well, where we already see booming adoption of mobile broadband. A large number of mobile operators added ADSL broadband to their service offerings, following incumbents regulatory obligation to open local loop. However, renting lines often proves to be a strain on MNOs budgets, and they are looking for alternative ways to be present in the fixed market and stop their reliance on local loop unbundling for fixed services. At the moment Vodafone Germany and Telefónica O2 Germany are offering stationary broadband via LTE modems, with Vodafone being the first operator positioning LTE as a DSL replacement technology, claiming that LTE offers adequate bandwidth to replace DSL as a broadband PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 6

7 technology. The operator is looking to migrate 4m of its broadband DSL subscribers to LTE. Vodafone reports that it pays 500m a year to Deutsche Telekom for using its fixed network. Vodafone plans to add TV to its LTE services lineup and provide a full-fledged multiplay offer using LTE. We believe that when Voice over LTE becomes an industry standard, mobile operators will be able to compete with fixed operators even better. We have already seen that limited mobility services via either CDMA of 3G networks are good alternative to fixed services. The crown example is Moroccan operator Wana s success in the voice telephony fixed-line services using their fixed and limited mobility CDMA access technology. In 2010, Wana captured 69.6% of the circuit-switched market share, compared with 30.1% of the Moroccan fixed incumbent Maroc Telecom s. B. Operators with fixed networks: LTE to complement Fixed operators are deploying LTE to complement their fixed broadband footprint in places where deploying fixed network isn t commercially viable. In rural areas, LTE is the longawaited alternative to DSL. Due to licensing requirements, German operators are already using the Digital Dividend spectrum for the provision of LTE services. Surprisingly, LTE is marketed and offered as a fixed service. As such, we expect that instead of providing broadband services in rural areas or small cities via ADSL, Deutsche Telekom will very likely leverage LTE in the future. At the moment, the company offers a Call & Surf Comfort Via Funk tariff plan, which includes flat-rate Internet with a maximum down/upload speed of up to 7.2Mbps/1.4Mbps for (US$56.20) per month for consumers and per month for corporate users. Another fixed and mobile German operator, Telefonica O2 reduced its LTE tariffs for users in rural regions by offering a discounted rate for the first year (see Exhibit 5), aiming to encourage faster uptake. The O2 LTE for home flat-rate service offers speeds of up to 7.2Mbps. It is priced the same rate as Alice Light, the most affordable ADSL plan. We assume that the operator is testing whether this pricing will strike a chord with its current users and facilitate their migration to LTE. Exhibit 5: Telefonica O2 Germany broadband tariffs PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 7

8 Alice Light Alice Fun Speed O2 LTE for Home Technology DSL DSL LTE Speed Up to 16Mbps Up to 50Mbps Other services Alice TV Alice TV Up to 7.2Mbps 10GB cap; after that speed is reduced to 384Kbps O2 LTE wireless router 49.90/$69.49 Monthly fee 24.90/$34.67 ( 14.90/$20.75 for first 6 months) with per minute billing 29.90/$41.67 ( 19.90/$27.71 for first 6 months) fixed network flat rate 34.90/$48.60 ( 24.90/$34.67 for first 6 months) fixed network flat rate 39.90/$55.56 ( 14.90/$20.75 for the first year) Sources: Telefónica O2 Germany, Pyramid Research LTE-enabled mobile broadband gives fixed operators another bundling opportunity. So far it has been bundled with fixed broadband and connectivity devices. TeliaSonera conducted a survey of its LTE customers 100 days and then a year after launching the LTE network (see Exhibit 6). The results indicate that 4G users have changed their media consumption habits. What is important to note is that more than 60% of respondents used LTE as complementary to fixed broadband. Fixed operators are not looking to dismantle their fixed networks in the short term. They still see potential for additional revenue, and therefore they seek to offer LTE in addition to other services. Exhibit 6: TeliaSonera end-user survey results 100 days after LTE launch A year after LTE launch 26% worked more on a mobile basis 23% downloaded larger files to a greater extent than previously 19% watched online TV/streaming movies 90% of LTE users upgraded from an existing 3G subscription 65% use LTE in addition to fixed broadband 54% will not consider a return to 3G-only 43% are also iphone users 49% use 4G outside their home 46% surf the Web more frequently when away from home 29% increased the frequency of working away from the office 12% increased online gaming frequency 63% also have a fixed broadband 24% have a media player at home 18% own a tablet Sources: TeliaSonera, Pyramid Research PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 8

9 Pay-TV operators, in particular satellite players, are launching LTE services to get a foothold in the data provision market. We have already seen at least two examples of such activities, either via an LTE network launch (Sky Brazil) or signing a wholesale agreement (Cyfrowy Polsat). These services are used as either stationary or limited mobility broadband service. Cable TV operators are already important players when it comes to multiplay. Satellite operators have to be innovative in order to sell bundled offers. In December 2011, Sky Brazil, a subsidiary of Latin American satellite TV provider DIRECTV, launched a 4G (LTE) mobile broadband service in Brasilia. Sky utilizes the 2.5GHz band, where it has MMDS license. In 2012 it plans to roll out the service to other Brazilian cities in which it holds licenses to operate Data Communication Services (DCS). The service is offered by Sky via a 4G modem, with Wi-Fi (provided free of charge).it offers two speed options: 2Mbps and 4Mbps, with prices of R80 ($47.06) and R100 ($58.82), respectively. Sky plans to offer broadband where there are no other alternatives, which explains the relatively high prices. Computers and other devices can be connected wirelessly via Wi-Fi or Ethernet. Sky Brazil is bundling the new broadband product as part of its Sky TV offer, but LTE will be also available as a stand-alone service. Polish leading pay-tv operator Cyfrowy Polsat is another example of a pay-tv player keen on entering the multiplay zone (see Case Study). It struck a wholesale agreement with Mobyland for data services, and it offers LTE either together with its TV offer or as a stand-alone service. PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 9

10 Market detail Vodafone (Germany) When Vodafone Germany launched LTE services in December 2010, it was the first LTE network to run on the 800MHz Digital Dividend spectrum. LTE development began in the so-called "white spots (that is places with no DSL coverage), in order to fulfill the license condition of covering at least 90% of the population in every federal state by Jan. 1, Vodafone has selected Ericsson and Huawei to supply the network equipment for its commercial LTE rollout, and it plans to upgrade all base station sites in Germany to LTE. It plans to have LTE coverage in 1,000 municipalities by Christmas, nationwide coverage by the end of On Dec. 1, 2010, the LTE dongle from Samsung Electronics was made available nationwide. In Q1 2011, Vodafone added LTE/WLAN routers to its LTE device lineup, and it plans to add a greater variety of USB sticks as well as computing devices: laptops and netbooks with integrated LTE modules. Vodafone added telephony to its LTE tariffs (Vodafone At Home Flat Telephony), which will include unlimited calls to all German fixed-line networks. Also, existing mobile users can get a discount on services. Vodafone reported 52,000 LTE customers as of Sept. 30, Exhibit 7: Vodafone Germany LTE pricing plans 4G service plans Plan contents Internet only Telephony and Internet Vodafone LTE Zuhause Internet (Internet at home) S up to 50Mbps downlink speeds, 10Mbps uplink, up to 30GB of data usage, Flat rate in home range in a radius of up to 2km ($81.88) ($95.52) Unlimited calls to landline Vodafone LTE Zuhause Internet (Internet at home) S 21.6Mbps downlink, 5.7Mbps uplink, and 15GB of data usage, Flat rate in home range ($54.58) ($68.23) Unlimited calls to landline Vodafone LTE Zuhause Internet (Internet at home) 7200 S 7.2Mbps downlink, 1.4Mbps uplink, 10GB of data usage Flat rate in home range ($40.93) ($54.58) Unlimited calls to landline Vodafone LTE Zuhause Internet (Internet at home) 3600 S 3.6Mbps downlink, 720kbps uplink, 5GB of data usage Flat rate in home range ($27.28) ($40.93) Unlimited calls to landline Sources: Vodafone Germany, Pyramid Research Vodafone is the first operator positioning LTE as a DSL replacement technology, claiming that LTE offers adequate bandwidth to replace DSL as a broadband technology. As stated earlier, the operator is looking to migrate 4m of its broadband DSL subscribers to LTE. Vodafone reports that it pays 500m a year to Deutsche Telekom for using its fixed network. Vodafone plans to add TV to its LTE services lineup. In November 2011, Vodafone TV (currently available with a DSL subscription) had 85,000 users, with a target of 100,000 by yearend. Vodafone also PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 10

11 added three HD channels: Tele 5, Sixx and N24. The operator is testing TV over LTE in Düsseldorf so it can use its own LTE network, which currently covers around 7.5m households. The commercial launch of TV over LTE is due in TeliaSonera (Sweden) On Dec. 14, 2009, TeliaSonera Sweden commercially launched LTE services, the first operator in the world to do so. The network was initially launched in Stockholm, covering around 300,000 people. TeliaSonera reported that it dedicated capex of Skr500m (US$65m) for rollouts in additional 25 cities in Sweden and three more in Norway in At the end of 2011, Telia's 4G network will extend to 231 locations, rising to 663 locations by the end of In addition to urban areas, TeliaSonera is expanding in smaller towns and tourist locations. At the network launch, Telia offered 4G services at a nominal monthly fee of Skr4 ($0.50) with a free modem until the summer Following the trial period, the price increased to Skr599 ($81) per month with a cap of 30GB. Compared with its HSPA service, TeliaSonera charges a premium of 85% or even more for LTE services. It also offers unlimited usage in the company s hotspots, with speeds between 2-22Mbps. At the moment, TeliaSonera offers different 4G subscriptions for the business and residential segments. Exhibit 8: TeliaSonera residential 4G mobile broadband tariffs 4G service plans Plan contents Pricing with USB modems: Pricing with USB modem & wireless router: Mellan (Medium) Up to 10MB Speed: up to20mbps Skr249/$38.74/month, with modem; Skr249/$38.74/month, without fixed contract- Modem price Skr1645/$ SEK/month discount for TeliaSonera s customers, with modem, router for Skr799/$ Skr249/$38.74/month, modem included, router Skr799/$ Skr249/$38.74/month, without fixed contract - a modem and wireless router Skr2444/$ Stor (Large) Up to 20MB Speed: up to 40 Mbps Skr299/$46.52/month (normal price Skr349/$54.30) Skr299/$46.52/month, 18-month term, with modem Skr299/$46.52/month, without fixed contract- Modem price Skr1645/$ Skr299/$46.52/month, 24- month term - modem, router and plug included Skr299/$46.52/month, 24- month term - 4G modem and router included Skr299/$46.52/month, without fixed contract- a modem and wireless router from Skr2444/$ Telia Mobile Broadband Start For fixed broadband subscribers pay as you go (Skr29/$4.51/day) 3G or 4G modems With 4G modems: 12-month term, modem Skr995/$ Source: TeliaSonera, Pyramid Research PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 11

12 The low latency makes LTE ideal for online gaming, videoconferencing, VoIP calls, watching online TV and movies. TeliaSonera is tapping into this segment: For example, during its sixmonth summer campaign, TeliaSonera offered Sommarfilm unlimited access to a library of 50 films. Alike TeliaSonera s other mobile broadband tariffs, 4G is also packaged together with additional features, such as security software and media streaming. Photographers were some of the first to warm up to 4G. A Swedish broadcaster s coverage of the Swedish royal wedding used multiple mobile cameras using laptops and LTE dongles to stream live pictures from roaming reporters to static, outside broadcast vehicles and the TV center. The broadcaster s feedback was that the network was fast and reliable, and there was no need for sending broadcast through the satellite. In November 2010, TeliaSonera became the first operator to provide M2M (Machine to Machine) services on its 4G network, and in December 2010 the first 4G B2B deal was signed. Cyfrowy Polsat (Poland) The largest Polish DTH/satellite operator, Cyfrowy Polsat, added LTE to its service offering in August Cyfrowy Polsat signed a wholesale agreement with Mobyland, agreeing to pay Zl 100m (US$35m) for data access. On Sept. 7, 2010, Mobyland and CenterNet commercially launched the world s first LTE FDD network in 1800MHz spectrum (LTE1800). This is part of its strategy to become a multiplay operator. It has already added mobile voice and broadband to its core TV offering. The operator slowly but steadily has been entering the multiplay arena: As of Q3 2011, MVNO customers increased from 77,000 to 136,000 in a year (of which 99% were post-paid customers). The number of Internet users has increased to 54,000 from 39,000 a year ago. At the moment LTE services are available to 22% of the population. About 1,400 localities are covered by close to 600 base stations. Following the services test, Digital Polsat revealed that 60% of those who tested the service received services above 11Mbps and 75% above 5Mbps. There are four packages available, tailored to the needs of users, with monthly data caps of 3, 5, 10 or 25GB, and a promotional offer dubbed free nights (50 GB from midnight till 8am). These prices don t differ from equivalent HSPA+ offers. Exhibit 9: Cyfrowy Polsat LTE Internet tariffs, December 2011 Monthly fee On-off fee Data transfer Device included Promotion Zl 30/$10.50 Zl 49/$ GB Zl 50/$17.49 Zl 1/$0.35 5GB Zl 70/$24.49 Zl 99/$ GB Zl 120/$41.99 Zl 2/$ GB Source: Cyfrowy Polsat Modem LTE Huawei E 182E MIMO Modem LTE Huawei E 182E MIMO Modem LTE Huawei E398 Modem LTE Huawei E398 + wireless router additional 50 GB free nights PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 12

13 The offer is addressing mainly current and new customers, but also younger people from big cities who were not previously the focus of the company. The LTE service is available bundled with other services (primarily television), but also as a stand-alone option. NTT DoCoMo (Japan) Unlike other operators that use HSPA+ as a bridge between HSPA and LTE, NTT DoCoMo went straight to LTE. It is even trialing LTE Advanced, with speeds of up to 1GBbps, with an eye to commercial rollouts beginning around At launch, the LTE service covers the major urban centers of Tokyo, Nagoya and Osaka, with plans to reach 70% of the Japanese population by March Over the next few years, DoCoMo will implement an aggressive plan to expand its LTE service. As of the end of March 2011, NTT invested more than $400m to install about 1,000 base stations and serve about 7% of the population. DoCoMo plans to spend in excess of $3.6bn to build 15,000 base stations, serving 40% of the population by March NTT expects 25% of the company s subscribers, or 15m people, will be migrated to LTE by March In September 2011, NTT announced it had attracted 389,000 subscriptions to the Xi network and expects to have attracted 1.33m by the end of the year thanks to introduction of a wider range of LTE-enabled devices, equivalent to 2.2% of the subscription base. Exhibit 10: NTT DoCoMo LTE area expansion plans Source: NTT DoCoMo Fact Book, December 2011 Because the majority of Japanese mobile subscribers are already avid mobile data users, NTT DoCoMo has stated that mobile video is the largest reason behind its adoption of LTE. Written Xi and read crossy, NTT DoCoMo s LTE service combines the notion of connection and infinite possibility. The Xi service offers downlink speeds of up to 75Mbps, 10 times faster than the current i-mode offer. The operator announced a range of NEXT devices to be introduced in Q4 2011: seven smartphone models, four of which have LTE capability that will be introduced over the coming months. Samsung, LG, NEC and Fujitsu are its key LTE device partners. It has also launched two Android-based tablet devices, with a number of applications preloaded (see Exhibit 11). PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 13

14 Exhibit 11: NTT DoCoMo LTE product lineup Source: NTT DoCoMo Fact Book, December 2011 SK Telecom (South Korea) South Korea's leading mobile operator, SK Telecom, plans to roll out nationwide LTE services in It began by rolling out commercial LTE service in Seoul on July 1, 2011, using the 800MHz frequency band. The company plans to extend LTE coverage to include the Seoul metro area and six more cities by early 2012, going nationwide (82 cities) by SK plans to upgrade to LTE Advanced in In early December 2011, five months after launch, SK Telecom had reached 500,000 LTE mobile subscribers, exceeding its initial year-end target of 300,000 subscribers. SK Telecom plans to invest around $1.8bn in building nationwide LTE networks to cope with huge growth in data traffic from smartphones. By the end of 2011 the operator plans to launch seven smartphone devices, with five already available. Dual-band, dual-mode (DBDM) handsets offering 3G and 4G features will be provided until the setup of a nationwide network. All are based on the Android platform. It has also launched the Samsung Galaxy Tablet 10.1 and announced another Samsung tablet with a PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 14

15 smaller screen size of 8.9, in addition to other Android devices. Around 35% of the smartphone users at SK Telecom select smartphones that are compliant with the LTE service, even though SK Telecom does not offer an unlimited mobile data plan on its LTE network. By expanding 800MHz LTE bandwidth from 5MHz to 10MHz, transmission speed should double. Exhibit 12: SK Telecom LTE data plans, December 2011 Plan name Data limit Monthly rent LTE Modem 35 LTE Modem 49 5GB Promotional additional 2.5GB till year-end GB Promotional additional 4.5GB till year-end 2011 W35,000/$31.61 W49,000/$44.26 Price per MB above data limit W51.2/$0.05/MB W51.2/$0.05/MB Source: SK Telecom, Pyramid Research SK Telecom said that monthly data traffic recorded in June 2011 is 19 times that of August 2010 and the dramatic increase in data traffic will continue with the spread of smart devices. SK Telecom made public its 4G LTE rate plan on Sept. 28, It did not keep the unlimited data service alike its 3G rates. There is also an option to pay an additional W9,000 per month to keep using online features such as Web surfing and . Exhibit 13: SK Telecom 4G rates, December 2011 Monthly rate LTE 34 LTE 42 LTE 52 LTE 62 LTE 72 LTE 85 LTE 100 W34,000/ $30.71 W42,000/ $37.93 W52,000/ $46.96 W62,000/ $55.99 W72,000/ $65.02 W85,000/ $76.76 W100,000/ $90.31 Voice 120 min 180 min 250 min 350 min 450 min 650 min 1,050 min SMS ,050 Data 350MB 700 MB 1.2GB 3GB 5GB 7GB 10GB Note: Customers subscribing to rate plan higher than LTE 52 can use mvoip in the 180MB-750MB range Sources: SK Telecom, Pyramid Research PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 15

16 Conclusions Key findings Some mobile operators look to LTE to gain a competitive advantage over other players in the market, as well to gain additional capacity to deal with growing data demand. Other mobile operators use LTE as an opportunity to further their leadership in the telecom market, while fixed operators are keen to use LTE as a complementary technology. A growing number of operators create joint ventures in order to best use available frequencies and to share costs associated with network rollouts. We believe even more operators will be phasing out DSL and replacing it with more efficient, LTE-based networks, especially in rural areas that can be served by the digital dividend spectrum. This trend is already present both in Germany and in the US. Recommendations Mobile operators LTE is an obvious choice to offload some of the data traffic. Consider your pricing and data bundles carefully, and make sure you have an attractive device and application portfolio. Being a first mover always helps, and think of innovative ways to address the enterprise segment. Fixed operators Consider talking to the regulator and proposing to cover rural areas with LTE in order to fulfill your universal service obligations. Satellite operators LTE treated as a fixed wireless service gives you a good entry point into the multiplay market, so make sure your pricing and offers are attractive (offer discounts when bundling services) and your target segment is right. Mobile WiMAX operators Consider LTE as your technology of choice because you will benefit from economies of scale when it comes to devices. Regulators LTE awards are a good opportunity to revisit your national broadband plan and see what role LTE might play. This is particularly valid for Digital Dividend license awards. The obligation that German regulator imposed on the mobile operators is one of the examples of how you can influence LTE rollouts. Author: Sylwia Boguszewska, Senior Analyst (sboguszewska@pyr.com) Editor: Matt Donnelly, Managing Editor (mdonnelly@pyr.com) Support: (info@pyr.com) PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 16

17 Related resources Global Mobile Data Forecast Forecasts published quarterly Updated on a quarterly basis, this Mobile Data Forecast product provides a complete picture of demand trends for the global market. The Excel output includes five years of historical data and five years of market projections for metrics such as penetration, mobile subscriptions (by type of package, by operator or MVNO and by network technology), users of specific data services (SMS, music, etc.), MOU, ARPS (by operator, by subscription type, by service, by application) and revenue (by messaging and non-messaging applications). The Forecast is based on extensive field research and uses a consistent methodology, aiming to capture the total spending on mobile data services on an aggregate global level. Data from these Forecasts is available online for subscribers to our DataTracker service. LTE Devices and Applications: Next-generation mobile networks driven by video services Thematic Report published December 2011 Long Term Evolution, which we expect it to be the long-term, next-generation network technology of choice, has already overtaken WiMAX subscriptions in 2011, and the range of LTE devices has increased elevenfold in the past year. The largest LTE device segment will be PCs through 2014, as operators initially focus on mobile broadband access for PCs. But after 2014, the PC segment will be replaced by smartphones, with operators announcing more and more LTE models. The heavy emphasis on videos will drive mobile data usage for operators, as will the fact that LTE is well-suited for cloud-based computing thanks to its high bandwidth. In 2016, Pyramid Research forecasts there will be 592m LTE subscriptions, equivalent to 7.3% of all cellular subscriptions at that time. Why Cloud Computing Services Are Good for Operators and SMEs in Latin America Telecom Insider published July 2011 Cloud computing can help operators in Latin America reduce their internal costs and develop competencies that can help them sell these same services to small and midsize clients needing to become leaner and more agile in a global marketplace. And since cloud computing rides on top of the broadband networks being built out by operators today, it provides another important way for operators to achieve a greater return on their investment. This report examines what cloud computing is, the framework behind this model and identifies the main drivers behind its adoption in Latin America. Three case studies look at fixed operators in Mexico that offer cloud services with an eye to what they understand to be cloud computing, the main reasons they adopted cloud computing, and the different services they offer. TV Anywhere: How the Internet and Mobile Technologies Will Change the Pay-TV Industry Research Report published October 2010 In this report, Pyramid Research analyzes trends and strategies related to IPTV, which include how emerging Internet TV and established pay-tv offerings are both parts of a broader market dynamic that places content providers, Internet access providers, pay-tv service providers and even consumer electronics suppliers together as collaborators and competitors, sometimes both at once. It analyzes technological and behavioral trends for viewing content on a wide variety of devices, describes and compares the latest devices and software for delivering and distributing content and examines Internet TV business models in detail. Developments and opportunities related to the growth and implications of Internet TV for all of the players are also discussed. Smartphone Operating Systems: Ecosystem analysis and trends shaping the future of the global smartphone market Research Report published June 2011 In this report, Pyramid Research analyzes the current state of the smartphone market segment, focusing specifically on the developments taking place in the OS arena. Case studies include the following operating systems: ios (Apple), Android (Google), Windows Phone (Microsoft), BlackBerry OS (RIM) and Symbian (Nokia). To learn more about Pyramid Research s product offerings and how they can be of service to your company, please contact sales@pyr.com or visit us on the Web at PYRAMID RESEARCH GLOBAL TELECOM INSIDER VOL. 3, NO. 2 17

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