Why is LTE Essential?

Why is LTE Essential? Operators Challenges A Framework for Strategy Development A Huawe White Paper by François Doummar

TABLE OF CONTENT Executive Summary----------------------------------------------------------------------------------- 1 Introduction-------------------------------------------------------------------------------------------- 2 Why is LTE Essential for Operators?--------------------------------------------------------------- 3 LTE Global Markets Status--------------------------------------------------------------------------- 5 Framework for Operators Strategy Development---------------------------------------------- 7 Manage Your Spectrum---------------------------------------------------------------------------------------8 Backhaul Holds It All----------------------------------------------------------------------------------------- 10 Terminals Are Your Entries---------------------------------------------------------------------------------- 10 Roaming Needs Interoperability--------------------------------------------------------------------------- 11 Pricing is Key-------------------------------------------------------------------------------------------------- 11 Voice Is King, Let It Be Over LTE--------------------------------------------------------------------------- 13 Differentiate Your Value Propositions-------------------------------------------------------------------- 14 Know Your Customers Well-------------------------------------------------------------------------------- 15 Brand It Right!------------------------------------------------------------------------------------------------- 15 Take It to the Market, Confidently------------------------------------------------------------------------ 18 Conclusion: Paving the Way for a Bright Future---------------------------------------------- 19 About Huawei Business Consulting and Huawei Contribution to LTE development-- 19 List of Figures---------------------------------------------------------------------------------------- 20 List of Tables----------------------------------------------------------------------------------------- 20 List of References----------------------------------------------------------------------------------- 20 About the Author----------------------------------------------------------------------------------- 21

Executive Summary LTE is developing fast around the world with 159 Commercial launches forecasted by end of 2012 and nearly 30 million subscribers. LTE is now entering a new phase as a mainstream technology. While it solves many of the challenges the operators are facing especially in mobile broadband, it brings some others too, but it opens great opportunities for operators in the actual industry context. Many reasons drive Operators to massively invest in LTE networks. From spectrum harmonization to brand leadership positioning, going through the network cost efficiencies instilment and the creation of differentiated value propositions, LTE will shape the future of mobile communications. LTE is thought to bring a response to the present structural industry changes that are shifting some of the business out of the operators hands toward devices manufacturers and OTT players. LTE, with its feature rich technology, will help setting the right new business models and services to ensure value for revenues and protect against new players leaking operators revenues, while ensuring lean network costs management. Simultaneously, the changes we see in the industry are not really a threat. As the market is growing fast, the pie is getting bigger and there is room for multiple players. Hence, operators revenues, if protected wisely with the right marketing propositions that LTE considerably helps creating, they will be able to sustain business growth while new OTT entrants will stimulate the market for more innovation and value. 1

Introduction LTE has been developing since 2008 with tremendous promises or expectations not only for extended speed, bandwidth and capacity, but also for features that 2.5G and 3G/HSPA networks failed to crystallize. With the first LTE networks launched in 2009 in North Europe, today LTE is the fastest developing mobile system technology ever with 105 networks in 48 countries worldwide expecting 159 by end 2012 serving nearly 30 million subscribers. With mobile customers behavior changing from predominance of voice usage toward a predominance of data, mobile broadband networks are expected to grow to support exponentially increasing traffic. This change is largely stimulated by Smartphone usage, but also by the efforts that operators have put in terms of pricing packages and go-to-market strategies to ease customer experience. Mobile users connecting through Mobile Broadband in their daily life are growing as well and are estimated to reach 5 Billion (70% penetration) subscribers by 2017 with an average of 0.5 GB/user/month (Smartphone and Laptops users generating respectively an average of 2.5 to 3 GB/month and 7 GB/month traffic). In this context, 3G is not able to provide enough capacity at reasonable costs because of the limited spectrum and the use of circuit switched voice alongside. Moreover, with the proliferation of Internet applications on mobile, and the related usage behaviors, 3G will not be able to set the right differentiating business models using more granular customer usage profiling that will help operators offer value for services and hence manage ARPU profitability margins. Having said that, LTE is thought and designed to solve most of these 2G/3G and other networks such as WiMax and CDMA challenges while preserving the continuity in technologies. But why is it so essential for operators? Simply because there is no other network technology known to date that can serve the growing number of mobile customers relying on mobile data and voice services with continuously heavier usage, while providing operators the tools to leverage customers value by offering them rich sets of value services. This paper will further explain reasons why LTE is so essential for operators, and after a brief update on global market status, it will provide a detailed framework for LTE business strategies development, taking examples from leading operators. The framework is meant to help operators leaders in understanding the LTE challenges and in developing their own insights, visions and decisions to serve their markets at best while ensuring a profitable and growing business. 2

Why is LTE Essential for Operators? While LTE markets and technology has still to fully mature, LTE is entering now a new development phase where it is becoming a mainstream technology. Operators are investing massively in LTE networks, getting into a race for launching first, urging regulatory bodies to release licenses, refarming spectrums where possible. Because it can work on any frequency and any spectrum, and because it is an all IP network, LTE includes a set of features that help operators: Accommodate for the growing number of mobile broadband users and the exponential traffic development, Manage network costs efficiently, Leverage customers value with differentiated value propositions. These features offer the following capabilities: Higher bandwidth, Higher coverage, Higher number of simultaneous customers (capacity), Better pooling of network parts, Flat and cost effective network architecture, Convergence of voice and data services for better network an spectrum efficiency, Customers, Applications and Services profiling to set a rich portfolio of differentiated value propositions for all customers tastes and needs. In short, LTE helps operators serve a demanding and growing mobile broadband mass market at the best cost, maximizing revenues and segments values with future proof investments. Figure 1 provides some operators responses and the below points describe our detailed thoughts about the matter: Figure 1: What is your primary motivation for deploying LTE? 3

LTE is bringing a harmonization of Mobile technologies including WiMax and CDMA with great spectrum flexibility and smooth evolution path. It is also available for FDD as well as TDD technologies, and paves the way for LTE Advanced making the dream anywhere, anytime, any screen, any content a reality. It allows operators to set Premium MBB offering with higher bandwidth for elite customers. Operators see LTE as an opportunity to disrupt from the unlimited pricing package model which has put strain not only on the network, but also on the ROI case introducing innovative pricing models. With more and more users going MBB and an increased traffic per user month on month, LTE introduces an enhanced seamless MBB users experience and offloads 3G mobile networks from congestion. LTE enables operators to offer quickly and easily Internet solutions for consumers, education and other government bodies as well as businesses, in areas where FBB is difficult or costly to deploy. Core LTE features, such as Quality of Service, priority and latency control, enable the creation of differentiated service offerings and value added applications in the Home and the Business markets. Because of the nature of LTE network architecture and the spectrum harmonization, LTE attains a highly reduced bit cost and cost per user, hence it offers operators the means to manage network costs much more efficiently. Operators willing to keep their brand image leadership, always try to be the first to launch in competitive markets to confirm brand superiority through innovation. LTE will shape the future of mobile communications because it provides access anywhere and on any device pervasive and ubiquitous network. Operators should plan for LTE services introduction as a learning curve for them and for their customers because the race is open, who does not enter, will lag far behind in the future. Moreover, once a strong player launches LTE, competitors are pressured to respond to maintain customer retention and remain competitive. 4

LTE Global Markets Status Hundred and five operators worldwide have already launched LTE services. Leading operators achieving over a million subscribers are Verizon Wireless, SK Telecom, AT&T Mobility, NTT DoCoMo and LGU Plus (Table 1 below reports top operators list and subscriptions achievements). Table 1 : TOP LTE Operators by subscriber base (as of June 2012) Operator LTE subscribers (000) LTE subs as % of total Network coverage Bands Verizon Wireless 10,900 9.7% 67% Population 700 MHz SK Telecom 2,933 10.8% Nationwide coverage AT&T Mobility USA 2,838 2.7% 24% population 800 MHz 1800 MHz 700 MHz 1.7/2.1 GHz (AWS) NTT DoCoMo 2,736 4.5% 30% population, 70% by end 2012 1.5GHz LGU+ 2,040 20.6% Nationwide coverage 1800 MHz KT Corp 863 5.0% Nationwide coverage 1800 MHz Metro PCS 743 8.0% 14 metropolitan areas 1.7/2.1 GHz (AWS) Rogers Wireless 600 6.4% 35% residential areas, 60% population by end 2012 1.7/2.1 GHz (AWS) Telstra 383 2.6% 100 regional and metropolitan centers 1800 MHz Yota 350 100.0% 3 cities, 5 cities by Sept 2012 2.6 GHz Bell Wireless Affiliates 224 3.0% 16 million or 48% population 1.7/2.1 GHz (AWS) 2.6 GHz) Vodafone D2 193 0.6% 40% pop coverage 800 MHz TeliaSonera Sweden 150 2.3% 61% population T-Mobile Germany 85 0.2% 50 cities, 1,800 rural areas Tele2 Sweden 70 1.9% 60% population 800 MHz 2.6 GHz 800 MHz 1800 MHz 800 MHz 1800 MHz 2.6 GHz Polkomtel 60 0.4% 28% population 1800 MHz T-Mobile Austria 20 0.5% 12% population 2.6 GHz Telia Denmark 15 1.0% 75% population 2.6 GHz Source: Informa press reports, LTE Maps, Value Partners analysis 5

From this picture, we see LTE markets led by the US and Asia. However, different reasons lead for these markets uptake. The Japan and Korea markets are natively data hungry by culture since the advent of i-mode. Therefore LTE has come as a natural transition from mature 3G data usage. In addition, for the Korean market, all three competing operators have a nationwide deployment strategy which considerably stimulates the market. Moreover, SK Telecom has set an aggressive marketing strategy to reach confidently 7 million LTE customers by end of year 2012. As for the US operators, the strategy goes toward cost efficiency and lean management with the intent of phasing out 2G and CDMA as soon as possible. In Europe, Northern Countries have set the diapason for LTE in Sweden and Norway as both operators TeliaSonera and Net4Mobility a Telenor-Tele2 joint initiative set to optimize MNO efforts were the first operators worldwide to launch LTE with operations in both countries. But they struggled to upscale subscribers bases despite all the efforts in price reduction and promotions the operators initiated. Germany was in the second wagon in LTE launches with Vodafone and T-Mobile. Speed based premium pricing strategy and priority to deploy rural areas on 800 MHz spectrums were the main directions for LTE development in Germany. French operators have acquired both 800 MHz and 2600 MHz spectrum in 2011~2012 but still have not launched any LTE services, though SFR seem to be leading the dance with a real field trial planned by end 2012 in Lyon, the third largest city. In the Middle East, there is no one common motive leading operators to deploy LTE. Markets behaviors are different depending on countries. Presently only few leading Telco principally in the GCC community have launched LTE, others are preparing while regulatory authorities are still inactive on spectrum licensing matters. Perhaps the KSA market is the most dynamic one for LTE development. Mobily is a strong Etisalat established brand for 3G operator with stakes in fixed services through WiMax. Mobily succeeded to be the first to launch 4G LTE in a strong marketing message, swapping WiMax customers. STC as the incumbent immediately launched 4G LTE services with a strong branding campaign and Zain to follow. However, operators LTE strategies differs, while Mobily is focusing on fixed wireless services on 2.6 GHz TDD network, Zain refarmed 2G 1.8GHz network on FDD and addresses the mobile services. Typically, all 3 operators introduced iphone 5, however, only Zain customers can enjoy LTE high speed capability. The UAE market has strong FBB offerings from both operators with excellent penetration. 3G networks aren t overloaded yet by the present customers behaviors. Though, Etisalat launched 4G for brand, innovation and market leadership. Du has to do the same to maintain customers loyalty on the long run. Notwithstanding that it is also an excellent learning experience for operators to start smoothly preparing for 4G with no risk for technology choice as LTE is ascertain to pursue the mobile experience journey over the coming decencies. On the other hand the Kuwait 3G networks are reaching congestion limits especially in some populated and/or high traffic areas due to the lack of proper fixed broadband offerings. Operators urged the regulatory authorities to accelerate the 4G/LTE license issuing to bring some oxygen into the MBB services. 6

Framework for Operators Strategy Development Having understood the necessity for leading operators to implement LTE, it is important to understand how to develop the strategy addressing their markets and the related practices or tactics to take most advantage of the technology capabilities in capturing customers value. It is important to clearly define the reasons why an operator wants to deploy LTE services. Is it to impose brand image (at any cost)? Is it to offer premium services for elite customers to ensure satisfaction and/or incremental ARPU? Is it to fight or partner with OTT players with the adequate business models? Is it to serve the fixed wireless segment? Is it to drive convergence? Is it to offload congested 3G networks? Is it to phase out less efficient 2G networks? Or most probably, is it a combination of some or all of these reasons? While LTE helps solving many of these operators challenges, the technology brings many others. Matters need to be handled smartly throughout the entire ecosystem, from spectrum management to go-to-market strategies in order to manage customer experience expectations as well as the network operator s profitability. Figure 2: Framework for Operators' Strategy Development Spectrum Go-to-Market Backhaul For example, while LTE harmonizes spectrum usage bringing certain flexibility, it is challenging device manufacturers to avail on a single chipset the multi-band capability and the backward support of 2G/3G modes. This on another hand is putting pressure on the terminal price, which is an entry barrier for customers take up. In this chapter, a framework is developed, detailing point by point the entire LTE ecosystem, taking examples from leading Telco practices, to assist services providers in understanding the key LTE challenges and insights in developing successful business strategies. Branding Segmenttation Differentiated Value Propositions Framework for Stategy Development VoLTE Pricing Terminals Roaming 7

Manage Your Spectrum LTE brings the necessary flexibility to spectrum management which becomes crucial for delivering the promised mobile broadband experience; delivering enough coverage and capacity for customers where they are, as they need. Although LTE could theoretically work on as many frequencies as stated by the 3GPP standards Figure 3: Global, LTE launches by technology and band, 1Q12 Figure 4: Which spectrum bands do you intend to use to deploy LTE? (Multiple choices) (see Fig 3 and 4), operators need to find the right balance between many parameters when selecting the spectrum for LTE launch: Spectrum and frequencies availability from regulatory authorities and the subsequent price to pay for the acquisition. It is getting into a practice nowadays that the higher in frequency the spectrum is, the cheaper per MHz it is. That is because a high frequency spectrum provides smaller cells, thus less coverage and therefore the network expansion cost will be higher. This is why high spectrums are more likely to be used for fixed or nomadic value propositions or to offload congested 3G/HSPA networks in dense zones and low spectrum are used to provide mobility and wide zones coverage. Also, the 1800 spectrum is getting a great momentum nowadays as it provides an excellent balance between capacity and coverage. Moreover, while slowly phasing out 2G voice services toward more efficient spectrum usage on both 3G and LTE, 1800 can be refarmed to LTE, while 3G can provide good MBB coverage in rural areas on 900 until digital dividend reallocation is completed and full LTE services are deployed. Figure 5: LTE Spectrum Auction Pricing in Europe 8

Integration of new 4G/LTE services within the existing 2G and 3G services portfolio and subsequent evolution planning from existing services to LTE (mobile broadband and voice services) with the necessary spectrum refarming. Typically, though LTE can work on almost any spectrum, 2G standards are set on 900 and 1800, 3G on 900 and 2100, it is highly recommended to spare the 800 and 2600 for LTE and lead regulatory authorities to comply with these practices when it is related to mobile offering, while 2300 shall focus on fixed/nomadic services as a continuation of WiMax and CDMA spectrums. In the latter case, TDD technologies are mostly used because of the bands allocations dissymmetry and the possible fragmentation inherited from previous spectrum usage. Frequencies and bandwidth planning for coverage and capacity as per market demographics and traffic development. Because of the flexibility of LTE standards, operators may start with LTE on small bands allocations, as small as 1.4 MHz (which would provide limited speed and capacity for end customers) and up to 20 MHz per carrier. However it is important to plan and ensure the necessary acquisition of additional future bands from the regulatory authorities and/ or refarming from 2G/3G spectrums as per the market demographics and the customer traffic patterns distribution in geographic areas. Definition and plans for the roadmap of value propositions in terms of mobility, fixed, broadband, voice and M2M services. Deciding on the type of spectrum and technology (FDD/TDD) used for LTE will have a direct impact on the types of products and services to offer for both consumer and business markets or vice versa. Therefore it is important to define and plan the future service offerings and decide on spectrum and technologies accordingly. Typically, mobile voice services over LTE would require full mobility, which implies wide coverage and handover between cells, therefore low band frequencies 700/800 would be recommended. Whereas, fixed wireless broadband services would require high capacity, high bandwidth in dense zone, hence high band frequencies 2300/2600 would be indicated. M2M services for vertical markets would depend on the market itself. The Oil & Gas market for example, requires some telemetry solutions in wide desert zones sometime, hence wide coverage and low capacity meets the requirements. The industry used to operate TETRA networks on 450 Mhz. Operating LTE on such band will bring great opportunities to provide richer solutions to the Oil & Gas industry with the adequate security and real time communications requirements. Terminal devices availability for the local customers as well as for inbound and outbound roamers. This is one of the most important topics to consider when selecting the spectrum. Availability and price of the devices will have direct effect on the subscriber take up and revenue plan. On the other hand, due to the wide range of frequencies used by LTE, devices manufacturers may provide multi bands LTE terminals in addition to multi mode radios for 2G and 3G. But they may not include all frequencies. As the markets consolidate to reach significant economies of scale, there will be equilibrium between the cost of fully integrated multi-mode, multi-band chipsets and the price of the end users terminals. Therefore, for price effectiveness, it is recommended to use the most commonly used LTE spectrums to maximize the scales. This will have a positive impact on inbound and outbound roamers whose revenues will consolidate the business case. Unless the service offering is limited to a Local Mobile or Fixed/Nomadic ISP offering, in which case the operator may use non-common spectrum and terminal devices. In that case the operator may need to bundles the device with the service, setting the adequate terms and conditions, and possibly SIM locking the subsidized devices. 9

Backhaul Holds It All With LTE providing up to 300 Mbps per sector on the radio side, an LTE base station reaches nearly the Gigabit per second on the backhauling side, not to mention other 2G and 3G/HSPA traffic as well as internal signaling and other protocols, and the plans for future evolution to LTE Advanced. Therefore backhaul planning and management is important to consider when planning for LTE launch. In addition, as LTE provides core features, such as QoS and latency control. Operators willing to leverage on such value propositions need to ensure the services are delivered throughout the end to end network parts. Our Network Consulting White Paper on Mobile Backhaul Based on Fiber provides comprehensive details on backhauling strategies for LTE. Terminals Are Your Entries As discussed in the first part Spectrum Management, the availability of devices have a direct impact on LTE services take up. One of the reasons we saw a slow take up in most markets where LTE was launched in early schedules typically in North European markets is the limited number of devices and the relatively late introduction of LTE Smartphones. Typically, Verizon Wireless saw clear uptake in its LTE subscriber s base when it introduced a range of Smartphone terminals. At the same time the spectrum fragmentation between regions and countries can t help vendors realize economies of scale for bringing LTE phones prices to lower levels for wide market segments affordability. Nonetheless, the LTE iphone 5 launched in Q3 2012 is expected have a significant positive impact on LTE subscription uptake in markets where the Smartphone can operate on their networks. However, while Apple is focusing on capturing in priority the North American markets where LTE accounts for nearly half of the LTE subscribers worldwide through the availability of iphone 5 on 700 MHz, AWS and 1900 MHz band, others vendors such as Samsung, LG and HTC are capturing more standardized spectrums with 800 MHz, 1800 MHz and 2600 MHz. To date Huawei s Ascend P1 LTE supports the widest range of frequencies for both FDD and TDD technologies adding the 2100 and 2300 MHz bands to the 800/1800/2600 MHz list. Therefore, taking example on leading operators in the market, we strongly recommend operators to enrich their device portfolio for a quicker LTE market uptake. Many operators started with dongles and routers which seem to be still the entry points for LTE services. But operators have to complement their portfolios with personal MiFi units followed by a wide range of Smartphones and Tablets. It is obvious that the mass market will come from Smartphone usage in LTE. However in this game, the Smartphone prices ranging from 300$ to 800$ or higher set the barrier for mass market entry. Therefore operators and vendors are thinking together how to lower this barrier. Vendors are working on multi-mode multi-band Chipset integration. Operators multiplying creative initiatives to package and promotes services for all market segments. Typically MetroPCS is launching an LTE for All initiative promoting LTE devices around 100$. 10

In all cases, the terminal ecosystem is very important for wireless technologies and especially for LTE because the technology evolution into an all-ip wireless network introduces a number of parameters that could help operators offer differentiated value propositions including VoIPoLTE, Mobile Broadband, Fixed/Nomadic Broadband and Internet-of-Things. When designing, planning and launching a value proposition, operators need to think it end-to-end, meaning from the terminal application to the terminal device going through the smart network. Roaming Needs Interoperability LTE hasn t yet reached a mass scale where roaming gets critical for users. And voice services over LTE are still in very early stages to create pressure on LTE roaming agreements. In addition, in the present situation, we are more stressing on device interoperability on different networks while abroad rather than on the international interconnection gateways. To date, dual/triple mode devices 4G/3G/2G allow roamers to access mobile broadband services on 3G/HSPA offerings and voice services on circuit switched networks (CS fallback). However, on the long run, operators need to ensure their LTE customers can roam while abroad, but also they need to host inbound LTE roamers. The LTE spectrum fragmentation and the device ecosystem readiness aren t making the task easy for operators. It is important that operators, device manufacturers and regulatory authorities reach a common agreement on a common spectrum supported by all terminals in different countries. Typically in the Middle East, most operators are launching Mobile LTE services (FDD) on 1800 spectrum except Qatar. This sets a common basis for devices and customers roaming. However, people from the GCC countries, while roaming in Qatar or in Europe need to ensure the possession of terminals supporting 800 spectrums especially that 2600 may only be available in hotspots in urban zones. Similarly, Qatar Telecom needs to ensure that LTE devices can operate on 1800 for citizens to travel across other GCC countries. It is the responsibility of the operators to ensure customer education and compatible devices support in their value proposition design and their go-to-market strategy. Pricing is Key Since the first operators launch of LTE networks, LTE services pricing mainly MBB has gone through three different stages and probably more will come as VoLTE start spreading. In the early stages, most operators focused on Premium MBB pricing for LTE services where 4G price per GB was sold at up to 40% premium price than 3G/HSPA or sometime higher. Very soon, facing slow take up, the late readiness of LTE Smartphones, and the lack of serious need for mobile broadband speeds faster than 3G, as well as the lack of a clear value proposition for LTE other than MBB, operators had to evolve their 11

pricing models toward a seamless MBB offering where the device capability allowed customers to use indifferently 3G or 4G where available. This move had the advantage of making more fluid the MBB traffic and offloading the 3G networks where congested. Hence speed based pricing appeared on both 3G/4G combined where the bigger the data allowance is, the higher the speed is. This new model helped operators move out, especially in Europe, from the unlimited bundles that put lots of strains of the 3G networks and on the business case profitability. Table 2: Evolution of LTE MBB pricing models Background Value Propositions Early Launches USB Dongles and Router LTE sold as Premium Higher prices per GB (up to 40% higher than 3G) Evolution Phase Future Trends Seamless MBB / offloading 3G First Smartphone introduced No price differentiation 3G/4G. LTE reserved to higher data bundles Speed based pricing with higher speed for higher allowance Voice becomes commodity with large or unlimited plans VoLTE starting and large number of devices available Customers owning multiple devices, Smartphones and Tablets Tethering and/or Pocket WiFi usage Home & Office Solutions, Multi-screen service As voice becomes more of a commodity service with large or unlimited minute s plans to face competition from OTT voice service providers such as Skype and Viber, and as VoLTE services start crystallizing, the game of value proposition stands nowadays on MBB offers packaging with the right terminals and consumer behaviors. New pricing models that define charging based on data allowances plans including the voice service start emerging. The voice based value plans bundled with a number of SMS and data gigabytes start moving toward data centric MBB value plans bundled with limited or unlimited voice and SMS. Shared data plans are found to be an excellent value proposition by people using multiple devices (e.g. Smartphone + dongle + Tablet), but also by family members or business teams. Verizon Wireless introduced the concept of shared data allowance with a monthly fee for the allowance itself and an additional line access fee for each terminal device sharing the allowance including unlimited voice and SMS (see table 3 below). Table 3: Verizon Wireless Case: shared data allowance with terminal line monthly access Monthly plan charge Shared data allowance Shared minutes and SMS Terminal Device Monthly line access 40 USD 300 MB Unlimited Tablet 10 USD 50 USD 1 GB Unlimited MiFi/ Router/ USB modem/ Notebook 20 USD 60 USD 2 GB Unlimited Basic phone 30 USD 70 USD 4 GB Unlimited Smartphone 40 USD 80 USD 6 GB Unlimited 90 USD 8 GB Unlimited 100 USD 10 GB Unlimited 12

Voice Is King, Let It Be Over LTE While LTE is still in early adopter phase in some markets, few leading operators start initiating VoLTE services especially in North America and Asia with the first VoLTE service announced last August by Metro PCS. There are few important drivers leading operators to start VoLTE services: LTE Smartphone start spreading forcing operators to implement mandatorily the circuit switch fall back (CSFB) solution, which becomes the necessary transition solution to full IMS based VoLTE implementation (IMS SRVCC). Verizon Wireless made the choice to leap straight to IMS based VoLTE without CSFB for call quality considerations as well as for cost efficiencies, however it need to reach a minimum LTE mass coverage with full mobility before launch. SK Telecom introduced VoLTE as an HD Voice service at a premium price differentiated from existing CS voice calls. VoLTE increases network capacity and improves spectral efficiency since all traffic for both voice and data services is transmitted on the LTE all IP network. With the widespread deployment of VoLTE, operators will ultimately be able to shut down their 2G and 3G networks refarming spectrum to LTE services for enhanced customer experience and better cost efficiencies. AT&T is planning to phase out 2G networks toward LTE soon for more efficient spectrum usage with VoLTE. Figure 6: What do you think will be the primary solution for voice over LTE? Other (please specify) 3.4% Dual radio (e.g., Verizon s model: LTE for data, CDMA for voice) 12.4% Circuit-switch fallback (CSFB) 11.0% IMS-based VoIP (OneVoice/VoLTE) 47.9% Operator-managed OTT VoIP 13.5% Unmanaged OTT VoIP (e.g., Skype, Viber, etc) 11.7% Source: Informa Telecoms & Media With VoLTE, operators are able to fight competition from VoIP OTT players. This is because operators voice traffic over IP is managed under guaranteed bit rate (GBR) and hence presents higher quality than VoIP over Internet with OTT players. In addition, with the usage of higher GBR Quality of the Service, operators like SK Telecom can offer premium HD Voice for their customers. Table 4 shows some case studies from the leading operator in VoLTE launch. 13

Table 4: VoLTE Case studies from leading operators Operator SK Telecom Metro PCS Verizon Wireless Description Competition is high between 3 players. All 3 deployed Nationwide LTE VoLTE Strategy: Premium HD Voice service Aggressive Go-to-Market targeting 7 mln subs by EOY2012 from ~3 mln by H1 First VoLTE service in US and it doesn t want the customers to notice (seamless voice service with Circuit Switched) Strategy to manage spectral efficiency and offload CDMA network to further refarm frequencies. Strategy to implement IMS-SRVCC without CSFB for call quality considerations and lean network cost management purposes. Expects to reach a minimum critical mass of coverage with full mobility before going live Smart pricing and aggressive terminal strategy Differentiate Your Value Propositions Mobile customers are reaching high scales and mobile broadband is reaching mass markets, therefore operators need to seek and satisfy their customers with more targeted offerings and differentiated value propositions to maximize segments value. LTE is not only a matter of bandwidth or speed. There is more in LTE! LTE is a feature rich technology with many possibilities for operators marketing to develop differentiated value propositions to a diversity of market segments. To illustrate the concept, LTE can be assimilated to a large fiber cable with many pipes inside providing different signal quality as shown in figure 7. Figure 7: Different LTE Quality of Service Classes Service Data Flow* (up to 16) LTE EPS bearer (same QCI**) e.g. video streaming e.g. e - mail e.g. WEB browsing Same QoS behavior! QoS Classes allow defining specifically for a customer profile: the resource type, the priority for data sessions, the delays in data transfers (latency so important for M2M solutions or on-line gaming profiles) and the acceptable rate for data packets losses (see Table 5 below). QCI Resource Type Priority Packet Delay Table 5: Typical Examples for Class of QoS usage Packet Error Loss Rate Example of Services 1 2 100ms 10-2 Conversational Voice 2 4 150ms 10-3 Conversational Video (live streaming) GBR 3 3 50ms 10-3 Real Time Gaming 4 5 300ms 10-6 Non-conversational Video (buffered streaming) 5 1 100ms 10-6 IMS Signaling 6 6 300ms 10-6 Video (Buffered Streaming); TCP-based (e.g. www, e-mail, chat, ftp, p2p file sharing, progressive video, etc.) 7 Non-GBR 7 100ms 10-3 Voice,Video (Live Streaming),Interactive Gaming 8 8 300ms 10-6 Video (Buffered Streaming);TCP-based (e.g. www, e-mail, chat, ftp, p2p file sharing,progressive video, etc.) 9 9 Best effort 14

The objective is to apply different level of QoS on customer profiles to define Gold, Silver, Bronze types of profiles and different levels of QoS on target applications to define the customer experience requirements such as Web browsing, Voice calling, Video Streaming, on-line gaming, etc Figure 8 below explains such mechanisms. Figure 8: Application to Building Differentiated Marketing Propositions Users QoS Max Average Own/3 rd party Own/3 rd party Any providers Then the marketing propositions in 4G become a game of creating differentiated service quality for a range of customer profiles related to various types of applications. Figure 9: Examples of Customers Differentiated Value Propositions to Monetize LTE Typical example to illustrate the differentiated value propositions in Bronze, Silver, and Gold concept is to set Student, Household, VIP/Business profiles: 15

Students are served based on best efforts for all types of accessed applications such as Web browsing, audio and video streaming, downloads etc They pay little value for their mobile broadband services and they agree to leave the space as other high-priority profiles need to access the network. Not that they agree to only access the network when resources are free, but they even agree to be disconnected when a VIP requires to access a very busy network. Moreover, operators creativity can lead to offer free access to students with some targeted interactive advertisements on their Smartphone s browsers. Households pay higher price and have priority on Students. They can connect when resources are available. They cannot be disconnected, neither force Students to be disconnected when resources are not available. They can have priority on certain type of traffic and guaranteed bit rate for VoIP calls. VIP can breakthrough on network access anytime. Student can be disconnected to free up resources for VIP access. They have priority on all types of traffic and guaranteed bit rate for VoIP calls, Video Conferencing and large files downloads. On another hand, operators can create specific MBB plans at a higher value or create optional add-on functionality to existing MBB plans guaranteeing bit rates on VoIP calls only. Customers subscribing to such offer can access their OTT voice services using their MBB connection and enjoy better quality of voice calls while the operator is taking part of such value propositions. Furthermore, operators can offer the option free of charge to those customers who subscribe to the operator s native VoLTE service setting their own VoLTE service and OTT voice services in one paid packaged offering. Figure 10: A Roadmap to Convergent and Cloud Services Cloud Services Office Solutions M2M Internet of Things Solutions VoLTE Moreover, operators can offer such features Next Generation Smart (e.g. GBR on VoIP, GBR on Video Stream, low Rich Content Unified & Social Messaging latency on gaming profiles, etc ) free of charge to end customers if OTT players agree to pay for it on behalf of their subscribers, a typical example of win-win two sided business model. Presence information Fixed Mobile Convergence Solutions Smart Call Forward, Call Distribution (presence based) On the long run, with VoLTE services, operators can develop a full set of convergent and cloud services for the Home and Business markets. 16

Know Your Customers Well In this game of 4G marketing propositions, one size fits all doesn t work anymore if operators want to optimize revenues and break even on LTE investments. In order to maximize segments values, operators should multiply their efforts in understanding their customers budgets, behaviors and interests. Roughly shaped market segments, often based on usage intervals in voice minutes or data gigabytes are not enough anymore. The solution in 4G services marketing resides in micro segmentation addressed by targeted value propositions. This is how Big Data arose; to support Telco in understanding those details from data explosion and provide meaningful information to see customers deepest desires. Operators need to utilize advanced data analytics to provide nearly personalized service offerings and differentiated value propositions. Value added service providers had long time needed to rely on the Telco golden asset the customer information and billing databases and channels to deliver their services to the end customers. Now social networks and OTT players nearly took over this direct customer relationship asset. Has the game changed? Not yet, but their key to success is their deep utilization of analytics on customers information, behaviors and interests from their Web access and other applications usage. Operators should do the same without infringing customers privacy. And they should realize that they have a greater opportunity and advantage of being able to see the big picture in customer behavior at the root of all customer traffic and destinations. If they don t do so, they incur the risk of leaving the stage open for more agile niche players, such as MVNOs and OTT players, while they will be forced to retrench in their network operations endeavors in wholesale business models. Brand It Right! While telecom operators think how to market LTE as a premium service, they wonder whether to market it as a separate brand for higher impact or not. Actually, a few branding opportunities can be considered when launching LTE services depending on the operators Value Proposition and Go-to-Market Strategy: A New Independent Brand can be considered only and only if the operator is starting a different new network with a new subscriber base. However, in such case the operator will miss the synergies that can be leveraged in the network, in marketing and in the use of existing subscriber base. Moreover, most LTE devices are multi-mode including 3G, and the customer experience works seamlessly on both 3G and 4G network. Using a new brand may confuse the customer and disrupt brand loyalty. Unless the operator has a clear strategy to do so, starting a new brand wouldn t be recommended. As an example of an operator who may have gone for such branding strategy is the Russian Yota who went for a pure LTE network with no 3G precedence and swapped all his 300 K customers from WiMax to LTE overnight. A Sub Brand would be better used instead, when the operator have real need to separate LTE from existing offers. Like NTT DoCoMo did when launching LTE with the Xi Crossy brand, marketing LTE as a premium different offering and price plans from 3G. 17

A Product Branding or Trademark or Tag will be used in many cases to identify a Premium LTE offering, such as HD Voice for the premium VoLTE service by SK Telecom. STC uses both 4G LTE tags to refer to the LTE MBB offer, though it combines both 3G and 4G services together for the high end bundles of the existing QuickNet Mobile Broadband offerings. Figure 11: NTT DoCoMo Crossy Brand for LTE Figure 12: SK Telecom premium "HD Voice" Service Figure 13: STC 4G LTE QuickNet Product Tag The Operator Core Brand should be the main stream for LTE services branding as long as LTE introduces an enhanced MBB experience but it is still the same MBB. Institutional branding campaigns shall be used to strengthen corporate image in the marketplace as the leading Telco in innovative technology era. New pricing models, plans and packages are being introduced in consistent complement to the existing MBB price plans or merged to Figure 14: Verizon Wireless 4G Campaign reshape the MBB prices with new plans. The MBB experience therefore will depend on the device capability which could be tagged to refer for LTE or 4G support. The typical example for this case is Verizon Wireless who set a very aggressive institutional campaign for its new 4G/LTE Network Lightening Fast, Lightening Strong with a range of devices offering 4G/LTE support. Take It to the Market, Confidently Depending on operators strategies, the go-to-market should focus on different level of activities, customer education and information push: 1. Above The Line (ATL) campaigns to position the brand leadership and increase brand notoriety in its superior position as a telecom solutions provider, helping its customers improve their daily life and/or business performance through the usage the best technology innovations and most effective communications services. 2. Strong product level communication and promotions including terminal bundling and price plans to call for customers subscriptions and market uptake stimulation. A particular effort need to be set on the product positioning as compared to other MBB offerings in order not to confuse the customers. Customer segmentation and targeted campaigns will accompany the product branding and position if such cases apply. 3. A number of activities shall be orchestrated to educate and inform wisely the customers about the reasons, the benefits and the ways to use LTE technologies as well as the requirements in terms of terminal devices that accompany the services and the implications in using such devices or services while abroad. These activities can range from informational ATL ads to flyers, emailing and road shows demonstrations in public places. 18

Conclusion: Paving the Way for a Bright Future LTE is gaining momentum as Smartphone terminals are spreading all around the world, and people s access to Internet become as important as, if not more, the access to voice calling lines. Therefore LTE is not only bringing the necessary speed for the excellent internet experience the customers want, but also the necessary capacity to the increasing population in quest for permanent Internet access. On the other hand, LTE has been designed and thought to optimize effectively the spectrum, the data traffic and the network costs challenges as well as to provide the means to leverage the business with differentiated service offerings through its feature rich technology capabilities. In that sense, LTE is a response to the present structural industry changes that are shifting some of the business out of the operators hands toward devices manufacturers with their related Cloud services and the multiple OTT players. LTE will help setting the right new business models and services to ensure value for revenues and protect against new players leaking operators revenues. Simultaneously, these changes shouldn t be seen as a threat. As the market is growing fast, the pie is getting bigger and there will be room for multiple players to cooperate. Hence, operators revenues, if protected wisely with the right marketing propositions that LTE considerably helps creating, will be able to sustain great business growth while new OTT entrants will stimulate the market for more innovation and value. About Huawei Business Consulting and Huawei Contribution to LTE development This document is a production of the Huawei Business Consultancy team, who work as a leading advisory team to our customers, developing propositions and proposals on a global basis, as well as within our own business. The purpose of this and our additional series of thought leadership documents is to share with you our views and experience either from a generic perspective or within a particular area of interest. The idea being that by sharing and developing the discussion together we will benefit from enhanced perspectives to grow our business in a more successful manner. We would welcome additional engagement with you to share our ideas, experience and capabilities as a leading supplier of products and market solutions in the field of Information and Communications Technology. Huawei have been very actively involved in 3GPP LTE definition and implementation, and ranks as number 1 contributor to the 3GPP standardization for LTE. On the field, out of the 105 operators who launched LTE, 61 have signed with Huawei as the main LTE network equipment provider. This document assesses Huawei deep knowledge and experience in best LTE and telecom practices. Our vision is that LTE will shape the future of mobile telecommunications providing ubiquitous and pervasive network services to customers new lifestyles, behaviors and needs. Setting up strong and strategic partnerships with our operator clients, together we can crystallize the vision of such services enriching people s lives through communication. 19

List of Figures Figure 1: What is your primary motivation for deploying LTE?---------------------------------------------------------------------------------------------------------------3 Figure 2: Framework for Operators' Strategy Development------------------------------------------------------------------------------------------------------------------7 Figure 3: Global, LTE launches by technology and band, 1Q12--------------------------------------------------------------------------------------------------------------8 Figure 4: Which spectrum bands do you intend to use to deploy LTE? (Multiple choices)-----------------------------------------------------------------------------8 Figure 5: LTE Spectrum Auction Pricing in Europe------------------------------------------------------------------------------------------------------------------------------8 Figure 6: What do you think will be the primary solution for voice over LTE?------------------------------------------------------------------------------------------ 13 Figure 7: Different LTE Quality of Service Classes------------------------------------------------------------------------------------------------------------------------------ 14 Figure 8: Application to Building Differentiated Marketing Propositions------------------------------------------------------------------------------------------------- 15 Figure 9: Examples of Customers Differentiated Value Propositions to Monetize LTE--------------------------------------------------------------------------------- 15 Figure 10: A Roadmap to Convergent and Cloud Services------------------------------------------------------------------------------------------------------------------ 16 Figure 11: NTT DoCoMo Crossy Brand for LTE--------------------------------------------------------------------------------------------------------------------------------- 18 Figure 12: SK Telecom premium "HD Voice" Service------------------------------------------------------------------------------------------------------------------------- 18 Figure 13: STC 4G LTE QuickNet Product Tag---------------------------------------------------------------------------------------------------------------------------------- 18 Figure 14: Verizon Wireless 4G Campaign-------------------------------------------------------------------------------------------------------------------------------------- 18 List of Tables Table 1 : TOP LTE Operators by subscriber base (as of June 2012)----------------------------------------------------------------------------------------------------------5 Table 2: Evolution of LTE MBB pricing models--------------------------------------------------------------------------------------------------------------------------------- 12 Table 3: Verizon Wireless Case: shared data allowance with terminal line monthly access-------------------------------------------------------------------------- 12 Table 4: VoLTE Case studies from leading operators-------------------------------------------------------------------------------------------------------------------------- 14 Table 5: Typical Examples for Class of QoS usage----------------------------------------------------------------------------------------------------------------------------- 14 List of References I. ISuccessful LTE strategies How to use LTE to build a compelling broadband strategy --- White paper by Informa Telecom & Media II. III. IV. LTE operators adopt next-generation pricing models --- Analysis Paper by Wireless Intelligence LTE pricing strategies for consumer handsets Case Studies of NTT DoCoMo and Verizon Wireless --- Analysis Paper by Analysis Mason LTE Innovation Update: August 2012 VoLTE Has Arrived --- Update Paper by Current Analysis V. LTE What Happened and What s Next --- Telecom Asia news article by Value Partners - September 2012. 20

About the Author Senior Manager, Business Consulting Huawei Middle East HQ François is a Telecom Executive with over 20 years experience in strategic marketing management with telecom operators. François Doummar He joined Huawei s Middle East HQ Business Consulting Team in 2010. He contributed in setting up the methodological framework for customers consulting projects and assisted a number of customers projects in launching 3G/4G and boosting Mobile and Fixed Broadband value propositions. Prior to Huawei, François held executive roles at Qatar Telecom where he led the marketing & strategy department for Qtel Business Solutions BU. With his team, he successfully launched a number of products & services in both "Consumer" and Business Markets, and consolidated the 3 years business plan. François started his career at Capgemini Telecom working on big projects for the French operators, he pursued his path in Product Marketing Management with American and French Telecom Software Providers. François holds an engineering degree in Telecommunication and a Masters of Science in Design and Architecture of Computer Systems from Telecom ParisTech (1990). He completed his education later on with an MBA program from EM Lyon Business School in partnership with Carnegie Mellon University in Pittsburgh, USA. 21