Naturally, one of the most hotly watched aspects of the current wave of LTE roll-outs is how they affect mobile data usage patterns. As Clearwire found out long ago with WiMAX, cellular networks are like freeways ‘ build an extra lane and more traffic will come. AT&T is already bracing itself for this effect once it has a full 4G network, and working out how to monetize the extra traffic.
Interestingly, though, many emerging market carriers are already having similar conversations. Until recently, it was widely assumed that LTE would follow a similar pattern to that of 3G ‘ except in the case of fixed wireless for underserved areas, the developed mobile economies would build out first, and even where emerging market carriers moved early, they would not support a short term upsurge in consumer traffic, but would focus more on enterprise opportunities.
Not so, especially in areas where many users’ handsets are their only internet connection or even TV. Carriers in Africa and parts of Asia are reporting the same dilemmas of how to turn the traffic that LTE generates into gold, looking to solutions like Wi-Fi offload and tiered pricing. MTC Namibia, for instance, is one of the first 4G operators in sub-Saharan Africa, and has had LTE running in capital Windhoek since mid-May. In those three months, the cellco says it has signed up 1,000 subscribers for its data-only, postpaid 4G service, but even with that modest base, it already accounts for 23% of the total data usage in its 2m-plus mobile subscriber base. 0.0005% of the base consuming almost one-quarter of the data is extreme, especially as many of MTC’s 4G customers are consumers, who are now using an average of 1.6Gbytes per day.
The company, which will extend its current 40 base stations to a national network embracing all main towns and some rural areas by the end of 2013, admits it can see challenges ahead in balancing revenue with the required investment in that network ‘ whose data capacity targets it has already significantly upgraded from initial plans based on the Windhoek experience. In the first phase, there has been a significant proportion of high ARPU customers, whether wealthy consumers wanting broadband or small businesses, but that will not be the case in all areas as 4G goes nationwide.
However, such levels of pent-up demand for mobile data will also be a major lure to operators wanting to boost their subscriber base or balance saturated markets elsewhere, and we are already seeing something of a new ‘scramble for Africa’, driven by data services. Giants like Orange, VimpelCom and Bharti Airtel are buying spectrum, local operators and partnerships, and where there are plentiful urban populations and available spectrum, LTE will accelerate the process, offering them the chance to develop new revenue streams such as m-payments (far more immediately appealing in Africa than Europe or the US) and corporate services.
Not to mention that mobile broadband has a higher positive impact than fixed broadband on economic growth, particularly in developing nations, according to a recent report from the World Bank and infoDev, its technology innovation program. In some countries, such as Kenya and South Africa, mobile is already the main broadband access method, and has passed fixed lines by more than 10 times in both countries. Recognizing that operators need to be assured of profits as well as demand to invest in bringing similar benefits throughout Africa, the Bank is calling on carriers to consider prepaid packages and flexible tariffs to encourage affordable usage., and on regulators to open up spectrum flexibly and at low cost.
Some African countries are looking to offset the cost of meeting 4G demand with shared or wholesale networking initiatives. Kenya pioneered this approach, though its plan to have a single LTE pipe funded and shared by the main cellcos has hit many political hurdles, with market leader Safaricom still looking likely to go its own way, thus weakening the economic argument. But other countries, undeterred, are having similar ideas. For instance, three of Nigeria’s struggling CDMA operators are planning to join forces to create a new nationwide LTE service, conceding they could not hope to compete individually in 4G.
The trio – Multi-Links, Starcomms and MTS – are injecting $200m in a new joint venture called Capcom, creating a stronger challeng to Nigeria’s dominant GSM cellcos in a nation where the CDMA sector has largely fallen dormant. The companies will benefit from the fact that many of the biggest early LTE roll-outs round the world have been by CDMA carriers, led by Verizon Wireless, so they already have plenty of experience to draw upon, as well as CDMA device majors like ZTE and Samsung working on handsets and dongles. The new entity will own 20MHz of 1.9GHz LTE spectrum and will initially serve an existing base of 160,000 data users, but is targeting 2.5m by 2016. The biggest CDMA operator, Visafone, is not apparently joining the group, but even that firm is dwarfed, with 2.5m subscribers, by the GSM/3G players – MTN (43.2m), Globacom (21.6m), Airtel (19.3m) and Etisalat (13m).
So the difficult balance to draw between encouraging extra data traffic via LTE, and working out how to profit from it, is not confined to the western and east Asian carriers, though they discuss it most publicly and will be widely emulated elsewhere in moves such as new pricing plans. The resolutely upbeat AT&T Mobility says it is well prepared for the significant increase in data traffic it will have to handle once it completes its LTE roll-out next year, but CFO John Stephens says revenues are assured.
Speaking recently at an Oppenheimer technology conference, he said: “As usage grows our revenue is going to grow. We’ll have demands on our capex. But we’ll have revenue that’s tied to that demand.” This is partly because of a move to usage-based tariffs, which are helping offset the network cost ‘ AT&T has a total capex budget of $20bn for 2012, and has spent $9bn so far, with LTE a major factor as the firm races to catch up with Verizon. The latter now covers 75% of the US population, and AT&T aims to cover 150m POPs by year end (still 110m behind its rival and not too far ahead of Sprint’s projected 123m).
As usage increases, Stephens said, AT&T will be monetize that, because customers will be pushed to tiered pricing, and will start to move up the tiers. He said that 62% of the cellco’s smartphone users, or 27m customers, are now on usage-based plans, and that two-thirds of them have chosen higher priced options. Meanwhile, those who still have existing unlimited plans are now subject to throttling after 5Gbytes of usage on LTE (less on 3G). AT&T has also been a supporter of ‘toll-free’ data plans, in which content providers or advertisers pay for delivery of their offerings, which then do not count towards the user’s data total.
Not all these choices will be widely open to operators in emerging economies, dealing with a larger number of low ARPU customers, but the examples in Namibia and elsewhere show there is not such a huge gap between consumer behavior in different regions as used to be the case in mobile ‘ which means carriers like MTC will be emulating their US counterparts far more quickly and closely than ever before, driving a real broadband revolution.