Should Emerging Markets Leapfrog Technology in favour of LTE?
There are 124 countries where 3G (Third Generation mobile services, WCDMA and EVDO) has been launched but very few countries outside Europe and US have decent 3G coverage. Many emerging markets are yet to roll-out services and even the big emerging economies like India and China are largely out of 3G ambit. In India, the 3G services have been launched only by state owned operators who have just 13,000 subscribers between them whereas China has just started the journey and are still in dilemma about their home grown technology (TD-SCDMA) and WCDMA. When I started to write this post, I had planned to argue that it would be beneficial for the emerging markets to leapfrog technology and skip 3G roll-outs in favor of LTE (Long Term Evolution) which is a 4G technology (well.. almost!!! It is actually 3.9G as it just falls short of the speed requirements for 4G). However, during the course of research for this post, I realized that it actually makes more sense to launch 3G rather than talking about LTE. I am comparing 3G with LTE and not with other 4G technology like WiMax as I do not believe that WiMax will ever be a viable 4G technology. The figure below details the technology evolution path.
LTE provides operators with several significant benefits like increased peak data rates, increased cell performance, reduced latency, ability to be deployed in scalable bandwidths, coexistence with GSM/EDGE/UMTS-HSPA systems and reduced CAPEX/OPEX. The capex and opex are lower on account of lower number of cell sites required for LTE. The cost of IP backhaul in LTE does not increase in proportion to amount of bandwidth it offers and hence the unit cost of bandwidth is lower in case of LTE (Refer my earlier post on Open Mobile Ecosystem). Despite the above benefits, I feel that it is beneficial not to leapfrog technology and it makes sense to roll-out 3G before LTE. The key reasons for my position are:
Maturity of Technology: 3G has been around for almost 8-9 years now and is a proven technology. The standards are well developed and each of the equipment vendors has decent experience in the 3G roll-out. On the other hand, LTE is still a nascent technology and is expected to mature only by 2013/14. The first BTS was recently rolled-out and the trials are still on and hence I do not think that the emerging markets should take the lead in experimenting with a new technology.
Voice Standard: LTE is an all IP network and it is surprising that VOIP is not a part of LTE as standardized in 3GPP Release 8. Though LTE is backward compatible with WCDMA and CDMA, I am not sure if the technology is ready for voice. I hope that VOIP finds its way in Release 9 scheduled for December 2009.
Revenue Enhancement: Rolling out LTE could be a costly mistake for the operators with low ARPUs and low data usage. Post LTE, if operators in emerging markets are not able to increase the ARPU, we might see some of the operators winding up. The key question in front of the operators would also be how to protect their current voice revenues which is a significant portion of their revenues. As LTE network would be an IP based network and if a subscriber uses voice over IP in LTE, then how the treatment should be different from VOIP on PC or mobile internet.
Capex per Subscriber: The capex per subscriber for LTE is much higher than 3G at $275 per subscriber. The capex per subscriber for 3G is already sub $100 which means there is a huge gap between the two. In 3G rollout, the basic infrastructure is the same and it is just a software update for the core and addition of electronics on the BTS. However, n case of LTE, it is a complete new infrastructure rollout due to the difference in the technology resulting in a higher capex. Most of the emerging markets have vast rural hinterlands and 3G being an evolved technology is seeing a lot of initiatives to cut costs for rural roll-outs. Therefore from the cost perspective, 3G markets more sense. In one of my earlier posts, I had written about the limited viability of 3G in emerging markets and the case for LTE is even weaker.
Devices Availability: Access terminal availability across different price points is another issue which is critical especially in low handset ASP (Average Selling Price) markets. There are almost no handsets available for LTE. It is still not clear if the LTE handsets would work on 2G and 3G networks which means in absence of seamless coverage, the users would need to keep two handsets. I am sure soon there would be multimode LTE/2G/3G handsets but I am concerned about the price of such handsets. In absence of the volumes, it is unlikely that the prices of LTE handsets would come down anytime soon. In some of the markets where operators provide handset subsidy, the operators would need to swap the current handsets with LTE handsets that can result in high initial cash outflow.
Spectrum Issues: Many Governments across the world are yet to spell out their spectrum policy towards LTE. The standard spectrum band for LTE is converging at 2.6 GHz which means that the indoor coverage for LTE would be poor unless augmented by using Femtocells.
Also Read: The WiMAX vs. Cellular Debate … or Is It?
Does 3G have a Viable Business case for Emerging Markets?
Will WiMax Ever Become Mainstream?
Loading ...
Emerging market operators should consider deployment of LTE==>4G with the timing dependent on their market needs, government priorities including subsides.
If current networks continue to supply the bulk of demand and the operator can otherwise afford to wait, it can make sense to deploy after the early birthing pain period of the next generation network. Large operators including DoCoMo, Verizon, China Mobile are able to better afford and they have the resources to smooth out the development and supply issues that normally arise during the early adopter phase of new networks.
In cases where there is a compelling market scenario or government mandates or programs offset the disadvantages of the pioneering deployments and market transitions, including transitioning of mobile subscriber units and bringing up of new services, it may make sense to jump ahead of competition or take favorable advantage of spectrum auctions or government funding.
Additional considerations include how the deployments will be phased: e.g. NGNs can be used as broadband overlay networks starting primarily in dense use areas such as metro areas and then expand to suburban to rural areas. If this is for Greenfield type deployments then the nature of the spectrum and target coverage can vary. These can also be deployed in phases that partly depend on experiences gained at each phase.
LTE and WiMAX are rapidly evolving such that capabilities and cost structure will improve over time. Increased revenue generating services will become available over time: e.g. VoIP/VoLGA and IPTV can add revenue that determines the ability to service low ARPU markets. This can have dramatic impacts on the viability of providing service into emerging markets.
The operators analysis should explore both near term deployment choices and costs, phasing of deployments, and longer term service development.
Robert Syputa
Interesting question – In my opinion there are number of factors to consider:
What is the nature of the market – 1st world or 3rd world – if infrastructure is minimal and latent demand exists for data services, but there is little or no wireless/wireline infrastructure or wireline broadband then LTE/4G could be worthwhile rather than 3G or other hybrid solutions as a “leapfrog scenario”.
Is there an incumbent – what is their position – can they compete with capital spend available if you introduce LTE/4G? – do they have a Capex war chest? If not then there may be a first mover advantage even though you are the second mover.
Each market is different in terms of LTE/4G consideration. If there is latent demand for high speed data services with high bandwidth capacity then there could well be a business case. This will depend on customers, deployed infrastructure and environmental factors – including availability of frequency for LTE data transmission. A number of countries are in the process of re-aligning Radio Frequency usage allocations to enable frequency bands to be available for LTE. For some markets this could be a staged geographic rollout where demand is high across those centres.
The handset issue is compelling and would need to be weighed in conjunction with the other market factors. However this will certainly change fairly rapidly given that the manufacturers can eke higher margins from new tech provision until they reach a volume position.
Finally: Perhaps the best way forward would be to adopt a core infrastructure “ready” strategy for LTE/4G -i.e. build infrastructure as LTE/4G capable as much as possible to “future proof” any deployment enabling evolvement and delivery of future services – even in a Greenfield’s situation.
In some markets there is no compelling business case based on the information in your article and on the conditions of the market – however there are probably unique market opportunities where LTE/4G may well advance services more rapidly, lifting economic performance in third world countries and helping them advance more rapidly as economies by accelerating the movement of services, money and transactions. (Although certainly 3G can perform well enough to offer this as well).
There are a number of so called 3rd world countries where large corporations and their employees desire faster and improved data communications as they are operating with old technologies that hinder commercial processes. There is also an opportunity to provide entertainment to remote/expat workers and to keep them connected with their friends and families while they are working overseas.
In my opinion, the bottom line is the unique business case each market sustains relative to its current deployed infrastructure across both wireless and wireline services.
I think that many operators have been spurred into this question after Verizon’s decision to migrate to LTE . But the main stumbling block as of now is the non standard VoLGA (Voice over LTE via Generic Access.) . I think that in APAC Regions any Opertors would not go for a technology whihc caters only for Data applications as the market for Data applications is not that lucrartive . Hence. I feel that only aftre the Technical solution for Voice over LTE is not finalized Opertaors would not be keen for LTE straightway
Mohit,
Excellent write-up and a sound conclusion! Until VoLGA or some other solution is adopted, LTE seems to remain competition to the ISPs, not to the voice network.
PCMAG.com’s Sascha Segan had a great quote recently, “…it’s not the technology, it’s the buildout.” I tend to agree; there’s room enough to finish the deployment of the existing, proven technology, to the nooks and crannies described in the US government financial stimulus requirements, even after completing the urban areas which still suffer coverage issues today.
Isn’t working on another advanced technology, and being the first to commercial market the name of the game? Well, if your board of directors and financial backers don’t mind doling out for the next 5 years, sure.
But if you install the system and have no handsets or datacards available at initial launch, you’ll be laying-off a lot of well-educated, well-trained individuals.
If you want to have devices and infrastructure making money this decade, then reevaluating the available HW and SW is a better bet for emerging markets.
Improved designs now allow seamless upgrade to LTE (later), after the green field buildout of your 3G network, anyway, whether you choose CDMA or GSM.
Ultimately, there are three problems with 4G that need to be addressed & financed: backhaul, backhaul, and backhaul. Even if you are a Tier 1 carrier, do you have OC-3 or OC-192 going to the cellsites? If you are a Tier 2 carrier (like Metro PCS), how long can you rent the pipes to sustain the network before the usage starts to pay for itself? We’re about to redefine the word “bottleneck” on a whole new scale.
Don’t get me wrong, I am all for the investment and buildout of the latest technology, and the brilliance of LTE is that it is truly a Global Standard, which is something we have been working toward since 1986. I myself want to bring the best services, data rates, and coverage to the end-user.
The two questions to ask the subscribers between Chattanooga, TN, and Chennai, TN, are 1) Do you want more than Voice and Text right now? and 2) Can you afford more than Voice and Text right now?
You have a terrific blog, Mohit!
Cheers,
–j
The majority of early LTE as well as WiMAX deployments, are either deploying into new spectrum as a new service that in many cases will be sold as a supplement to 3G service.
DoCoMo plans to use LTE as a data overlay that should relieve bandwidth bottlenecks on their current 3.5G network.
While Verizon is deploying LTE as a data network that is required by the FCC to be open to devices and applications, they themselves are likely to promote use in conjunction with their 3.5G network. That approach means that they can more slowly transition the subscriber base to new multiple mode devices – “Step up your service with Verizon’s new LTE while retaining your present wide area 3G coverage and service quality”. In the longer term, VZW can extend into IPTV and other premium services in addition to offering higher bandwidth than is feasible on the 3G network.
AT&T is running into capacity issues because of heavy data demands of the iPhone. LTE provides the ability to handle BB traffic similar to the approach VZW will take.
In most cases, LTE or WiMAX are not replacement networks and therefore do not require rapid seeding of subscribers with new multiple mode mobile devices. Most operators we have interviewed who plan to deploy LTE say that they will likely do so as BB overlay networks, not as displacement networks.
While the infrastructure is often ‘upgradeable’ to LTE, that is not an upgrade of use in the same spectrum as existing mobile service. LTE or WiMAX require displacement of existing networks or to function as overlays. The most likely scenario is that LTE will become the ‘next generation’ network in which both the base stations and subscriber units have made the transitioned to occupy 2G-3G spectrum no sooner than another 8-12 years.
In the meantime, LTE will gain ground as the weight lifter – the bigger and more agile pipe to provide off-load and extended broadband services.