Lower LTE Costs Translate into Declining Prices

May 15, 2009

In April, the second and third largest operators in Sweden, Tele2 and Telenor, announced plans for a joint venture that will lower the cost of their LTE rollouts. The two will share spectrum assets and create a nationwide LTE footprint. Clearly, operators worldwide are looking for new ways to lower costs in preparation for LTE despite promises to lower costs relative to 3G on its own. In Canada, Telus and Bell have formed an agreement to overlay their EVDO networks with a joint HSPA network by 2010 that will more efficiently prepare for an LTE migration expected in the 2011-2012 time frame. China Mobile is investing in TD-SCDMA now but estimates that more than 60% of its investment will be applicable to its LTE network, which the operator plans to turn on as early as 2011.

Amid the financial crisis, MNOs are looking to cut costs wherever they can. 3G does not provide the best business case for mobile broadband as evident by some plans with strict usage caps that are also priced 50% higher than fixed broadband plans. LTE promises to change the dynamics, by lowering operating costs not only because of a simpler network architecture with fewer network controllers to manage but also because of enhanced spectral efficiency and a concerted push to lower intellectual property costs to a single-digit percentage of the value of handset sales. Also, to achieve operational savings, LTE networks will use self-organizing network principles to automate some of the processes, reduce power consumption and optimize network capabilities during peak usage hours.

In our recent Insider LTE’s Five-Year Global Forecast, we cover the many drivers that we expect to fuel demand for LTE, and I think lower costs on the network and operational fronts as mentioned above will be a big part of the equation: LTE operators should be able to drive mass-market demand by passing on savings to customers through lower prices for mobile data services. In fact, we expect broadband computing (access over a laptop or PC) to be the fastest growing type of mobile data service in terms of the number of subscriptions.

— Daniel Locke, Senior Analyst

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