Will LTE rescue mobile operators?

  • Two flavours of LTE complement each other; spectrum fragmentation, device ecosystem are challenges
  • WiMax operators have upgrade path via TD-LTE , but plans to do so still uncertain in the SEA region

ANALYSIS WITH the advent of Long Term Evolution (LTE), mobile operators are gearing up for what many industry observers believe to be one of the most important inflection points in the wireless business since the industry went from analogue to digital.
 
Will LTE rescue mobile operators? At the centre of this evolution is whether or not the use of LTE will be able to boost operators’ flagging average revenue per user (ARPU) rates, decrease the capital and operational expenditures (capex/ opex)  of their networks, and enable them to squeeze more bandwidth and capacity out of the frequency spectrum they own.

All this set against a backdrop in which voice revenues are dropping and tariffs are becoming more commoditised.
 
Overall, LTE has had a strong year in 2012 as the number of new commercial networks more than doubled and subscriber growth remained strong, according to Ovum.
 
The London-based tech research firm however noted that much of that subscriber growth remains concentrated in a few markets where operators have been most aggressive in deploying networks. This concentration of subscribers in a few markets most likely won’t change for several years.
 
“The LTE landscape in 2013 will be much like it was in 2012," said Daryl Shoolar, principal research analyst with Ovum, in a research note. “The number of new commercial networks will continue to increase, but the number of subscribers will remain concentrated in a few markets – Japan, South Korea and the United States.”
 
Network rollout strategies
 
As explained in our article on April 30, LTE comes in two variants – Frequency Division (FD-LTE) and Time Division (TD-LTE).
 
To date, much of the world’s LTE deployments are based on the FD-LTE variant as this is the most natural upgrade path for traditional cellular operators due to the fact that 3G is based on a frequency division scheme.
 
However, the deployment of LTE – whether FD-based or TD-based – is far from straightforward, as it does not merely involve swapping existing 3G base stations for LTE ones.
 
Several issues face operators today and these are complex in nature and involve a blend of technical, regulatory and marketing challenges, all of which need to be addressed before LTE can be profitable.
 
Will LTE rescue mobile operators? Ovum’s Schoolar (pic) said that in terms of network deployments, not all are equal as outside the three key main markets of Japan, the United States and Korea, LTE deployments are focused on being utilised for capacity rather than for coverage.
 
“Operators that only have spectrum in higher bands such as 2600MHz have limited their deployments to a few select areas that need a capacity injection due to high congestion,” he said in Ovum’s report entitled “The LTE Outlook for 2013.”
 
“These operators appear to be waiting for lower spectrum bands before they build out widespread network coverage,” Schoolar explained. “In the meantime they offer LTE as a 4G ­hotspot service. [In general the lower the frequency, the better the coverage; higher frequency bands have better bandwidth capacity but poorer coverage when it comes to in-building penetration].
 
Moreover, Schoolar noted that operators are happy to extend the life of their 3G networks instead of aggressively deploying LTE because they have invested billions of dollars in their 3G networks, with some still not having fully recouped the cost of their investments.
 
“For those operators it makes better financial sense to increase network capacity through HSPA+ [the next evolution after 3G which some term 3.5G] upgrades than it does to install a new LTE network.”
 
That said, Schoolar pointed out that the development of TD-LTE can boost the adoption of LTE as it is part of the overall LTE standard and can therefore take advantage of the economies of scale that come with the more widely-deployed FD-LTE.

“Some of these economies of scale include shared research and development (R&D) resources in infrastructure and semiconductor development,” Schoolar explained. “This shared resource extends to devices where smartphones are expected to support both types of LTE.”
 
For operators that are fortunate enough to own both sets (TD and FD) of spectrum licences, TD-LTE can also provide extra capacity to a 4G network.
 
Noting that the growth of data traffic has motivated operators to look at ways to expand their network capacity, Schoolar said TD-LTE could also be deployed in conjunction with FD-LTE to expand existing network capacity.
 
“One example of this is Softbank in Japan, which has deployed a multimode TD-LTE and FD-LTE network, and 3 in Sweden, albeit on a smaller scale.”

Next page: The WiMax conundrum

The WiMax conundrum
 
The worldwide interest of TD-LTE has indeed increased especially over the past year with a number of major operators having launched their networks. At the recently concluded TD-LTE Summit held in Singapore, industry players gathered to affirm that TD-LTE is not only here to stay but also thriving.
 
According to Informa Telecoms and Media, the conference organiser, global TD-LTE subscription will follow the same path as FD-LTE and by the end of 2013, there will be more than 6.3 million TD-LTE subscribers added. The figure is expected to climb to 17.5 million in 2014 and 32.5 million in 2015, with China and India to lead the way in global TD-LTE subscribers.
 
But while large TD-LTE operators such as Softbank, UK Broadband and Sprint (in the United States) may have been allocated specific TD-LTE spectrum, the technology in particular is of more importance to those who have invested in WiMax (Worldwide interoperability for microwave access) as it provides a natural migration path for this somewhat stalled technology.
 
Will LTE rescue mobile operators? Examples of some of these operators in the South-East Asian region that could leverage on this migration path are Globe Telecom and Smart Communications in the Philippines; Packet One Networks (P1) and YTL Communications (YTL Comms) in Malaysia; and First Media and Berca in Indonesia.
 
Although the standards for WiMax were developed a number of years ahead of LTE and quite a few commercial networks were launched between 2008 and 2012, WiMax developments have suffered due to a few key reasons.
 
These include the lack of clear future technology migration path; the lack of a vibrant device ecosystem to bring similar economies of scale that 3G brought to consumers; and the delay of mobile WiMax standards touted to support mobility, according to various industry insiders.
 
Such was the bleak future for WiMax that some operators completely shuttered their operations, while others such as UK Broadband felt that WiMax was doomed to fail and as a result, purposely waited for TD-LTE to mature before launching a commercial network even when they had the frequency licence to do so.
 
Will LTE rescue mobile operators? Prashant Gorkan (pic), chief planning and strategy officer of Indosat, was candid in his comments at the one of the panel sessions during Informa’s TD-LTE conference, saying, “We are Indonesia’s second largest operator and we own the 2300MHz spectrum and we nearly launched WiMax with that spectrum two years ago. But thank God we didn’t.
 
“We’re looking to deploy TD-LTE soon but we are looking carefully at the device ecosystem before doing so and we are at the wait-and-see stage.”
 
Speaking to Digital News Asia (DNA) on the sidelines of the conference, Prashant noted that WiMax did not get the support of handset gear makers and its failure to do so meant that the technology could not take off in a big way due to the lack of economies of scale.
 
“I even expected to see more TD-LTE handsets here at the conference booths but I haven’t seen any,” he told DNA. “You’ve would have thought that at a TD-LTE conference, we would have seen working handsets on display.”
 
Similarly, WiMax has not taken off in a big way in Philippines too. Melvin Calimag, executive editor of Philippines tech news portal Newsbytes pointed out that Globe and Smart are still offering WiMax service but very few, if any subscribers, are using the service.
 
“Another player, Wi-Tribe, a partnership between Qatar Telecom and San Miguel Corporation, has been offering WiMax as its only service in the last three or five years,” Will LTE rescue mobile operators? Caligmag (pic) told DNA via email. “They have the biggest number of WiMax users in the country but I don't think they're profitable.”
 
In Malaysia, P1 has also struggled to grow its subscriber base having only depended on end-user devices in the form of dongles and Mobile Wi-Fi (My-Fi) devices for their customers, as there are simply too few, if any, smartphone-based WiMax devices in the market.
 
YTL Comms does offer two smartphones, the Buzz and the Eclipse, but anecdotal evidence suggests that they are far from popular, with hardly anyone in the market being seen using these devices.
 
It is unclear what some of the other smaller WiMax operators in South-East Asia will do given that it would not make sense for them to further invest in the technology going forward.
 
The more successful players have declared their intention to go ahead with their migration plans to TD-LTE, and this includes Malaysia’s P1 and YTL Comms.
 
Speaking at the TD-LTE conference, Wing K. Lee, CEO of YTL Comms, noted that the company has 80MHz of spectrum both for WiMax (30MHz at 2300MHz band) and TD-LTE (50MHz at 2600MHz band).
 
Asked when he planned to migrate to TD-LTE, he remained coy, noting that it is not important what technology is used to provide mobile broadband as long as it is of high quality, reliable and useful.
 
Meanwhile P1 CEO Michael Lai had publically said back in 2011 that the company is already working with its lead vendor, Shenzhen-based ZTE, to upgrade its existing network to be TD-LTE compliant now that it owns the license at 2600MHz.  But to date, there is no sign of P1 having made this leap into TD-LTE.

Instead, P1's momentum seemed to have slowed down, especially after the company laid off nearly 100 of its workers in in March this year.

Next page: Questions about spectrum and devices

Questions about spectrum, devices
 
Whether an operator chooses FD- or TD-LTE, two issues – frequency spectrum management and device ecosystem – will continue to challenge its adoption.
             
Ovum’s Schoolar noted that spectrum fragmentation remains a real and serious issue in relation to the development of the LTE market, as there are currently 28 bands for FD-LTE FDD and 12 for TD-LTE TDD approved for use globally.
 
Spectrum fragmentation, he said, makes it difficult for a device maker to design a single handset that will work on multiple operators’ networks. This in turn will have a negative impact on device manufacturing scale, which can drive up prices and prevent network roaming from happening.
 
Will LTE rescue mobile operators? “Without common handsets among operators, LTE network roaming will be difficult to achieve,” he said. “The need to support network roamers could force operators to maintain their 2G and 3G networks longer than they had originally planned, which can drive up an operator’s overall cost of network operations and even slow their investments in LTE."
 
Tucker Grinnan, regional head of Asian telecoms and media research for banking giant HSBC, noted that while there has been real momentum for TD-LTE in the last year or so, China Mobile is the key to lighting the TD-LTE fire.
 
“[TD-LTE] has lots of support from operators, vendors and regulators, but [more than that], we need a large scale commercial deployment with mass market handsets to really get things going,” he said in his keynote at the TD-LTE Conference.
 
Grinnan added that the timing of the availability of mass-market handsets remains the single biggest question. 
 
He added that based on handset vendor comments at the Mobile World Congress in Barcelona, all the major players except Apple should have some TD-LTE devices available this year.
 
“However, if the experience with TD-SCDMA  [is anything to go by], we could see a lengthy delay between initial availability and the launch of low-cost models that can sell without huge handset subsidies,” he said.

[TD-SCDMA is a proprietary standard used by China for its wireless broadband network].
 
Will LTE rescue mobile operators? Meanwhile, to cushion the effects of the lack of TD-LTE handsets, Ovum's Schoolar suggested the use of 1800MHz for those with FD-LTE networks -- they could re-farm this spectrum and move subscribers to 4G without having to bear the cost of purchasing new spectrum.
 
“1800MHz has been widely deployed for 2G networks, and if re-farmed for LTE could at least provide one common band for operators and device vendors to support,” he explained. “This would alleviate some of the issues around LTE spectrum fragmentation.”
 
Examples of operators who have taken this step are Britain’s Everything Everywhere and Malaysia’s Maxis Communications.
 
Schoolar said the iPhone 5 was far from the first device to support LTE1800 as a July 2012 report by the GSA (GSM Suppliers Association) identified 98 LTE1800 devices, almost twice the number of LTE1800 devices the organisation identified six months earlier.
 
“While there are still plenty of challenges with LTE1800, such as getting regulators to allow LTE at that band, the value of LTE1800 appears fairly clear. It can help operators save money and gives them a nearly universal spectrum band,” he said.

 Related Stories:

A brief history of LTE

Maxis claims first to launch 4G LTE service

Maxis adopts hook strategy with LTE

P1 lays off nearly 100 workers to ‘streamline operations’

LTE gestation to take time

LTE is good to go, so now what?


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