If LTE is to be a widespread, commercial success, mobile network operators must ensure that they focus on providing superior coverage to 2G networks within a realistic timescale. They must not make the same mistakes of network underinvestment that many operators have made with their 3G networks, however unpalatable this is to their investors.
In the current economic climate, where mobile ARPUs are under intense pressure from a combination of competition and pricing regulation, the prospect of increased capital investment is the very last thing that investors want to see. However, for LTE to realise its full potential for delivering high-quality mobile broadband services on a widespread basis, mobile operators have to be realistic about the levels of investment that will be required.
NTT DoCoMo, in Japan, is one of very few 3G mobile network operators that have learnt the importance of providing high-quality coverage that is significantly superior to 2G networks. It took disappointing take-up of 3G services for NTT DoCoMo to realise that high-quality 3G coverage was (and still is) a critical requirement of mobile customers.
Initial adoption of NTT DoCoMo’s 3G ‘FOMA’ service was extremely slow, taking over two years to achieve 1 million customers. NTT DoCoMo subsequently attributed this to coverage issues and addressed this slow take-up by investing huge sums in its 3G networks, over many years. This has been fundamental to NTT DoCoMo maintaining a high market share (about 49%) and a low churn rate (0.48%) in Japan. As shown in the figure, below, the annual capital investments by Vodafone’s operations in the UK, Spain, Italy and Germany have been dwarfed by the investment of NTT DoCoMo for the entire six-year period to March 2011.
Annual CAPEX for NTT DoCoMo (Japan) and Vodafone (Germany, Italy, Spain and the UK) for 2006 to 2011
By March 2007, NTT DoCoMo announced that it had reached 100% population coverage with its 3G network. By March 2011, it had deployed 62,800 outdoor base stations and 29,200 indoor base stations, providing coverage levels far superior to most 3G operators in Western Europe.
Some may argue that NTT DoCoMo’s large customer base (58.0 million customers in March 2011) has provided more scope to invest than mobile network operators with smaller customer bases. However, a comparison taking account of differences in numbers of customers still reveals a huge investment gap. As shown in the figure, below, annual capital investment per customer for NTT DoCoMo has been substantially higher than for Vodafone’s operations in Italy, Spain, UK and Japan for the last six years.
Annual CAPEX per customer for NTT DoCoMo (Japan) and Vodafone (Germany, Italy, Spain and the UK) for 2006 to 2011
While European mobile network operators are focusing strongly on avoiding any significant uplift in capital investment, to maximise profitability levels, NTT DoCoMo has been pursuing a relatively rapid deployment of an LTE network, with a corresponding uplift to an already high capital investment profile. NTT DoCoMo launched its LTE service in December 2010, and had deployed over 1,000 base stations by March 2011, with plans to roll out a total of about 5,000 base stations by March 2012.
I recognise the immense challenges faced by mobile network operators from intensive competition and price regulation, which have been discussed in previous articles. However, NTT is not alone in making substantial investments and possessing ambitious goals. For example, SK Telecom has just launched LTE services in South Korea, and is targeting full national coverage by 2013 with “flawless” coverage. Despite the financial and competitive pressures, mobile network operators in Western Europe should not fall behind operators in Asia in seizing the opportunities from widespread deployment of LTE.
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