Despite the current economic environment, there may be significant opportunities for new entrants with LTE. New entrants have played an important role in stimulating the market for mobile broadband services, and could be equally important in developing the market for LTE services.
New entrants have already played a vital part in driving the market for 3G services, by being:
- early to market with 3G services
- most proactive in marketing affordable mobile broadband services.
In Europe, H3G was first to launch commercial 3G services, in March 2003 in the UK and Italy. Without the concerns of legacy GSM networks, new entrants have been more motivated than incumbent operators to roll out 3G networks rapidly and to maximise the specific service opportunities and benefits of 3G services over 2G services, particularly with regard to mobile broadband.
New entrants have also been vital in developing the market for mobile broadband services. For example, in the UK, 3 UK has been particularly active in promoting affordable mobile broadband services with generous monthly data allowances. These are much closer to fixed broadband services than the mobile broadband services offered by other mobile network operators. Even today, when other mobile operators have significantly reduced monthly data allowances and maintained relatively high pricing, 3 UK offers a mobile broadband service for a monthly charge of GBP15.99 with a 15GB monthly data allowance (equivalent to GBP1.07 per GB if the allowance is fully utilised).
By stimulating the market for mobile broadband services, new entrants have also helped to motivate incumbent operators into deploying 3G networks faster than they might have done in their absence.
The European auctions of UMTS spectrum over ten years ago introduced new players into the mobile market, which brought fresh ideas, unencumbered by the presence of legacy 2G networks. In contrast, more recent spectrum auctions in Europe, to support LTE services, have been far less exciting affairs, being dominated by incumbent operators. A combination of mobile operator consolidation, for example in the UK and the USA, together with continued ARPU and EBITDA margin declines among leading operators such as Vodafone, is not helping to encourage potential new entrants. This is a shame as greenfield LTE networks potentially have substantial advantages over incumbent HSPA networks in terms of:
- network cost
- peak and average data rates
- spectrum efficiency
Furthermore, since incumbent operators have failed to deploy HSPA networks on a widespread basis (resulting in the patchy coverage reported in a previous post) there are clear unaddressed market opportunities.
It is refreshing now to see some developments that signal opportunities for new entrants in the mobile market once again. For example, this month, the Financial Times reported that Hong Kong-based PCCW’s UK subsidiary UK Broadband is looking to deploy an LTE network as early as 2012, using WiMAX spectrum that it has already acquired. I understand that the network would be made available on a wholesale basis for MVNOs and it has been reported that UK Broadband has been in discussion with Virgin Mobile, the UK’s largest MVNO. This brings back memories of the SpectrumCo consortium that I was involved in, which bid GBP2.1 billion for a UMTS licence in 2000, but was ultimately outbid by H3G. At the time, SpectrumCo intended to offer a 3G network on a wholesale basis to a number of MVNOs, including Virgin.
Unfortunately, the inflated bids in 2000 made the creation of a viable business case for new entrants (as well as the incumbent operators) very difficult. This was particularly so because of uncertainty over the market for mobile data services at the time and the lack of compelling advantages for the first-generation UMTS technology over GSM technology. Indeed, it took several years to address the technical deficiencies of first-generation UMTS technology, when HSPA was eventually launched.
Compared with the early period of UMTS licensing, there are a number of factors that may help to create more viable, and more robust, new entrant business models for LTE.
- Spectrum costs per MHz are likely to be substantially lower than with the UMTS auctions, based upon recent auctions worldwide.
- There are opportunities to secure 800MHz, so-called ‘Digital Dividend’, spectrum for LTE, which has significant range benefits (and, therefore, deployment cost advantages) compared with the original 2.1GHz spectrum licensed for UMTS.
- The mobile data market is much more tangible and certain than it was in 2000. Mobile data revenues now represent a significant, and increasing, proportion of mobile operator revenues.
- A broad range of LTE mobile devices, including smartphones, with advanced capabilities will be available, whereas early UMTS devices remained underdeveloped for many years.
- LTE provides a much stronger platform for data services than early UMTS implementations, because of its ability to deliver affordable high-speed mobile broadband services.
So, despite the current economic environment, LTE may provide an excellent opportunity for new entrants.