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4G growth<br />
Will 4G bring growth<br />
by Didier Levy, Arthur D. Little<br />
Despite 4G, European telecom operator revenues will continue to decline although somewhat<br />
more slowly. Nevertheless moving to 4G is extremely important for European telecom<br />
operators whose current networks are running out of capacity. 4G LTE can carry 70 per cent<br />
more traffic than the latest 3G technology - enough to meet capacity needs for the next ten<br />
years. To build profits, operators will need new tariff structures, partnerships with content<br />
providers and others, cost reductions, better network utilisation and network sharing.<br />
Didier Levy is the Director of Arthur D. Little’s ‘TIME’ -Telecommunications, IT, Media and Electronics - practice; he has extensive<br />
experience in strategy, marketing & distribution, organization and transformation projects in the TIME sector as well as in other<br />
industrial and services sectors. During many years Mr Levy has assisted players of the telecom and media industry (mobile, fixed,<br />
broadband, pay-TV, vendors) in different parts of the world. In particular, he has led many projects in growth strategy, product design<br />
and pricing, distribution as well as operational performance improvement.<br />
Didier Levy is a graduate of HEC Paris and holds a MSc from the London School of Economics<br />
4G and European revenue recovery<br />
European telecom operators saw revenues<br />
down by 3.8 per cent in 2012. Will 4G<br />
reverse the trend<br />
Although 4G will quickly become essential,<br />
it will not revive the sector’s revenues. In<br />
fact we expect that despite 4G, revenues will<br />
continue to decline in Europe: -1.8 per cent<br />
per year on average by 2016.<br />
The sector could return to growth if LTE<br />
smartphones generated data ARPU of EUR17/<br />
month by 2016e i.e. EUR7 higher than today’s<br />
data ARPU on 3G smartphones - this is a<br />
stretch. Nevertheless this demonstrates the<br />
high importance of a successful move to 4G<br />
for European telecom operators.<br />
For operators, moving to 4G LTE is a nobrainer…<br />
European operators’ 3G networks will soon hit<br />
a ‘capacity wall’ and 4G LTE is a great tool to<br />
surmount this. Moreover 4G LTE is a better<br />
technology than 3G; the amount of traffic that<br />
can be carried on a given amount of spectrum<br />
is almost 70 per cent higher on 4G than it is on<br />
HSPA+, the latest version of 3G.<br />
Based on our traffic and capacity modelling,<br />
we found that thanks to 4G spectrum, operators<br />
will not face capacity issues for an average of<br />
a decade: specifically not before early 2022 for<br />
operators with 800MHz spectrum and some<br />
time in 2020 for those without.<br />
Network demand and capacity for a typical<br />
operator<br />
Source: Arthur D. Little, Exane BNP Paribas<br />
…and we expect customers to adopt 4G<br />
quickly<br />
The US, Japanese and Korean markets where<br />
4G rapidly became successful, benefited<br />
from specific circumstances not shared<br />
by European operators. Still we believe<br />
that 4G will be a commercial success in<br />
Europe. Customers are growing increasingly<br />
frustrated with the 3G experience, a problem<br />
that will only get worse as usage increases.<br />
LTE will bring a better service, with<br />
download speeds three to five times faster<br />
(15-20Mbps versus 4-6Mbps) and response<br />
times five times shorter.<br />
The take-up of LTE should accelerate in the<br />
second half of 2013 and throughout 2014. We<br />
expect 100 per cent of new smartphones and<br />
tablets to be LTE-enabled from 2015, leading<br />
to a 54 per cent penetration of 4G-enabled<br />
devices in the population by 2016.<br />
We do not expect 4G to restore the industry’s<br />
pricing power<br />
We expect 4G to significantly boost mobile<br />
data traffic. Experience in the US, South<br />
Korea and Japan has shown that traffic per<br />
device is higher on 4G than on 3G, driven<br />
by faster speeds, lower latency and datahungrier<br />
devices. In addition, US operators<br />
have shown that ‘shared data’ plans (enabling<br />
a monthly data allowance to be used across<br />
multiple devices) could accelerate the<br />
connection of more devices to networks.<br />
However our analysis shows that the move<br />
to 4G is unlikely to restore pricing power in<br />
the industry. In many cases, price levels keep<br />
declining due to operators offering higher<br />
data plans for the same price. Thus, the<br />
transformation of traffic growth into revenue<br />
growth is not apparent.<br />
4 • EMEA 2013