LTE: Less Transforming than Expected

This is an extract from a report by Arete Research, a Telco 2.0TM partner specalising in investment analysis. The views in this article are not intended to constitute investment advice from Telco 2.0TM or STL Partners. We are reprinting Arete’s analysis to give our customers some additional insight into how some investors see the Telecoms market.

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A New IPR Cold War Begins

Everyone in the technology industry loves “next gen” products: they solve all the problems of the previous iteration! In LTE: Late, Tempting, and Elusive in June ’09, we [Arete Research] forecast delays and said LTE would require intensive R&D and bring minimal near-term sales. Two years later, its impact is limited, mostly driven by market-specific reasons.  Now we see operators adopting LTE by moving to single RAN (radio access network) platforms, giving them a choice of how to use spectrum, and sparking de facto concentration of vendor market shares. 

The “single RAN” (including LTE) is another example of deflation in wireless infrastructure; peak shipments of HSPA may be five years off, but now come with LTE.  Collapsing networks onto single platforms (so-called “network modernisation”) prepares operators to re-farm spectrum, even if short-term spend goes up.  The vendor market is consolidating around Ericsson and Huawei (both financially stable), with ZTE and Samsung as new entrants, and ALU, NSN and NEC struggling to make profits (see Fig. 1) while “pioneering” new concepts. All vendors see LTE as their chance to gain share, a dangerous phase.  LTE also threatens to add costs in ’12 as networks need optimisation. A recent LTE Asia conference reinforced our three previous meanings for this nascent technology:

Still Late.  In ’09 we said “Late is Great,” with no business case for aggressive deployment.  Most operators are in “commercial trials”, awaiting firmer spectrum allocations, if not also devices.  LTE rollouts have been admirably measured in all but a few markets, and where accelerated, mostly done for market-specific reasons.

Less Tempting?  Operators are re-setting pricing and ending unlimited plans. LTE’s better spectral efficiency requires much higher device penetration.  Operators are gradually deploying LTE as part of a evolution to single RAN networks (allowing re-farming), but few talk of “enabling new business models” beyond 3G technology.

Elusive Economics.  As a new air interface, LTE needs work in spectrum, standards and handsets. Device makers are cagey about ramping LTE volumes at mid-range price points.  Vendors are still testing new concepts to lower costs in dense urban areas.  Network economics (of any G) are driven by single RAN rollouts, often by low-cost vendors.

Transformation Hardly Happens.  For all the US 4G hype, LTE is continuing a decade-old “revolution” in mobile data (DoCoMo launched 3G in ’01), boosted by smartphones since ’07.  LTE or not, operators struggle to add value beyond connectivity.  Investors should reward operators that reach the lowest long-term cash costs, even with upfront capex.

No Help to Vendor Margins.  Despite 175 “commitments” to launch LTE, single RANs will be no bonanza, inviting fresh attempts to “buy” share. In a market we see growing ~5-10% in ’12.  Ericsson and Huawei are the only vendors now generating returns above their capital costs: LTE will not make this better, while vendors like NSN and ALU must fend off aggressive new entrants like ZTE pricing low to win swaps deals.

Figure 1: Vendor “Pro-Forma” Margins ’07-’12E: Only Two Make Likely Cost of Capital

Arete Research Estimated Returns by Network Equipment Vendor 2011

To read the Briefing in full, including in addition to the above analysis of:

  • Operators: Better Late than Early!
  • Something New Here?
  • Standards/Spectrum: Much to Do
  • Vendors: Challenges ‘Aplenty
  • … Not Enough Profits for All
  • Devices: All to Come
  • Transformation… Not!

…and the following charts and tables…

  • Figure 1: Vendor “Pro-Forma” Margins ’07-’12E: Only Two Make Likely Cost of Capital
  • Figure 2: Verizon LTE Just in the Dots
  • Figure 3: Terminals Needed to Make LTE Work
  • Figure 4: “Scissor Effect” Facing Operators
  • Figure 5: Every Bit of the Air: Potential Spectrum to Be Used for LTE
  • Figure 6: Vendor Scale on ’11 Sales: Clear Gaps

Members of the Telco 2.0TM Executive Briefing Subscription Service and Future Networks Stream can download the full 7 page report in PDF format here. Non-Members, please see here for how to subscribe. Please email or call +44 (0) 207 247 5003 for further details.

Consumer Data and Privacy 2.0: Give Customers the Power

Summary: What do consumers really want from their data? And how should telcos go about meeting these needs for a profit? The answer is simple: give customers the power. An extract from our report on the recent Privacy 2.0 Summit.

Members of the Telco 2.0TM Executive Briefing Subscription Service can download the analysis hereNon-Members, please see here for how to subscribe, or email or call +44 (0) 207 247 5003.


This is a selected extract from the full Telco 2.0 Analysis of the 1st Privacy 2.0 International Summit, ‘Unlocking the Value of Consumer Data’, held 3-4 Feb 2010, at the Liberty Hotel, Boston MA, USA, which covered:

  • Empowering Consumers
  • Re-invigorating the telecoms business model
  • Reducing Friction in the ‘digital economy’

It was an invitation-only roundtable event for 60 representatives from global leadership organizations across telecommunications, technology, finance, advertising, academia and government.

Overall Question to be addressed:“What is the role of the telecoms industry in the management and governance of consumer data, identity and privacy, to stimulate the growth of the ‘Digital Economy’?”


The Summit used a mix of specially commissioned stimulus presentations, panel discussions, plenary and small group brainstorming using Telco 2.0’s interactive ‘Mindshare’ format. The event was facilitated by Simon Torrance, CEO, Telco 2.0 Initiative, and produced in collaboration with the Massachusetts Institute of Technology (MIT) and Nokia Siemens Networks.

The extract in this Analysts’ Note covers new consumer research and recent findings on how companies can build and maintain trust in an online environment. 

New Research: Consumer Data & Privacy Study

Ulrich Hanke, Head of Customer and Consumer Insights, Nokia Siemens Networks, presented highlights of a major quantitative research survey, comprising 9,200 interviews in 14 countries globally in September 2009. The objectives were to understand consumer privacy issues, their approach to sharing data, and willingness to share given certain benefits and conditions.

Figure 1 – Highlight Global Statistics on Consumer Attitudes

Ulrich made the point that there is a degree of inconsistency between consumers’ statements and their actions. For example, he said the 52% that claim to be very selective actually show similar behaviours to everyone else in terms of what they are prepared to share with whom (e.g. personal data with online communities).

26% of the sample had already experienced privacy violation.

Figure 2 – Industry Candidates for ‘Trusted Service Providers’

While no contender is appears outstanding from all others as an “Trusted Identity Provider’, ‘CSPs’ make ideal contenders, second only to banks – but notably also only just ahead of Google. In Ulrich’s view this presents a great chance.

Figure 3 – 46%-58% say CSPs could be a useful Personal Data Intermediary

Between 46% and 58% of consumers thought that CSPs could be a useful partner in managing the circulation of their personal data.

To get greater insight into the conditions which determine consumer’s willingness to share their personal information, NSN tested 14 use cases, 9 describing an enhanced experience, and 5 trading-off benefits. The research asked consumers to rate each one, first with benefit only, and second, with description of the data the consumer would need to share. By comparing the responses, NSN have created a framework describing the factors determining the Attractiveness, Barriers and Conditions of sharing data in different circumstances.

To read the rest of the analysis, covering…

  • Factors driving consumers’ willingness to share Data
  • Hierarchy of Consumer’s Perceived Sensitivity by Data Type
  • A Trust Model for e-Commerce
  • Google and Facebook: “Privacy is History”
  • Nine Key Drivers of Trust in E-Ecommerce
  • Trust needs proof, user-control, consistency, and good communications
  • Panel Discussion and Q&A – how do customer needs differ?
  • VOTE: How well do Telcos understand consumer attitudes to use of their data?
  • In Twitter we Trust?
  • ‘Big Brother has left the building’
  • Consistency is Subjective
  • Telco 2.0 ‘Take Out’ – Give Customers the Power

Members of the Telco 2.0TM Executive Briefing Subscription Service can download the analysis here. Non-Members, please see here for how to subscribe, or email or call +44 (0) 207 247 5003.