Today LTE is an opportunity for many operators to launch new billing models that will help them to repay costs on construction of such networks, increase penetration and quality of data services. That is why it is very important to evaluate the influence of such billing models in comparison with other factors that influence the penetration of LTE services. J’son & Partners Consulting presents main results of the research of the reliance of LTE services penetration rate on the chosen billing model with regard to 3G.
Factors, influencing the LTE services penetration rate
The most important external factors (mainly do not depend on operators):
Level of competition;
Level of fixed broadband access development;
Smartphones’ penetration rate;
Frequency band and the possibility of international LTE roaming;
Level of personal income.
It is reasonable to specify the following factor – geographical region of operators’ operational activity. From this very factor depends not only the total economic development of countries (in regard to operational activity), level of subscribers’ ARPU and operational revenues, but also volumes of investments in the networks’ infrastructure and new technologies. For example, relatively high penetration rate of LTE in TeliaSonera Denmark networks can be explained by the late launch of such services, launch of smartphones that support European LTE frequency bands (it was not available for European operators before) and small territory (the same as for Southkorean operators).
The most important internal factors:
Quality of 3G networks;
Quality indices of LTE networks;
Operators’ policy towards content, development of services;
Operators’ subsidizing of LTE devices;
Available frequency source;
One of the important internal factor (mainly depend on operator itself) is subsidizing of LTE devices, first of all smartphones – one of the most universal, functional and popular form-factor for subscribers.
Billing is very important, but far away not the only factor, influencing the penetration rate of LTE services.
New billing models in LTE networks
It is important to emphasize market migration from Flat-rate tariffs model, with fixed packages of large amount of traffic, to so called Tiered Data Plans (TDP) (equiv. Volume-Based Charging or billing by packages with different traffic volume). Southkorean and Japanese operators usually use TDP model (SK Telecom, LGU+, Korea Telecom, NTT DoCoMo, Softbank), mostly because they have to limit traffic growth in their LTE networks. This model gives an opportunity for operators to profit from those, who regularly overstep the packages limits. Usually, those, who pay for “big” packages, do not use all the traffic and as a result overpay for this service. The second novelty is Shared Data Plans – an opportunity to connect several devices on one tariff plan. It is coming from USA (Verizon Wireless, AT&T, MetroPCS) to Europe (3UK, EE UK) and other regions. This model is stimulating the connection of more devices (in terms of developed market is creating the source of increasing subscribers’ base) and increasing the traffic consumption and operators’ revenues.
Smartphones are becoming a dominate form-factor in LTE networks – vivid evidence is the changes of smartphones share in the total LTE-devices deliveries in the world. According to GSA data, smartphones had only 5% (8 models) in 2011 and 33% (360 models) at the end of 2013 in the total amount of 1000 LTE devices. This process is happening mainly due to the fact that smartphone remains the most universal and convenient device for users; it gives an opportunity to work not only with mail, social networks and listen to the music or make photos, but also to use a large and various applications. As a result, a lot of operators provide to smartphones holders, bundle tariffs. Billing there is depending on traffic volume, unlimited voice and SMS services are coming as free additional services. In the table below you can see the approximate price of 1 GB traffic in such bundle-tariffs for smartphones provided by some global LTE-operators.
It is reasonable to emphasize the transition from “flat” tariffs to so called Tiered Data Plans (billing by the volume of traffic) among the trends in billing services models for LTE networks. Shared Data Plans with an opportunity to connect several devices are also part of the modern changes in billing. All packages are mostly becoming a base for universal tariff plans.
Billing strategies in LTE networks regarding 3G
In general, there are two operators’ billing models in LTE networks: “premium” towards 3G and “stimulating”, with the same level of tariffs in LTE and 3G. Most operators nowadays prefer to use “premium” model, they consider this is the right way for sustainable development and possible payback of new networks. At the same time, the level of billing in LTE networks towards 3G cannot be counted as an independent indicator – it has an importance only in comparison with general level of operators’ ARPU and average speed of 1GB traffic. According to analytics’ data, in Europe, the tariffs on LTE towards 3G are the highest; in USA they are almost equal. At the same time the average price of 1 GB traffic in LTE networks in USA are overstep the global average point 1,5 times in comparison with Europe (please see Fig. below).
Speaking about the operational efficiency, the transfer of 1 GB via LTE network costs an operator around 5 – 10 USD, according to Deloitte analysts’ data. Some operators still provide tariffs with a lower price (breakeven point), although all these actions aim at stimulation the subscribers’ transition from 3G. When market starts to saturate and the level of LTE penetration increases, tariffs will be increasing inevitable.
According to Deloitte data on Q42012, the cost of 1GB of traffic was in a range of 0,66 to 5,5 USD in commercial LTE networks globally. Thereby, operators with a min price for traffic had only 5% LTE subscribers of total subscribers base, while operators with opposite tariffs – around 16%.
High level of billing gives operators an opportunity to benefit more on LTE and reinvest in their development, expanding the coverage, implementing new frequencies, working with vendors, implementing voice support and increase the penetration rate of services.
Billing models in LTE networks in comparison with 3G of largest (by subscribers’ base) LTE operators in the world are presented in the table below. The presented data shows that the massive penetration of LTE services could be reached either by “premium” tariff model or “stimulating” (same billing, but higher access speeds).
Billing models in LTE networks vs 3G (some largest, by subscribers’ base, LTE global operators) are presented in the table below. The data confirm that global penetration of LTE services could be reached via “premium” and “stimulating” billing models towards 3G (same billing, but higher access speeds). Meanwhile, the most important factors are: provision of massive coverage of new networks, level of standard of life, market average ARPU (is connected to operators’ CAPEX), availability of services, market readiness, subscribers’ readiness for LTE services, level of 3G development, frequency band, availability of LTE-devices – popular form-factor, their subsidizing by operators etc.
LTE billing: Russian experience
In order to describe the situation with LTE launch by Russian operators, it is worth mentioning the specifics of the country: ARPU on the level of developing countries, inability of devices’ subsidizing, very high and inconvenient range for LTE development (2600 MHz), very developed 3G networks, large territory. All these features lead to the situation when Russian subscribers are not yet ready for LTE services, especially while currently used 3G are well operating and providing enough services with current traffic consumption.
The aggressive LTE network development, based on MVNO agreement with “Skartel” (currently subsidiary), allows “Megafon” to take the dominate position on the Russian emerging LTE market. At the same time the total subscribers’ base of “Megafon” (around 180 thousand in total) and “Skartel” on 3Q 2013 was not more than 850 thousand of people, according to J’son and Partners Consulting data. And even the active work on LTE devices, wide coverage (51 region on 1Q2014, together with “Skartel”) and good prices, do not lead LTE services in the mass use, LTE remains the premium service for “Megafon” subscribers.
MTS has the same situation. The operator forecasts penetration rate of LTE on the level less than 7% (among subscribers). This rate will remain even despite the provision of maximum coverage (LTE MTS is working in 15 regions on 1Q2014, at the end of 2014 LTE will be in 74 regions, at the end of 2015 in all Russian regions). MTS is expecting profit from LTE only in 5 years. VimpelCom has launched LTE in 7 regions on 1Q2014 (LTE is planned to launch in 1H2014 in 19 cities, in 2H2014 – 60 cities, if the demand remains).
Nowadays, Russian operators provide the lowest LTE tariffs in the world and more likely they will not increase. Russian operators do not provide premium prices on LTE and keep them on the same level as 3G. Bundle-offers are also essential for Russian LTE networks – universal tariffs for smartphones, including not only traffic in 3G/LTE networks, but packages of voice services and SMS/MMS (examples of such offers are presented in the table below).
Based on the global experience, Russian operators still have to expand the LTE ecosystem and prepare the Russian subscribers for the use of such services. This is not that simple to do, in the view of specifics of local telecom market, nevertheless, we already have some successful examples. Support of voice in LTE networks by “Big 3” operators, including support for iPhone 5s/c (first was «VimpelCom», then MTS and “Megafon”), market launch of a big number of LTE-smartphones, incl. affordable (MegaFon 4G Turbo for 4990 RUB), development of service branch, including mobile TV, etc.
Two operators’ billing models could be identified for LTE services: “premium”, towards 3G, and “stimulating”, with the same level of tariffs in LTE and 3G. Nevertheless, the affordable prices on LTE do not correlate with the higher penetration rate of such services. Each and every successful case of LTE implementation by operators depends on a lot of factors and not only on billing model. Factors are usually the following: the market readiness and subscribers for such services implementation, coverage territory and frequency LTE band, market competition, level of 3G development and fixed broadband access, the availability of LTE-devices (especially smartphones) and their subsidizing by operators, etc.
Detailed results of the research are presented in the full version of тхэ Report:
«The reliance of LTE services’ penetration rate on the хусенбиллинг model regarding 3G» (82 p)
1. Factors, influencing the penetration of LTE services
1.1.1. Competitive environment
1.1.2. Macro regions
1.1.3. Level of fixed broadband access development
1.1.4. Level of population revenues
1.1.5. Penetration rate of smartphones
1.1.6. Opportunity for international roaming
1.2.1. Level of 3G networks
1.2.2. Quality indices of LTE work
1.2.3. Operators’ content policy, services development
1.2.4. Operators’ subsidizing of LTE devices
1.2.5. Frequency services
1.2.6. Frequency band
1.2.7. Availability to support “Voice”
1.2.8. Coverage of LTE networks
1.3. Other factors
2. Billing of services in 3G networks
2.4. by Megabyte
2.5. Free only by purchasing the devices
2.6. Shared data plans
3. Billing of LTE services in comparison with 3G
4. Operators’ strategies in the view of global experience of LTE development
4.1. Operators’ experience of North America countries
4.2. Experience of EU’s operators
4.3. Operators’ experience of South-East Asia countries
4.4. Operators’ experience of other countries
5. Billing models for LTE services in comparison with 3G, Russian operators
6. LTE market drivers and constraining factors
Conclusions and recommendations
List of companies
List of Figures
Fig. 1. The cost of 1GB traffic in LTE networks
Fig. 2. The diversification of LTE subscribers’ base by macro regions, 2Q2013
Fig. 3. The size and dynamic of subscribers’ base collection in 1Q2013 by macro regions
Fig. 4. Share of subscribers of different networks, by macro regions on 2018
Fig. 5. Number of subscribers of fixed and mobile broadband access, 2009-2018
Fig. 6. The comparison of countries by GDP per capita (nominal), 2012
Fig. 7. Development of LTE networks in the world
Fig. 8. Segmentation of LTE devices, 2011-2013
Fig. 9. The most popular LTE bands in the world
Fig. 10. Key factors, determining the loyalty to operator’s brand
Fig. 11. Comparison of average access speeds in different networks
Fig. 12. Average access speeds in LTE networks of Hong-Kong, Japan and USA operators
Fig. 13. Growth of average access speeds in operators networks after LTE implementation
Fig. 14. Subsidizing of smartphones by operators, on example of Apple iPhone 5s
Fig. 15. The most popular frequency bands in different macro regions
Fig. 16. Availability of 900/1800 МHz spectrum in Europe
Fig. 17. Global supplies of LTE devices in 2012
Fig. 18. Coverage of LTE by Verizon Wireless and AT&T operators
Fig. 19. Comparison of unlimited tariffs of Sprint operator vs Verizon Wireless
Fig. 20. Shared data plans of AT&T operator
Fig. 21. LTE billing in comparison with 3G in the world
Fig. 22. Tele2 Sweden is giving LTE-smartphones for 2 weeks for “test-drive”
Fig. 23. Cost of 1GB traffic in LTE network
Fig. 24. Dynamics of market average ARPU in LTE networks in 2011-2016
Fig. 25. Evolution of tariffs range of SingTel LTE operator
Fig. 26. Strategies of LTE-services positioning in the world
Fig. 27. Operational indices of Verizon Wireless by LTE
Fig. 28. The gradual transition on Shared Data Plans by Verizon operator
Fig. 29. Dynamics of LTE-smartphones connection in Tele2 Sweden network
Fig. 30. The most popular smartphones in Tele2 Sweden network
Fig. 31. The comparison of LTE networks in British EE, O2 and Vodafone
Fig. 32. Structure of subscribers’ traffic in LTE network by EE UK operator
Fig. 33. LTE subscribers’ growth dynamic, Korea Telecom
Fig. 34. ARPU growth after LTE launch by Korea Telecom
Fig. 35. Billing of LTE services in “Megafon”
Fig. 36. Key factors, influencing penetration of LTE services
Fig. 37. Main causes, why operators are implementing LTE
List of tables
Table 1. Average price of 1GB on LTE-tariffs for smartphones, by some global operators in the world (including unlimited voice and SMS)
Table 2. Growth in services consumption of Southkorean subscribers after LTE implementation
Table 3. Billing in global LTE networks towards 3G and penetration of services
Table 4. Universal offers (basic level) for smartphones’ operators
Table 5. Universal top offers of “Big 3” operators for smartphones
Table 6. Average price of 1GB on LTE-tariffs for smartphones, some world operators (including unlimited voice and SMS)
For additional information:
J'son & Partners Consulting
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Moscow, Russia, 101990
T.: +7 (495) 625-72-45