Summary
Telefonica and other operators are setting up trials with LTE. As 3G revenues for operators are still staying behind 9 years after 3G-license acquiring, operators will not speeden up LTE commercial roll out. Telefonica is smartly inviting the big-six infra suppliers to participate in the LTE trials in different countries, thereby having the ability to assess their qualities and indicating to the providers to need to fight to get the LTE- contracts.
Analysis
Telefonica has invited Alcatel-Lucent, NokiaSiemensNetworks, Ericsson, Huawei, ZTE and NEC to participate in LTE-trials taking place in Spain, the UK, Germany, the Czech Republic, Argentina and Brazil. Telenor, Vodafone, China Mobile and Verizon Wireless earlier announced trials.
The infrastructure vendors should not put LTE equipment sales too early in their books. Most operators acquired 3G licenses in 2000/2001. The internet-crash and high 3G-license auctions led to huge value decline of the operators, which hurt the infrastructure vendors. In combination with the upcoming of Huawei and ZTE, this lead amongst others to the mergers of Nokia and Siemens Networks, Alcatel and Lucent, job losses at Ericsson and the departure of Motorola and Nortel in various markets. 3G deployment was delayed a number of years, and it took until 2008 until mobile internet finally took off big time. However, still in 2009, most operators earn over 90% of their revenues through voice and text messages.
The biggest value of 3G for the operator lies in cost saving due to more efficient usage of bandwidth capacity. Where handsets are finally speedy enough and with heavily improved user interfaces, consumers and handset (specifically smartphone) vendors are profiting. Flat fee data plans by operators lead to lower costs for heavy users, not to an operator uptake in ARPU.
4G might yet again lead to more efficiency for operators on the cost side. However, operators haven't found new revenue-streams yet. Consumers and business customers in developed market haven proven unwilling the last decade to pay more for voice and text services, where paying for content is only an option for a limited group of consumers. And the revenues of the booming mobile application business are not going to the operators. Further, handsets are to be developed, and the roll-out of 4G will be costly, whereas 3G-licenses in most countries still last for at least 6 to 10 years.
Most operators will have learned from 3G history and not make the mistake to roll out 4G too soon.
Tarik Fawzi consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
