White paper: Lte Flat rate pricing for Competitive advantage




LTE Flat Rate Pricing for Competitive Advantage
executive Summary                                          more Subscribers
                            Mobile telephone s...
Wireless Broadband expectations                               more data
                         Consumer expectations for...
Wireless Broadband Case                                         Analysis of the model reveals considerable insight.
      ...
Figure 7. npv comparison for 3.5g and g, motorola, 2007




Summary
The advent of wireless broadband, smart phones        ...
Motorola, Inc.             www.motorola.com
The information presented herein is to the best of our knowledge true and accu...
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LTE Flat Rate Pricing for Competitve Advantage

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LTE Flat Rate Pricing for Competitve Advantage

  1. 1. White paper: Lte Flat rate pricing for Competitive advantage LTE Flat Rate Pricing for Competitive Advantage
  2. 2. executive Summary more Subscribers Mobile telephone service has achieved worldwide Reliable sources forecast wireless broadband pen- mass market penetration as has wireline broadband etration in Europe to reach 20% of cellular subscrib- service in many developed markets. The next step ers by 2010, and exceed 50% by 2012.3 Soon, more in the evolution of the telecommunication industry people will access information services wirelessly is the convergence of wireless telephony and broad- rather than by wireline. band access. This convergence will reach the early adopters with 3.5G technology (HSPA, EV-DO) and achieve mass market penetration with 4G LTE and 750 WiMAX technology. Today’s consumer experience with wireline broad- band will set expectations for tomorrow’s wireless 500 broadband. This market evolution will inevitably move from the early adopter segment to penetrate the mass markets. This movement will be enabled 250 3.5G & 4G by the convergence of : 3G 2.5G 2G • Widespread use of flat rate and block tariffs for 0 voice and data 2007 2008 2009 2010 2011 2012 • Feature rich and smart phones entering the main Figure 1. european Wireless Subscriber mix (millions), stream Summarized from informa, Future mobile Broadband, 2007 • 3.5G data networks nearing build out The effect of these innovations will invariably result Today, access to information sources and the Internet in more subscribers with wireless broadband doing is by wireline, primarily with personal computers. As more things requiring more data traffic. The 3.5G the mobile consumer increasingly adopts high speed technologies of today will struggle with the simul- wireless delivered by 3.5G technology, access to in- taneous increase in subscribers and data traffic. The formation sources will increasingly be via wireless added pricing pressures due to flat and block tariffs technologies. The cross over to majority wireless ac- will hasten the need for 4G WiMAX and LTE. cess will be largely complete by 2010 (See Figure 2). introduction Market penetration of broadband telecommunica- tion service has been faster than most other in- formation and communication services. In North America, consumer embrace of broadband Inter- net access at home achieved 50% penetration in 10 years.1 Consumers in Europe likewise fuel the telecom explosion as internet usage penetration is greater than 50%,2 and mobile phone use at 95%. The convergence of these two mass markets into mobile wireless broadband will likely result in the Figure 2. Wireless access to the internet passes wireline access demand for faster adoption times. Summarized from informa, Future mobile Broadband, 2007 adoption time to 50% (Yrs) The 3.5G technologies (EV-DO and HSPA) will lead the way for the early adopter market segment, and blaze Broadband at home 10 the trail for the inevitable mass market assimilation. Compact disc player 10.5 The advent of high capacity broadband wireless, flat 1. Pew Internet & American Life Project, Video cassette recorder 14 rate tariff plans, and mass market penetration by me- Why We Don’t Know dia-rich and smart phones are the keys to mass mar- Enough About Cell phones 15 ket penetration. The huge traffic demand of the mass Broadband… (2007) Color television 18 market can only be served by 4G LTE and WiMAX. 2. CIA,The World Factbook (2008) Personal Computer 18 3. Informa, Future Mobile Source: Pew Internet & American Life, 2007 Broadband, 2nd Edition (2007) 2 White paper : Lte FLat rate priCing For Competitive advantage
  3. 3. Wireless Broadband expectations more data Consumer expectations for mobile broadband reflect The recent introduction of ultra-premium phones with a continuation of the wireline broadband experience, Half VGA resolution and flat rate data plans are rap- with suitable accommodation for the mobile experi- idly altering subscriber usage profiles. These devices ence. The early adopters of 3.5G are nomadic laptop and plans are positioned for the mobile web, infor- users, but mass market penetration will shift the focus mation access, and entertainment. However, there to mobile handset subscribers. Leading Internet con- is little doubt that competing devices will enter the tent providers and web sites are now adapting their marketplace, bringing many of these features to the service for the mobile consumer.4 Mobile Internet ac- mainstream mass market subscribers. As shown in cess that is comparable to the home experience will Figure 3, today’s feature rich and smart phones will be critical in order to reach the mass market. soon become mass market handsets. Given the human aspect of handset usage, the traffic profiles are likely to be substantially different from a laptop PC. The effective average data rate for watch- ing video and listening to audio may be quite different from a laptop user uploading and downloading spread- sheets, updating databases, emailing with multi-mega- byte attachments, etc. Applications suitable for a handset can be delivered with 3.5G technology for early adopters, but radio capacity and spectrum may be exhausted before the mass market uptake is fully realized. The high efficien- cy of 4G LTE and WiMAX means fewer base stations and radios are needed while deferring additional spec- Figure 3. Feature rich and smart phones cross the mass market trum needs. The ability to effectively deliver data to the threshold informa, Future mobile handsets, 2007 mass market consumer (handset based) is a key as- pect of 4G LTE and WiMAX that is often overlooked. The introduction of Internet friendly mobiles with Flat rate data tariffs – a Key driver to large display shows a significant shift in usage pat- mass market adoption terns (Figure 4). In every case, usage increases dra- matically. As the ultra-premium and smart phone fea- The wireline internet experience of today will set ex- tures move to the mass market, similar traffic shifts pectations for tomorrow’s mobile broadband. As dem- are expected, the net being many more wireless sub- onstrated with xDSL/Cable tariffs, consumers univer- scribers and using much more data. sally prefer transparency, and have been shown to pay more for flat rate tariffs than measured usage data services. 100% All Phones Flat rate tariffs are preferred because of: 75% Smartphone Media-Web Phone 1. Risk avoidance - no unpleasant surprise at the end 50% of the month. 2. Systemic over estimating - no clue about how much 25% downloading, so better guess high 0% 3. Mental hassle factor - is this web page worth a part of my 200 MB plan? Figure . Usage profiles from January 2008, Summarized from m:metrics, 2008 4. www.google.com Feeling the competitive pressure to meet consumer www.youtube.com needs, and to gain a competitive advantage, operators www.wamu.npr.org, are starting to introduce simplified flat rate pricing for www.facebook.com mobile data that reflect the typical wireline broadband www.flickr.com mobile. msn.com mobile. tariffs. nytimes.com www. yahoo.com As with wireline broadband, flat rate pricing leads to significant uptake in usage, and increases stickiness as the service becomes more “valuable and necessary” in everyday lives. Mobile operators that have adopted flat rate data tariff have proven that it has a similar ef- fect on mobile broadband usage and data uptake. 3 White paper : Lte FLat rate priCing For Competitive advantage
  4. 4. Wireless Broadband Case Analysis of the model reveals considerable insight. The fundamental driver for the NPV is the average Cellular operators must soon choose their evolution cell capacity, as this directly affects the number of path to address the coming boom in wireless broad- cell sites needed to meet the total traffic demand. band – more subscribers are demanding intensive data capabilities to get the most of the sophisticated pool of The lower cell throughput capacity of 3.5G technol- mobile devices available. The current 3.5G technologies ogy means that more base stations radios and cell will deliver services to the early adopters, and to a con- sites are needed to support the rising traffic demand. siderable portion of the mass market evolution. Additionally, with the 10 MHz of spectrum, the LTE solution requires only 1 base station radio, while the We compare a theoretical market deployment for a large 3.5G technologies need 2 or 7 radios in the same urban and suburban market with approximately two mil- 10 MHz spectrum. A single radio solution almost lion subscribers. The goal is to find an NPV optimizing always has a competitive advantage compared to a solution. The approach is to hold all things equal (price multi-radio solution in the same bandwidth. sensitivity, traffic profile, average data rates, 10 MHz of spectrum, etc) and only vary the particular 3.5G or 4G The model indicates that decreasing the tariff results radio technology. in more subscribers, and they in turn are using more data. The discount cash flow shows that decreas- The consumer’s price sensitivity (Figure 5), will vary by ing the tariff increases NPV until the cell throughput market and demography. The curve simply illustrates capacity is encountered. Further reductions in tariff that as the tariff is reduced, more subscribers sign up. cause the NPV to fall due to acquisition and develop- Figure 6 is the evolution of an average user traffic pro- ment costs of additional cell sites. file, in GByte/month. A real world data plan today is $60 and 5 GBytes / month, which on this analysis is achieved This indicates that an LTE operator will gain a sus- in 2011 by the average user. Both of these curves are tainable competitive advantage compared to an op- based on market research. Of course there can be con- erator with 3.5G technology. While conditions vary siderable variation. from market to market, this analysis suggests an LTE operator also has significant incentive to drive tariffs to mass market levels, gain market share and 30% maximize Net Present Value. An ominous implica- tion is that 3.5G operators increasingly become non- competitive as they try even harder to compete with mass market 4G LTE and WiMAX wireless broad- band. 20% 10% Figure 5. Subscriber penetration vs tariff, motorola, 2007: Based on parks associates, 2007. 0% $0 $20 $40 $60 $80 10 8 6 4 GB / Sub / Mo 2 Figure 6. average user data demand, gBytes / month, motorola, 2007 0 2006 2008 2010 2012 2014 2016 White paper : Lte FLat rate priCing For Competitive advantage
  5. 5. Figure 7. npv comparison for 3.5g and g, motorola, 2007 Summary The advent of wireless broadband, smart phones For more information on Motorola LTE and Flat rate for the mainstream, and widespread competitive mobile data tariffs, please talk to your Motorola price tariffs will cause consumer demand and us- representative. age to rise such that operators will need the 4G LTE and WiMAX technology to manage the data traffic. Operators with 4G LTE and WiMAX networks will achieve a significant sustainable competitive advan- tage over competitors with 3G or 3.5G networks. Motorola’s LTE solution leverages our extensive expertise in OFDM technology, having first dem- onstrated OFDM at speeds of up to 300 Mbps in 2004, and further by our leadership in IEEE 802.16e WiMAX, expertise in collapsed IP architecture, and leadership in LTE RAN standards. In addition, Mo- torola’s leadership in home and video solutions, chip- sets, handsets, CPE, leading backhaul solutions and experience in deploying OFDM mobile broadband networks assures operators that Motorola delivers a compelling LTE ecosystem. Motorola’s diverse ex- perience insures a smooth migration path for 3GPP and 3GPP2 service providers, traditional wire-line service providers, and new entrants to the exciting world of mobile broadband. 5 White paper : Lte FLat rate priCing For Competitive advantage
  6. 6. Motorola, Inc. www.motorola.com The information presented herein is to the best of our knowledge true and accurate. No warranty or guarantee expressed or implied is made regarding the capacity, performance or suitability of any product. MOTOROLA and the Stylized M Logo are registered in the U.S. Patent and Trademark Office. All other product or service names are the property of their respective owners. © Motorola, Inc. 2008

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