LTE in Asia-Pacific
A study in contrasts
The Asia-Pacific region dominates the global LTE scene, both in terms of current LTE users as well as expected new LTE users. According to the GSMA, there were 231 million LTE users in the region in 2014, representing 47% of total global users. Another one billion LTE users are expected to be added in the next five years.
However, LTE in Asia-Pacific is a tale of two different stages of adoption and the accompanying challenges at each stage. Countries such as the Philippines, Indonesia, Thailand, or India are at the early stages of LTE adoption, while markets such as South Korea and Japan have advanced LTE ecosystems and are actively considering the next evolution of technology (5G). Both these sets of markets have their own challenges to continue the development and adoption of LTE.
Addressing the LTE challenges in emerging markets in Asia-Pacific
Telecom operators in emerging markets in Asia face the twin challenges of maximizing their financial returns (ROI) from 3G networks while having to justify the additional investments and returns on LTE. Even though LTE networks offer higher speeds, increased bandwidth and better cost economics for data traffic compared to 3G networks, telecom operators face several challenges in stimulating LTE adoption and migrating customers from their 3G networks to LTE:
- Customer proposition: One of the harder challenges is to clearly incentivize the 3G user to upgrade to LTE services. Operators must ensure that they have a compelling value proposition for 3G customers to use LTE services. This includes key elements like the positioning of LTE vs 3G, the pricing of data on LTE vs 3G and the specific services and consumer benefits that only an LTE network can provide.
- LTE spectrum and network challenges: Regulators in some markets are still grappling with issues around spectrum allocation for LTE including critical concerns like re-farming lower frequency bands or declaring them technology-neutral for LTE use. They also face challenges in terms of upgrading back-haul and transmission infrastructure to cater to the increased traffic of LTE networks.
- LTE handset penetration: LTE handset penetration is very low (between 2%-5%) in some emerging markets with LTE networks despite recent launches of low priced (e.g. priced at USD100) LTE handsets. Operators, understandably, do not want to subsidize LTE handsets within their largely prepaid user base given the inherent financial risks involved. However, to encourage LTE handset adoption, operators need to take on more creative strategies including OEM (Original Equipment Manufacturer) marketing partnerships, trade-in schemes, reverse subsidization models, exclusive device bundles or MiFi device launches to enable 4G speeds on 3G phones.
- SIM upgrades and distribution challenges: Telecom operators also need to address the operational challenges of upgrading SIMs where necessary to ensure that a user with an LTE handset can actually avail of LTE services. Many users still carry legacy SIMs, which have to be replaced with an LTE ready SIM. Retail channels also need to upgrade their capabilities to explain the LTE benefits to customers.
- Disruptive new players: In addition to the challenges above, existing operators in emerging markets are also likely to face increased competition from new LTE-centric mobile operators like Bolt and Smartfren in Indonesia, TM in Malaysia and Reliance Jio in India.
Despite these challenges, telecom operators understand the operational and financial benefits of a successful LTE strategy in these markets. As a result, some operators have started to evaluate the benefits of pro-actively accelerating LTE adoption in their market. As an example, China Telecom dramatically increased its network investments in LTE in 2014 and has put in place several markets efforts to accelerate the development of the LTE eco-system.
Pushing LTE-Advanced in developed markets in Asia-Pacific
In the more developed markets like South Korea and Japan with mature LTE networks, the focus is now on LTE-A (Advanced) including features such as VoLTE, carrier aggregation, optimized HetNet and LTE Broadcast. VoLTE will become a critical element in defending voice revenues of telcos against the increasing threat of OTT voice services. LTE Broadcast promises to unlock new revenue streams by enabling one-to-many content distribution and carrier aggregation promises higher monetization potential through faster speed offerings. However, there are only a handful devices today that support LTE Broadcast or category 6 LTE-A. There is also greater pressure on the overall IT infrastructure, which will increasingly need to incorporate APIs to enable VoLTE, OTT and LTE Broadcast partnerships amongst others. There will also be additional pressure on the BSS systems to support more flexible, bespoke or real-time services and easy integration with third parties.
The Asia-Pacific region will continue to dominate the global LTE market in terms of subscribers. However, it is critical for the operators in both emerging and developed markets in Asia-Pacific to address their respective commercial and technological challenges in order to ensure that LTE generates the desired financial returns for their investors and shareholders.
Vincent Stevens is a Principal with over 7 years of telecom consulting experience and regional exposure in the Middles East, Africa and Asia. Vincent holds a Master in Engineering from Ghent University, Belgium, and is a Certified International Investment Analyst from the European Federation of Financial Analysts Societies. He is based in Singapore.
Vinod Nair is a Senior Partner with almost 20 years of management consulting experience that spans across multiple regions serving clients in the telecoms, media and digital (TMD) space. Vinod holds an MBA from the Indian Institute of Management (IIM), Calcutta as well as a Bachelor of Technology in Electrical and Electronics Engineering from the Indian Institute of Technology (IIT), Mumbai. He is based in Singapore.
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