LTE SPECIAL REPORT 2014: New money, bold hopes

01 April 2014 | Gary Kim

The coming of LTE has not affected the balance of the US mobile wholesale market, but it could yet provide opportunities in unexpected places, as Gary Kim finds out.

Though all four of the biggest national US mobile providers have active 3G wholesale programmes to support 3G mobile virtual mobile network operator (MVNO) partners, only the two smaller US service providers support 4G wholesale, giving MVNOs the ability to sell LTE services.

The upshot is, at least for the moment, that the most important mobile wholesale developments are likely to happen in the 3G realm, rather than 4G.

LTE wholesale is available from Sprint and T-Mobile US, but not from AT&T Mobility and Verizon Wireless, the two firms that together serve about 63% of the US market in terms of branded customers.

According to an analysis by Daily Tech, Verizon Wireless and AT&T Mobility between them also support about 75% of all MVNO customers in the US market.

The Big 4 and 4G
But the absence of the two largest carriers from the LTE MVNO wholesale market has huge implications for MVNOs. All other things being equal, this means only about 25% of US MVNO customers have the option of buying LTE services.

For example, in 2012 Sprint announced it had signed 10 LTE wholesale customers. Meanwhile at the end of 2013, Verizon Wireless had 96.8 million postpaid and six million prepaid accounts, but none of them were wholesale LTE accounts.

T-Mobile US already supports a limited amount of LTE access for its MVNO customer Target and its “Brightspot” service, but T-Mobile is expected to extend full LTE access to its wholesale prepaid partners.

At least so far, the LTE introduction has only reinforced the existing US mobile market share structure. Since at least 2010, Verizon Wireless and AT&T Mobility have steadily been gaining market share in the overall US market. One might argue that trend is fuelled by LTE, which Verizon launched in late 2010 and AT&T launched in late 2011.

This is tough to refute or affirm, as both Sprint and T-Mobile US have now also launched 4G LTE networks, even if the smaller carriers have less coverage than Verizon or AT&T.

Verizon moved first to offer LTE, and Verizon Wireless, by most metrics, remains the market share leader, followed by AT&T. Verizon’s 4G network now includes 298 million people and covers 95% of the US population. Verizon is also adding as much as 40MHz of new LTE coverage across key parts of its network. At 280 million people, AT&T’s LTE coverage is still about 20 million behind Verizon’s.

T-Mobile US, astoundingly, built its LTE network in just eight months, and will in 2014 double LTE bandwidth to 40MHz in key national markets. Sprint’s LTE network relies on 10MHz chunks of spectrum in the 1.9GHz range, augmented by 2.5GHz and eventually 800MHz as well. But Sprint will be speed-limited in the near term, until the other bands are fully implemented on a wide scale.

All four national carriers have been growing their share since 2003, when Verizon had 24% market share, and AT&T just 14%. One might argue that AT&T grew by acquiring Cingular, which in 2003 had 15% market share. In 2003, Sprint had a 10% share, while T-Mobile had 8%.

By 2013, Verizon had about 31% share, AT&T had about 27%, Sprint had 16%, and T-Mobile US had 12% share. The point is that all four of the largest US mobile providers have been gaining share since at least 2003, well in advance of the LTE networks. Consequently, it could be argued that LTE has not had any particular impact on US mobile market structure, at least so far. Since 2003, none of the four national providers has changed its share position.

To be sure, T-Mobile US – the smallest of the four national mobile providers – has reversed its pattern of subscriber losses, and is gaining market share.

But the specific role of the LTE network is not clear. T-Mobile US is seemingly taking share because it is pushing more flexible service plans, easier device upgrades and lower retail prices, not because of the value of its 4G network.

A niche for 3G
Oddly enough, the biggest wholesale-related trend caused by adoption of LTE in the US mobile market might be what it means for 3G wholesale. In fact, 3G wholesale is where retail market innovation is more likely to happen.

As mobile operators have tried to maintain segments in the prepaid and postpaid segments of the market, that business strategy is at work as LTE is introduced as the “premium” next-generation service, with some operators, including Sprint, introducing new services using 3G spectrum to support wholesale partners with new business strategies.

Republic Wireless, a Sprint MVNO, relies on a “connect to Wifi first” approach for voice and data access, using the Sprint network only when an adequate Wifi signal is not available.

Another recent example is the launch of Scratch Wireless, an MVNO that offers unlimited free voice and internet access in Wifi zones, and free, unlimited texting in the US domestic market on the Sprint network, with voice and data outside of Wifi areas dealt with on a prepaid basis. To use voice (unlimited domestic) or access the internet for free, users must connect to Wifi.

Republic Wireless launched its own “use Wifi first” service in 2011, offering the service for $19 a month on a recurring basis, or $5 a month for a “Wifi only” service.

The principle at work here is that US mobile service providers are going to have surplus 3G network capacity they must monetise, as a direct consequence of migrating postpaid accounts to LTE devices and networks.

In the past, carriers have maintained distinctiveness for their postpaid offers by limiting the range of devices available to prepaid users. Mobile service providers have also tended to create separate brands and use different sales channels to reinforce the differences between services.

In a similar way, carriers will now rely on the 3G network more substantially to create – or enable third parties to create – distinctive offers not available with LTE.

Legacy opportunities
The reason that such offers are likely to develop is that as the major US operators move customers from 3G to 4G, capacity will be freed up on the legacy networks. Mobile operators will therefore want to create new revenue sources on that extra capacity, while still maintaining the “premium” character of their LTE networks.

Sprint’s willingness to enable unlimited texting on the 3G network for Scratch Wireless is one example. FreedomPop’s low-cost pricing for both mobile and fixed internet access is likewise made possible by capacity freed up on the Sprint 3G network by users relying on the newer 4G services.

To avoid stranding assets, Verizon is likely to want to keep the 3G network supporting customers, revenue and usage as much as possible, using it to anchor its M2M services, for example.

In fact, M2M services might well extend the lifetime of the 3G network. Verizon originally had said it would shut down both the 2G and 3G networks in 2021, but the latest statements from Verizon suggest 3G will be available “as long as necessary” to support mission-critical apps using the technology.

Some might ask why Verizon would want to maintain networks supporting less bandwidth than either 4G or what 5G might represent. The answer is that many useful M2M uses do not require much bandwidth.

Less clear is how LTE wholesale might develop within the US market in the future. LightSquared, the stalled LTE operator, had planned to launch a wholesale-only LTE network, but is now in bankruptcy. Globalstar, like LightSquared, has asked the US Federal Communications Commission (FCC) for permission to use most of its mobile satellite spectrum to build a new LTE network. The FCC has not yet acted on the request.

Dish Network has received FCC permission to build a terrestrial LTE network using repurposed mobile satellite spectrum, but Dish Network has not yet concluded a firm deal to start building the network. Dish Network also seems intent on creating a branded retail network, so the wholesale implications are unclear. The company could yet become an anchor wholesale tenant for a third-party network.

Agreements abroad
To the extent that international roaming agreements are a form of wholesale, AT&T was an early mover, signing what many would say is the first-ever LTE roaming deal, with Rogers in Canada in December 2013.

AT&T followed that agreement with a roaming deal with the UK’s EE, initially allowing AT&T LTE customers to roam on EE networks in the UK. In February 2014, NTT DoCoMo and AT&T likewise signed a 4G roaming deal, allowing AT&T customers access to the NTT network when travelling in Japan.

Progress has been slow, for a couple of reasons. For starters, LTE frequency bands are quite disparate between US carriers and LTE providers elsewhere, involving more than 40 different frequency bands.

In addition to harmonising at least some bands that are common to all regions, LTE networks are not yet operational in some markets, so roaming is not yet even possible.

Some also would note that a significant increase in signalling operations is also required, and also that signalling happens in new ways – using Diameter rather than the legacy Signalling System 7, for example.

One practical implication is that, for many mobile operators, direct interconnection on a bilateral basis might not be the best choice, illustrating why the IP exchange (IPX) is such an important development. IPX, developed by the GSM Association, provides an indirect mechanism for connection of IP-based telecoms networks.

The key observation is that, in the US market, LTE wholesale remains limited, while innovation is occurring on the 3G wholesale front.