Observers will disagree about the potential impact of large telcos substituting LTE for fixed broadband, but such substitution could change local competitive dynamics.
Will customers readily adapt to high-bandwidth mobile networks as viable substitutes? And if so, what are the implications for all other competitors in those markets?
If you think about it, LTE now adds a mobile angle to the untethered way fixed networks have been used. Up to this point, 3G has been an unsatisfactory alternative to fixed network access, with the exception of the mobile use case. LTE 4G will change that, for many new scenarios.
The classic case, up to this point, has been the broadband market in Austria, where, sometime in 2010, mobile broadband passed fixed network broadband. Some might say that is not unusual, since the same thing is happening lots of other places as people adopt smart phones. That is true enough.
But it also is true that in Austria, consumers have been substituting mobile broadband for fixed broadband for their PC Internet access as well. To be sure, many will argue mobile broadband is complementary, not a substitute for fixed access.
According to Ofcom, about 19 percent of Austrian households are "mobile-only" for broadband. And if people will do that using slower 3G, one has to believe a greater percentage will do so if they have access to LTE and 4G.
Single-person, highly-mobile users who travel a lot, but don't watch much TV, are prime examples of consumers for whom LTE might emerge as the preferred choice.
On the other end of the scale, users who watch lots of Netflix or other video, support many devices and multiple users, will continue to find that a fixed connection with a large usage cap remains the best alternative, even when that connection is not as fast as some LTE connections.
Impressionistic reports from areas where LTE is available suggest speeds range from perhaps 3 Mbps to 6 Mbps on the low end and as high as 15 Mbps to 30 Mbps on the high end. For many users "speed" will be satisfactory. Price and usage caps will be the main issues.
In between will be lots of scenarios where other network alternatives make sense, based on the structure of retail plans, the size of usage caps and monthly pricing.
Where available, cable high speed access might be the best choice for multi-user households that stream lots of video, and therefore need both speed and big caps. Price might not be as important as usage caps, for such customers. Speed generally might not be much of an issue at all.
Where cable is not available, fixed wireless might become more attractive, for many of the same reasons.
Users who want “speeds faster than my local DSL,” but using relatively low amounts of bandwidth, might turn to LTE.
Customers with low or moderate bandwidth consumption, and low to moderate speed requirements, might choose satellite or DSL.
Customers with moderate consumption, and moderate to high-speed requirements, might opt for fixed wireless, even where cable is available, for price reasons.
Mobile-only might become more attractive for smaller or single-person households able to use LTE networks and who already use smart phones. The incremental cost of a large LTE data plan, added to smart phone subscription, might make mobile-only a reasonable choice.
And there might be several options for users whose primary consideration is price, not speed or the size of usage caps.
There is no easy way to determine, everywhere, and for all classes of customers, how the competitive dynamics will shift over the next several years.
Some might legitimately argue that LTE will not be a reasonable substitute for fixed broadband services. And you might argue that retail packaging (price and usage caps) are the key issues, not “bandwidth.”
Ignoring price for the moment, consider that usage caps on mobile are two orders of magnitude lower than on fixed networks (5 Gbytes for mobile, 150 Gbytes to 250 Gbytes for a telco or cable modem service. That is hardly comparable, in one sense.
The issue is actual user behavior, though. Two orders of magnitude might not be an issue for some users. An order of magnitude less bandwidth won’t bother most users of fixed network broadband, one might argue.
The question is whether the service, and the retail packaging, can be adapted to fit the actual end user demands “most” potential buyers will have. It seems clear LTE will not be a viable choice for some users, especially those who watch lots of online video.
But “typical” users are a possibly different story. Single-user households are a different story. Nor should we automatically assume that today’s “mobile broadband” tariffs are the way future access tariffs are structured.
In other words, given a willingness on the part of LTE suppliers to create new “fixed” versions of LTE retail packages, quite a lot might be possible. FreedomPop, for example, has created both “fixed” and “mobile” versions of its wireless access service, using the Clearwire network. There is no reason in principle that such tariffs could not be created by LTE suppliers in rural areas.
That such tariffs have not yet been created does not mean they will not be created.
With some exceptions, the actual percentage of broadband users in developed markets who already use mobile broadband exclusively, in place of a fixed connection, is rather limited. A 2011 study by Ofcom, the United Kingdom communications regulator, suggests that single-digit percentages of users already are doing so, the exceptions being Italy and Austria.
In Austria, perhaps 19 percent of respondents to surveys say they are “mobile only,” while in Italy about 14 percent report using only mobile broadband. In Germany the percentage was about nine percent, while in the United States the percentage of mobile only users was about six percent.
But those figures represent 3G substitution, and will not fully reflect demand for LTE services that approach fixed network “wire speeds” in many rural markets.
We can be sure that people who stream lots of Netflix video will not be logical candidates. But that still leaves quite a lot of users for whom LTE might work. The key variables are of course typical monthly consumption and number of users on any single account.
Per person usage at the moment might range between two gigabytes a month up to about seven gigabytes a month. So a single-person account might plausibly find LTE a plausible alternative, especially at the lower ranges of usage.
But the wild card will be tariffs. If mobile operators figure out a way to offer a “fixed” alternative tariff, offering more bandwidth, but only usable within a local area, with some way to support mobile usage out of that area on a more-typical “mobile” tariff, demand could be quite substantial.
The key issues are retail packaging terms and conditions. If LTE mobile tariffs remain the “only” way to buy rural LTE, then the substitution market will be more constrained.
But many of us would guess that will not be the case, over the longer term. Specific “fixed” services, offering usage caps and pricing more in line with fixed networks are likely. Those tariffs probably will not be identical to packages offered by fixed network operators.
They just have to be “close enough” to offer a viable commercial alternative.
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