Will LTE Reset Consumer Price Expectations?

The cost of mobile phone service in Europe has fallen by 15 percent since 2007, even as they have risen by 25 percent in the United States, at least as measured by “average” monthly phone bills. That is one reason why service providers in Europe hope Long Term Evolution will provide a chance to reset pricing expectations.

European users now spend an average of just 24 euros a month on their mobile phones, according to Sanford Bernstein. Americans spend about two thirds more. Some attribute the difference to the higher phone subsidies in the U.S. market, but at least some of the reason for lower European phone bills is greater erosion of voice revenues.

Voice represented more than 80 percent of revenue in 2007 and now accounts for 62.6 percent of revenue for European firms, according to  Informa. And gross revenue is only part of the problem.

Profit margins on that earned revenue also is falling, in most markets, for most providers in Europe, North America and Japan. To be sure, one advantage of LTE is that it is more spectrally efficient, and should allow mobile service providers to offer service at lower costs per bit.

In fact, some might argue that is the primary advantage of LTE, not necessarily the platform for new services. Others would argue that vastly lower latency and much higher speeds so represent an application platform with huge advantages, compared to 3G networks.

The key early test will be whether LTE actually allows mobile service providers to reset consumer expectations about tariffs.