Monday, October 13, 2014

What Accounts for High LTE Adoption in U.S. Market?

Ironically, “receiving party pays,” a billing practice distinct from “calling party pays,” might have created the incentive for larger usage buckets in the U.S. market, moves that in turn might have contributed directly to higher rates of use of all mobile services, including voice, text messaging and mobile Internet access.

“Receiving party pays” tends to discourage users from keeping their devices powered up, since they pay for all received calls and messages, and cannot control them. On the other hand, that policy creates the incentive for service providers to create large usage buckets that alleviate user concern about such inbound traffic.

Also, the U.S. market historically has been based on postpaid, rather than prepaid retail plans. That encourages customers to use what they already have paid for, rather than restrict usage because they pay by the minute or byte.

One direct result is higher usage and lower retail fees, the GSMA argues.

The typical North American mobile user consumes 629 minutes of voice a month, compared to 334 minutes in the Asia-Pacific region and 151 in Europe, according to GSMA.

U.S. mobile consumers send or receive 467 text messages a month, compared to 122 a month in Germany, 188 a month in the United Kingdom and 199 per month in Italy.

At the same time, shared data plans have encouraged consumers to connect a broad range of data-intensive devices, including dongles, laptops and tablets. with increased data traffic leading consumers towards more expensive data plans. In turn, this generates higher average revenue per account.

It isn’t clear that those usage patterns are a result of LTE availability, or whether LTE adoption is a result of high demand for bandwidth. The former might suggest that making LTE available causes people to use more data. The latter might suggest LTE is simply a response to high demand.

The correlation (or causation, to some extent) matters when policymakers consider the role of LTE as an economic tool, or service providers look to boost use of mobile Internet access services.

Does LTE availability “cause” more data usage, or does more data usage require LTE?


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LTE adoption so far has been uneven globally, but probably for reasons related to market dynamics in each country or region. In other words, it is not so clear that introducing LTE necessarily changes the demand curve for mobile Internet access.

On the demand front, U.S. operators decided not to charge even a slight premium for LTE access, compared to 3G. So pricing might matter.

At the same time, consumer unhappiness with performance of the Apple iPhone on 3G networks quickly convinced mobile service providers to boost performance of the access networks.

Sprint, on the other hand, charged a $10 a month premium for users of tis WiMAX 4G network. That probably retarded adoption.

At the same time, high use of streaming video in the U.S. market aguably created more need for bandwidth, at a time when spectrum was released to market to support LTE networks.

At the same time, Sprint’s WiMAX offer also meant that other service providers were “behind” in the marketing of fourth generation network services, and had to catch up.

The first commercial 4G-LTE network was launched in the region in the third quarter of 2010.

But Sprint had launched its WiMAX 4G network in 2008, reaching a relative handful of cities by 2009 and widespread service in 2010. So many would argue Sprint squandered a two-year headstart on the first LTE or 4G network.

In the meantime, rival carriers also boosted the speeds of their 3G networks. In some cases, 3G networks offered access speeds equal to, or greater than, WiMAX.

By the end of 2013, the United States had 85 million 4G mobile connections, making it the world’s single largest 4G market. Japan ranked second with 44 million accounts. South Korea had 29 million accounts.

Total mobile connections (SIM cards) in the region stood at 341 million at the end of 2013, excluding M2M connections. However, the number of unique mobile subscribers (individuals) was significantly lower at 250 million, reflecting the high levels of multiple SIM and device ownership in the region.

4G accounted for approximately one in four of the total mobile connections in North America in 2013, the highest proportion of any global region.

Close to 97 per cent of the entire population in North America lived within the coverage range of 4G networks at the end of 2013, also one of the highest levels globally.

Build-out of 4G networks has occurred at a more rapid rate than the earlier move to 3G. It took around four years for 3G coverage to reach 95 percent of the population, 4G took just two and a half years.

Some might say that is because of the prominent role now played by Internet apps and access in driving the overall value proposition for use of smartphones. And U.S. adoption of smartphones is high.

North America had the highest levels of smartphone adoption of any region at the end of 2013, with smartphones accounting for 60 percent of total connections.

The point is that a confluence of factors likely accounts for high Long Term Evolution adoption in the U.S.market.

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