LTE adoption

Telcos need to individually value their business case for LTE adoption, says Booz & Co.

Tags: Booz & Company
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LTE adoption Raad says mass scale commercial LTE is at least two years away.
By  Nithyasree Trivikram Published  June 26, 2011

Recent LTE investments by telecom operators show that the 4G technology is fast entering the mainstream. But Hadi Raad of Booz & Co says that though mobile broadband connections are expected to grow 10-fold to reach 100 million users by 2015, of which 15-20% will be over LTE, operators need to evaluate the business case for LTE on a “case by case” basis.

“There will not be LTE available commercially on a mass scale at least for the next two years,” he says. “However, when the level of applications penetration increases, and when there is the right mass to justify the investment on LTE, then the business case behind LTE will be viable.”

He says the market in MEA is becoming increasingly sophisticated in terms of internet usage and its applications. For example, he says that in this part of the world, Facebook penetration has reached 20-25% of the population, and around 50-75% of total users in the region access Twitter using a mobile device. “This shows we have a young population in this region that is increasingly becoming sophisticated and ready to adapt and take on the advanced apps over broadband connections,” he says.

LTE apps

Today, the apps market is developing at a rapid pace. However, Raad says that these apps do not yet justify or require LTE. He says: “Apps will evolve, and will become increasingly available in areas including mobile video and M2M communications.”
LTE will give the bandwidth required to cope with surging demand for services including video on demand, VoIP, gaming, music, education, workforce productivity applications, and video monitoring applications. “All these apps are bandwidth intensive. In general, over 70% of apps downloads are in the field of multimedia and entertainment. And I don’t expect this to be lower in the Middle East and Africa region,” says Raad.

“Apps downloads are expected to reach around 1.5 billion by 2015 in the MEA region, of which around 15% of them will be paid applications.”

Operator investment

For any investment in LTE to be justifiable, there has to be a mass market, and operators are looking at the drivers behind LTE implementations. For an integrated operator, Raad says the evaluation should be made by way of fixed fibre investment vs LTE vs HSPA+. “This depends on the region where they are investing and the level of urbanisation or the population density of the region. Operators are playing within an ecosystem of different types of players, and they cannot by any means take the role of others in the ecosystem. They will need to find the right positioning and to cooperate with different types of players in this ecosystem,” he says.

Raad says that smart phone penetration is still relatively low and he expects the number to increase from to 7-8% from the current 2-3% mobile users on smart phones. “This is giving operators the scale in which they can start reaping out benefits from data usage and applications,” he says.

Emerging models

Increasing applications usage is fast changing the mobile landscape where operators are looking for new business models to attract more customers.

Raad says that from a consumer perspective, there are various business models available for operators right from the typical ‘pay per download’ on apps, to ‘pay per view’, and item-based where consumers get charged as they consume and purchase certain items, for example, purchasing an additional level of a game. He says: “These kinds of premium apps where you get subscribers to download certain applications, and then the operator starts charging them as they purchase additional features are getting more common worldwide.

“You also have the transaction-based business models where the charging is linked to a certain kind of commerce activity, or an advertisement based model where it could generate revenues, either on the mobile app store or on the apps themselves,” Raad adds.

“Operators are playing within an ecosystem of different players among which are the operators themselves, the content and application developers, mobile application stores, and device vendors,” he says.

Raad says that operators, in this region in particular, have “a window timeframe” where they need to tap demand for new services such as the billing relationship with their customers to cover up for the low credit card penetration here. He says that telcos can also foster innovation in Arabic content apps because less than 1% of content over the internet is Arabic, and the demand for Arabic content in this region is very high. “Hence, operators need to find the right partnerships with application developers and develop win-win revenue sharing agreements, support developers in fostering innovation, thereby ensure forming of multiple innovative players rather than monopoly players,” he adds.

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