Introduction to LTE and

4G Wireless

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Introduction to LTE and 4G Wireless

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 Index

Index Introduction to LTE and 4G Wireless

Overall Objectives ix

Section 1 Global Wireless Market Trends and Evolution 1

Lesson 1 Factors Influencing Revenues 3
Introduction 3
General Mobile Market Trends 3
Mobile Revenue Trends 4
Self Assessment Multiple Choice Questions 11
Self Assessment Multiple Choice Answer Grid 13

Lesson 2 Factors Influencing Profitability 15

EBITDA Trends 15
Pricing Trends 16
Traffic Trends 18
Self Assessment Multiple Choice Questions: 21
Self Assessment Multiple Choice Answer Grid 23

Lesson 3 Global Wireless Broadband Market Trends 25

Subscriber Trends 25
Device Trends 25
Network Trends 27
High-Speed Packet Access (HSPA) vs. CDMA 1x EV-DO 28
Self Assessment Multiple Choice Questions 33
Self Assessment Multiple Choice Answer Grid 35

Lesson 4 Mobile Data Revenues and Pricing, a Global View 37

Global Revenue Trends 37
Mobile Data Revenues Gain in Significance 38
Fixed-Mobile Substitution for Broadband Band Data 40
Pricing for Mobile Broadband Service 41
Self Assessment Multiple Choice Questions 49
Self Assessment Multiple Choice Answer Grid 51

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Section 1 End-Of-Section Practice Paper 54

End-Of-Section 1 Multiple Choice Questions 55
Self Assessment Multiple Choice Answer Grid 57

Section 2 3G wireless Systems and Evolution 59

Lesson 1 Background to 3G Development 61
The Service Delivery Imperative 61
Separation of Network Operation and Service Delivery 62
Increased Access Speeds 62
Move to Global Standardization 63
3GPP: Background, Membership and Structure 64
3GPP2: Background, Membership and Structure 66
Self Assessment Multiple Choice Questions 69
Self Assessment Multiple Choice Answer Grid 71

Lesson 2 3GPP Specifications and Evolution 73

3G Early Releases 73
3GPP Evolution – R6 and Beyond 74
LTE/SAE (3.9G) Concept 76
High-Speed Packet Access (HSPA) 78
Self Assessment Multiple Choice Questions 81
Self Assessment Multiple Choice Answer Grid 83

Lesson 3 3GPP2 Evolution and Future Options 85

CDMA Evolution 1995-2005 85
CDMA2000 Service Capabilities 86
CDMA2000 Evolution 2006 and Beyond 87
Ultra-Mobile Broadband (UMB) 88
Future Options: UMB, LTE and WiMAX 90
Self Assessment Multiple Choice Questions 93
Self Assessment Multiple Choice Answer Grid 95

Lesson 4 The IEEE 802.16 Family 97

The IEEE 802 Committee 97

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Wireless Personal Area Networks (WPANs) – IEEE 802.15 99

Wireless Local Area Networks (WLANs) – IEEE 802.11 101
Wireless Metropolitan Area Networks (WMANs) – 802.16 102
The Future of WiMAX – IEEE 802.16e 105
Mobile Broadband Wireless Access (MBWA) – IEEE 802.20 106
Self Assessment Multiple Choice Questions 109
Self Assessment Multiple Choice Answer Grid 111

Lesson 5 Technologies for Evolving Wireless 113

Introduction 113
Modulation, Impairment and Coding 113
Multiple Access Mechanisms 118
Advanced Antenna Systems 120
Self Assessment Multiple Choice Questions 123
Self Assessment Multiple Choice Answer Grid 125

Section 2 End-of-Section Practice Paper 128

End-of-Section Multiple Choice Questions 129
Self Assessment Multiple Choice Answer Grid 133

Section 3 The Roadmap to 4G 135

Lesson 1 The ITU 4G Framework and Timelines 137
4G Deployment: IMT-2000, IMT-Advanced and IMT 137
4G Deployment Timeline 138
Migration to 4G 139
Self Assessment Multiple Choice Questions 143
Self Assessment Multiple Choice Answer Grid 145

Lesson 2 Candidate 4G Technologies 147

Key Characteristics of IMT-Advanced Systems 147
3.9G/4G Core Technologies 149
Self Assessment Multiple Choice Questions 157
Self Assessment Multiple Choice Answer Grid 159

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Lesson 3 4G Services, Applications and Devices 161

4G Services 161
4G Applications 162
4G Devices 165
Self Assessment Multiple Choice Questions: 167
Self Assessment Multiple Choice Answer Grid 169

Section 3 End-of-Section Practice Paper 172

End-of-Section Multiple Choice Questions 173
Self Assessment Multiple Choice Answer Grid 175

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 Global Wireless Market Trends and Evolution

Introduction to LTE and 4G Wireless Objectives;

This module is designed to provide a comprehensive introduction to the development of

3.9G/4G mobile broadband networks. At the end of this module, students will be able to:

• Describe the key factors influencing the future development of the mobile
marketplace and the evolution of mobile broadband networks and services
• Identify some of the main trends in mobile revenues, EBITDA, pricing, traffic,
subscribers and devices to 2013
• Outline the standardization procedures for mobile technologies
• Describe the historical evolution path for 3GPP and 3GPP2 mobile networks
• Evaluate the role of different mobile broadband technologies in different
environments
• Outline the key underlying digital radio and other new technologies that enable
the development of 4G mobile broadband systems
• Identify how mobile network operators can migrate their legacy infrastructure
to LTE and future 4G broadband technologies
• Outline the timetable for the standardization and commercial deployment of
4G networks
• List the future services and applications that 4G networks are required to
support.

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Section 1

Global Wireless Market

Trends and Evolution

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Lesson 1 Factors Influencing Revenues

Introduction

That the global telecoms industry is going through turbulent times is probably the
under-statement of the century! Telecoms operators all around the world are grappling
with short-term pressures on their business – such as competition, price wars, churn,
regulatory pressures, ARPU and market share – and also with significant long-term
challenges – such as capital expenditure and investment decisions, market strategy and
business models.

Each region, country and operator faces different pressures, but there are some common
threads that are shared globally. In this lesson we take a look at some of the major factors
influencing the telecoms industry at a global level.

General Mobile Market Trends

The operating climate for mobile operators around the world is difficult. Not only are
many of the world’s telecoms markets intensely competitive, but they are also facing up
to an ongoing rebalancing of the global economy. Some mobile operators have adapted
themselves to this environment better than others.

Of course, the vast majority of mobile operators will survive this challenging operating
climate, not least because mobile telecoms spend has become non-discretionary for many
customers. However, mobile operator revenues will continue to face significant pressures
both from the macro-economic environment and from changes in how they generate
revenues in future.

The most significant trends impacting global operators’ revenue streams are:

• A decline in core voice and SMS revenues

• Changes in the regulatory environment, leading to increased competition and
further price declines
• A slow-down in subscriber growth rates as most markets have reached (or are
nearing) maximum addressable market penetration levels

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• Increase in take-up of non-messaging mobile data services, especially since

2008.

Although it might appear that the outlook for mobile operators is bleak, the industry is
remarkably resilient – far more so than many others. While basic mobile voice services
have become a commodity in many markets, there is evidence of a significant rise in
demand for mobile data products in both developed and emerging markets.

Operators view this as an opportunity to push more advanced technologies such as

HSPA+ and LTE in an attempt to offset slowing voice revenues and to differentiate from
their competitors. The problem for operators is how best to balance the cost of upgrading
networks to support future demand for mobile broadband services and build sustainable
competitive advantage, while at the same maintaining profitability in both the short- and
long-term.

Source: Informa Telecoms & Media

Figure 1 – Mobile Subscriptions and Growth, 2007-2013

Mobile Revenue Trends

Revenue streams for mobile operators have historically come from the following main
sources:

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• Retail voice minutes

• Retail SMS and other non-voice services
• Retail handset and device sales (in markets where operators are involved in
this)
• Roaming and interconnect revenues, and
• Airtime and capacity wholesale sales.

Voice Revenues
Revenues from core voice services have been falling globally. This is due to several
factors, including:

• increased competition from other mobile network operators as a result of

deregulation, leading to price wars in many markets
• the arrival of MVNOs in some markets (especially in Europe) that have taken
control of the extremely price-sensitive end of the market and significantly
impacted the premiums that operators can charge for voice services
• price-sensitivity of many consumers due to macro-economic conditions, with
customers seeking ‘value’ tariffs and cheaper deals and promotions where
possible
• reduced usage of mobile phones among some users, such as prepaid
customers, who are topping up less frequently or churning to other providers
• the availability of substitutes, such as VoIP and messaging
• the proliferation of flat-rate, all-you-can-eat bundles of minutes, which has
reduced the effective revenue per minute that operators are able to generate.

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1,200,000 25

1,000,000
20

800,000
US$ millions per year

15

US$ per month

Data revenues
600,000
Voice revenues
10 Total ARPU
400,000

5
200,000

0 0
2007 2008 2009 2010 2011 2012 2013

Source: Informa Telecoms & Media

Figure 2 – Global Mobile Voice and Data Revenues and ARPU, 2007-2013

Non-Messaging Data Revenues

The mobile broadband market, based on services offered over 3G and 3.5/3.9G networks,
has taken off to the extent that it is fast becoming one of the most important segments of
the mobile telecoms industry. In fact, Informa Telecoms & Media research finds that the
mobile industry will effectively become the mobile broadband industry by 2015.

The mobile industry has long tried to boost non-SMS data revenues in a bid to offset
declining voice revenues, but the rise of mobile broadband meant 2008 was the year
when its efforts finally started to deliver significant results. E.g. More than 20 operators
globally reported non-SMS data revenues that represented more than 50% of their total
data revenues in 3Q08 – 10 of these operators had non-SMS data revenues in excess of
60% of their total data revenues.

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Figure 3 – e.g. Global Mobile Broadband Operators with non-SMS data revenues
over 60% of total data revenues, 3Q08

Average Revenue Per User (ARPU)

The combined effect of these factors is that average revenue per user (ARPU) is flat
or even declining. Revenues from SMS and other non-voice services are generally
increasing, due largely to the expansion of mobile broadband services (e.g. through USB
dongles and smartphones), but the pace of the increase is not yet fast enough to offset
the decline in core voice revenue, so total ARPU is declining overall. In addition, revenues
per data bit are falling, due largely to the huge uptake of flat-rate data plans (where these
are available) and to competitive and substitution effects.

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Source: Informa Telecoms & Media

Figure 4 – Global Voice and Data ARPU, US$/Month, 2007-2013

Operators’ Device Revenues

Handset sales are suffering from macro-economic pressures on consumers’ discretionary
expenditure, such as the decreased availability of credit, and overall handset revenues for
operators are falling. Although the sales of smartphones are rising rapidly, customers who
only use mobile phones for basic voice and SMS services, or those who have concerns
around their income and employment status, are seeking lower-price handsets or even
not replacing handsets. In emerging markets, sub-US$10 handsets are widely available,
as are reconditioned handsets from developed countries.

The growing SIM-only trend means consumers are free to choose whether or not they
spend their money on a handset, and at a time when many consumers are looking more
closely at their domestic budgets, making a saving on a new handset may come before
cutting voice usage.

In markets where handsets are subsidized as part of contracts, operators are seeking to
reduce that subsidy as a means to curtail subscriber acquisition costs.

Roaming and Interconnect Revenues

Pressures on roaming and interconnect revenues are significant and include: a reduction
in business travel; new regulatory requirements in terms of termination rates for both voice

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and data services (for example, in the EU); the introduction in some regions of cross-
border ‘single’ networks that reduce the need to roam (for example, Zain in Africa); and a
drive by competing operators to force customers onto ‘on-net’ tariffs, leading to reduced
opportunities for interconnect and termination revenues.

Mobile Operator Revenue Outlook

Overall, mobile operator revenues are likely to remain largely flat for the foreseeable
future. However, the arrival of next-generation mobile broadband networks should enable
new business models that will provide alternative revenue sources and some EBITDA
upside for many mobile operators and their partners.

Source: Informa Telecoms & Media

Figure 5 – Global Mobile Operator Voice and Data Revenues, 2008-2013

As a result of these pressures on revenues, operators also need to reduce costs and
drive new business models that will enable them to deliver innovative, customer-centric
solutions while maintaining both revenues and profitability in the long term. It is to this
environment to which mobile operators need to adapt, and it is not an easy task.

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Self Assessment Multiple Choice Questions

Factors Influencing Revenues.....

Q1
What will be the approximate annual growth rate of global mobile subscriptions by 2013?
a) 50% per year
b) 30% per year
c) 10% per year
d) 2% per year

Q2
What will be the most important source of retail revenues for mobile operators globally by
2013?
a) Voice
b) SMS
c) Non-messaging mobile data
d) Handset sales

Q3
Approximately how much of ARPU will be represented by mobile data services by 2013,
on a global basis?
a) 20%
b) 30%
c) 50%
d) 70%

Q4
Approximately how much of mobile operators’ total revenues will be accounted for by
mobile data services in 2013?
a) One quarter
b) One third
c) Half
d) Three-quarters

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Q5
Which element of mobile operators’ revenue streams is likely represent a significant
incremental revenue opportunity over the period 2007-2013?
a) Wholesale services to third parties
b) Retail voice airtime
c) Retail data services
d) Termination and interconnect revenues

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Self Assessment Multiple Choice Answer Grid

Transfer your answers onto the grid for easy assessment and future reference

Name…………………………………………………………………………………...

Question set……………………………………………………………………………

Question a b c d

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Lesson 2 Factors Influencing Profitability

EBITDA Trends

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) levels have been
steadily declining across the telecoms industry for a number of years, although their
absolute level depends on the maturity of the market.

Averages
 Average – developing markets 62.2
 Average – developed markets 36.2
 Average overall 46.0

Regional
 Average Africa 44.8
 Average Americas 38.9
 Average Asia 65.1
 Average Europe 41.6
Source: Informa Telecoms & Media FMOBM Report 2008

Figure 6 – Average EBITDA (%), Global Mobile Operators, 2008

The trend towards lower EBITDA appears to be accelerating, as maintaining revenues is

becoming increasingly difficult for the reasons outlined earlier. For example, in the UK,
EBITDA levels among the main network operators had declined significantly to levels
below 30% during 2009. This is by no means an isolated example, and many operators
around the world have to face up to the reality of doing business in an environment where
profitability may be under threat. As a result, many operators are turning to short- and
long-term cost management measures to maintain EBITDA ratios.

Mobile operators face something of a paradox. On the one hand, cost-cutting at opex
level is central to operator planning to maintain profitability levels in an environment where
revenues are under severe pressure. Many operators’ first recourse is to cut non-fixed or
discretionary costs such as temporary staffing, consulting services and marketing (even
though successful marketing should have a positive impact on revenue generation and
profitability!).

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If short-term opex reductions are not sufficient to maintain EBITDA levels then operators
start looking at cutting fixed costs. Mobile operators are tracking a series of early-warning
signs, which include the emergence of bad debts, higher churn and customers migrating
to lower-priced tariffs, as indicators that fixed cost adjustments may be needed to reflect
a long-term change to their underlying business models. Fixed cost adjustments may
include steps such as network-sharing, outsourcing of part or all of the network design,
maintenance and management, and, in extreme cases, delays or cancellations of planned
network upgrades.

One way of avoiding having to put on hold future network build-out (for example, of
WiMAX, HSPA+ or LTE networks) entails the increasingly popular phenomenon of
network-sharing and the outsourcing of network management tasks. The cost and
investment pressures being piled on operators have strengthened the need for strategies
such as network-sharing, and around the world infrastructure-sharing and joint network
development announcements are increasing. There is an accelerating trend towards
outsourcing, whereby networks are (often) managed by equipment providers.

Although strict cost management at opex level is a fact of life for most operators,
conversely, the increase in demand for data services means there is still a requirement
for continued capital investment in network upgrades if operators are going to develop
advanced services and remain in business in future.

In spite of the importance of this strategic investment for the future viability of mobile
operators, a decline in revenues has in many cases actually forced a reduction in capex
and deferral of investment decisions, as operators in the main remain committed to capex/
revenue ratios in the region of 10-25%. This is a decision of last resort for many operators,
since access to next-generation mobile broadband networks will be critical to staying in
business in future.

Pricing Trends

A number of new tariff and service strategies are being introduced that are designed to
enhance loyalty and therefore reduce churn rates. The most successful strategies will
not only help to retain existing business but also serve to assist in taking market share
away from rivals in the long-term, or to create entirely new revenue streams. The issue

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for operators is to balance a complex set of customer- or segment-specific tariff plans

that respond to customer requirements in terms of delivering value for money, while at
the same time maintaining transparency in the eyes of customers. At all costs, operators
should avoid price wars, since the practices of heavy discounting and special promotions
to win customers in the short term have severe negative effects on revenues, EBITDA and
sustainability in the long term.

Some of the main pricing trends include:

• the expansion of SIM-only deals, whereby access to the network operator is

offered separately from the device or handset
• no-frills pricing, whereby operators address existing and low-potential
customers with undifferentiated, basic services (usually voice and SMS only)
– this strategy is common among MVNOs but can be dangerous for operators
unless their cost base is low enough and unless they can build sufficient
economies of scale to maintain margins
• increase in bundled offers, for example, bundles of voice, SMS and mobile
Internet access, or bundles across networks, such as TV, fixed broadband,
fixed telephony and mobile telephony, which makes pricing transparency
difficult
• flat-rate pricing, which removes many of the barriers to adoption of mobile data
services
• in the prepaid market, availability of very-low-denomination top-ups, as a
mechanism for attracting very-low-income customers
• also in the prepaid market, increased validity of airtime credit, shared airtime
and attractive deals for on-net pricing
• variable pricing is extending beyond the traditional time-based methods
(for example, evenings/weekends and peak hours) into new areas, such as
capacity-based pricing (for example, prices are lower when networks are less
busy and vice versa).

The overall trend for mobile prices (both voice and data) is downwards, and this is starting
to create major headaches for operators in terms of revenue, ARPU and profitability, but
also in terms of traffic management and network dimensioning and associated capex and
opex.

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Informa Telecoms & Media’s research indicates that a number of interesting new business
models have emerged and the customer now lies more towards the center of operator
thinking, a necessary development. The provision of new, different and relevant services is
what makes operators’ offerings attractive to customers, and market-focused agreements
with the right partners can be effective in terms of building a sustainable strategy. Those
operators that adapt their strategies to meet new consumer demands will be the most
likely to lead the way as new services and applications emerge based on next-generation
mobile broadband networks, such as LTE.

Traffic Trends

Mobile operators are learning that their move into the mobile broadband market comes
at the cost of booming traffic. Vendors are reporting that mobile broadband subscribers
using portable devices represent 5% of total subscribers on some operator networks, but
are generating more than 90% of total traffic. Many mobile operators are also reporting
increases in traffic that far outweigh the associated increase in subscriber numbers and
revenues, a phenomenon largely attributed to the introduction of flat-rate, ‘unlimited’ data
tariffs. The runaway success of mobile broadband and its associated increase in traffic
means that the profitability of mobile broadband networks is starting to become a serious
issue for many operators.
 

Source: Informa Telecoms & Media

Figure 7 – Impact on Traffic, Revenue and Profitability of

Mobile Broadband Services

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To mitigate these effects, mobile broadband operators are taking steps both to limit traffic
and to reduce dramatically the cost of carrying traffic.

• Limiting traffic includes everything from modifying service plans – for example,
by introducing usage limits on true unlimited packages – to introducing traffic
management systems in networks
• For the medium to long term, operators accept that they will need to upgrade
their mobile broadband networks to support faster data speeds, higher
capacity and to achieve a dramatically-reduced cost per megabyte.

For example, in February 2009 Vodafone was one of many operators to throw its weight
behind HSPA+. The company stated that its trials with HSPA+ suggested that subscribers
should see average download speeds of at least 4Mpbs and peak rates of 13Mbps, which
could reduce costs per megabyte by at least four times. Some operators are also looking
to LTE to provide the requisite leap forward in network efficiency, but the earliest LTE
deployments will come in 2010 and there are increasing signs that the macro-economic
environment and associated pressures on capex are leading other operators to delay LTE
schedules by several years.

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Self Assessment Multiple Choice Questions:

Factors Influencing Profitability.....

Q1
Which region boasts the highest EBITDA levels, as a % of revenue?
a) Africa
b) Asia
c) Europe
d) Americas

Q2
Which is the fastest way to maintain EBITDA levels in the short-term?
a) Increase prices
b) Implement network-sharing agreements
c) Cut discretionary costs
d) Promote on-net tariffs

Q3
What is the approximate ratio of capital expenditure to revenue among mobile network
operators globally?
a) Less than 10%
b) Between 10% and 25%
c) More than 25%
d) More than 50%

Q4
What is generally considered to be the long-term impact of price wars on operators’
revenue levels?
a) No significant change to revenue levels
b) Helps increase revenue over the long-term
c) Significantly reduces revenue over the long-term
d) Defers the revenue opportunity

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Q5
How does the introduction of flat-rate tariffs affect mobile operators’ profitability?
a) Increases profitability over the short-term
b) Increases profitability over the long-term
c) No significant change to profitability
d) Significantly reduces profitability over the long-term

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Self Assessment Multiple Choice Answer Grid

Transfer your answers onto the grid for easy assessment and future reference

Name…………………………………………………………………………………...

Question set……………………………………………………………………………

Question a b c d

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Lesson 3 Global Wireless Broadband Market

Trends

Subscriber Trends

Although the US, Japan and South Korea accounted for 71% of global mobile broadband
subscribers at the end of 2008, that this will fall sharply to 31% by the end of 2013.
Not surprisingly, the huge mobile markets of China and India, which were significantly
expanding mobile broadband services from 2009, will see their combined share of global
mobile broadband subscribers reach 20% by the end of 2013, up from less than 1% in
2008.

Source: Informa Telecoms & Media

Figure 8 – Top 10 Global Mobile Broadband Markets, 3Q08

Device Trends

The mobile broadband market is made up of two key segments based around portable
and mobile devices, respectively. The portable segment started to take off in 2007 with the
arrival of USB modems or ‘dongles’, while in many markets the mobile segment took off
in mid-2008 with the arrival of the iPhone 3G and the wave of competing mobile Internet-
oriented devices (‘smartphones’) it inspired. 

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Source: Informa Telecoms & Media

Figure 9 – Fixed, Mobile and Portable Device Share of Broadband Market

One of the most important aspects of the portable segment is that it is a new market
that is already delivering significant new data revenues for mobile operators. Although
operators have long offered mobile services to notebook computers, these were usually
expensive niche services targeted at niche vertical markets such as logistics. That
picture changed dramatically in late 2007 and 2008 with the arrival of affordable mobile
broadband networks, devices and services.

Many operators have taken the next step and begun to offer notebooks and netbooks with
embedded mobile broadband. In some markets, mobile broadband contracts are even
including ‘unlimited’ data and a ‘free’ netbook or notebook in return for an 18- or 24-month
contract commitment.

The growing usage of smartphones and the emergence of the iPhone 3G in many
countries has been a recent highlight of the mobile sector. Some operators were claiming
in 2009 that 40% of their data usage traffic originated via smartphones; this reveals that,
if operators can get their content and device strategy correct, non-voice services can
become a central plank to their strategies. However, in some regions, such as South East
Asia and Africa, the poor take-up of smartphones by large portions of budget-conscious,
low-end users is constraining the growth of mobile broadband services.

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140,000,000

120,000,000

100,000,000

3.9G
Unit Shipments

80,000,000
3.5G HSPAPlus
3.5G Non HSPAPlus
60,000,000
3G
2.5G
40,000,000

20,000,000

0
2008 2009 2010 2011 2012 2013

Source: Informa Telecoms Academy

Figure 10 – Mobile Device Shipments by Technology, 2008-2013

Some operators have turned to subsidizing high-end smartphones phones in an attempt

to ensure future revenue growth from greater data usage and increases in traffic. Handset
subsidies, however, do increase SAC and are therefore having an impact on EBITDA
margins. Some operators are looking to avoid offering device subsidies for smartphones
– one operator in Germany ran a scheme whereby users could pay for their devices on
an interest-free loan basis independently from their actual tariff plans. This provides an
interesting option for consumers who would prefer to make lower monthly installments for
up to two years.

Network Trends

Long-Term Evolution (LTE)

Although there was a lot of ‘buzz’ around LTE deployment during 2009, a number of
operators have admitted that their LTE deployment timelines where slipping by several
years. This is partly due to the economic downturn and the resulting need to delay major
network upgrades until better times, and partly due to the increasing realization that
HSPA+ upgrades will often be cheaper than deploying LTE, and will provide enough

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performance to carry operators through the next several years.  

Of course, operator strategy varies dramatically depending on competitive dynamics

and other factors, which helps to explain why not all operators are delaying their LTE
deployment plans. For example, Verizon Wireless used the Mobile World Congress in
2009 to reaffirm its plans to launch LTE services in 2010.

As of early 2009, most of the other operators still committed to launching LTE in 2010
were operators with a tradition of being first to market with new mobile systems, including
NTT DoCoMo and KDDI in Japan, and SK Telecom and KTF in South Korea.

High-Speed Packet Access (HSPA) vs. CDMA 1x EV-DO 

The delays in LTE rollouts highlight the strength of HSPA, and cement its position as the
top mobile broadband system worldwide from 2009 onwards.

Historically, CDMA 1x EV-DO was the top mobile broadband system, largely because it
was deployed four years before HSDPA, but HSDPA caught up fast and Informa Telecoms
& Media forecasted that it was on track to pass CDMA 1x EV-DO to become the top
mobile broadband system by the end of 2009.

This is partly due to the larger scale of the GSM/WCDMA/HSPA (3GPP) ecosystem
compared with CDMA2000/EV-DO (3GPP2), and partly due to some CDMA operators
migrating to HSPA, including SK Telecom and KTF in South Korea and Telstra in Australia.

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Source: GSM Association

Figure 11 – The Mobile Broadband Global Ecosystem (3GPP)

That highlights that, while technology battles still rage in the mobile industry, the major
wars between rival radio access networks have been settled. The result is HSPA has
emerged as the top mobile broadband system in the short to medium term, and in the long
term LTE has become the clear winner among next-generation mobile networks, after it
gained the backing of most of the world’s largest mobile operators including Vodafone,
China Mobile, Verizon Wireless, AT&T, NTT DoCoMo and KDDI.

A related development was the death of Ultra Mobile Broadband (UMB), the next-
generation version of CDMA2000, which means most EV-DO operators will now migrate
to LTE.

WiMAX
There was a time when WiMAX was battling LTE to become the top next-generation
mobile network technology, but it lost that fight and has moved on. There is no doubt that

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WiMAX will go head-to-head with LTE in some markets, including the US and Japan, but
for the most part its backers are steering clear of direct competition with LTE and focusing
on the substantial opportunity for bringing broadband to emerging markets via fixed and
portable rather than mobile devices. The result is that WiMAX will carve out a respectable
niche for itself, and will take a small but steadily increasing share of the global mobile
broadband market.

Source: Informa Telecoms & Media

Figure 12 – WiMAX- vs. HSPA-Enabled Global Subscriptions, 2008-2013

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Source: Informa Telecoms & Media

Figure 13 – Market Shares, WiMAX, 3GPP and 3GPP2, 2013

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Self Assessment Multiple Choice Questions

Global Wireless Broadband Market Trends.....

Q1
Which are the fastest-growing mobile broadband markets in the world?
a) US and Canada
b) Russia and the CIS
c) India and China
d) South Korea and Japan

Q2
On a global basis, which was the predominant Internet access mechanism in 2009?
a) Fixed
b) Mobile (2G)
c) Portable
d) Smartphones

Q3
What is likely to be the short-term effect on operators’ profitability of offering subsidies on
smartphones and other high-end devices?
a) Significant increase in profitability due to increased data usage
b) Significant decline in profitability
c) No change to profitability
d) Small decline in profitability

Q4
Where were the first commercial deployments of LTE scheduled to take place?
a) 2013
b) 2012
c) 2011
d) 2010

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Q5
What technology was deployed as a means of achieving high-speed mobile broadband
without the capital expenditure of LTE?
a) HSUPA
b) HSPA+
c) HSDPA
d) CDMA 1x EV-DO Rev. B

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Self Assessment Multiple Choice Answer Grid

Transfer your answers onto the grid for easy assessment and future reference

Name…………………………………………………………………………………...

Question set……………………………………………………………………………

Question a b c d

© Telecoms Academy 35
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Lesson 4 Mobile Data Revenues and Pricing,

a Global View

Global Revenue Trends

The advent of mobile broadband services appears to have reinvented the business case
for 3G through the evolution of HSPA and CDMA2000 1xEV-DO networks. Indeed, the
mobile broadband market is at a key inflection point with early services gaining scale and
the majority of WCDMA and CDMA operators now launching a first-generation of HSPA
and EV-DO based services.

Further acceleration of the market is likely as operators and vendors dedicate a significant
amount of effort on the development of next-generation technologies, such as mobile
WiMAX, LTE and UMB.

Mobile operators realise the need to increase their data revenues, the key growth area
in many developed markets, given the ongoing decline in voice prices and revenues.
Furthermore, data revenues are becoming integral to growth in emerging markets as well,
as growth comes to an inevitable slowdown during the next decade with many markets
reaching saturation. Inevitable because according to Informa Telecoms & Media, there are
approximately 4.82bn subscriptions worldwide.

Research by Informa suggests that the size of the mobile broadband market has grown
quickly over the last five years. It is suggested this is the case simply because the
addressable market is so vast, and made more so by the fact that unlike fixed broadband
systems, mobile broadband services are aimed at individual consumers rather than
households.

Taking into account subscriptions to 3.5G technologies (HSPA, EV-DO and TD-SCDMA),
Informa estimates that there were 2.882m mobile broadband subscriptions worldwide
in 2007 with just over half of these based in Western Europe. Taking into account,
technology enhancements and the commercial deployment of mobile WiMAX and LTE
networks, forecasts suggest this figure will rise to 330m in 2010 and to 1.307bn by the end
of 2013. By this time, less than one third of these subscriptions will originate from Western
Europe and 40% will be from Asia Pacific.

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It has been noted above that EV-DO is currently the leading mobile broadband technology,
but HSDPA overtook EV-DO in 2009 as a result of the increasing rate of migration from
WCDMA to HSDPA. It is worth noting that at the end of 2007 WCDMA had twice as many
subscriptions worldwide as EV-DO.

Mobile Data Revenues Gain in Significance

When global revenues are analysed a slowdown in the growth is evident, in 2008 growth
stood at around 9% but figures for 2012 suggest that figure will be around 4.3%. However
when the different regions are analysed the figures show differing growth rates, in Europe
for example growth is expected to regain pace after an initial slowdown but figures from
Africa and the Middle East suggest a more dramatic slowdown.

The most important change in the shape of these revenues is the balance between voice
and data services. All regions see a growth in data as a percentage of overall revenues,
although this is fastest in Europe, North America and Asia Pacific. Whilst SMS revenues
continue to be a significant element of these revenues, the launch of flat rate data plans
by many mobile operators and USB modems has also led to a surge in data traffic. There
is no doubt that mobile broadband services will contribute largely to the rise in data
revenues. The power of mobility combined with the diversity of the Internet will create a
plethora of new opportunities for mobile operators that will allow the end-user to enjoy the

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traditional Internet experience anywhere, and at any time. This will allow:

• the mobile device to benefit from the PC internet market;

• users to access tailored applications from the open Internet (YouTube, Google
Maps); and
• mobile access networks to become an alternative to DSL, cable or Wi-Fi as an
access point to the Internet.

These differences across the world region create a range of challenges facing mobile
operators as they seek to take advantage of the mobile broadband option. Questions for
those working in the mobile industry might include;

• How will operators tackle convergence and compete with the fixed broadband
market?
• Which market segments should operators target first, and with which
technology, and at what price?
• What is mobile broadband used for and which applications are driving take-
up?

The answers to these questions will be very different from region to region.

Mobile broadband definitions vary from operator to operator, and indeed from analyst
to analyst. Meanwhile, end-users take a technology-agnostic view of high-speed
internet services, and for them mobile broadband is a service that allows access to the
Internet whilst out and about. Most commonly, mobile broadband definitions refer to
services delivered using 3G/3.5G datacard or USB modems however the definition can
be extended to include any device that allows the user to access the internet or other
services at a data rate of greater than 144Kbps.

Central to successful mobile operator strategies surrounding mobile broadband services is

how carriers can best differentiate their services from those of their competitors, and how
they can make money out of the mobile broadband business model.

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Fixed-Mobile Substitution for Broadband Band Data

Findings from the UK regulator Ofcom suggest that this could be the case in the UK
market with 75% of all mobile broadband users found to be doing so from home. There
are, however, serious constraints to mobile broadband usage and it sometimes remains
unclear as to how mobile operators will seek to address issues of speed and reliability,
factors of paramount importance to end-users.

In Japan, since all the country’s mobile operators also offer fixed broadband services, it
is not in their interest to encourage their customers to replace fixed broadband access
with a mobile broadband connection. Instead the operators drive towards fixed mobile
convergence (FMC) utilising capacity in their fixed networks to offload mobile data traffic.
NTT DoCoMo and Softbank are pursuing this solution through fixed modems to allow their
customers to make cheaper voice and data calls using their fixed broadband networks.
The question of substitution is not valid in Hong Kong either as it remains home to one of
the most mature fixed broadband markets in the world. Instead, operators such as PCCW
see mobile broadband as a way to bundle services together with fixed broadband and
IPTV services, improving its revenue stream.

The case of Africa is very different. Substitution again is not relevant as fixed broadband
is not even a possibility for the vast majority of end-users, such are the limitations of fixed
infrastructures in the region. Rather like the mobile voice market, we can expect to see
rapid growth in the mobile broadband market that is largely independent from the fixed
market. From a base of fewer than 800,000 mobile broadband subscriptions in 2007,
Informa forecasts a total of over 50m by the end of 2013.

In Poland and Hungary, however, we see rather different trends, with the growth of the
mobile broadband market eating into ADSL growth. Mobile operators see some success
on the back of a growing consumer demand for broadband internet access whilst on the
move, which has encouraged many carriers to launch a series of aggressive promotions
and pricing campaigns.

It seems, however, that rather than kick-starting a substitution trend away from the fixed
line market, as happened with voice, mobile broadband services will do nothing of the
sort. What mobile broadband can do is to help mobile operators find a new source of

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revenue at a time when voice revenues are stagnating, and direct the industry further
down the road to convergence as operators look to bundle together services and
differentiate offerings from those of their competitors, often through the use of exclusive
Internet content.

Pricing for Mobile Broadband Service

Mobile operators have been offering Internet access services for some time to mobile
phone users, bundling them with voice and messaging services. Whether the Internet
service offered is truly mobile broadband will depend on the user’s handset specification
and the operator’s 3G+ coverage. Many operators do not clearly specify whether these
bundles apply equally to slow or fast Internet access. For these reasons, only those
service tariffs that promise and clearly mark out genuine mobile broadband access
have been collected for the data shown in Appendix 1. These are services that are
designed explicitly for – or are sold together with – selected mobile device types, such as,
smartphones, PDAs, datacards, USB modems or embedded laptops.

Mobile operators generally have a variety of options at their disposal to differentiate their
service offerings from those of their competitors. This process of differentiation can begin
outside the actual tariff structure.

Promotional offers and level of service are the two most important differentiators;
customer segmentation is a third. Mobile operators will frequently discount or waive
monthly fees for a limited period or advertise free equipment that enables the service.
Service levels are less clearly defined and, at this nascent stage of the market, by far the
least explored by the mobile operators. A recent move by Norwegian operator Telenor is
an exception. In early September 2008, it launched mobile broadband services on a try-
before-you-buy basis, including laptops with embedded mobile broadband technology and
SIM card. Each service comes with a nonbinding trial free subscription for 90 days from
Telenor which can be cancelled at any time. Thereafter, customers have a choice of three
contract services.

Although marketing and customer service strategies play a vital role in the promotion of
mobile broadband services, when considered on their own, they do not allow for a fair
and comprehensive comparison of mobile broadband service prices across individual

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markets. Hence, the pricing data collected does not include information relating to either
promotional or service strategies.

Mobile broadband tariffs can be broken down into several generic components. When
structuring service tariffs, operators make design choices that ignore or adopt any of these
components to their market environment. A brief list will include:

• Equipment type
• Equipment charge
• Service speed
• Service activation/registration charges
• Basic service cost (regular monthly charge or start-up value)
• Additional usage cost
• Usage limit
• Over-limit charges
• Contract conditions
• Free add-ons (services).

An analysis of mobile broadband tariffs suggests that variation in design choices

fluctuates across these components. Service activation charges are the least used or
explored by operators, as are additional usage charges and free add-ons. When applied,
all three would substantially complicate the service offer or require customers to judge
their mobile usage pattern accurately and know what they want before purchasing the
service. A less ‘sophisticated’ or patient customer would simply turn away and seek
alternatives. A good example here is a service offered by Mobistar in Belgium. It offers a
mobile broadband package that, at first glance, appears to be cheap: for a basic cost of
EUR5.00 (US$6.78) per month, residential users are signed up to a 12-month contract.
However, a one-off activation charge of EUR1.00 (US$1.36) applies for each day the
service is actually used.

Add-ons, such as free e-mail accounts, web-spaces or discounted security software, are
a very common method of differentiating services for which market take-up has peaked
and competition is intensifying; a comparison with fixed broadband services in developed
countries springs to mind. Research indicates that add-ons have not yet reached the
mobile broadband market. No doubt, they will do so soon but they may take a different

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form from fixed broadband add-ons; for example, T-Mobile UK offerr 200 free text
messages with its mobile broadband service offer.

The great majority of mobile operators define their broadband service offerings in
terms of a fixed monthly fee or subscription and a maximum download volume. Service
download speeds sometimes play a role too, but less frequently than would have been
expected. Arguably current coverage and deployment stages still put limitations on what
can reasonably be claimed and offered to users as a maximum download speed. If that
is the case, an operator will offer the same theoretical maximum download speed with all
its mobile broadband services and not differentiate on service speed. Countries in which
speed differentiation is popular are Morocco, Romania, the Czech Republic, Singapore
and the Netherlands.

Basic service charges are crucial for generating revenue; across the regions, the average
monthly charges for residential and business mobile broadband contract services range
from US$35 to US$60 per month (excluding prepaid offers). Eastern European operators
offer the lowest monthly charge overall, followed by those in Asia Pacific region

Figure 14 – Example Table of Average Mobile Broadband Data Contract Pricing

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Figure 15 – Example Graph of Average Mobile Broadband Data Contract Pricing

These regional average figures mask a wide variation in monthly charges, even within the
services offered by individual operators. At operator level, the main and most common
differentiator of service tariffs is usage volumes. 3 UK, for instance, offers three packages
at £10, £15 and £30 (US$17, US$26 and US$51) per month, with usage volumes of 1GB,
5GB and 15GB, respectively. Service speed and contract length do not play any role in the
level of monthly charges. Contract length (12, 24, 18-month) is solely used to benchmark
for free basic equipment.

Mobile operators worldwide have predominantly opted for offering mobile broadband
services that lock customers into long-term contracts of anything between 12 and 30
months. This reduces customer churn, helps in subsidizing devices and ensures a regular
revenue stream from data services. Whether this approach maximizes profit from the
service will depend on usage volume. The monthly cost involved and contract commitment
deters a significant proportion of potential users that see mobile broadband as a non-
essential add on to their fixed broadband service at home.

Prepaid mobile broadband services would provide a solution with more flexibility. But
these are still far from being mainstream services; only about 27% of the mobile operators

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in our survey offered prepaid mobile broadband service. If prepaid services are offered,
they tend to lack the variety of contract services and an appeal that suggests good value
for money. First, there is the equipment charge. In Western Europe, the average prepaid
charge for a USB modem is US$126; data cards or USB modem (dongles, sticks, Internet
keys) are sold on to prepaid subscribers at an unsubsidized rate that adds a substantial
barrier to fast take-up of prepaid services.

On the positive side, mobile operators do not have to recover hardware subsidies
from service revenue for prepaid offers. A few operators (eg Telenor in Sweden, Maxis
Communication in Malaysia) have experimented with offering free equipment to prepaid
customers. In doing so they transferred part of the incurred equipment cost on to
customers as a one-off activation fee or by raising additional usage cost above market
average.

Hardware prices, of course, vary between mobile broadband devices from high-end
laptops to low-end USB modems. It stands to reason that operators may use different
levels of subsidies for different device types to make broadband services attractive to
potential customers. Striking a fine balance between subsidizing devices and charging
an additional equipment charge that a customer would accept as reasonable is vital for
the mobile operators and they have deployed several strategies in order to achieve this
balance.

Some mobile operators have provided customers with a range of differently priced
devices, allowing customers to select the device that meets their price expectation.
This can then be ‘mixed and matched’ with a service contract that reflects their usage
behaviour. However, the most common strategy is offering straightforward stepped
equipment charges that vary with contract length, anything from charging the full cost with
no contract to free equipment on longer contracts. Almost all mobile operators offer basic
access equipment (USB modem) at no extra cost to subscribers when they subscribe to
an 18-month contract or longer.

In Western Europe, for example, the average total revenue from a 24-month contract
is about US$1,140, assuming that the customer does not exceed usage limits. With an
average cost of a USB modem at US$126, about 11% of this revenue (including taxes)
is needed to recover the equipment charges, for the standard USB modem. In theory, for

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shorter contracts, say a 12-month contract, this percentage could rise easily to between
17% and 30% of total service revenue when basic access equipment (here a USB
modem) is fully subsidized by the operator. But most operators have aimed to keep the
subsidy below 10% of contract revenue, settling on a strategy that requires users to pay a
discounted or full equipment charge for contracts that run for less than 18 months.

With price competition driving down monthly charges, equipment subsidies are expected
to start eating further into basic service revenue per user, a trend the UK mobile
broadband market is beginning to experience. For instance, 3 UK now offers a residential
mobile broadband service for £10 (US$17) per month with free basic equipment (USB
modem), running for 18 months. At an undiscounted rate for prepaid customers, the
USB modem costs £49.99 (US$83). This would amount to a subsidy of up to 28% of
total revenue for the contract tariff. A generally anticipated decrease in the manufacturing
cost for mobile devices can partly off-set this, but to secure against further revenue
decay, mobile operators, like 3 UK, bank on extra revenue from users. For data services,
the main source of extra revenue is excess usage charges. So keeping volume limits
artificially low may be an answer, but, with service offers with unlimited volume on the
increase, it is a strategy that is difficult to justify. Micro-fees for add-ons such as text
messaging are next down the list of additional revenue generators.

Figure 16 – Typical “out of bundle” charges per Megabyte

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Figure 17 – Typical “out of bundle” charges per Megabyte

A rising number of mobile operators are going even further. Recognizing that laptops
are by far the most convenient device for potential customers to use when on the move,
mobile operators have started offering bundles of laptops and USB modems together with
mobile broadband services. However, the mobile operators which deploy such marketing
strategies are still few and far between. In these cases, equipment bundles are only
available at no extra cost with 24-month contracts; for example, T-Mobile UK’s offer of
a laptop/USB modem bundle for £30 (US$51) over 24 months. With operator subsidies
here reaching up to 50% of total service revenue, such offers can hardly be described as
great revenue-generating opportunities. But with laptop penetration much lower than PC
penetration in most countries, such offers will expand the mobile broadband market and
potentially open up more revenue streams in the long term.

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Self Assessment Multiple Choice Questions

Mobile Data Revenues and Pricing, a Global View.....

Q1
which of the following accurately states the current trend for technology migration ?
a) HSPA – EV_DO
b) EV_DO – HSPA
c) HSPA – WiMAX
d) WiMAX – EV_DO

Q2
Many operators have seen a huge surge in data traffic largely due to …?
a) free SMS
b) subsidised data devices
c) flat rate data plans
d) longer contract periods

Q3
According to the UK regulator OFCOM, what percentage of mobile broadband data use
takes place in the subscriber home ?
a) 10%
b) 50%
c) 75%
d) 85%

Q4
Some operators run both fixed and mobile networks, in this case the broadband strategy
that they are most likely to pursue is..
a) focus on discounted mobile data subscriptions
b) drive the user toward a FMC (fixed – mobile convergence) type subscription
c) bundled mobile voice and data subscriptions
d) increased price differential between fixed and mobile services

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Q5
Mobile operators will seek to differentiate their broadband service offerings, which one of
the following may be considered a valid differentiator ?
a) handset choice
b) operator location
c) broadband speed
d) customer segmentation

Q6
Which one of the following broadband charging tariff models may complicate the service
offer or require the subscriber to accurately judge their usage pattern ?
a) additional service fees and add-on charges
b) service speed
c) basic service cost (i.e. flat rate monthly fee)
d) equipment type

Q7
Locking mobile broadband customers in to longer term contracts often reduces churn
and…?
a) helps with device subsidies
b) reduces operator capex
c) increases operator opex
d) increases market share

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Self Assessment Multiple Choice Answer Grid

Transfer your answers onto the grid for easy assessment and future reference

Name…………………………………………………………………………………...

Question set……………………………………………………………………………

Question a b c d

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Section 1

Practice Paper

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End-Of-Section Practice Paper

(These questions are designed to encourage further research.)

Q1
What are the main threats to mobile operators’ business models in 2010-2015? How might
these threats differ by region?

Q2
Imagine you are a mobile network operator in a highly-competitive marketplace. What is
the best way to improve your revenue outlook for the next 12 months?

Q3
You are a mobile network operator in the EU. What is likely to be the impact of the
regulator’s mandated cuts to your interconnection and termination charges, and how will
you respond in the short- and medium-term?

Q4
Your mobile operator organization is attempting to encourage more usage of mobile
broadband services with a view to increasing both revenues and profitability. What
mechanisms might your organization consider using to achieve this, and which might be
most effective over the long-term?

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End-Of-Section 1 Multiple Choice Questions

Q1
Approximately how many mobile subscriptions will there be globally by 2013?
a) 2 billion
b) 3 billion
c) 4 billion
d) 5 billion

Q2
What has been the main impact of flat-rate bundles on operators’ voice revenues?
a) Reduced due to lower price per minute
b) Increased due to increased usage
c) Increased due to increased contracts
d) Reduced due to increased churn

Q3
Approximately how much of ARPU will be represented by mobile voice services by 2013,
on a global basis?
a) 20%
b) 30%
c) 50%
d) 70%

Q4
Which region boasts the lowest EBITDA levels, as a % of revenue?
a) Africa
b) Asia
c) Europe
d) Americas

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Q5
What mechanism is becoming increasingly popular as a means of reducing capex
commitment?
a) Cutting staff costs
b) Network outsourcing
c) Cutting discretionary costs
d) Reducing the number of base stations

Q6
On a global basis, which will be the predominant Internet access mechanism in 2013?
a) Fixed
b) Mobile (2G)
c) Portable
d) Smartphones

Q7
Which technology will become the predominant mobile broadband access mechanism by
2013?
a) LTE
b) WiMAX
c) CDMA 1x EV-DO
d) HSPA+

Q8
What is the main impact of flat-rate on operators’ network costs in the medium term?
a) Variable costs increase significantly
b) Fixed costs increase a little
c) Fixed costs increase significantly
d) No change

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Self Assessment Multiple Choice Answer Grid

Transfer your answers onto the grid for easy assessment and future reference

Name…………………………………………………………………………………...

Question set……………………………………………………………………………

Question a b c d

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58 © Telecoms Academy