As operators roll-out LTE networks, they face the challenge of making a substantial investment in a technology that has unclear business cases. What is clear is that to remain in the game, operators need to construct LTE capacity as a baseline means to compete. Ultimate success, however, will come from creating a means to differentiate from competitors and monetise new content, services and applications effectively. Taking a little time now, in the network construction phase, to identify prospects for differentiation looks set to pay dividends once the technology is in widespread deployment. 
 
 
 

 
Dr Vikram Saksena: Demand is no problem, differentiating
the value proposition is
 
 
 
With TeliaSonera and Verizon Wireless leading the charge of LTE network deployment, it is now becoming clear that the models and strategies surrounding LTE are markedly different to those of 2G and 3G networks. Whilst there’s a clear demand for the bandwidth LTE offers, from consumers hungry for video and apps on the move to enterprise users keen to access desktop software via mobile, the challenge for carriers is to avoid becoming an undifferentiated bit pipe provider.
From an operator perspective, it is critical that they are not cut out of the premium content and services value chain or denied the opportunity to monetise the services their networks carry. Should that occur, the investment rationale behind LTE deployment becomes increasingly unstable. 
 
 
Applications and endpoints begging for a network
 
However, the market conditions for LTE deployment are very different to those at the time of 3G roll-out. “The difference between now and when 3G was being deployed is that the world has changed a lot,” says Dr Vikram Saksena, executive vice president and CTO at Tellabs. “When 3G was introduced, the mobile internet wasn’t deployed and there was a lack of applications and smartphones. 3G was a network begging for applications and endpoints but now the applications and endpoints available are begging for a faster, higher bandwidth network.”
It’s easy to make the mistake of thinking that augers well for operators’ LTE deployments. The latent demand for the capacity LTE offers exists, so surely the business case is there for operators to jump in with both feet, build the networks and generate revenues from the additional bandwidth created and consumed. There’s certainly a view that operators have been careful to avoid making the mistake of constructing more capacity on a ‘build it and they will come basis’ as they did with 3G, but that has resulted in operators feeling they are coming to the technology late. “The primary reason that operators are moving so quickly to deploy LTE now is that they feel they are playing catch up,” adds Saksena. “Demand is no problem, differentiating value proposition is. Every user wants the same applications so how do operators differentiate against each other?” 
 
 
A well worn path to LTE deployment
 
That’s a critical question and one that operators are engaging with right now but, while they seek ways to differentiate and identify new business models, they continue to build LTE capacity. Given the challenge of developing points of differentiation and monetising the new capacity LTE will bring, it is easy to gloss over the fact that this is a new network technology and as such comes with all the challenges that suggests. Even so, the mobile industry has deployed many new network technologies and iterations of those in the past decades so, in many respects, LTE deployment is a well-worn path. “Operators are starting to plan their networks and there will be several phases,” says Saksena. “Initially, there are a lot of questions around how proven the first round of technology is. There aren’t many handsets with LTE capability, for example, so the first 12-24 months will be a proving ground to ensure the technology is scalable and reliable. It will need to support a large number of endpoints – both dongles and smartphones. The focus will then shift to applications.”
A considered approach to LTE is being seen. “Operators are certainly thinking carefully about how they want to provide service differentiation,” Saksena adds. “We’re engaged with CTOs in many forward looking discussions and we see collaboration between us and the mobile operators continuing to grow over time. From what I see, there is a growing confidence. The smartphones are here, tablets are coming fast and cloud based service infrastructures for mobile applications are beginning to emerge. The convergence of these factors will create a “perfect storm” for LTE demand.” 
 
 
Reinventing the walled garden
 
So, accepting that the technical aspects of LTE are shaping up effectively, and growth of applications will continue to explode, the issue operators face is how to monetise and differentiate. “Operators fear becoming dumb pipes and are worried about what will happen if all the new bandwidth they build gets consumed with no incremental revenue,” says Saksena. “The way for them to mitigate that risk is to differentiate and for that reason, reinvention of the operator walled garden has to happen. LTE is a given but the question now is what applications and services do operators build round it within a walled garden.”
Monetising content and services effectively is at the heart of avoiding a business model composed of commoditised bandwidth bundled with a stock portfolio of applications. Inevitably, that will be a core proposition offered across the market but there is considerable scope to generate revenue from innovative services and delivery propositions. “There’s a lot of focus on how operators can offer new, personalised services to consumers by bringing them into [an operator] cloud environment,” says Saksena. “The way in which operators will deploy cloud infrastructures to deliver personalised services for consumers is where I think innovation will happen; personalised content bundles, personalised data stores and personalised social media are some examples of new services that can be delivered from a mobile cloud infrastructure.”
One area that Saksena thinks operators still have scope to tap into is app stores. “The model is established and operators can make propositions encompassing custom applications and bundles of content that consumers will pay to access,” he says. “The way to monetise is through high quality content. Users won’t necessarily pay for quality of service but the implication that they will is there – if I’m paying for high quality video, it better have high quality delivery.”
Enterprise users are also expected to be a fertile area for revenue generation since they have specific sets of requirements and operators can make differentiated propositions to them. “I do believe there’s an opportunity but there remains a need to bring mobile endpoints into the enterprise VPN,” says Saksena. “That can be done with LTE. Service level agreements on quality of service can be provided and enterprise applications can be extended out to the mobile workforce.” 
 
 
Differentiation a question of focus
 
There are, of course, many other ways in which operators will be able to differentiate. The targeting of specific demographics as seen with operator 3, for example, which has focused on attracting the youth market, will continue as operators develop and deliver specific bundles of bandwidth, content and applications tailored to segments of their subscriber base. There is also a vast, undeveloped market around machine to machine (M2M) communications which will see everything from vehicles, utility meters and healthcare equipment requiring a connection, many of which will be wireless and run using LTE capacity. “You’ll see that kind of differentiation where endpoints will need different capabilities provided by wireless networks,” adds Saksena. “Vehicles, energy meters and remote patient monitoring equipment along with mobile commerce and mobile money applications will all make demands on wireless networks. All of these markets exist but not every operator is attempting to do everything, it’s a question of focus.”
Individual operators are currently thinking through their strategic approaches to how they will market LTE. The stakes are higher because they recognise the threat of becoming a dumb pipe and realise differentiation is the key means to avoid that fate. Nevertheless, differentiation is set to be a continuing battle. “Not everybody will move at the same pace, at the same speed or in the same direction,” says Saksena. “IP enables differentiation but that’s not to say that differentiation lasts forever. Operators will have to innovate and move faster to retain an advantage. There will certainly be differentiation around rich-media communications services because there are so many different ways in which users can use this technology. The most innovative will be the leaders.”  GTB