Enrico Salvatori, Qualcomm: We are seeing delivery to
market of LTE devices. There are smartphones and
tablets from HTC and Samsung 
                      
As more operators bring commercial LTE networks to market, the device market is starting to mature beyond provision of LTE dongles. However, that maturity is challenged by the fragmented nature of LTE spectrum from market to market.
The wide variety of bands involved means that chipset and device manufacturers have to create multiband technologies that address not only the need to connect to LTE, 3G and 2G networks but to interoperate across multiple LTE bands. That comes at substantial cost, especially as this remains a low volume market.
Device makers, says Joss Gillet, senior analyst at Wireless Intelligence, are finding it difficult to decide which bands to prioritise as chipsets and handsets are developed. “Spectrum is very fragmented so it’s difficult for chipset vendors and handset vendors to place their bets looking at the next few years,” he says.
“We’ve identified that there are 38 frequency combinations around the world to be addressed and I think there are only five vendors that have devices available now. The fragmentation issue is really slowing down adoption.”
Gillet points out that the priority is the 800 megahertz band. Most of the investment has been directed towards that because it is the band that two-thirds of current LTE users occupy, largely driven by the US network roll outs of Verizon Wireless and AT&T.
However, in Europe and even more so in the Asia-Pacific region there are a greater number of LTE bands and combinations to be addressed. “That’s really a problem for device manufacturers but also for operators because it hinders global roaming,” he explains. “If we don’t have a world LTE device, we don’t get the economies of scale and the cost of devices will be very high.”
The roaming point that Gillet raises is a critical one because operators are targeting LTE towards their high value customers, in the initial stages of the market. Those, by definition, are business users with the propensity to roam. Yet, in fragmented regional markets such as Europe, LTE roaming is some way off as operators will be providing LTE in different bands and devices will need to be able to seamlessly switch between the frequency bands used for LTE in addition to the 2G and 3G networks.
Miguel Myhrer, managing director of Accenture’s North America wireless network practice, sees this as less of an issue in the US, where spectrum fragmentation is limited in contrast to Asia Pacific and Europe.
“LTE is launching in different frequencies so when handsets come out they will need to operate in other bands,” he says. “That will only add cost. In the US, they’re doing well with two frequencies. They see the need for spectrum and how to use it more effectively and LTE does that.”
Other markets are more fragmented than the US and devices will need to have more complex chipsets in order to address the wider range of spectrum bands. That drives up cost and device makers are being cautious about which spectrum combinations to prioritise support for.
What is clear is that in order to service the high spending, first wave of LTE users some form of roaming between LTE spectrum bands and the 2G and 3G networks will be required. It seems illogical that operators will sell the benefits of LTE in their home markets but, as soon as the high spending LTE customer changes country, they will only be offered 2G or 3G service. For operators, a world LTE device at a keen pricepoint is needed — but it remains some time away from appearing in the market.
Such devices also face an issue in how to handle voice services. Voice over LTE solutions are coming to market but the first wave of LTE devices won’t handle VoLTE. Instead they’ll switch on the fly to a 2G or 3G network for the transmission of voice. In addition, even when VoLTE is more widely rolled out, the devices will have to be able to handle switching in and out of LTE coverage as users on the move — in cars or trains — travel in and out of LTE coverage areas.
Both the network and the device have to be able to handle those cross-technology shifts seamlessly. That means a truly indistinguishable experience and hand over between technologies because users simply won’t accept degradation in the quality of the voice experience they currently receive. Stuttering or dropped connections as a voice call shifts across network type will be totally unacceptable, especially to the high-end users who will form the early adopter LTE customer base.
LTE will remain and is still likely to remain targeted at the premium, high data consumption sector of the market. The LTE handsets available now are exclusively smartphones. That’s not such a problem in this early phase in which operators are focusing on migrating their high data consumption users from 3G to LTE but, if they want to make LTE a mass market phenomenon, they must address a wider market base currently characterised by mass usage of feature phones.
“All handsets are in the smartphone category,” adds Myhrer. “The cost needs to reduce and that won’t happen until we get to higher volumes.”
Low volumes and the fragmented spectrum issue mean that device makers and chipset vendors are limited in how they bring down the cost of devices. They need volume to rise in order for the cost base to come down, but volume can’t rise until attractively priced devices are in the market. Only then will LTE reach its true potential as the bringer of the internet to mass populations in the developing world for the first time.
In the BRIC countries — Brazil, Russia, India, China — that lack of volume means the average cost of LTE devices is twice the average monthly income, according to Wireless Intelligence.
To what extent that is an insurmountable barrier is yet to be determined. LTE users are by definition high value subscribers that consume mobile data so devices costing around $500 today aren’t out of reach for this high-end sector of the customer base, especially if operators are willing to subsidise some or all of this cost against the higher revenues and operational efficiencies they expect to generate from LTE users.
Device makers such as Samsung and HTC have smartphones available depending on the bands that operators require and Apple has reportedly kept back the iPhone 5 designation for a forthcoming LTE version.
That illustrates the extent to which LTE is a premium market now and Gillet estimates that, by 2015, 50% of commercial LTE devices will be smartphones with the remainder of the market composed of dongles and other data-based devices, such as M2M terminals.
“There are now quite a bit of vendors selling smartphones with 4G/LTE capability in the US and it’s not just smartphones but tablets and netbooks,” says Myhrer. “It is starting and, as with any new technology, it is starting slowly. The providers of devices are starting to come to life. There are six or seven out there. Will there need to be more? Yes.”
Others think that will happen organically as the market develops. “After the first wave of 4G products, the USB dongles, we are seeing delivery to market of LTE devices,” says Enrico Salvatori, senior vice president and president of CDMA technologies at Qualcomm Europe. “There are devices from HTC and Samsung and those devices are smartphones and tablets so they very much match our vision and effort as an industry. I’m happy to tell you we are progressing as expected. There’s good progress and good traction.
“The activity is happening in terms of markets and operators first of all in North America,” he adds. “Verizon and AT&T are creating more pressure in terms of timescale, in Asia it is SK Telecom, DoCoMo and others, while in Europe the pace of deployment is linked to ongoing auctions for LTE spectrum.”
As that momentum grows, Myhrer sees the device market continuing along the lines it has followed in the past. In markets where device subsidy is familiar, it will continue and he believes the economics of subsidy will continue to stack up for operators.
“The bigger issue here is that operators are looking to accelerate this as fast as possible because they’re running out of 3G capacity. They need handsets so they can migrate users to 4G because it’s more efficient,” he says.
“Subsidy will continue, it may even increase as operators seek to ensure the [LTE] adoption rate picks up. The incentive for operators to move users to LTE is so large so subsidy will continue to be there as we increase turn over from 3G to 4G handsets. One lever to accelerate that is subsidy, another is device availability.”
As more vendors bring more devices to market, the ecosystem surrounding LTE will grow and it will become a self-supporting market. Chipset and device costs will come down as volume arrives and, the technical approaches to addressing the 38 combinations of LTE spectrum will become simplified. At this stage, however, the world LTE device remains some years away. GTB
Further reading from Global Telecoms Business:
Alcatel-Lucent and Chunghwa in LTE trial 26 Apr 2011
SK Telecom plans fast roll-out of cloud-based LTE 24 Mar 2011
Business opportunities in TD-LTE 25 Feb 2011
LTE roaming brings complexity and opportunities 10 Dec 2010
Dongles lead but smartphones to follow 10 Dec 2010