Monetising LTE services: developing new revenue streams through differentiation and innovative prici
LTE is the latest telecoms industry buzzword – mobile network operators (MNOs) have launched more than 200 live LTE networks in 100 countries. The experience of MNOs in countries such as South Korea show that LTE can add value to a business and have a positive impact on ARPU and share prices – when more than 28% of an MNO’s subscriber base has an LTE connection, operator share prices consistently outperform the index. This article examines how MNOs are experimenting with services, segments and pricing in order to monetise LTE offerings, and draws on our experience of working with operators worldwide.
MNOs must differentiate LTE services from those of 3G
Enhanced data for consumers is a key selling point for LTE
Operators can use the rich data experience of LTE to sell more data and develop new revenue streams. Video streaming providers such as Netflix alter the quality of video according to available bandwidth – so a 6-minute clip on LTE would consume 80MB compared with 27MB on 3G, thus driving usage. Operators are also bundling content with LTE or top-tier plans, enabling new revenue streams – for example, EE in the UK uses its film service (EE Film) to monetise data and receives sales commissions from video-on-demand provider FilmFlex.
VoLTE (+ RCS) allows operators to offer integrated voice, video and instant messaging (IM) services with the added benefit of mobility
VoLTE (+ RCS) will probably develop as a hybrid service for operators. They will be able to sell more IM and video data, a market that over-the-top (OTT) players currently dominate. Additionally, 4G networks can address the mobile opportunity for HD voice and integrated services, and even drive usage away from Wi-Fi, thus generating new revenue. South Korea Telecom’s VoLTE service is taken by about 50% of the operator’s LTE subscribers.
Enterprise solutions can benefit from enhanced data services
Enhanced enterprise LTE solutions such as videoconferencing on-the-go and remote access to business applications can drive data consumption. Verizon Wireless is one of many LTE operators that offers 4G mobility applications and solutions for SMEs and enterprise customers. A survey shows that 67% of US businesses using LTE believe that it has resulted in increased productivity.
LTE can also provide connectivity as a substitute to fixed networks
It is possible to use LTE with a 4G router to offer connectivity to the home and SME broadband segment, which could be a new revenue stream for operators. For example, UK Broadband’s ‘now broadband’ service is offering connectivity using LTE + 4G routers. This use of TD-LTE as a substitute for fixed networks could be an interesting solution in emerging markets.
Wholesale solutions may emerge as an attractive opportunity for operators
Because LTE network latency is lower than 3G, operators can develop new revenue streams by selling bandwidth for wholesale services (such as utility and M2M services). Verizon is at the forefront of this with projects in sectors such as education.
Pricing is determined by LTE positioning relative to 3G
If positioned as a value-added service with clear benefits (such as guaranteed speeds or premium content), then a pricing premium can be introduced. However, if positioned as a mass-market service (also used to decongest 3G networks) a premium is not advisable. Pricing premiums can also be applied in low-competition scenarios – although they will have to be removed eventually (for example, in the UK).
MNOs can also experiment with bundling. Data sharing across devices is being offered, with the aim of monetising devices (such as tablets) otherwise lost to Wi-Fi. Tethering strategies are evolving, as operators try to monetise tethering by allowing it at as part of premium or top-tier plans. Fixed–mobile converged offerings are available and aimed at increasing revenue and reducing churn.
Overall, LTE strategies are continuing to evolve and it is too early to identify winners. Successful monetisation strategies will need to focus on offering differentiated services with flexible and usage-friendly pricing models.