This blog is by Leslie Shannon of Nokia Solutions and Networks. Twitter: @lshannon45
“How can I monetize LTE?” – That’s one of the most common questions I hear, both from our operator customers and the industry at large. The asker is usually seeking information about key LTE market segments, or maybe about new services that perform better on LTE. Or at which level LTE can be priced so that the operator can recoup their LTE investments most quickly. In response, I usually launch into market analysis: “Well, we see that operators who sell LTE this way tend to make money, whereas those who sell it this other way don’t… etc.”
But recently I heard a far better answer to this question. I was at a gathering of the leadership team for a major telco group in Europe, and one of the executives asked “How can we monetize LTE?” Before anyone could respond, the Group CEO stopped him by saying, “That’s the wrong question to ask. The real question is ‘How can we monetize our network investments?’ – without distinguishing one from another. If we ask LTE to ‘pay its way’ separately from HSPA+, for example, we risk misaligning our network investments with market needs. Our customers only think of us as having one network, so we should too.” And this CEO is right.
Fastest network versus fastest 4G LTE
One of the most public examples of how the “one network” versus “many networks” thinking can make a difference comes from the United States. When Verizon launched LTE, it advertised that it was selling 4G LTE, but its main tagline was (and still is) loud and clear: “America’s Fastest Network” – not “America’s Fastest 4G LTE.” Verizon believes that consumers don’t care about different technology levels nearly as much as they care about overall good performance, so it worked hard to provide that.
In contrast, AT&T focused on monetizing its HSPA+ network on its own – and said so publicly. (To be fair, it was caught off guard by Verizon’s overwhelmingly rapid embrace of LTE, as was the rest of the world.) AT&T launched LTE three quarters after Verizon did, and covered the gap by having Apple label HSPA+ as “4G” in iPhones. But what AT&T overlooked while focusing on its HSPA+ investment was that its competition was simply building what would be a better overall network experience for the end user.
And how has that played out? Let’s let the numbers tell the tale. In mid-2012, AT&T had the highest smartphone market share in the US, at 33.5%. Verizon was just behind at 30.5%. One year later, Verizon now holds 36.9% of the US smartphone market, while AT&T’s share has dropped to 26.5% – with roughly equal pricing levels available from both. Verizon now leads in smartphone sales for all three operating systems: iOS, Android and Windows, and led in total postpaid ads in the US in Q2 2013.
It appears that smartphone users really do enjoy Verizon’s widely-available LTE network – with 60% of Verizon’s total data traffic now on LTE. And, the most recent JD Power survey in the US found that users who switch operators to improve their coverage or network quality end up spending an average of $17 more per month than they did before – at least in this market, having the best network pays tangible results.
This example is from the world of 4G, but thinking about networks holistically is important no matter where in the technology cycle you are. We’ve also seen examples of operators who have focused too heavily on 3G or 4G and let voice quality on 2G deteriorate, losing customers as a result.
The key takeaway here is to preface every technology spend decision with the question: What will provide the best overall experience to my end users? If you find yourself thinking, “I really need to finish getting as much as I can out of Investment X before I start Investment Y,” or “Making Investment Y means I should stop making Investment X altogether,” recall that your subscribers experience both Investment X and Investment Y together, and may ultimately be willing to pay you more for X+Y than they would be willing to pay for 2X or 2Y.