From a customer perspective, there is no immediate need for LTE. Most customers would be happy with the performance of 3G for the foreseeable future. Most emerging services, even high-bandwidth services such as access to YouTube, work well with 3G. However, 3G capacity is just too expensive, given the data volumes we expect soon, and customers simply aren’t willing to incur increases in their data costs. LTE usage will be driven at first by high-end data customers using data cards and devices such as LTE-enabled netbooks. We also expect that LTE network equipment will be much more mature than comparable 3G equipment was, thanks to its similarity with the current 3G architecture.
S+B: Will the transition to 4G happen around the world simultaneously, or are European telecoms going to go in that direction first?
WEICHSEL: LTE will be driven by carriers that already have the highest level of data traffic in their network. European carriers will certainly be at the forefront of the transition, with LTE networks becoming available as early as 2010. But Verizon, the largest mobile operator in the U.S., announced in February 2009 that it also plans to switch to LTE as early as next year, and that should give LTE a huge boost. Japan’s NTT DoCoMo and China Mobile have also announced plans to join the LTE bandwagon in 2010 or shortly after. Carriers in most developing countries have yet to deploy 3G networks — or are just about to begin the migration, so they will probably move to LTE perhaps five years later than European and U.S. telecoms. Some will probably just skip 3G altogether and move directly to LTE.
S+B: This sounds like it’s going to be an expensive transition. How much will it cost, and how will telecoms pay for it?
WEICHSEL: Ultimately, every base station can be upgraded to LTE. Even if we’re looking at several hundred million euros for the average European operator, this is still primarily an upgrade of existing radio sites. The payback will come through LTE’s increased efficiency: With LTE’s lower cost structure, carriers will be able to offer mobile broadband access at attractive prices that can compete with entry-level fixed-line offerings. The risk? Operators that make the switch too early may find themselves paying a premium for capacity they might not need yet. But operators that wait to make the transition may find themselves losing out to competitors that move more quickly, offering better service at lower prices.
Edward H. Baker, former editor of CIO Insight magazine, is a contributing editor at strategy+business.