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WHITE PAPER: LTE Flat Rate Pricing for Competitive Advantage

LTE Flat Rate Pricing for Competitive Advantage

3 Soon. Source: Pew Internet & American Life. access to information sources will increasingly be via wireless technologies. and blaze the trail for the inevitable mass market assimilation. and exceed 50% by 2012.5G technologies of today will struggle with the simultaneous increase in subscribers and data traffic. The added pricing pressures due to flat and block tariffs will hasten the need for 4G WiMAX and LTE. 2007 Today. Pew Internet & American Life Project. Future Mobile Broadband. The huge traffic demand of the mass market can only be served by 4G LTE and WiMAX. In North America. and mass market penetration by media-rich and smart phones are the keys to mass market penetration. 2nd Edition (2007) Figure 2. 2007 10 10. Today’s consumer experience with wireline broadband will set expectations for tomorrow’s wireless broadband.5G technology. This convergence will reach the early adopters with 3. flat rate tariff plans. As the mobile consumer increasingly adopts high speed wireless delivered by 3. EV-DO) and achieve mass market penetration with 4G LTE and WiMAX technology.5G data networks nearing build out The effect of these innovations will invariably result in more subscribers with wireless broadband doing more things requiring more data traffic. The next step in the evolution of the telecommunication industry is the convergence of wireless telephony and broadband access. The advent of high capacity broadband wireless. 750 500 250 0 2007 3.The World Factbook (2008) 3. primarily with personal computers. This movement will be enabled by the convergence of : • Widespread use of flat rate and block tariffs for voice and data • Feature rich and smart phones entering the main stream • 3. CIA. access to information sources and the Internet is by wireline.1 Consumers in Europe likewise fuel the telecom explosion as internet usage penetration is greater than 50%. Introduction Market penetration of broadband telecommunication service has been faster than most other information and communication services.5 14 15 18 18 Compact disc player Video cassette recorder Cell phones Color television Personal Computer The 3. consumer embrace of broadband Internet access at home achieved 50% penetration in 10 years.2 and mobile phone use at 95%. Future Mobile Broadband.5G technologies (EV-DO and HSPA) will lead the way for the early adopter market segment. Wireless access to the Internet passes wireline access Summarized from Informa. 2007 2 WHITE PAPER : LTE FLAT RATE PRICING FOR COMPETITIVE ADVANTAGE .5G technology (HSPA. Summarized from Informa.5G 2G 2008 2009 2010 2011 2012 Figure 1. The cross over to majority wireless access will be largely complete by 2010 (See Figure 2). Why We Don’t Know Enough About Broadband… (2007) 2. This market evolution will inevitably move from the early adopter segment to penetrate the mass markets. more people will access information services wirelessly rather than by wireline. European Wireless Subscriber Mix (Millions).5G & 4G 3G 2. Informa. The convergence of these two mass markets into mobile wireless broadband will likely result in the demand for faster adoption times. Adoption Time to 50% (Yrs) Broadband at home 1. Future Mobile Broadband. More Subscribers Reliable sources forecast wireless broadband penetration in Europe to reach 20% of cellular subscribers by 2010. The 3.Executive Summary Mobile telephone service has achieved worldwide mass market penetration as has wireline broadband service in many developed markets.

Summarized from www.Wireless Broadband Expectations Consumer expectations for mobile broadband reflect a continuation of the wireline broadband experience. In every case. The effective average data rate for watching video and listening to audio may be quite different from a laptop user uploading and downloading but radio capacity and spectrum may be exhausted before the mass market uptake is fully realized. The early adopters of 3. 3 WHITE PAPER : LTE FLAT RATE PRICING FOR COMPETITIVE ADVANTAGE .com The introduction of Internet friendly mobiles with large display shows a significant shift in usage patterns (Figure 4). but mass market penetration will shift the focus to mobile handset subscribers. Systemic over estimating . usage increases dramatically. msn. information clue about how much downloading. Usage profiles from January mobile. emailing with multi-megabyte attachments. the traffic profiles are likely to be substantially different from a laptop www. www. and have been shown to pay more for flat rate tariffs than measured usage data services. Applications suitable for a handset can be delivered with 3. However. updating databases. 100% All Phones 75% Smartphone Media-Web Phone 50% 25% 0% Figure 4. operators are starting to introduce simplified flat rate pricing for mobile data that reflect the typical wireline broadband tariffs.facebook. More Data The recent introduction of ultra-premium phones with Half VGA resolution and flat rate data plans are rapidly altering subscriber usage profiles. and to gain a competitive advantage. nytimes.5G are nomadic laptop users. etc. today’s feature rich and smart phones will soon become mass market handsets. www.5G technology for early adopters. 2. Figure 3. yahoo. As the ultra-premium and smart phone features move to the mass market. there is little doubt that competing devices will enter the marketplace. 2007 Flat Rate Data Tariffs – a Key Driver to Mass Market Adoption The wireline internet experience of today will set expectations for tomorrow’s mobile broadband. flat rate pricing leads to significant uptake in www. consumers universally prefer transparency. the net being many more wireless subscribers and using much more data. bringing many of these features to the mainstream mass market subscribers. Mental hassle factor www. The ability to effectively deliver data to the mass market consumer (handset based) is a key aspect of 4G LTE and WiMAX that is often overlooked. so better guess high As with wireline broadband. and increases stickiness as the service becomes more “valuable and necessary” in everyday lives. These devices and plans are positioned for the mobile web. Feature rich and smart phones cross the mass market threshold Informa. As shown in Figure 3. As demonstrated with xDSL/Cable tariffs. similar traffic shifts are expected. 2008 Feeling the competitive pressure to meet consumer this web page worth a part of my 200 MB plan? 4. Given the human aspect of handset usage. Mobile operators that have adopted flat rate data tariff have proven that it has a similar effect on mobile broadband usage and data unpleasant surprise at the end of the month. with suitable accommodation for the mobile experience. The high efficiency of 4G LTE and WiMAX means fewer base stations and radios are needed while deferring additional spectrum needs. and entertainment.4 Mobile Internet access that is comparable to the home experience will be critical in order to reach the mass market.npr. Future Mobile Handsets. Leading Internet content providers and web sites are now adapting their service for the mobile consumer. Flat rate tariffs are preferred because of: mobile. Risk avoidance .

Figure 6 is the evolution of an average user traffic profile. 0% $0 $20 $40 $60 $80 10 8 6 4 GB / Sub / Mo Figure 6. While conditions vary from market to market. which on this analysis is achieved in 2011 by the average user. The lower cell throughput capacity of 3. A single radio solution almost always has a competitive advantage compared to a multi-radio solution in the same bandwidth. 20% 10% Figure 5. The discount cash flow shows that decreasing the tariff increases NPV until the cell throughput capacity is encountered. 2007. The fundamental driver for the NPV is the average cell capacity.5G technology means that more base stations radios and cell sites are needed to support the rising traffic demand. The goal is to find an NPV optimizing solution. Additionally. A real world data plan today is $60 and 5 GBytes / month. Average user data demand. gain market share and maximize Net Present Value. Motorola. The curve simply illustrates that as the tariff is reduced.5G technologies need 2 or 7 radios in the same 10 MHz spectrum. The approach is to hold all things equal (price sensitivity. traffic profile. Motorola. 2007 2 0 2006 2008 2010 2012 2014 2016 4 wHITE PAPER : LTE FlAT RATE PRIcING fOR COMPETITIVE ADVANTAGE . while the 3. Of course there can be considerable variation. Further reductions in tariff cause the NPV to fall due to acquisition and development costs of additional cell sites.5G or 4G radio technology. more subscribers sign up. etc) and only vary the particular 3. will vary by market and demography.5G technologies will deliver services to the early adopters. average data rates. The model indicates that decreasing the tariff results in more subscribers. this analysis suggests an LTE operator also has significant incentive to drive tariffs to mass market levels. the LTE solution requires only 1 base station radio. and they in turn are using more data. 10 MHz of spectrum. 30% Analysis of the model reveals considerable insight. This indicates that an LTE operator will gain a sustainable competitive advantage compared to an operator with 3. and to a considerable portion of the mass market evolution. GBytes / month.5G operators increasingly become noncompetitive as they try even harder to compete with mass market 4G LTE and WiMAX wireless broadband. The current 3.Wireless Broadband Case Cellular operators must soon choose their evolution path to address the coming boom in wireless broadband – more subscribers are demanding intensive data capabilities to get the most of the sophisticated pool of mobile devices available.5G technology. Subscriber penetration vs Tariff. with the 10 MHz of spectrum. The consumer’s price sensitivity (Figure 5). as this directly affects the number of cell sites needed to meet the total traffic demand. Both of these curves are based on market research. in GByte/month. 2007: Based on Parks Associates. We compare a theoretical market deployment for a large urban and suburban market with approximately two million subscribers. An ominous implication is that 3.

Motorola’s LTE solution leverages our extensive expertise in OFDM technology. 5 WHITE PAPER : LTE FLAT RATE PRICING FOR COMPETITIVE ADVANTAGE . having first demonstrated OFDM at speeds of up to 300 Mbps in 2004. please talk to your Motorola representative.Figure 7. and leadership in LTE RAN standards. 2007 Summary The advent of wireless broadband. and widespread competitive price tariffs will cause consumer demand and usage to rise such that operators will need the 4G LTE and WiMAX technology to manage the data traffic. leading backhaul solutions and experience in deploying OFDM mobile broadband networks assures operators that Motorola delivers a compelling LTE ecosystem. traditional wire-line service providers. NPV comparison for 3. In addition.5G and 4G. and new entrants to the exciting world of mobile broadband. chipsets. Motorola. and further by our leadership in IEEE 802. Motorola’s leadership in home and video solutions. Operators with 4G LTE and WiMAX networks will achieve a significant sustainable competitive advantage over competitors with 3G or 3. CPE. expertise in collapsed IP architecture. smart phones for the mainstream.16e WiMAX. handsets. Motorola’s diverse experience insures a smooth migration path for 3GPP and 3GPP2 service providers. For more information on Motorola LTE and Flat rate mobile data tariffs.5G networks.

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