U.S. LTE operators achieve 4G success by focusing on coverage and multi-device strategies

LTE represents an opportunity for operators to increase revenue by pricing the new service at a premium. However, the successful LTE operators in the USA are not following that strategy: continued traffic growth from additional usage and multiple devices is encouraging users towards more expensive plans, which is resulting in consistently increasing ARPU.

In Analysys Mason’s forthcoming Viewpoint, LTE lessons from market leaders in the USA, we look at the go-to-market, device and pricing strategies that have created leadership positions for the top U.S. LTE operators, and the strategies that may lead to two operators’ possible exit from the market. Worldwide LTE operators should watch the network build-out, pricing and device strategies of the successful U.S. operators.

U.S. operators are attracting subscribers to their LTE networks by rapidly building out their networks and by not charging a premium for the service. However, this does not mean that the networks are all successful or that the operators are all following the same strategies.

The USA has the most competitive 4G market in the world, with five operational LTE networks as of December 2012 (see Figure 1) spanning multiple business models including low-cost, prepaid and high-speed premium services. MetroPCS Wireless and Verizon Wireless launched LTE services during the fourth quarter of 2010, both moving from CDMA-based 3G networks that were increasingly uncompetitive against AT&T and T-Mobile’s HSPA+ networks and the WiMAX network operated by Sprint partner Clearwire. LTE, HSPA+ and WiMAX are all marketed as ‘4G’ services in the USA by their respective operators.

Figure 1: National LTE networks in the USA [Source: Analysys Mason, 2013]

Verizon launched its LTE network in December 2010, earlier than the expected 2011 start, catching the competition off-guard. AT&T spent much of 2011 on its failed attempt to acquire T-Mobile for both its compatible spectrum and key cell sites in major U.S. cities, while Sprint needed to revamp its network architecture to support its many technologies and decide on a long-term strategy for partner Clearwire and its 2.5GHz WiMAX network. The aggressive strategy by Verizon to quickly build out its LTE network resulted in national first-to-market thought leadership and 89% coverage of the USA population by December 2012. This forced AT&T to accelerate its own network build to reach 55% coverage in less than one year, and spurred both Sprint and T-Mobile to announce their LTE plans last year. By 2012, consumers had a number of choices available in terms of LTE services.

The impact on the market of this competitive activity was the marketing focus on network coverage in addition to speed, which put smaller operators Leap Wireless and MetroPCS at a disadvantage. MetroPCS is now a take-over target for T-Mobile, and Leap Wireless is actively seeking partners to utilise the company’s unused spectrum and share the cost of further network build out.

U.S. operators initially marketed LTE by highlighting its speed benefits, and kept the same pricing plans as 3G services in order to entice users onto the new networks, including customers on flat-rate plans.

AT&T and Verizon have both shifted their pricing strategies in order to increase revenue. Initially, both operators largely eliminated flat-rate pricing plans in favour of tiered pricing, and in 2012 both operators implemented a multi-device, tiered data package pricing strategy. Operators are still adopting the strategy of ‘no premium for LTE’, with the only difference between a 3G subscription plan and an LTE plan being the device used. Instead of charging more for the LTE service, operators want to connect additional devices for a nominal fee (usually USD10–30) to encourage users to switch to larger data plans. This strategy appears to be working – 25% of AT&T’s and 23% of Verizon’s users have signed up for their respective multi-device plans, and AT&T reports that over 25% of its multi-device users are opting for 10Gbps or higher plans as of December 2012.

 Worldwide LTE operators can learn from the competitive success of the US operators’ aggressive national build-out plans and evolving pricing strategies focused on multi-device usage and the role that devices play in the take-up of LTE.